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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: 12/31/04
----------------
Item 1. Schedule of Investments.
AIM V.I. AGGRESSIVE GROWTH FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. AGGRESSIVE GROWTH FUND seeks to
provide long-term growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. AGGRESSIVE GROWTH FUND
Stocks, as measured by most domestic HOW WE INVEST about a weak U.S. dollar, rising
market indexes, rallied in the fourth interest rates, increasing oil prices
quarter of 2004, enabling the fund to We use a bottom-up approach to investing, and uncertainty surrounding the
post double-digit returns for the year. selecting stocks based on an analysis of presidential election. However, indexes
individual companies. Our focus is on rallied after oil prices peaked in
======================================= small- and mid-cap stocks of companies with mid-October and the presidential
FUND VS. INDEXES high growth potential, as demonstrated campaign was concluded in early November.
by consistent and accelerating earnings The fund was favorably positioned to take
Total returns, 12/31/03-12/31/04, growth. The fund's stock selection advantage of this rally as its largest
excluding variable product issuer process is based on a rigorous three-step sector weightings were information
charges. If variable product issuer process that includes quantitative, technology, health care, consumer
charges were included, returns would fundamental and valuation analysis to discretionary and industrials.
be lower. identify stocks of companies that
exhibit consistent, sustainable, above Sectors that made the most
Series I Shares 11.80% average earnings growth potential. We significant contribution to fund
believe it is only through in-depth performance were health care,
Series II Shares 11.47 fundamental research that includes financials, industrials and information
careful financial statement analysis and technology. Health care and information
S&P 500 Index (Broad Market meetings with company management teams technology stocks, which had struggled
Index) 10.87 that these opportunities can be found. for most of the year, rallied in the
fourth quarter, while financials and
Russell Midcap Growth Index We continued to position the fund with a industrials stocks performed relatively
(Style-specific Index) 15.48 "barbell approach"--which involves well throughout the year.
exposure to more aggressive, cyclically
Lipper Mid-Cap Growth Fund Index sensitive stocks and high-quality, less Over the year, we increased the
(Peer Group Index) 14.03 aggressive stocks. This positioning is fund's holdings most significantly in
designed to potentially benefit the information technology sector.
Source: Lipper, Inc. investors in the event of a market rally However, at the close of the reporting
======================================= while providing some downside protection period, approximately 8% was in the data
if markets weaken. processing and outsourced services--a
For the year, mid- and small-cap more defensive industry. Stocks that we
stocks outperformed large-cap stocks. The We consider selling a stock if a owned within this industry included
fund's focus on mid-cap stocks enabled it company experiences decelerating or Alliance Data Systems Corp., SunGard
to outperform the large-cap oriented S&P disappointing earnings, the stock's Data Systems and Fiserv. We believe that
500 Index. The fund lagged the Russell price reaches our valuation target or we these companies are high-quality,
Midcap Growth Index because its consumer find a more attractive investment well-established and well-managed firms
discretionary holdings generally option. with strong business models and high
underperformed those of the index. We recurring revenue.
observed that the stocks of companies MARKET CONDITIONS AND YOUR FUND
with weaker fundamentals--ones that do At the beginning of the year, our
not meet our investment Stock index performance was generally strategy of being overweight in the
criteria--generally led the subdued for much of the year amid employment-related services in the
fourth-quarter rally. We believe this was concerns industrial sector worked well for us as
the reason that the fund underperformed we began to see signs of improving labor
its Lipper peer group index. markets. One of the holdings in the
sector, Apollo Group, a provider of
higher education programs for working
adults, was a strong contributor. We
took profits and sold the stock after it
reached our valuation target.
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
===================================================================================================================================
By sector 1. Investors Financial Services 1. Data Processing
Corp. 2.7% & Outsourced Services 8.1%
1. Information Technology 26.3% 2. Fisher Scientific 2. Semiconductors 5.2
2. Consumer Discretionary 18.1 International Inc. 2.3 3. Biotechnology 4.3
3. Health Care 18.0 3. Fiserv, Inc. 2.2 4. Pharmaceuticals 4.2
4. Industrials 13.8 4. SunGard Data Systems Inc. 2.1 5. Health Care Services 4.1
5. Financials 6.5 5. American Standard Co., Inc. 2.0 6. Specialty Stores 4.0
6. Energy 4.4 6. Univision Communications Inc.-- 7. Asset Management & Custody
7. Materials 3.3 Class A 2.0 Banks 4.0
8. Consumer Staples 0.8 7. Microchip Technology Inc. 2.0 8. Communications Equipment 3.9
9. Utilities 0.5 8. Caremark Rx, Inc. 1.8 9. Health Care Equipment 3.5
Money Market Funds Plus Other 9. Robert Half International Inc. 1.7 10. Restaurants 3.0
Assets Less Liabilities 8.3 10. Cintas Corp. 1.6
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
AIM V.I. AGGRESSIVE GROWTH FUND
During the period, we decreased the earnings that failed to meet analysts' JAY K. RUSHIN,
fund's holdings in the energy sector. As expectations. The fund no longer held Chartered Financial
part of our strategy, we pay great either stock at the close of the fiscal [RUSHIN Analyst and
attention to risk, making every effort year. PHOTO] portfolio manager,
to protect investors' money by became lead manager
sidestepping short-term market trends. IN CLOSING of AIM V.I.
While energy was the best-performing Aggressive Growth Fund on April 20,
sector of the S&P 500 Index for the As always, we remain committed to our 2004. He began his investment career in
year, we believed that high oil prices bottom-up stock selection process, and 1994 when he joined AIM as a portfolio
were unsustainable and there was more we constantly review each security's administrator. In 1996, he left AIM to
downside than upside potential in this fundamentals and price target to ensure work as an associate equity analyst at
sector. a continued fit. We also are committed Prudential Securities. He returned to
to our strategy of focusing our AIM as an equity analyst on AIM's
We also reduced the fund's holdings investments in companies that show small-cap funds in 1998 and was promoted
in the financials sector. While sustainable, above-average earnings to senior analyst in 2000. He promoted
financials stocks performed well for the growth while avoiding what we consider to portfolio manager in 2001. A native
fund, we believe this sector could be high risk stocks. As such, we believe of Gaithersburg, MD, Mr. Rushin holds a
adversely affected by rising interest that the fund continues to be an B.A. in English from Florida State
rates. attractive option for investors looking University.
for a small and mid-cap growth fund for
Stocks that enhanced fund their diversified long-term portfolio. We KARL F. FARMER,
performance included Alliance Data appreciate your continued participation Chartered Financial
Systems, a provider of transaction, in AIM V.I. Aggressive Growth Fund. [FARMER Analyst and
credit and marketing services, and PHOTO] portfolio manager,
Fisher Scientific International, one of The views and opinions expressed in is a manager of AIM
the world's leading wholesale Management's Discussion of Fund V.I Aggressive
distributors of scientific equipment and Performance are those of A I M Advisors, Growth Fund. He joined AIM in July of
instruments. In our opinion, Alliance Inc. These views and opinions are 1998, after spending six years as a
Data Systems benefited from a highly subject to change at any time based on pension actuary, focusing on retirement
competent management team and a dominant factors such as market and economic plans and other benefit programs. He
position relative to its competitors. conditions. These views and opinions may earned a B.S. in economics from Texas
Fisher Scientific, which saw its profit not be relied upon as investment advice A&M University, graduating magna cum
for the second quarter of 2004 increase or recommendations, or as an offer for a laude. He subsequently earned his M.B.A.
26% in comparison to the same period particular security. The information is in finance from The Wharton School at
last year, benefited from increased not a complete analysis of every aspect the University of Pennsylvania.
sales of its medical products, creating of any market, country, industry,
attractive earnings growth potential. security or the fund. Statements of fact Assisted by the Aggressive Growth Team
are from sources considered reliable,
Detracting from fund performance were but A I M Advisors, Inc. makes no
Corinthian Colleges, a post secondary representation or warranty as to their
education company, and Taro completeness or accuracy. Although
Pharmaceutical, which develops and historical performance is no guarantee
markets pharmaceutical products. of future results, these insights may
Corinthian Colleges stock declined after help you understand our investment
the Securities and Exchange Commission management philosophy.
began an informal investigation of the
company concerning its earnings
projections. Taro's stock depreciated
after the company reported first- and
second-quarter 2004
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in small and midsize companies involves risks not associated with investing
in more established companies, including business risk, significant stock price
fluctuations and illiquidity.
The fund may invest up to 25% of its assets in the securities of non-U.S. issuers.
International investing presents certain risks not associated with investing solely
in the United States. These include risks relating to fluctuations in the value of
the U.S. dollar relative to the values of other currencies, the custody arrangements
made for the fund's foreign holdings, differences in accounting, political risks and
the lesser degree of public information required to be provided by non-U.S. companies.
======================================================================================
TOTAL NET ASSETS $159.3 Million
TOTAL NUMBER OF HOLDINGS* 106
======================================================================================= [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
AIM V.I. AGGRESSIVE GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES account values and expenses may not be
used to estimate your actual ending
As a shareholder of the Fund, you incur The table below provides information account balance or expenses you paid for
ongoing costs, including management about actual account values and actual the period. You may use this information
fees; distribution and/or service fees expenses. You may use the information in to compare the ongoing costs of
(12b-1); and other fund expenses. This this table, together with the amount you investing in the fund and other funds.
example is intended to help you invested, to estimate the expenses that To do so, compare this 5% hypothetical
understand your ongoing costs (in you paid over the period. Simply divide example with the 5% hypothetical
dollars) of investing in the fund and to your account value by $1,000 (for examples that appear in the shareholder
compare these costs with ongoing costs example, an $8,600 account value divided reports of the other funds.
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the
example is based on an investment of result by the number in the table under Please note that the expenses shown
$1,000 invested at the beginning of the the heading entitled "Actual Expenses in the table are meant to highlight your
period and held for the entire period, Paid During Period" to estimate the ongoing costs only. Therefore, the
July 1, 2004 - December 31, 2004. expenses you paid on your account during hypothetical information is useful in
this period. comparing ongoing costs only, and will
The actual and hypothetical expenses not help you determine the relative
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR total costs of owning different funds.
the effect of any fees or other expenses COMPARISON PURPOSES
assessed in connection with a variable
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the fund's
actual return. The hypothetical
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/1/04) (12/31/04)(1) Period(2) (12/31/04) Period(2)
Series I $1,000.00 $1,060.00 $6.06 $1,019.25 $5.94
Series II 1,000.00 1,057.60 7.34 1,018.00 7.20
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004 to December 31, 2004
after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004 to
December 31, 2004 was 6.00% and 5.76% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.17% and 1.42% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
AIM V.I. AGGRESSIVE GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE ======================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results.
5/1/98-12/31/04 Index data from 4/30/98
In evaluating this chart, please note
that the chart uses a logarithmic scale [MOUNTAIN CHART]
along the vertical axis (the value
scale). This means that each scale
increment always represents the same Date AIM V.I. Aggressive S&P 500 Russell Midcap Lipper Mid-Cap
percent change in price; in a linear Growth Fund-Series I Index Growth Index Growth Fund Index
chart each scale increment always 4/30/98 $10000 $10000 $10000 $10000
represents the same absolute change in 6/98 9700 10227 9860 9850
price. In this example, the scale 9/98 8091 9212 8214 7964
increment between $5,000 and $10,000 is 12/98 9905 11172 10389 10031
the same as that between $10,000 and 3/99 9443 11729 10744 10403
$20,000. In a linear chart, the latter 6/99 10700 12554 11863 11654
scale increment would be twice as large. 9/99 11061 11772 11269 11770
The benefit of using a logarithmic scale 12/99 14329 13522 15717 17426
is that it better illustrates 3/00 18190 13832 19037 19911
performance during the early years 6/00 17244 13464 17627 18175
before reinvested distributions and 9/00 17577 13334 18072 18753
compounding create the potential for the 12/00 14701 12291 13871 14615
original investment to grow to very 3/01 11212 10835 10391 11255
large numbers. Had the chart used a 6/01 12661 11469 12073 12794
linear scale along its vertical axis, 9/01 9553 9786 8717 9678
you would not be able to see as clearly 12/01 10870 10832 11075 11535
the movements in the value of the fund 3/02 10990 10861 10880 11207
and the indexes during the fund's early 6/02 9732 9407 8893 9532
years. We use a logarithmic scale in 9/02 8023 7783 7366 7881
financial reports of funds that have 12/02 8406 8439 8040 8251
more than five years of performance 3/03 8125 8173 8039 8118
history. 6/03 9140 9430 9547 9553
9/03 9543 9680 10230 10068
======================================= 12/03 10650 10858 11474 11173
AVERAGE ANNUAL TOTAL RETURNS 3/04 10992 11042 12029 11611
6/04 11232 11231 12156 11764
As of 12/31/04 9/04 10569 11021 11629 11198
12/04 $11907 $12038 $13250 $12741
SERIES I SHARES
Inception (5/1/98) 2.65% Source: Lipper, Inc.
5 Years -3.64 ======================================================================================
1 Year 11.80
contact your product issuer or your The fund is not managed to track the
SERIES II SHARES financial advisor for the most recent performance of any particular index,
Inception 2.40% month-end performance. Performance including the indexes defined here, and
5 Years -3.88 figures reflect fund expenses, consequently, the performance of the
1 Year 11.47 reinvested distributions and changes in fund may deviate significantly from the
======================================= net asset value. Investment return and performance of the indexes.
principal value will fluctuate so that
Returns since the inception date of you may have a gain or loss when you A direct investment cannot be made in
Series II shares are historical. All sell shares. an index. Unless otherwise indicated,
other returns are the blended returns of index results include reinvested
the historical performance of the fund's AIM V.I. Aggressive Growth Fund, a dividends, and they do not reflect sales
Series II shares since their inception series portfolio of AIM Variable charges. Performance of an index of
and the restated historical performance Insurance Funds, is currently offered funds reflects fund expenses;
of the fund's Series I shares (for through insurance companies issuing performance of a market index does not.
periods prior to inception of the Series variable products. You cannot purchase
II shares) adjusted to reflect the shares of the fund directly. Performance OTHER INFORMATION
higher Rule 12b-1 fees applicable to the figures given represent the fund and are
Series II shares. The inception date of not intended to reflect actual variable The returns shown in the Management's
the fund's Series II shares is 3/26/02. product values. They do not reflect Discussion of Fund Performance are based
sales charges, expenses and fees on net asset values calculated for
The Series I and Series II shares assessed in connection with a variable shareholder transactions. Generally
invest in the same portfolio of product. Sales charges, expenses and accepted accounting principles require
securities and will have substantially fees, which are determined by the adjustments to be made to the net assets
similar performance, except to the variable product issuers, will vary and of the fund at period end for financial
extent that expenses borne by each class will lower the total return.* reporting purposes, and as such, the net
differ. asset value for shareholder transactions
ABOUT INDEXES USED IN THIS REPORT and the returns based on those net asset
The performance data quoted represent values may differ from the net asset
past performance and cannot guarantee The unmanaged Standard & Poor's values and returns reported in the
comparable future results; current Composite Index of 500 Stocks (the S&P Financial Highlights.
performance may be lower or higher. 500--Registered Trademark-- Index) is an
Please index of common stocks frequently used Industry classifications used in this
as a general measure of U.S. stock report are generally according to the
market performance. Global Industry Classification Standard,
which was developed by and is the
The unmanaged Lipper Mid-Cap Growth exclusive property and a service mark of
Fund Index represents an average of the Morgan Stanley Capital International
performance of the 30 largest Inc. and Standard & Poor's.
multi-capitalization growth funds tracked
by Lipper, Inc., an independent mutual
fund performance monitor.
The unmanaged Russell
Midcap--Registered Trademark-- Index,
which represents the performance of the
stocks of domestic mid-capitalization
companies; the Growth subset measures
the performance of Russell Midcap
companies with higher price/book ratios
and higher forecasted growth values.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIAGRO-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-91.72%
ADVERTISING-1.54%
Lamar Advertising Co.-Class A(a) 27,100 $ 1,159,338
- -----------------------------------------------------------------------
Omnicom Group Inc. 15,400 1,298,528
=======================================================================
2,457,866
=======================================================================
AIRLINES-0.79%
Southwest Airlines Co. 77,500 1,261,700
=======================================================================
APPAREL RETAIL-1.60%
Aeropostale, Inc.(a) 23,050 678,362
- -----------------------------------------------------------------------
Foot Locker, Inc. 29,400 791,742
- -----------------------------------------------------------------------
Hot Topic, Inc.(a) 3,500 60,165
- -----------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 45,950 1,022,847
=======================================================================
2,553,116
=======================================================================
APPLICATION SOFTWARE-2.43%
Amdocs Ltd. (United Kingdom)(a) 48,500 1,273,125
- -----------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 15,800 696,148
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 15,200 692,360
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 62,000 1,216,440
=======================================================================
3,878,073
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-4.04%
Affiliated Managers Group, Inc.(a) 19,350 1,310,769
- -----------------------------------------------------------------------
Investors Financial Services Corp.(b) 85,300 4,263,294
- -----------------------------------------------------------------------
Legg Mason, Inc. 11,700 857,142
=======================================================================
6,431,205
=======================================================================
BIOTECHNOLOGY-4.28%
Amylin Pharmaceuticals, Inc.(a) 52,300 1,221,728
- -----------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 21,700 987,350
- -----------------------------------------------------------------------
Invitrogen Corp.(a) 23,300 1,564,129
- -----------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 13,200 650,760
- -----------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a)(b) 15,400 1,152,690
- -----------------------------------------------------------------------
QLT Inc. (Canada)(a) 77,000 1,238,160
=======================================================================
6,814,817
=======================================================================
BROADCASTING & CABLE TV-2.90%
Radio One, Inc.-Class D(a) 93,100 1,500,772
- -----------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 106,595 3,120,036
=======================================================================
4,620,808
=======================================================================
BUILDING PRODUCTS-2.01%
American Standard Cos. Inc.(a) 77,500 3,202,300
=======================================================================
COMMUNICATIONS EQUIPMENT-3.89%
ADTRAN, Inc. 61,000 1,167,540
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Avaya Inc.(a) 76,200 $ 1,310,640
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 45,700 1,117,365
- -----------------------------------------------------------------------
Plantronics, Inc. 41,000 1,700,270
- -----------------------------------------------------------------------
Polycom, Inc.(a) 38,800 904,816
=======================================================================
6,200,631
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.33%
Electronics for Imaging, Inc.(a) 30,400 529,264
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.54%
Joy Global Inc.(b) 19,700 855,571
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-8.13%
Alliance Data Systems Corp.(a)(b) 50,400 2,392,992
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 87,285 3,507,984
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 58,200 1,774,518
- -----------------------------------------------------------------------
Paychex, Inc. 58,200 1,983,456
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(a) 116,300 3,294,779
=======================================================================
12,953,729
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.72%
ARAMARK Corp.-Class B 34,200 906,642
- -----------------------------------------------------------------------
Cintas Corp. 58,200 2,552,652
- -----------------------------------------------------------------------
CoStar Group Inc.(a) 19,000 877,420
=======================================================================
4,336,714
=======================================================================
ELECTRIC UTILITIES-0.50%
DPL Inc. 31,500 790,965
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.68%
Cooper Industries, Ltd.-Class A (Bermuda) 20,200 1,371,378
- -----------------------------------------------------------------------
EnerSys(a) 85,300 1,300,825
=======================================================================
2,672,203
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.87%
Agilent Technologies, Inc.(a) 58,200 1,402,620
- -----------------------------------------------------------------------
Littelfuse, Inc.(a) 18,800 642,208
- -----------------------------------------------------------------------
Tektronix, Inc. 31,000 936,510
=======================================================================
2,981,338
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.51%
Molex Inc. 26,800 804,000
=======================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
EMPLOYMENT SERVICES-1.72%
Robert Half International Inc. 93,200 $ 2,742,876
=======================================================================
ENVIRONMENTAL SERVICES-0.83%
Stericycle, Inc.(a) 28,800 1,323,360
=======================================================================
GENERAL MERCHANDISE STORES-0.75%
Family Dollar Stores, Inc. 38,300 1,196,109
=======================================================================
HEALTH CARE EQUIPMENT-3.47%
Cytyc Corp.(a) 37,600 1,036,632
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 58,200 3,630,516
- -----------------------------------------------------------------------
PerkinElmer, Inc. 38,500 865,865
=======================================================================
5,533,013
=======================================================================
HEALTH CARE FACILITIES-1.50%
LifePoint Hospitals, Inc.(a) 27,100 943,622
- -----------------------------------------------------------------------
Triad Hospitals, Inc.(a) 38,800 1,443,748
=======================================================================
2,387,370
=======================================================================
HEALTH CARE SERVICES-4.09%
Caremark Rx, Inc.(a)(b) 72,700 2,866,561
- -----------------------------------------------------------------------
DaVita, Inc.(a) 34,600 1,367,738
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 10,900 833,196
- -----------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 34,900 1,451,840
=======================================================================
6,519,335
=======================================================================
HEALTH CARE SUPPLIES-0.55%
Advanced Medical Optics, Inc.(a) 21,300 876,282
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.58%
La Quinta Corp.(a) 114,500 1,040,805
- -----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 27,100 1,475,324
=======================================================================
2,516,129
=======================================================================
HOUSEHOLD APPLIANCES-1.06%
Blount International, Inc.(a) 96,700 1,684,514
=======================================================================
INDUSTRIAL CONGLOMERATES-1.27%
Textron Inc. 27,300 2,014,740
=======================================================================
INTERNET SOFTWARE & SERVICES-0.63%
Akamai Technologies, Inc.(a) 77,500 1,009,825
=======================================================================
IT CONSULTING & OTHER SERVICES-0.64%
Acxiom Corp. 38,600 1,015,180
=======================================================================
LEISURE PRODUCTS-0.72%
Brunswick Corp. 23,300 1,153,350
=======================================================================
MOVIES & ENTERTAINMENT-0.92%
Regal Entertainment Group-Class A 70,700 1,467,025
=======================================================================
OIL & GAS DRILLING-2.02%
ENSCO International Inc. 58,200 1,847,268
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
OIL & GAS DRILLING-(CONTINUED)
Patterson-UTI Energy, Inc. 46,500 $ 904,425
- -----------------------------------------------------------------------
Pride International, Inc.(a) 23,000 472,420
=======================================================================
3,224,113
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.40%
BJ Services Co. 46,300 2,154,802
- -----------------------------------------------------------------------
Cooper Cameron Corp.(a) 30,900 1,662,729
=======================================================================
3,817,531
=======================================================================
PAPER PRODUCTS-1.83%
Bowater Inc. 40,700 1,789,579
- -----------------------------------------------------------------------
Sappi Ltd.-ADR (South Africa) 77,500 1,123,750
=======================================================================
2,913,329
=======================================================================
PHARMACEUTICALS-4.15%
Barr Pharmaceuticals Inc.(a) 20,600 938,124
- -----------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc.(a) 26,400 554,928
- -----------------------------------------------------------------------
Eon Labs, Inc.(a)(b) 45,000 1,215,000
- -----------------------------------------------------------------------
Impax Laboratories, Inc.(a)(b) 49,900 792,412
- -----------------------------------------------------------------------
IVAX Corp.(a) 72,750 1,150,905
- -----------------------------------------------------------------------
MGI Pharma, Inc.(a) 38,200 1,069,982
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International 33,900 893,265
=======================================================================
6,614,616
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.97%
CB Richard Ellis Group, Inc.-Class A(a) 46,000 1,543,300
=======================================================================
REGIONAL BANKS-0.70%
North Fork Bancorp., Inc. 38,400 1,107,840
=======================================================================
RESTAURANTS-2.99%
Brinker International, Inc.(a) 58,200 2,041,074
- -----------------------------------------------------------------------
Ruby Tuesday, Inc. 57,500 1,499,600
- -----------------------------------------------------------------------
Wendy's International, Inc. 31,000 1,217,060
=======================================================================
4,757,734
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.02%
Novellus Systems, Inc.(a) 58,200 1,623,198
=======================================================================
SEMICONDUCTORS-5.16%
Altera Corp.(a) 38,100 788,670
- -----------------------------------------------------------------------
AMIS Holdings, Inc.(a) 67,300 1,111,796
- -----------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 24,500 475,055
- -----------------------------------------------------------------------
Intersil Corp.-Class A 37,900 634,446
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc. 34,900 1,479,411
- -----------------------------------------------------------------------
Microchip Technology Inc. 116,300 3,100,558
- -----------------------------------------------------------------------
Xilinx, Inc. 21,200 628,580
=======================================================================
8,218,516
=======================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SOFT DRINKS-0.76%
Coca-Cola Enterprises Inc. 58,200 $ 1,213,470
=======================================================================
SPECIALTY CHEMICALS-1.46%
Nalco Holding Co.(a) 79,400 1,549,888
- -----------------------------------------------------------------------
Valspar Corp. (The) 15,500 775,155
=======================================================================
2,325,043
=======================================================================
SPECIALTY STORES-4.04%
Linens 'n Things, Inc.(a) 58,200 1,443,360
- -----------------------------------------------------------------------
OfficeMax Inc. 58,200 1,826,316
- -----------------------------------------------------------------------
Staples, Inc. 23,200 782,072
- -----------------------------------------------------------------------
Tiffany & Co. 38,800 1,240,436
- -----------------------------------------------------------------------
Tractor Supply Co.(a) 30,700 1,142,347
=======================================================================
6,434,531
=======================================================================
SYSTEMS SOFTWARE-0.75%
Symantec Corp.(a) 46,500 1,197,840
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.97%
CDW Corp. 23,300 1,545,955
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-0.75%
New York Community Bancorp, Inc. 58,413 $ 1,201,555
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.86%
MSC Industrial Direct Co., Inc.-Class A 38,200 1,374,436
=======================================================================
TRUCKING-1.40%
Sirva Inc.(a) 116,300 2,235,286
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $125,408,525) 146,131,701
=======================================================================
MONEY MARKET FUNDS-8.74%
Liquid Assets Portfolio-Institutional
Class(c) 6,960,012 6,960,012
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 6,960,012 6,960,012
=======================================================================
Total Money Market Funds (Cost
$13,920,024) 13,920,024
=======================================================================
TOTAL INVESTMENTS-100.46% (Cost $139,328,549) 160,051,725
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.46%) (732,569)
=======================================================================
NET ASSETS-100.00% $159,319,156
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1F
and Note 8.
(c) 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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$125,408,525) $146,131,701
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $13,920,024) 13,920,024
=============================================================
Total investments (cost $139,328,549) 160,051,725
=============================================================
Receivables for:
Investments sold 291,620
- -------------------------------------------------------------
Fund shares sold 277,584
- -------------------------------------------------------------
Dividends 84,366
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 36,057
=============================================================
Total assets 160,741,352
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 922,711
- -------------------------------------------------------------
Fund shares reacquired 92,940
- -------------------------------------------------------------
Options written, at market value (premiums
received $131,528) 155,913
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plan 39,985
- -------------------------------------------------------------
Accrued administrative services fees 175,317
- -------------------------------------------------------------
Accrued distribution fees -- Series II 3,036
- -------------------------------------------------------------
Accrued transfer agent fees 2,078
- -------------------------------------------------------------
Accrued operating expenses 30,216
=============================================================
Total liabilities 1,422,196
=============================================================
Net assets applicable to shares outstanding $159,319,156
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $177,987,869
- -------------------------------------------------------------
Undistributed net investment income (loss) (36,453)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (39,331,051)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 20,698,791
=============================================================
$159,319,156
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $154,070,438
_____________________________________________________________
=============================================================
Series II $ 5,248,718
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,013,235
_____________________________________________________________
=============================================================
Series II 446,198
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 11.84
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 11.76
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 611,093
- -------------------------------------------------------------
Dividends from affiliated money market funds 106,928
=============================================================
Total investment income 718,021
=============================================================
EXPENSES:
Advisory fees 1,204,034
- -------------------------------------------------------------
Administrative services fees 406,184
- -------------------------------------------------------------
Custodian fees 40,794
- -------------------------------------------------------------
Distribution fees -- Series II 9,690
- -------------------------------------------------------------
Transfer agent fees 12,802
- -------------------------------------------------------------
Trustees' fees and retirement benefits 14,985
- -------------------------------------------------------------
Other 67,718
=============================================================
Total expenses 1,756,207
=============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (1,601)
=============================================================
Net expenses 1,754,606
=============================================================
Net investment income (loss) (1,036,585)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 28,480,922
- -------------------------------------------------------------
Option contracts written 73,448
=============================================================
28,554,370
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (11,053,895)
- -------------------------------------------------------------
Option contracts written (24,385)
=============================================================
(11,078,280)
=============================================================
Net gain from investment securities and option
contracts 17,476,090
=============================================================
Net increase in net assets resulting from
operations $ 16,439,505
_____________________________________________________________
=============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,036,585) $ (995,639)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 28,554,370 1,240,818
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (11,078,280) 29,212,917
==========================================================================================
Net increase in net assets resulting from operations 16,439,505 29,458,096
==========================================================================================
Share transactions-net:
Series I (6,191,332) 11,603,390
- ------------------------------------------------------------------------------------------
Series II 1,886,916 2,075,980
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (4,304,416) 13,679,370
==========================================================================================
Net increase in net assets 12,135,089 43,137,466
==========================================================================================
NET ASSETS:
Beginning of year 147,184,067 104,046,601
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(36,453) and $(30,701), respectively) $159,319,156 $147,184,067
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by
AIM V.I. AGGRESSIVE GROWTH FUND
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
AIM V.I. AGGRESSIVE GROWTH 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 0.80% 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. Effective January 1, 2005
through December 31, 2009, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.75% of
the first $150 million, plus 0.625% of the next $4.85 billion, plus 0.60% of the
next $5 billion, plus 0.575% of the Fund's average daily net assets in excess of
$10 billion. AIM has contractually agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of each Series to 1.30% of
average daily net assets, through April 30, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $1,385.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $149 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$406,184, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $12,802.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $9,690.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $2,318,243 $45,262,699 $(40,620,930) $ -- $ 6,960,012 $ 53,724 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 2,318,243 45,262,699 (40,620,930) -- 6,960,012 53,204 --
==================================================================================================================================
Total $4,636,486 $90,525,398 $(81,241,860) $ -- $13,920,024 $106,928 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $2,432,026 and $2,845,278,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $67 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $67.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,970
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 3,526 295,184
- -----------------------------------------------------------------------------------
Closed (163) (14,813)
- -----------------------------------------------------------------------------------
Exercised (878) (82,326)
- -----------------------------------------------------------------------------------
Expired (1,225) (66,517)
===================================================================================
End of year 1,260 $131,528
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
Alliance Data
Systems Corp. Feb-05 $50.0 187 $ 18,619 $ 14,493 $ 4,126
- -----------------------------------------------------------------------------------------------------------------------
Caremark Rx,
Inc. Feb-05 40.0 235 27,551 34,663 (7,112)
- -----------------------------------------------------------------------------------------------------------------------
Eon Labs, Inc. Jan-05 30.0 150 10,640 2,250 8,390
- -----------------------------------------------------------------------------------------------------------------------
Impax
Laboratories,
Inc. Feb-05 17.5 250 12,113 13,125 (1,012)
- -----------------------------------------------------------------------------------------------------------------------
Investors
Financial
Services
Corp. Feb-05 50.0 212 21,626 46,640 (25,014)
- -----------------------------------------------------------------------------------------------------------------------
Joy Global Inc. Feb-05 45.0 149 20,976 20,487 489
- -----------------------------------------------------------------------------------------------------------------------
OSI
Pharmaceuticals,
Inc. Feb-05 80.0 77 20,003 24,255 (4,252)
=======================================================================================================================
Total
outstanding
options
written 1,260 $131,528 $155,913 $ (24,385)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 19,677,580
- --------------------------------------------------------------------------
Temporary book/tax differences (36,453)
- --------------------------------------------------------------------------
Capital loss carryforward (38,309,840)
- --------------------------------------------------------------------------
Shares of beneficial interest 177,987,869
==========================================================================
Total net assets $159,319,156
__________________________________________________________________________
==========================================================================
</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 losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on option contracts written of $(24,385).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. AGGRESSIVE GROWTH FUND
The Fund utilized $28,160,890 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 9,141,648
- -----------------------------------------------------------------------------
December 31, 2010 29,039,052
- -----------------------------------------------------------------------------
December 31, 2011 129,140
=============================================================================
Total capital loss carryforward $38,309,840
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $212,826,969 and $226,580,719, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 21,278,026
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,576,061)
===============================================================================
Net unrealized appreciation of investment securities $ 19,701,965
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $140,349,760.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses on
December 31, 2004, undistributed net investment income was increased by
$1,030,833 and shares of beneficial interest decreased by $1,030,833. This
reclassification had no effect on the net assets of the Fund
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,271,088 $ 24,883,290 4,612,939 $ 41,545,198
- ----------------------------------------------------------------------------------------------------------------------
Series II 206,842 2,213,893 322,541 3,093,273
======================================================================================================================
Reacquired:
Series I (2,891,694) (31,074,622) (3,370,121) (29,941,808)
- ----------------------------------------------------------------------------------------------------------------------
Series II (30,232) (326,977) (105,190) (1,017,293)
======================================================================================================================
(443,996) $ (4,304,416) 1,460,169 $ 13,679,370
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 85% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with these
entities whereby these entities sell units if interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as
securities brokerage, third party record keeping, account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
AIM V.I. AGGRESSIVE GROWTH 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,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.59 $ 8.36 $ 10.81 $ 14.62 $ 14.25
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.08)(a) (0.08) (0.10)(a) (0.10)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.32 2.31 (2.37) (3.71) 0.47
=========================================================================================================================
Total from investment operations 1.25 2.23 (2.45) (3.81) 0.37
=========================================================================================================================
Net asset value, end of period $ 11.84 $ 10.59 $ 8.36 $ 10.81 $ 14.62
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 11.80% 26.67% (22.66)% (26.06)% 2.60%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $154,070 $144,341 $103,611 $121,889 $103,181
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.16%(c) 1.15% 1.16% 1.21% 1.16%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.68)%(c) (0.83)% (0.87)% (0.88)% (0.59)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 148% 90% 85% 90% 65%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total Returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $146,769,339.
(d) After fee waivers and/or expense reimbursements. Ratio of expense to
average net assets prior to fee waivers and/or expense reimbursements
was 1.26% for the year ended December 31, 2000.
<Table>
<Caption>
SERIES II
-------------------------------------
MARCH 26, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.55 $ 8.35 $ 10.70
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)(a) (0.10)
- ---------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.31 2.30 (2.25)
===================================================================================================
Total from investment operations 1.21 2.20 (2.35)
===================================================================================================
Net asset value, end of period $11.76 $10.55 $ 8.35
___________________________________________________________________________________________________
===================================================================================================
Total return(b) 11.47% 26.35% (21.96)%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,249 $2,843 $ 436
___________________________________________________________________________________________________
===================================================================================================
Ratio of expenses to average net assets 1.41%(c) 1.40% 1.32%(d)(e)
===================================================================================================
Ratio of net investment income (loss) to average net assets (0.93)%(c) (1.08)% (1.03)%(d)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(f) 148% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total Returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $3,876,067.
(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.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. AGGRESSIVE GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. AGGRESSIVE GROWTH FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Aggressive Growth Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr........................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. BALANCED FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. BALANCED FUND seeks to achieve as high a total
return as possible, consistent with preservation of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. BALANCED FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Following a strong fourth quarter in the CURRENT PERIOD ANALYSIS 2004. We purchased Pfizer, Interpublic
equity markets, AIM V.I. Balanced Fund Group, Ceridian and Aon Corporation. We
registered a positive return for 2004 The domestic economy continued to also sold our holdings in Cooper
but fell short of beating its broad recover throughout the fiscal year, with Cameron, MGIC Investment Corporation,
market, style-specific and peer group the broader markets responding favorably United Technologies, Applied Materials,
indexes. during the period. Higher commodity Cisco Systems and DST Systems.
prices, a more restrictive monetary
======================================= policy and concerns about the Fixed-income holdings were managed
FUND VS. INDEXES sustainability of economic growth were with a bias toward higher interest rates
key issues during the period. during the period. We maintained our
Total returns, 12/31/03-12/31/04, average credit quality rating of AA in
excluding variable product issuer With the price of oil rising as much an effort to manage risk. The fund's
charges. If variable product issuer as 75% at its peak during the period, it duration remained shorter than the
charges were included, returns would came as no surprise that energy was the Lehman U.S. Aggregate Bond Index, which
be lower. equity market's best-performing sector means the fund had less sensitivity to
for the year. Oil service and equipment rising rates than its benchmark. As the
Series I Shares 7.52% providers Transocean and Halliburton year progressed, we also reduced our
were among the most significant exposure to government agency, corporate
Series II Shares 7.24 contributors to performance. Other and mortgage-backed securities. By
significant drivers of performance were year-end, the fund was underweight in
S&P 500 Index Tyco International, Target and Masco. non-U.S. Treasury assets, as we believed
(Broad Market Index) 10.87 in aggregate that investors were no
Our largest detractors from longer being compensated for their
60% Russell 1000 Value Index/ performance were Pfizer, Interpublic higher risk.
40% Lehman U.S. Aggregate Bond Group and Ceridian. Pfizer, the world's
Index (Style-specific Index) 11.54 largest drug company, was a new INVESTMENT PROCESS AND EVALUATION
investment in 2004 and, as is often the
Lipper Balanced Fund Index case, the stock declined initially. Our investment strategy is to create
(Peer Group Index) 8.99 Pfizer faces several challenges wealth by maintaining a long-term
including patent expirations, diminished investment horizon and investing in
Source: Lipper, Inc. pricing power and, more recently, companies selling at a significant
======================================= declining demand for its Cox-2 discount to their estimated intrinsic
anti-inflammatory drugs. While we value. The fund's equity philosophy is
We underperformed the S&P 500 Index believe these near term challenges will based on two concepts that we believe
because of single-digit returns in the remain, we are focused on the long-term are supported by empirical evidence:
fund's investment-grade bond holdings, opportunity as we believe these issues
which failed to match the nearly 11% are already discounted in the company's o We believe companies have a measurable
return of stocks as measured by the S&P historically low valuation. intrinsic value that is based on future
500 Index. The fund would not normally cash flows generated by the business.
be expected to outperform the S&P 500 We made relatively few changes to the Importantly, this estimated intrinsic
Index when stocks post positive portfolio's common stock holdings during value is independent of the company's
double-digit returns, as bonds typically stock price.
lag stocks in such periods. Fund returns
also trailed those of the Lipper o Market prices are more volatile than
Balanced Fund Index due in large part to business values partly because investors
the under-performance of the fund's regularly overreact to news. We believe
equity holdings. a diversified portfolio with
above-market value content provides the
===================================================================================== opportunity for attractive long-term
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS investment results.
- -------------------------------------------------------------------------------------
By security type 1. Tyco International Ltd. Since our application of this strategy
(Bermuda) 2.7% is highly disciplined and relatively
1. Stocks & Other Equity 65.8% 2. Cardinal Health, Inc. 2.6 unique, it is important to understand
Interests 3. Sanofi-Aventis (France) 2.3 the benefits and limitations of our
2. Bonds & Notes 16.6 4. Computer Associates process. First, the goal of our
3. U.S. Mortgage-Backed 8.1 International, Inc. 2.2 investment strategy is to preserve your
Securities 5. JPMorgan Chase & Co. 2.1 capital while growing it at above-market
4. U.S. Government Agency 6. Fannie Mae 2.0 rates over the long term. Second, we
Securities 5.2 7. Waste Management, Inc. 2.0 have little portfolio commonality with
5. U.S. Treasury Securities 5.1 8. First Data Corp. 2.0 popular benchmarks and most of our
6. Asset-Backed Securities 1.3 9. Omnicom Group Inc. 2.0 peers. Third, we believe this strategy
7. Other Assets Less -2.1 10. Citigroup Inc. 1.9 creates the potential for
Liabilities*
*INVESTMENTS PURCHASED
TOTAL NET ASSETS $104.7 MILLION
TOTAL NUMBER OF HOLDINGS 283
AVERAGE CREDIT QUALITY,
FIXED-INCOME HOLDINGS: AA
The fund's holdings are subject to change, and there is no assurance that the fund
will continue to hold any particular security.
=====================================================================================
</Table>
2
AIM V.I. BALANCED FUND
<Table>
the fund to outperform over the selection of specific securities. By BRET W. STANLEY,
long-term but realize that short-term combining perspectives from both the Chartered Financial
results may lag the market. portfolio and the security level, we [STANLEY Analyst, senior
seek to consistently add value over time PHOTO] portfolio manager,
Our process is absolute in nature, while minimizing portfolio risk. is lead manager of
which means that investment decisions AIM V.I. Balanced
are predicated on a company's estimated PORTFOLIO ASSESSMENT Fund and the head of AIM's Value
intrinsic value, not a target price Investment Management Unit. He received
dependent on stock market valuation When assessing our potential to grow a B.B.A. in finance from The University
levels. This is one of the key reasons your capital, we believe the single most of Texas at Austin and an M.S. in
for our strong long-term results but has important measure of AIM V.I. Balanced finance from the University of Houston.
important differences compared to Fund is not our historical investment
relative performance objectives. results or popular statistical measures, R. CANON COLEMAN II,
Relative performance objectives do not but rather the portfolio's estimated Chartered Financial
emphasize capital preservation to the intrinsic value. Since we estimate the [COLEMAN Analyst, portfolio
same degree and commonly are more intrinsic value of each holding in the PHOTO] manager, is a
closely tied to market benchmarks. portfolio, we can also estimate the manager of AIM V.I.
Commonality measures the similarity of intrinsic value of the entire fund. The Balanced Fund. He
holdings between two portfolios using difference between market price and earned a B.S. and an M.S. in accounting
the lowest common percentage method. intrinsic value is about average for from the University of Florida. He also
This method compares each security's your fund over the past several years. has an M.B.A. from The Wharton School at
percentage of total net assets in both However, we believe this intrinsic value the University of Pennsylvania.
portfolios and adds the lower content it is significantly greater than
percentages of the two portfolios to what is available in the market. While JAN H. FRIEDLI,
determine commonality. there is no assurance that market price senior portfolio
will ever reflect our estimate of [FRIEDLI manager, is a
We emphasize capital preservation by portfolio intrinsic value, as managers PHOTO] manager of AIM V.I.
requiring a large cushion between price we believe this provides the best Balanced Fund. He
and intrinsic value. It is our indicator of achieving the fund's joined AIM in 1999.
requirement for a large margin between objective of long-term growth of He graduated cum laude from Villanova
market price and our estimated intrinsic capital. University with a B.S. in computer
value that has resulted in little science and earned an M.B.A. with honors
portfolio commonality with market IN CLOSING from the University of Chicago.
indexes. We believe popular benchmarks
are not optimally constructed to Market-relative results during this SCOT W. JOHNSON,
preserve capital and create wealth, even period were unfavorable, but normal Chartered Financial
if they are difficult to beat in certain market volatility predominates in the [JOHNSON Analyst, senior
market environments. In short, we short run. Still, we believe that our PHOTO] portfolio manager,
believe their composition has been more investment discipline has the potential is a manager of AIM
risky than our historical portfolios to turn market volatility and investor V.I. Balanced Fund.
largely because of a lower margin overreaction into capital appreciation He received both his B.A. in economics
between intrinsic value and market value over the long-term. We continued to work and an M.B.A. in finance from Vanderbilt
and greater concentration in certain hard on your behalf, and we thank you University.
sectors. Of course, low portfolio for your investment and for sharing our
commonality does create diversification long-term horizon. MATTHEW W.
benefits, but it also suggests more SEINSHEIMER,
variability in short-term results versus The views and opinions expressed in [SEINSHEIMER Chartered Financial
the market averages for the simple Management's Discussion of Fund PHOTO] Analyst, senior
reason that your fund does not own the Performance are those of A I M Advisors, portfolio manager,
exact same stocks as the indexes. Inc. These views and opinions are is a manager of AIM
subject to change at any time based on V.I. Balanced Fund. He received a B.B.A.
Our fixed-income portfolio investment factors such as market and economic from Southern Methodist University and
process is accomplished through the use conditions. These views and opinions may an M.B.A. from The University of Texas
of top-down strategies involving not be relied upon as investment advice at Austin.
duration management, yield-curve or recommendations, or as an offer for a
position and sector allocation. particular security. The information is MICHAEL J. SIMON,
(Duration is the measure of a debt not a complete analysis of every aspect Chartered Financial
security's sensitivity to interest rate of any market, country, industry, [SIMON Analyst, senior
changes, expressed in terms of years. security or the fund. Statements of fact PHOTO] portfolio manager,
Longer durations usually are more are from sources considered reliable, is a manager of AIM
sensitive to interest rate movements. but A I M Advisors, Inc. makes no V.I. Balanced Fund.
The yield curve traces the yields on representation or warranty as to their He received a B.B.A. in finance from
debt securities of the same quality but completeness or accuracy. Although Texas Christian University and an M.B.A.
different maturities from the shortest historical performance is no guarantee from the University of Chicago.
to the longest available.) In addition, of future results, these insights may
we use bottom-up strategies involving help you understand our investment Assisted by Basic Value Team and
credit analysis and management philosophy. Investment Grade Team
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE,PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. BALANCED FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES return of 5% per year before expenses,
which is not the fund's actual return.
As a shareholder of the fund, you incur The table below provides information The hypothetical account values and
ongoing costs, including management about actual account values and actual expenses may not be used to estimate
fees; distribution and/or service fees expenses. You may use the information in your actual ending account balance or
(12b-1); and other fund expenses. This this table, together with the amount you expenses you paid for the period. You
example is intended to help you invested, to estimate the expenses that may use this information to compare the
understand your ongoing costs (in you paid over the period. Simply divide ongoing costs of investing in the fund
dollars) of investing in the fund and to your account value by $1,000 (for and other funds. To do so, compare this
compare these costs with ongoing costs example, an $8,600 account value divided 5% hypothetical example with the 5%
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the hypothetical examples that appear in the
example is based on an investment of result by the number in the table under shareholder reports of the other funds.
$1,000 invested at the beginning of the the heading entitled "Actual Expenses
period and held for the entire period, Paid During Period" to estimate the Please note that the expenses shown
July 1, 2004 - December 31, 2004. expenses you paid on your account during in the table are meant to highlight your
this period. ongoing costs only. Therefore, the
The actual and hypothetical expenses hypothetical information is useful in
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR comparing ongoing costs only, and will
the effect of any fees or other expenses COMPARISON PURPOSES not help you determine the relative
assessed in connection with a variable total costs of owning different funds.
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's actual expense ratio and
an assumed rate of
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2)(3) (12/31/04) PERIOD(2)(4)
Series I $1,000.00 $1,037.80 $5.84 $1,019.41 $5.79
Series II 1,000.00 1,037.00 7.12 1,018.15 7.05
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 3.78% and 3.70% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.14% and 1.39% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Effective on
January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated as
if this agreement had been in effect throughout the entire most recent fiscal half year are 1.01% and 1.26% for Series I and Series
II shares, respectively.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal half
year are $5.17 and $6.45 for Series I and Series II shares, respectively
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal
half year are $5.13 and $6.39 for Series I and Series II shares, respectively.
====================================================================================================================================
</Table>
4
AIM V.I. BALANCED FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 5/1/98-12/31/04 Index data from 4/30/98
that the chart uses a logarithmic scale
along the vertical axis (the value
scale). This means that each scale [MOUNTAIN CHART]
increment always represents the same
percent change in price; in a linear 60% RUSSELL 1000
chart each scale increment always AIM V.I. BALANCED S&P 500 VALUE INDEX/40% LEHMAN LIPPER BALANCED
represents the same absolute change in DATE FUND-SERIES I INDEX U.S. AGGREGATE BOND INDEX FUND INDEX
price. In this example, the scale 4/30/98 $10000 $10000 $10000 $10000
increment between $5,000 and $10,000 is 6/98 10150 10227 10059 10081
the same as that between $10,000 and 9/98 10031 9212 9537 9498
$20,000. In a linear chart, the latter 12/98 11303 11172 10484 10591
scale increment would be twice as large. 3/99 11678 11729 10552 10761
The benefit of using a logarithmic scale 6/99 11942 12554 11222 11244
is that it better illustrates 9/99 11658 11772 10583 10778
performance during the fund's early 12/99 13484 13522 10923 11541
years before reinvested distributions 3/00 14250 13832 11076 11885
and compounding create the potential for 6/00 13732 13464 10842 11742
the original investment to grow to very 9/00 13948 13334 11484 11975
large numbers. Had the chart used a 12/00 12916 12291 11932 11817
linear scale along its vertical axis, 3/01 11726 10835 11650 11225
you would not be able to see as clearly 6/01 12025 11469 12020 11619
the movements in the value of the fund 9/01 10586 9786 11431 10738
and the indexes during the fund's early 12/01 11440 10832 11941 11435
years. We use a logarithmic scale in 3/02 11261 10861 12243 11504
financial reports of funds that have 6/02 10164 9407 11786 10743
more than five years of performance 9/02 9110 7783 10631 9683
history. 12/02 9485 8439 11297 10213
3/03 9268 8173 11028 10025
======================================= 6/03 10190 9430 12266 11118
AVERAGE ANNUAL TOTAL RETURNS 9/03 10276 9680 12416 11347
12/03 11038 10858 13474 12248
As of 12/31/04 3/04 11436 11042 13862 12541
6/04 11435 11231 13799 12524
SERIES I SHARES 9/04 11092 11021 14104 12547
Inception (5/1/98) 2.60% 12/04 $11868 $12038 $15029 $13349
5 Years -2.52
1 Year 7.52 Source: Lipper, Inc.
======================================================================================
SERIES II SHARES
Inception 2.36% reinvested distributions and changes in measure of U.S. stock market
5 Years -2.75 net asset value. Investment return and performance.
1 Year 7.24 principal value will fluctuate so that
======================================= you may have a gain or loss when you The unmanaged Lipper Balanced Funds
sell shares. Index represents an average of the 30
Returns since the inception date of largest balanced funds tracked by
Series II shares are historical. All AIM V.I. Balanced Fund, a series Lipper, Inc., an independent mutual fund
other returns are the blended returns of portfolio of AIM Variable Insurance performance monitor. It is calculated
the historical performance of the fund's Funds, is currently offered through daily, with adjustments for
Series II shares since their inception insurance companies issuing variable distributions as of the ex-dividend
and the restated historical performance products. You cannot purchase shares of dates.
of the fund's Series I shares (for the fund directly. Performance figures
periods prior to inception of the Series given represent the fund and are not The style-specific index used in this
II shares) adjusted to reflect the intended to reflect actual variable report is composed of 60% Russell 1000
higher Rule 12b-1 fees applicable to the product values. They do not reflect --Registered Trademark-- Value Index and
Series II shares. The inception date of sales charges, expenses and fees 40% Lehman U.S. Aggregate Bond Index.
the fund's Series I shares is 5/1/98. assessed in connection with a variable The unmanaged Russell 1000--Registered
The inception date of the fund's Series product. Sales charges, expenses and Trademark--Index represents the
II shares is 1/24/02. The Series I and fees, which are determined by the performance of the stocks of
Series II shares invest in the same variable product issuers, will vary and large-capitalization companies; the
portfolio of securities and will have will lower the total return.* Value segment measures the performance
substantially similar performance, of Russell 1000 companies with lower
except to the extent that expenses borne PRINCIPAL RISKS OF INVESTING IN THE FUND price/book ratios and lower forecasted
by each class differ. growth values. The unmanaged Lehman U.S.
International investing presents certain Aggregate Bond Index, which represents
The performance data quoted represent risks not associated with investing the U.S. investment-grade fixed-rate
past performance and cannot guarantee solely in the United States. These bond market (including government and
comparable future results; current include risks relating to fluctuations corporate securities, mortgage
performance may be lower or higher. in the value of the U.S. dollar relative pass-through securities and asset-backed
Please contact your variable product to the values of other currencies, the securities), is compiled by Lehman
issuer or financial advisor for the most custody arrangements made for the fund's Brothers, a global investment bank.
recent month-end variable product foreign holdings, differences in
performance. Performance figures reflect accounting, political risks and the The fund is not managed to track the
fund expenses, lesser degree of public information performance of any particular index,
required to be provided by non-U.S. including the indexes defined here, and
companies. The fund may invest up to 25% consequently, the performance of the
of its assets in the securities of fund may deviate significantly from the
non-U.S. issuers. performance of the indexes.
U.S. Treasury securities such as bills, A direct investment cannot be made
notes and bonds offer a high degree of in an index. Unless otherwise indicated,
safety, and they guarantee the payment index results include reinvested
of principal and any applicable interest dividends, and they do not reflect sales
if held to maturity. Fund shares are not charges. Performance of an index of
insured, and their value and yield will funds reflects fund expenses;
vary with market conditions. performance of a market index does not.
ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
The unmanaged Standard & Poor's The returns shown in the Management's
Composite Index of 500 Stocks (the S&P Discussion of Fund Performance are based
500--Registered Trademark-- Index) is an on net asset values calculated for
index of common stocks frequently used shareholder transactions. Generally
as a general accepted accounting principles require
adjustments to be made to the net assets
of the fund at period end for financial
reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
Industry classifications used in this
report are generally according to the
Global Industry Classification Standard,
which was developed by and is the
exclusive property and a service mark of
Morgan Stanley Capital International
Inc. and Standard & Poor's.
The average credit quality of the
fund's holdings as of the close of the
reporting period represents the weighted
average quality rating of the securities
in the portfolio as assigned by
Nationally Recognized Statistical Rating
Organizations based on assessment of the
credit quality of the individual
securities.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIBAL-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-65.78%
ADVERTISING-2.88%
Interpublic Group of Cos., Inc. (The)(a) 70,000 $ 938,000
- ------------------------------------------------------------------------
Omnicom Group Inc. 24,700 2,082,704
========================================================================
3,020,704
========================================================================
AEROSPACE & DEFENSE-1.14%
Honeywell International Inc. 33,800 1,196,858
========================================================================
ALUMINUM-0.91%
Alcoa Inc. 30,200 948,884
========================================================================
APPAREL RETAIL-1.18%
Gap, Inc. (The) 58,700 1,239,744
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.49%
Bank of New York Co., Inc. (The) 46,600 1,557,372
========================================================================
BUILDING PRODUCTS-2.31%
American Standard Cos. Inc.(a) 21,400 884,248
- ------------------------------------------------------------------------
Masco Corp. 42,100 1,537,913
========================================================================
2,422,161
========================================================================
COMMUNICATIONS EQUIPMENT-0.65%
Motorola, Inc. 39,500 679,400
========================================================================
CONSUMER ELECTRONICS-2.09%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 34,900 924,850
- ------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 32,400 1,262,304
========================================================================
2,187,154
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.96%
Ceridian Corp.(a) 54,600 998,088
- ------------------------------------------------------------------------
First Data Corp. 49,300 2,097,222
========================================================================
3,095,310
========================================================================
DEPARTMENT STORES-0.85%
May Department Stores Co. (The) 30,400 893,760
========================================================================
DIVERSIFIED CHEMICALS-0.53%
Dow Chemical Co. (The) 11,200 554,512
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.75%
Cendant Corp. 78,200 1,828,316
========================================================================
ENVIRONMENTAL SERVICES-2.00%
Waste Management, Inc. 70,100 2,098,794
========================================================================
FOOD RETAIL-1.99%
Kroger Co. (The)(a) 71,700 1,257,618
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
FOOD RETAIL-(CONTINUED)
Safeway Inc.(a) 41,700 $ 823,158
========================================================================
2,080,776
========================================================================
GENERAL MERCHANDISE STORES-1.69%
Target Corp. 34,100 1,770,813
========================================================================
HEALTH CARE DISTRIBUTORS-3.80%
Cardinal Health, Inc. 46,500 2,703,975
- ------------------------------------------------------------------------
McKesson Corp. 40,500 1,274,130
========================================================================
3,978,105
========================================================================
HEALTH CARE EQUIPMENT-1.02%
Baxter International Inc. 30,800 1,063,832
========================================================================
HEALTH CARE FACILITIES-1.18%
HCA, Inc. 30,800 1,230,768
========================================================================
HEALTH CARE SERVICES-0.34%
IMS Health Inc. 15,200 352,792
========================================================================
INDUSTRIAL CONGLOMERATES-4.16%
General Electric Co. 41,300 1,507,450
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 79,700 2,848,478
========================================================================
4,355,928
========================================================================
INDUSTRIAL MACHINERY-1.50%
Illinois Tool Works Inc. 16,900 1,566,292
========================================================================
INSURANCE BROKERS-0.60%
Aon Corp. 26,500 632,290
========================================================================
INTEGRATED OIL & GAS-0.10%
Shell Frontier Oil & Gas Inc.-Series B, 2.91%
Floating Rate Pfd.(b) 1 100,000
========================================================================
INVESTMENT BANKING & BROKERAGE-2.77%
Merrill Lynch & Co., Inc. 23,000 1,374,710
- ------------------------------------------------------------------------
Morgan Stanley 27,500 1,526,800
========================================================================
2,901,510
========================================================================
MANAGED HEALTH CARE-1.91%
WellPoint Inc.(a) 17,400 2,001,000
========================================================================
MOVIES & ENTERTAINMENT-1.70%
Walt Disney Co. (The) 64,100 1,781,980
========================================================================
MULTI-LINE INSURANCE-1.02%
Hartford Financial Services Group, Inc. (The) 15,400 1,067,374
========================================================================
OIL & GAS DRILLING-1.55%
Transocean Inc. (Cayman Islands)(a) 38,400 1,627,776
========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.07%
Halliburton Co. 50,500 1,981,620
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
Schlumberger Ltd. (Netherlands) 18,500 $ 1,238,575
========================================================================
3,220,195
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.57%
ABN AMRO XVIII Custodial Receipts-Series
MM18, 2.79% Floating Rate Pfd. (Acquired
09/10/04; Cost $100,000)(c)(d)(e) 1 100,000
- ------------------------------------------------------------------------
Citigroup Inc. 41,600 2,004,288
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 56,168 2,191,114
- ------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 2.75%
Floating Rate Pfd. (Acquired
06/03/04-09/28/04; Cost $488,940)(b)(c)(d) 500 493,500
========================================================================
4,788,902
========================================================================
PACKAGED FOODS & MEATS-1.09%
Kraft Foods Inc.-Class A 32,000 1,139,520
========================================================================
PHARMACEUTICALS-4.98%
Pfizer Inc. 56,300 1,513,907
- ------------------------------------------------------------------------
Sanofi-Aventis (France)(f) 29,761 2,374,620
- ------------------------------------------------------------------------
Wyeth 31,100 1,324,549
========================================================================
5,213,076
========================================================================
PROPERTY & CASUALTY INSURANCE-1.51%
ACE Ltd. (Cayman Islands) 37,000 1,581,750
========================================================================
SYSTEMS SOFTWARE-2.18%
Computer Associates International, Inc. 73,400 2,279,804
========================================================================
THRIFTS & MORTGAGE FINANCE-2.31%
Fannie Mae 29,800 2,122,058
- ------------------------------------------------------------------------
Fannie Mae-Series J, 4.72% Pfd.(g) 2,950 148,975
- ------------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd.(g) 2,950 149,252
========================================================================
2,420,285
========================================================================
Total Stocks & Other Equity Interests
(Cost $60,982,842) 68,877,737
========================================================================
PRINCIPAL
AMOUNT
BONDS & NOTES-16.62%
ADVERTISING-0.06%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05(g) $ 64,000 66,028
========================================================================
AEROSPACE & DEFENSE-0.03%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(g) 25,000 27,349
========================================================================
AUTO PARTS & EQUIPMENT-0.08%
Lear Corp.-Series B, Sr. Unsec. Gtd. Notes,
7.96%, 05/15/05(g) 86,000 87,760
========================================================================
AUTOMOBILE MANUFACTURERS-0.11%
DaimlerChrysler N.A. Holding Corp., Unsec.
Gtd. Global Notes, 7.40%, 01/20/05(g) 65,000 65,145
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-(CONTINUED)
General Motors Corp., Unsec. Global Notes,
6.25%, 05/01/05(g) $ 50,000 $ 50,472
========================================================================
115,617
========================================================================
BROADCASTING & CABLE TV-1.22%
Continental Cablevision, Inc., Sr. Unsec.
Deb.,
8.88%, 09/15/05(g) 300,000 311,370
- ------------------------------------------------------------------------
9.50%, 08/01/13(g) 100,000 106,645
- ------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05(g) 35,000 35,595
- ------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(g) 50,000 51,547
- ------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec.
Notes, 8.38%, 11/01/05(g) 76,000 79,477
- ------------------------------------------------------------------------
TCI Communications, Inc.,
Sr. Notes, 7.25%, 08/01/05(g) 100,000 102,397
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05(g) 100,000 102,819
- ------------------------------------------------------------------------
Time Warner Cos., Inc.,
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(g) 40,000 47,053
- ------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(g) 250,000 334,242
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05(g) 100,000 102,051
========================================================================
1,273,196
========================================================================
CONSUMER FINANCE-3.29%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18(g) 100,000 115,992
- ------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05(g) 200,000 204,436
- ------------------------------------------------------------------------
Capital One Capital I, Sub. Floating Rate
Bonds, 3.71%, 02/01/27 (Acquired 09/16/04;
Cost $280,335)(b)(c)(d)(g) 275,000 279,584
- ------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06(g) 150,000 157,161
- ------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(g) 75,000 82,148
- ------------------------------------------------------------------------
Ford Motor Credit Co.,
Global Notes, 7.60%, 08/01/05(g) 150,000 153,418
- ------------------------------------------------------------------------
Notes, 6.75%, 05/15/05(g) 125,000 126,567
- ------------------------------------------------------------------------
Unsec. Floating Rate Global Notes, 2.31%,
04/28/05(b)(g) 200,000 199,930
- ------------------------------------------------------------------------
Unsec. Global Notes, 6.50%, 01/25/07(g) 150,000 156,052
- ------------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 02/01/06(g) 275,000 283,561
- ------------------------------------------------------------------------
Unsec. Global Notes, 7.50%, 03/15/05(g) 200,000 201,794
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05(g) 235,000 237,169
- ------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
4.23%, 05/19/05(b)(g) 200,000 200,708
- ------------------------------------------------------------------------
4.44%, 03/04/05(b)(g) 370,000 370,796
- ------------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06(g) 70,000 70,151
- ------------------------------------------------------------------------
Global Notes, 7.50%, 07/15/05(g) 50,000 51,061
- ------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05(g) 100,000 100,113
- ------------------------------------------------------------------------
5.25%, 05/16/05(g) 275,000 276,925
- ------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06(g)(h) 175,000 179,617
========================================================================
3,447,183
========================================================================
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED BANKS-1.88%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $167,403)(c)(g)(i) $ 150,000 $ 159,330
- ------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(c)(d)(g) 25,000 25,721
- ------------------------------------------------------------------------
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $68,863)(c)(d)(g) 70,000 67,467
- ------------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 3.04%, 06/08/28(b)(g) 150,000 144,841
- ------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$61,532)(c)(g)(i) 50,000 60,594
- ------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$63,272)(c)(d)(g) 50,000 59,001
- ------------------------------------------------------------------------
Chohung Bank (South Korea), Unsec. Sub.
Second Tier Notes, 11.50%, 04/01/10
(Acquired 07/01/04; Cost $159,704)(c)(d)(g) 150,000 152,844
- ------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Global Notes, 6.88%, 03/15/12(g) 75,000 83,698
- ------------------------------------------------------------------------
Unsec. Yankee Notes, 8.88%, 06/01/05(g) 125,000 127,735
- ------------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium
Term Euro Notes, 3.09%(i)(j) 100,000 99,000
- ------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91% (Acquired 06/07/04; Cost
$60,000)(c)(g)(i) 60,000 63,623
- ------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$23,313)(c)(g)(i) 25,000 23,719
- ------------------------------------------------------------------------
Lloyds Bank PLC-Series 1 (United Kingdom),
Unsec. Sub. Floating Rate Euro Notes,
2.96%(g)(i) 130,000 115,943
- ------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 2.13%, 08/29/87(g)(j) 60,000 49,391
- ------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 2.13%(g)(i)(j) 100,000 88,283
- ------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(g) 50,000 65,256
- ------------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(g)(i) 25,000 23,934
- ------------------------------------------------------------------------
Wells Fargo Bank, N.A., Unsec. Sub. Global
Notes, 7.80%, 06/15/10(g) 250,000 255,750
- ------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07(g) 150,000 150,699
- ------------------------------------------------------------------------
Woori Bank (South Korea), Unsec. Sub. Second
Tier Notes, 11.75%, 03/01/10 (Acquired
07/01/04; Cost $158,835)(c)(d)(g) 150,000 153,930
========================================================================
1,970,759
========================================================================
DIVERSIFIED CAPITAL MARKETS-0.11%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(g)(i) 100,000 119,869
========================================================================
ELECTRIC UTILITIES-0.45%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05(g) 15,000 15,582
- ------------------------------------------------------------------------
Consolidated Edison Co. of New York-Series
96A, Unsec. Deb., 7.75%, 06/01/26(g)(k) 45,000 48,969
- ------------------------------------------------------------------------
Hydro-Quebec-Series B (Canada), Gtd. Medium
Term Notes, 8.62%, 12/15/11(g) 50,000 62,084
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
MidAmerican Energy Holdings Co., Sr. Unsec.
Notes, 7.23%, 09/15/05(g) $ 170,000 $ 174,478
- ------------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage
Floating Rate Notes, 2.72%, 04/03/06(b)(g) 62,000 62,055
- ------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08(g) 100,000 105,602
========================================================================
468,770
========================================================================
FOOD RETAIL-0.07%
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05(g) 75,000 74,507
========================================================================
GAS UTILITIES-0.37%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08(g) 100,000 107,166
- ------------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05(g) 175,000 180,236
- ------------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05(g) 95,000 96,216
========================================================================
383,618
========================================================================
HOMEBUILDING-0.49%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(g) 100,000 115,125
- ------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10(g) 200,000 214,464
- ------------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05(g) 125,000 128,615
- ------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10(g) 50,000 54,497
========================================================================
512,701
========================================================================
INDUSTRIAL CONGLOMERATES-0.30%
Tyco International Group S.A. (Luxembourg),
Unsec. Unsub. Gtd. Yankee Notes, 6.38%,
06/15/05(g) 270,000 274,058
- ------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$45,291)(c)(d)(g) 40,000 42,589
========================================================================
316,647
========================================================================
INTEGRATED OIL & GAS-0.32%
Amerada Hess Corp., Unsec. Notes, 7.13%,
03/15/33(g) 80,000 88,065
- ------------------------------------------------------------------------
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(g) 65,000 69,848
- ------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(g) 125,000 142,512
- ------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05(g) 35,000 35,904
========================================================================
336,329
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.48%
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Unsub. Gtd. Global
Bonds, 8.25%, 06/15/05(g) 100,000 102,346
- ------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31(g) 40,000 54,280
- ------------------------------------------------------------------------
SBC Communications Inc., Notes, 4.21%,
06/05/05 (Acquired 12/10/04; Cost
$75,452)(c)(d)(g) 75,000 75,439
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Southwestern Bell Telephone Co.-Series B,
Medium Term Notes, 6.25%, 07/07/05(g) $ 50,000 $ 50,811
- ------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06(g) 125,000 130,021
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%,
03/15/05(g) 220,000 222,317
- ------------------------------------------------------------------------
Sprint Corp., Deb., 9.25%, 04/15/22(g) 70,000 93,279
- ------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07(g) 100,000 108,673
- ------------------------------------------------------------------------
8.00%, 06/01/11(g) 40,000 47,395
- ------------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(g) 60,000 62,464
- ------------------------------------------------------------------------
Verizon Communications Inc.,
Unsec. Deb., 6.36%, 04/15/06(g) 200,000 207,592
- ------------------------------------------------------------------------
Unsec. Deb., 8.75%, 11/01/21(g) 65,000 82,106
- ------------------------------------------------------------------------
Unsec. Gtd. Deb., 6.94%, 04/15/28(g) 100,000 111,656
- ------------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb., 6.13%, 01/15/13(g) 125,000 133,204
- ------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(g) 70,000 68,493
========================================================================
1,550,076
========================================================================
INVESTMENT BANKING & BROKERAGE-0.24%
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05(g) 100,000 102,877
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06(g) 100,000 106,001
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05(g) 45,000 45,184
========================================================================
254,062
========================================================================
LIFE & HEALTH INSURANCE-0.22%
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired 01/22/04; Cost
$207,149)(c)(g)(k) 175,000 208,745
- ------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(g) 20,000 21,591
========================================================================
230,336
========================================================================
MOVIES & ENTERTAINMENT-0.16%
Time Warner Inc., Sr. Unsec. Gtd. Global
Notes, 5.63%, 05/01/05(g) 170,000 171,511
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.06%
Dominion Resources, Inc.-Series B, Sr. Unsec.
Unsub. Global Notes,
7.63%, 07/15/05(g) 65,000 66,631
========================================================================
MUNICIPALITIES-0.69%
Chicago (City of), Illinois; O'Hare
International Airport; Refunding Taxable
General Airport Third Lien Series 2004 E
RB, 3.88%, 01/01/08(g)(k) 250,000 250,520
- ------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 B, 6.10%,
05/01/24(g)(k) 125,000 128,750
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
MUNICIPALITIES-(CONTINUED)
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB,
3.69%, 07/01/07(g)(k) $ 50,000 $ 50,083
- ------------------------------------------------------------------------
4.21%, 07/01/08(g)(k) 75,000 75,563
- ------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB, 0.27%,
07/10/30(g)(k)(l) 225,000 213,075
========================================================================
717,991
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.16%
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes,
7.38%, 12/15/14(g) 150,000 166,425
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.18%
General Electric Capital Corp.-Series A,
Medium Term Global Notes,
2.85%, 01/30/06(g) 20,000 19,951
- ------------------------------------------------------------------------
Heller Financial, Inc.-Class A, Sr. Unsec.
Global Notes, 8.00%, 06/15/05(g) 75,000 76,740
- ------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(g)(i) 100,000 119,260
- ------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87% (Acquired 06/16/04; Cost
$113,125)(c)(g)(i) 100,000 115,891
- ------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(g) 123,500 138,444
- ------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07(g) 83,333 88,207
- ------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 8.63%,
02/01/22(g) 150,000 174,405
- ------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost $93,300)(c)(d)(g) 89,324 88,974
- ------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $199,866)(c)(d)(g) 200,000 195,758
- ------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $169,578)(c)(d)(g) 143,333 170,762
- ------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(g)(i) 40,000 44,698
========================================================================
1,233,090
========================================================================
PACKAGED FOODS & MEATS-0.07%
Nabisco, Inc., Notes, 6.38%, 02/01/05(g) 75,000 75,493
========================================================================
PROPERTY & CASUALTY INSURANCE-0.37%
FGIC Corp., Sr. Unsec. Unsub. Notes, 6.00%,
01/15/34 (Acquired 12/07/04; Cost
$101,571)(c)(d)(g) 100,000 103,492
- ------------------------------------------------------------------------
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12(g) 205,000 232,903
- ------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 03/23/04;
Cost $52,495)(c)(d)(g) 50,000 50,460
========================================================================
386,855
========================================================================
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
REAL ESTATE-0.37%
CarrAmerica Realty Corp., Sr. Unsec. Gtd.
Notes, 6.63%, 03/01/05(g) $ 30,000 $ 30,175
- ------------------------------------------------------------------------
EOP Operating L.P., Sr. Unsec. Notes, 6.63%,
02/15/05(g) 125,000 125,548
- ------------------------------------------------------------------------
Health Care Property Investors, Inc., Sr.
Unsec. Notes, 6.88%, 06/08/05(g) 90,000 91,450
- ------------------------------------------------------------------------
HRPT Properties Trust, Sr. Unsec. Notes,
6.70%, 02/23/05(g) 75,000 75,404
- ------------------------------------------------------------------------
Spieker Properties, Inc., Medium Term Notes,
8.00%, 07/19/05(g) 40,000 41,026
- ------------------------------------------------------------------------
Spieker Properties, L.P., Unsec. Unsub.
Notes, 6.88%, 02/01/05(g) 25,000 25,077
========================================================================
388,680
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.05%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(g) 50,000 52,545
========================================================================
REGIONAL BANKS-1.31%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 3.95%, 03/01/34(b)(g) 200,000 207,328
- ------------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08(g) 300,000 302,172
- ------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 2.97%, 06/01/28(b)(g) 100,000 94,972
- ------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09(g) 200,000 204,048
- ------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.87%(g)(i)(j) 500,000 497,074
- ------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(g) 60,000 61,048
========================================================================
1,366,642
========================================================================
RESTAURANTS-0.04%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25(g) 40,000 42,428
========================================================================
SOVEREIGN DEBT-0.66%
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05(g) 125,000 128,249
- ------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13(g) 30,000 34,998
- ------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09(g) 50,000 53,659
- ------------------------------------------------------------------------
Russian Federation (Russia),
Unsec. Unsub. Bonds, 7.50%, 03/31/30
(Acquired 05/18/04; Cost $63,044)(c)(g)(m) 70,000 72,338
- ------------------------------------------------------------------------
Unsec. Unsub. Bonds, 8.75%, 07/24/05
(Acquired 09/10/04-12/03/04; Cost
$104,100)(c)(g) 100,000 102,800
- ------------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS,
8.75%, 07/24/05 (Acquired 05/14/04; Cost
$105,650)(c)(g) 100,000 102,890
- ------------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS,
10.00%, 06/26/07 (Acquired
05/14/04-05/18/04; Cost $90,094)(c)(g) 80,000 90,608
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
SOVEREIGN DEBT-(CONTINUED)
United Mexican States (Mexico)-Series A,
Medium Term Global Notes,
6.63%, 03/03/15(g) $ 35,000 $ 37,559
- ------------------------------------------------------------------------
7.50%, 04/08/33(g) 60,000 64,569
========================================================================
687,670
========================================================================
THRIFTS & MORTGAGE FINANCE-0.19%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27(g) 60,000 70,984
- ------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05(g) 125,000 128,023
========================================================================
199,007
========================================================================
TOBACCO-0.14%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13(g) 30,000 32,459
- ------------------------------------------------------------------------
Unsec. Global Notes, 7.00%, 07/15/05(g) 100,000 101,979
- ------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06(g) 15,000 15,397
========================================================================
149,835
========================================================================
TRUCKING-0.11%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08(g) 100,000 111,345
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.34%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 6.88%, 04/18/05(g) 135,000 136,496
- ------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10(g) 200,000 218,800
========================================================================
355,296
========================================================================
Total Bonds & Notes (Cost $17,325,831) 17,406,251
========================================================================
U.S. MORTGAGE-BACKED SECURITIES-8.14%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.92%
Pass Through Ctfs.,
7.00%, 06/01/15 to 06/01/32(g) 113,825 120,674
- ------------------------------------------------------------------------
6.00%, 04/01/16 to 11/01/33(g) 881,209 913,540
- ------------------------------------------------------------------------
5.50%, 10/01/18(g) 270,189 279,396
- ------------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31(g) 64,210 68,843
- ------------------------------------------------------------------------
6.50%, 05/01/32 to 08/01/32(g) 65,894 69,212
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/15(n) 548,880 557,587
========================================================================
2,009,252
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-4.59%
Pass Through Ctfs.,
6.50%, 04/01/14 to 09/01/34(g) 881,914 927,025
- ------------------------------------------------------------------------
7.50%, 11/01/15(g) 8,641 9,178
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32(g) 155,585 165,008
- ------------------------------------------------------------------------
6.00%, 01/01/17 to 05/01/17(g) 139,459 146,263
- ------------------------------------------------------------------------
5.00%, 04/01/18(g) 373,032 379,475
- ------------------------------------------------------------------------
4.50%, 11/01/18(g) 137,126 137,041
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-(CONTINUED)
8.00%, 08/01/21 to 12/01/23(g) $ 47,188 $ 51,374
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/20 to 01/01/35(n) 266,270 265,846
- ------------------------------------------------------------------------
5.50%, 01/01/20 to 01/01/35(n) 1,947,542 1,991,388
- ------------------------------------------------------------------------
6.00%, 01/01/35(n) 709,650 733,954
========================================================================
4,806,552
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.63%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(g) 67,624 72,860
- ------------------------------------------------------------------------
8.50%, 11/15/24(g) 154,387 169,473
- ------------------------------------------------------------------------
8.00%, 08/15/25(g) 23,902 26,072
- ------------------------------------------------------------------------
6.50%, 03/15/29 to 12/15/33(g) 348,491 367,185
- ------------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33(g) 575,476 597,775
- ------------------------------------------------------------------------
7.00%, 09/15/31 to 03/15/33(g) 130,584 138,814
- ------------------------------------------------------------------------
5.50%, 12/15/33 to 02/15/34(g) 333,008 340,479
========================================================================
1,712,658
========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $8,489,249) 8,528,462
========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-5.18%
FEDERAL HOME LOAN BANK (FHLB)-4.68%
Unsec. Disc. Notes,
1.25%, 01/03/05(o) 4,901,000 4,900,659
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.50%
Unsec. Floating Rate Global Notes,
3.68%, 02/17/09(g)(p) 350,000 353,283
- ------------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08(g) 175,000 172,790
========================================================================
526,073
========================================================================
Total U.S. Government Agency Securities
(Cost $5,419,893) 5,426,732
========================================================================
U.S. TREASURY SECURITIES-5.09%
U.S. TREASURY NOTES-3.25%
2.50%, 09/30/06(g) 400,000 396,564
- ------------------------------------------------------------------------
6.50%, 10/15/06(g) 935,000 991,250
- ------------------------------------------------------------------------
3.50%, 11/15/06 to 11/15/09(g) 1,050,000 1,055,740
- ------------------------------------------------------------------------
3.13%, 10/15/08(g) 560,000 554,047
- ------------------------------------------------------------------------
5.00%, 02/15/11(g) 375,000 399,139
========================================================================
3,396,740
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. TREASURY BONDS-1.73%
7.25%, 05/15/16 to 08/15/22(g) $ 820,000(h) $ 1,039,479
- ------------------------------------------------------------------------
7.50%, 11/15/16(g) 130,000 166,176
- ------------------------------------------------------------------------
5.38%, 02/15/31(g) 560,000 605,326
========================================================================
1,810,981
========================================================================
U.S. TREASURY STRIPS-0.11%
3.03%, 02/15/07(g) 125,000(o) 117,364
========================================================================
Total U.S. Treasury Securities (Cost
$5,221,197) 5,325,085
========================================================================
ASSET-BACKED SECURITIES-1.26%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.04%
Citicorp Lease-Series 1999-1,
Class A1, Pass Through Ctfs., 7.22%,
06/15/05 (Acquired 05/08/02-09/23/03; Cost
$269,795)(c)(g) 253,133 257,753
- ------------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 06/01/00-08/24/04; Cost
$148,849)(c)(g) 150,000 178,771
- ------------------------------------------------------------------------
Patrons' Legacy-Series 2003-III, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$512,705)(c)(d) 500,000 508,681
- ------------------------------------------------------------------------
Twin Reefs Pass Through Trust, Floating Rate
Pass Through Ctfs., 3.37% (Acquired
12/07/04; Cost $100,000)(c)(d)(g)(i)(p) 100,000 100,569
- ------------------------------------------------------------------------
Yorkshire Power Pass-Through Asset Trust
(Cayman Islands)-Series 2000-1, Pass
Through Ctfs., 8.25%, 02/15/05 (Acquired
11/12/03; Cost $42,720)(c)(d)(g) 40,000 40,219
========================================================================
1,085,993
========================================================================
PROPERTY & CASUALTY INSURANCE-0.10%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$100,000)(c)(d)(g) 100,000 101,993
========================================================================
THRIFTS & MORTGAGE FINANCE-0.12%
Sovereign Bank-Class A-1, Pass Through Ctfs.,
10.20%, 06/30/05 (Acquired 09/22/04; Cost
$145,991)(c)(d)(g) 125,365 129,124
========================================================================
Total Asset-Backed Securities (Cost
$1,288,418) 1,317,110
========================================================================
TOTAL INVESTMENTS-102.07% (Cost $98,727,430) 106,881,377
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.07%) (2,170,047)
========================================================================
NET ASSETS-100.00% $104,711,330
________________________________________________________________________
========================================================================
</Table>
AIM V.I. BALANCED FUND
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$4,377,169, which represented 4.18% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $2,940,107, which
represented 2.81% of the Fund's Net Assets.
(e) Security has a mandatory put by the issuer. Interest rate is redetermined
annually. Rate shown is the rate in effect on December 31, 2004.
(f) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 2.22% of the
Fund's Total Investments. See Note 1A.
(g) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $29,244,753, which represented 27.36% of the Fund's Total
Investments. See Note 1A.
(h) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1J and Note 6.
(i) Perpetual bond with no specified maturity date.
(j) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2004.
(k) Principal and interest payments 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.
(l) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield on December 31, 2004. Bond will convert to a fixed coupon
rate at a specified future date.
(m) Step coupon bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(n) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1F.
(o) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(p) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $98,727,430) $106,881,377
- -------------------------------------------------------------
Receivables for:
Investments sold 1,448,551
- -------------------------------------------------------------
Variation margin 9,984
- -------------------------------------------------------------
Fund shares sold 20,124
- -------------------------------------------------------------
Dividends and interest 464,606
- -------------------------------------------------------------
Investment Matured (Note 8) 33,647
- -------------------------------------------------------------
Principal paydowns 13,146
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 35,203
- -------------------------------------------------------------
Other assets 3,402
=============================================================
Total assets 108,910,040
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 3,803,337
- -------------------------------------------------------------
Fund shares reacquired 213,017
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 38,315
- -------------------------------------------------------------
Accrued administrative services fees 107,410
- -------------------------------------------------------------
Accrued distribution fees -- Series II 3,376
- -------------------------------------------------------------
Accrued transfer agent fees 1,572
- -------------------------------------------------------------
Accrued operating expenses 31,683
=============================================================
Total liabilities 4,198,710
=============================================================
Net assets applicable to shares outstanding $104,711,330
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $118,711,984
- -------------------------------------------------------------
Undistributed net investment income 1,314,746
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
futures contracts (23,496,882)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 8,181,482
=============================================================
$104,711,330
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 99,069,707
_____________________________________________________________
=============================================================
Series II $ 5,641,623
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,356,050
_____________________________________________________________
=============================================================
Series II 535,994
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 10.59
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 10.53
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $1,474,369
- ------------------------------------------------------------
Dividends (net of foreign withholding tax of
$14,258) 971,556
============================================================
Total investment income 2,445,925
============================================================
EXPENSES:
Advisory fees 776,652
- ------------------------------------------------------------
Administrative services fees 265,946
- ------------------------------------------------------------
Custodian fees 31,811
- ------------------------------------------------------------
Distribution fees -- Series II 12,305
- ------------------------------------------------------------
Transfer agent fees 8,243
- ------------------------------------------------------------
Trustees' fees and retirement benefits 13,830
- ------------------------------------------------------------
Other 68,012
============================================================
Total expenses 1,176,799
============================================================
Less: Fees waived and expenses reimbursed (268)
============================================================
Net expenses 1,176,531
============================================================
Net investment income 1,269,394
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 2,648,714
- ------------------------------------------------------------
Foreign currencies (3,760)
- ------------------------------------------------------------
Futures contracts 67,147
============================================================
2,712,101
============================================================
Change in net unrealized appreciation of:
Investment securities 3,310,789
- ------------------------------------------------------------
Foreign currencies 2,225
- ------------------------------------------------------------
Futures contracts 27,535
============================================================
3,340,549
============================================================
Net gain from investment securities, foreign
currencies and futures contracts 6,052,650
============================================================
Net increase in net assets resulting from
operations $7,322,044
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,269,394 $ 1,307,479
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 2,712,101 2,625,795
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 3,340,549 9,955,515
==========================================================================================
Net increase in net assets resulting from operations 7,322,044 13,888,789
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,389,511) (1,803,131)
- ------------------------------------------------------------------------------------------
Series II (73,687) (73,995)
==========================================================================================
Decrease in net assets resulting from distributions (1,463,198) (1,877,126)
==========================================================================================
Share transactions-net:
Series I (4,169,694) 3,122,103
- ------------------------------------------------------------------------------------------
Series II 1,224,095 3,065,718
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,945,599) 6,187,821
==========================================================================================
Net increase in net assets 2,913,247 18,199,484
==========================================================================================
NET ASSETS:
Beginning of year 101,798,083 83,598,599
==========================================================================================
End of year (including undistributed net investment income
of $1,314,746 and $1,399,297, respectively) $104,711,330 $101,798,083
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the
AIM V.I. BALANCED FUND
NASDAQ Official Closing Price ("NOCP") as of the close of the customary
trading session on the valuation date or absent a NOCP, at the closing bid
price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities.' Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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. Dollar roll transactions are considered borrowings under the
1940 Act. 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
AIM V.I. BALANCED FUND
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.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
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 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.
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. Effective January 1, 2005
through December 31, 2009, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.62% of
the first $150 million, plus 0.50% of the next $4.85 billion, plus 0.475% of the
next $5 billion, plus 0.45% of the Fund's average daily net assets in excess of
$10 billion. AIM has contractually agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of each Series to 1.30% of
average daily net assets, through April 30, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form
AIM V.I. BALANCED FUND
of credits that the Fund receives from banks where the Fund or its transfer
agent has deposit accounts in which it holds uninvested cash. Those credits are
used to pay certain expenses incurred by the Fund. AIM did not waive fees and/or
reimburse expenses during the period under this expense limitation. Further, AIM
has voluntarily agreed to waive advisory fees of the Fund in the amount of 25%
of the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. For
the year ended December 31, 2004, AIM waived fees of $156.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $112 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts
pursuant to such agreement. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $265,946, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. Pursuant to such
agreement, for the year ended December 31, 2004, the Fund paid AISI $8,243.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $12,305.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $3,171,270 and $662,724,
respectively.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,863
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
AIM V.I. BALANCED FUND
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--FUTURES CONTRACTS
On December 31, 2004, $250,000 principal amount of U.S. Treasury and corporate
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)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Note 16 Mar-05/Long $3,353,500 $ 3,920
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Note 33 Mar-05/Long 3,614,531 23,538
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Note 6 Mar-05/Long 671,625 (3,780)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bond 2 Mar-05/Long 225,000 3,857
============================================================================================================================
$7,864,656 $27,535
____________________________________________________________________________________________________________________________
============================================================================================================================
</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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $1,463,198 $1,877,126
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,380,887
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 7,655,505
- ----------------------------------------------------------------------------
Temporary book/tax differences (35,512)
- ----------------------------------------------------------------------------
Capital loss carryforward (23,001,534)
- ----------------------------------------------------------------------------
Shares of beneficial interest 118,711,984
============================================================================
Total net assets $104,711,330
____________________________________________________________________________
============================================================================
</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 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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. BALANCED FUND
The Fund utilized $2,374,231 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 6,784,581
- -----------------------------------------------------------------------------
December 31, 2010 16,216,953
=============================================================================
Total capital loss carryforward $23,001,534
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $50,456,485 and $55,505,755, 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 $ 9,141,982
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,486,477)
===============================================================================
Net unrealized appreciation of investment securities $ 7,655,505
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $99,225,872.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of bond premium
amortization, paydowns on mortgage backed securities and foreign currency
transactions, on December 31, 2004, undistributed net investment income was
increased by $109,253 and undistributed net realized gain (loss) was decreased
by $109,253. This reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 819,573 $ 8,359,573 1,385,995 $ 12,859,662
- ----------------------------------------------------------------------------------------------------------------------
Series II 184,634 1,876,616 340,652 3,145,330
======================================================================================================================
Issued as reinvestment of dividends:
Series I 132,334 1,389,511 183,618 1,803,131
- ----------------------------------------------------------------------------------------------------------------------
Series II 7,058 73,686 7,566 73,995
======================================================================================================================
Reacquired:
Series I (1,367,292) (13,918,778) (1,271,451) (11,540,690)
- ----------------------------------------------------------------------------------------------------------------------
Series II (70,995) (726,207) (16,869) (153,607)
======================================================================================================================
(294,688) $ (2,945,599) 629,511 $ 6,187,821
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 88% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with
these entities whereby these entities sell units if interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping,
account servicing and administrative services. The Trust has no
knowledge as to whether all any portion of the shares owned of record by
these shareholders are also owned beneficially.
AIM V.I. BALANCED 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,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.99 $ 8.75 $ 10.84 $ 12.46 $ 13.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13(a) 0.14(a) 0.18(a) 0.27(a)(b) 0.37(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.62 1.29 (2.02) (1.70) (0.93)
=================================================================================================================================
Total from investment operations 0.75 1.43 (1.84) (1.43) (0.56)
=================================================================================================================================
Less dividends from net investment income (0.15) (0.19) (0.25) (0.19) (0.02)
=================================================================================================================================
Net asset value, end of period $ 10.59 $ 9.99 $ 8.75 $ 10.84 $ 12.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.52% 16.36% (17.02)% (11.43)% (4.28)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,070 $97,665 $82,866 $105,395 $85,693
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.12%(d) 1.11% 1.17% 1.12% 1.10%
=================================================================================================================================
Ratio of net investment income to average net assets 1.24%(d) 1.47% 1.90% 2.37%(b) 2.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 51% 131% 90% 55% 49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 as such, the net asset
value for financial reporting purposes and the returns based upon these
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $98,631,800.
<Table>
<Caption>
SERIES II
---------------------------------------
JANUARY 24, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.95 $ 8.73 $ 10.70
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a) 0.12(a) 0.14(a)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.62 1.29 (1.86)
=====================================================================================================
Total from investment operations 0.72 1.41 (1.72)
=====================================================================================================
Less dividends from net investment income (0.14) (0.19) (0.25)
=====================================================================================================
Net asset value, end of period $10.53 $ 9.95 $ 8.73
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 7.24% 16.15% (16.12)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,642 $4,133 $ 733
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets 1.37%(c) 1.36% 1.42%(d)
=====================================================================================================
Ratio of net investment income to average net assets 0.99%(c) 1.22% 1.65%(d)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(e) 51% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $4,921,809.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. BALANCED FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. BALANCED FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. BALANCED FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. BALANCED FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Balanced Fund as of December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. BALANCED FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Balanced Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. BALANCED FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. BALANCED FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 48.14% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 9.05% was derived from U.S. Treasury
Obligations.
AIM V.I. BALANCED FUND
AIM V.I. Basic Value Fund
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. BASIC VALUE FUND seeks to
achieve long-term growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following email address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND AND VARIABLE PRODUCT
PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
===================================================
=================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. BASIC VALUE FUND
Following a strong fourth quarter, AIM the sustainability of economic growth evidence of our long-term investment
V.I. Basic Value Fund produced an were key issues during the period. strategy and stands in stark contrast to
attractive, double-digit return--even with the average mutual fund portfolio
the S&P 500 Index but trailing our value With the price of oil rising as much turnover of more than 100%. Furthermore,
benchmark and peers during this period. as 75% at its peak during the period, it low turnover reduces trading costs for
came as no surprise that energy was the all shareholders and the impact of
=========================================== market's best performing sector for the realized capital gains for taxable
FUND VS. INDEXES year. Oil service and equipment providers shareholders.
Transocean and Halliburton were among the
TOTAL RETURNS 12/31/03-12/31/04, most significant contributors to INVESTMENT PROCESS AND EVALUATION
EXCLUDING PRODUCT ISSUER CHARGES. IF performance. The combination of
PRODUCT ISSUER WERE INCLUDED, RETURNS attractive valuations at the beginning of Our investment strategy is to create
WOULD BE LOWER. the year and favorable supply-and-demand wealth by maintaining a long-term
trends translated into a 50% average investment horizon and investing in
Series I Shares 11.07% return for our energy investments. Other companies that are selling at a
significant drivers of performance were significant discount to their estimated
Series II Shares 10.84 UnitedHealth Group and Tyco intrinsic value. The fund's philosophy is
International. based on two concepts that we believe are
S&P 500 Index (Broad Market Index) 10.87 supported by empirical evidence:
Our largest detractors from
Russell 1000 Value Index performance were Pfizer, Novellus and o We believe companies have a measurable
(Style-specific Index) 16.49 Interpublic Group. Pfizer, the world's intrinsic value that is based on future
largest drug company, was a new cash flows generated by the business.
Lipper Large-Cap Value Fund Index investment in 2004 and, as is often the Importantly, this estimated intrinsic
(Peer Group Index) 12.00 case, the stock declined initially. value is independent of the company's
Pfizer faces several challenges including stock price.
Source: Lipper, Inc. patent expirations, diminished pricing
=========================================== power and more recently, declining demand o In our opinion, market prices are more
for its Cox2 anti-inflammatory drugs volatile than business values partly
We underperformed the Russell 1000 Value Celebrex and Bextra. While we believe because investors regularly overreact to
Index during the period because of our these near term challenges will remain, news.
lower returns in financials, information we are focused on the long-term
technology and select health care opportunity, as we believe these issues We believe a diversified portfolio with
investments. Our lower sector weights in are already discounted in the company's above-market value content provides the
energy, materials and utilities, which historically low valuation. opportunity for attractive long-term
were some of the best-performing sectors investment results.
in the index, also contributed to We made relatively few changes to the
underperformance. portfolio during 2004. Aside from Pfizer, Since our application of this strategy
we purchased Genworth Financial and sold is highly disciplined and relatively
CURRENT PERIOD ANALYSIS Janus Capital, Robert Half and First unique, it is important to understand the
Energy - all on the basis of valuation. benefits and limitations of our process.
The domestic economy continued to recover This low turnover is First, the goal of our investment
throughout the fiscal year, with the strategy is to preserve your capital
broader markets responding favorably while growing it at above-market rates
during the period. Higher commodity over the long term. Second, our portfolio
prices, a more restrictive monetary composition has little in common with
policy and concerns about popular benchmarks and most of our peers.
Third, we believe this strategy is a
prerequisite to outperformance over the
long-term but
</Table>
<Table>
<Caption>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Tyco International Ltd. (Bermuda) 4.3% 1. Pharmaceuticals 7.7%
2. Cardinal Health, Inc. 4.1 2. Health Care Distributors 6.1
[PIE CHART] 3. Computer Associates 3. Other Diversified Financial Services 6.0
International, Inc. 3.8 4. Thrifts & Mortgage Finance 5.7
Industrials 18.4% 4. SanofiSynthelabo S.A. (France) 3.5 5. Advertising 5.0
Consumer Discretionary 14.7% 5. JPMorgan Chase & Co. 3.3 6. Building Products 4.6
Information Technology 10.4% 6. Fannie Mae 3.2 7. Data Processing &
Energy 7.2% 7. First Data Corp. 3.0 Outsourced Services 4.6
Consumer Staples 2.8% 8. UnitedHealth Group Inc. 2.9 8. Investment Banking & Brokerage 4.5
Money Market Funds Plus Other 9. Waste Management, Inc. 2.9 9. Industrial Conglomerates 4.3
Assets Less Liabilities 2.4% 10. Omnicom Group Inc. 2.8 10. Diversified Commercial Services 4.2
Financials 22.6%
Health Care 21.5%
TOTAL NET ASSETS $850.4 MILLION
TOTAL NUMBER OF HOLDINGS* 46
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
<Caption>
AIM V.I. BASIC VALUE FUND
realize that short-term results may lag and Russell 1000 Value Index has remained BRET W. STANLEY,
the market. about 10% to 15%. This low commonality Chartered Financial
has contributed to modest outperformance [STANLEY Analyst, senior
Our process is absolute in nature, versus the S&P 500 Index over the PHOTO] portfolio manager, is
which means that investment decisions are long-term but is too low to expect lead portfolio manager
predicated on a company's estimated short-term results to be in line with the of AIM V.I. Basic
intrinsic value, not a target price market for the simple reason that your Value Fund and the head of AIM's Value
dependent on stock market valuation fund does not own exactly the same stocks Investment Management Unit. Prior to
levels. This approach has important as the indexes. joining AIM in 1998, Mr. Stanley served
differences when compared to relative as a vice president and portfolio manager
performance objectives. Relative PORTFOLIO ASSESSMENT and managed growth and income, equity
performance objectives do not emphasize income and value portfolios. He began his
capital preservation to the same degree When assessing our ability to grow your investment career in 1988. Mr. Stanley
and typically are more closely tied to capital, we believe the single most received a B.B.A. in finance from The
performance of market benchmarks and have important measure of AIM V.I. Basic Value University of Texas at Austin and an M.S.
higher portfolio commonality with those Fund is not our historical investment in finance from the University of
benchmarks. Commonality measures the results or popular statistical measures, Houston.
similarity of holdings between two but rather the portfolio's estimated
portfolios using the lowest common intrinsic value. Since we estimate the R. CANON COLEMAN II,
percentage method. This method compares intrinsic value of each holding in the Chartered Financial
each security's percentage of total net portfolio, we can also estimate the [COLEMAN Analyst, portfolio
assets in both portfolios and adds the intrinsic value of the entire fund. The PHOTO] manager, joined
lower percentages of the two portfolios difference between the market price and AMVESCAP in 1999 in
to determine commonality. the estimated intrinsic value is about its corporate
average for your fund over the past associate rotation program, working with
We emphasize capital preservation by several years. However, we believe this fund managers throughout AMVESCAP before
requiring a large cushion between price intrinsic value content is significantly joining AIM in 2000. He previously worked
and intrinsic value. When market price greater than what is available in the as a CPA. Mr. Coleman earned a B.S. and an
exceeds intrinsic value, the absence of market. While there is no assurance that M.S. in accounting from the University of
portfolio value content places capital at market price will ever reflect our Florida. He also has an M.B.A. from The
risk of permanent loss, as was the case estimate of portfolio intrinsic value, as Wharton School at the University of
with many technology stocks in 1999 2000. managers we believe this provides the Pennsylvania.
It is our requirement for a large margin best indicator of achieving the fund's
between market price and our estimated objective of long-term growth of capital. MATTHEW W. SEINSHEIMER,
intrinsic value that has resulted in Chartered Financial
little portfolio commonality with market IN CLOSING [SEINSHEIMER Analyst, senior
indexes. We believe popular benchmarks PHOTO] portfolio manager,
are not optimally constructed to preserve Market-relative results during this began his investment
capital and create wealth. In short, we period were mixed, but normal market career in 1992 as a
believe their composition has been more volatility predominates in the short fixed income trader. He later served as a
risky than our historical portfolios term. We continue to work hard on your portfolio manager on both fixed income and
largely because of a lower value content behalf striving to turn market volatility equity portfolios. Mr. Seinsheimer joined
and greater concentration in certain and investor overreaction into capital AIM as a senior analyst in 1998 and
sectors. Since we began managing the appreciation. We thank you for your assumed his current responsibilities in
fund, its commonality with the S&P 500 investment and for sharing our long-term 2000. He received a B.B.A. from Southern
Index horizon. Methodist University and an M.B.A. from
The University of Texas at Austin.
PRINCIPAL RISKS OF INVESTING THE VIEWS AND OPINIONS EXPRESSED IN
IN THE FUND MANAGEMENT'S DISCUSSION OF FUND MICHAEL J. SIMON,
PERFORMANCE ARE THOSE OF A I M ADVISORS, Chartered Financial
Investing in small and mid-size companies INC. THESE VIEWS AND OPINIONS ARE SUBJECT [SIMON Analyst, senior
involves risks not associated with TO CHANGE AT ANY TIME BASED ON FACTORS PHOTO] portfolio manager,
investing in more established companies, SUCH AS MARKET AND ECONOMIC CONDITIONS. joined AIM in 2001.
including business risk, significant THESE VIEWS AND OPINIONS MAY NOT BE Prior to joining AIM, Mr. Simon worked as
stock price fluctuations and illiquidity. RELIED UPON AS INVESTMENT ADVICE OR a vice president, equity analyst and
RECOMMENDATIONS, OR AS AN OFFER FOR A portfolio manager. Mr. Simon, who began his
The fund may invest up to 25% of its PARTICULAR SECURITY. THE INFORMATION IS investment career in 1989, received a
assets in the securities of non-U.S. NOT A COMPLETE ANALYSIS OF EVERY ASPECT B.B.A. in finance from Texas Christian
issuers. International investing presents OF ANY MARKET, COUNTRY, INDUSTRY, University and an M.B.A. from the
certain risks not associated with SECURITY OR THE FUND. STATEMENTS OF FACT University of Chicago. Mr. Simon has served
investing solely in the United States. ARE FROM SOURCES CONSIDERED RELIABLE, BUT as Occasional Faculty in the Finance and
These include risks relating to A I M ADVISORS, INC. MAKES NO Decision Sciences Department of Texas
fluctuations in the value of the U.S. REPRESENTATION OR WARRANTY AS TO THEIR Christian University's M.J. Neeley School
dollar relative to the values of other COMPLETENESS OR ACCURACY. ALTHOUGH of Business.
currencies, the custody arrangements made HISTORICAL PERFORMANCE IS NO GUARANTEE OF
for the fund's foreign holdings, FUTURE RESULTS, THESE INSIGHTS MAY HELP Assisted by the Basic Value Team
differences in accounting, political YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
risks and the lesser degree of public PHILOSOPHY. [RIGHT ARROW GRAPHIC]
information required to be provided by
non-U.S. companies. FOR FURTHER INFORMATION ON YOUR FUND, ITS
EXPENSES AND ITS LONG-TERM PERFORMANCE,
PLEASE TURN THE PAGE.
</Table>
3
<Table>
<Caption>
AIM V.I. BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES return of 5% per year before expenses,
which is not the Fund's actual return. The
As a shareholder of the fund, you incur The table below provides information about hypothetical account values and expenses
ongoing costs including management fees, actual account values and actual expenses. may not be used to estimate your actual
distribution and/or service fees (12b-1) You may use the information in this table, ending account balance or expenses you
and other fund expenses. This example is together with the amount you invested, to paid for the period. You may use this
intended to help you understand your estimate the expenses that you paid over information to compare the ongoing costs
ongoing costs (in dollars) of investing in the period. Simply divide your account of investing in the fund and other funds.
the fund and to compare these costs with value by $1,000 (for example, an $8,600 To do so, compare this 5% hypothetical
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), example with the 5% hypothetical examples
funds. The example is based on an then multiply the result by the number in that appear in the shareholder reports of
investment of $1,000 invested at the the table under the heading entitled the other funds.
beginning of the period and held for the "Actual Expenses Paid During Period" to
entire period, July 1, 2004 - December 31, estimate the expenses you paid on your Please note that the expenses shown in
2004. The actual and hypothetical expenses account during this period. the table are meant to highlight your
in the examples below do not represent the ongoing costs only. Therefore, the
effect of any fees or other expenses HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
assessed in connection with a variable COMPARISON PURPOSES comparing ongoing costs only, and will not
product; if they did, the expenses shown help you determine the relative total
would be higher while the ending account The table below also provides information costs of owning different funds.
values shown would be lower. about hypothetical account values and
hypothetical expenses based on the fund's
actual expense ratio and an assumed rate
of
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2),(3) (12/31/04) PERIOD(2),(4)
Series I $1,000.00 $1,055.30 $5.32 $1,019.96 $5.23
Series II 1,000.00 1,053.80 6.61 1,018.70 6.50
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004 ,was 5.53% and 5.38% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.03% and 1.28% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the onehalf year period). Effective on
January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated as
if this agreement had been in effect throughout the entire most recent fiscal half year are 0.99% and 1.24% for Series I and Series
II shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent fiscal
half year are $5.11 and $6.40 for Series I and Series II shares, respectively
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year are $5.03 and $6.29 for Series I and Series II, respectively.
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. BASIC VALUE FUND
========================================== ====================================================================================
AVERAGE ANNUAL TOTAL RETURNS
RESULTS OF A $10,000 INVESTMENT
As of 12/31/04
9/10/01-12/31/04 Index data from 8/31/01
SERIES I SHARES
Inception (9/10/2001) 5.29% [MOUNTAIN CHART]
1 Year 11.07
AIM V.I. AIM V.I. Russell Lipper
SERIES II SHARES Date Basic Value Basic Value S&P 500 1000 Large-Cap
Inception (9/10/2001) 5.05% Fund-Series I Fund-Series II Index Value Index Value Fund Index
1 Year 10.84
========================================== 8/31/01 $10000 $10000 $10000 $10000 $10000
9/01 9210 9210 9193 9296 9220
The Series I and Series II shares invest 10/01 9270 9270 9368 9216 9280
in the same portfolio of securities and 11/01 9950 9950 10086 9752 9875
will have substantially similar 12/01 10263 10258 10175 9982 10024
performance, except to the extent that 1/02 10183 10178 10026 9905 9839
expenses borne by each class differ. The 2/02 9992 9987 9833 9921 9784
performance data quoted represent past 3/02 10723 10717 10203 10390 10216
performance and cannot guarantee 4/02 10342 10337 9585 10034 9781
comparable future results; current 5/02 10292 10287 9514 10084 9794
performance may be lower or higher. Please 6/02 9281 9267 8837 9505 9111
contact your variable product issuer or 7/02 8289 8276 8148 8621 8324
your financial advisor for the most recent 8/02 8430 8426 8201 8687 8380
month end variable product performance. 9/02 7418 7406 7311 7721 7411
Performance figures reflect fund expenses, 10/02 7888 7876 7954 8293 7955
reinvested distributions and changes in 11/02 8509 8497 8421 8815 8454
net asset value. Investment return and 12/02 7988 7966 7927 8432 8051
principal value will fluctuate so that you 1/03 7808 7786 7720 8228 7860
may have a gain or loss when you sell 2/03 7528 7506 7604 8009 7663
shares. 3/03 7497 7476 7677 8022 7658
4/03 8168 8147 8309 8728 8305
AIM V.I. Basic Value Fund, a series 5/03 9008 8978 8747 9292 8816
portfolio of AIM Variable Insurance Funds, 6/03 9038 9007 8858 9408 8917
is currently offered through insurance 7/03 9308 9277 9015 9548 9041
companies issuing variable products. You 8/03 9628 9597 9190 9697 9194
cannot purchase shares of the fund 9/03 9428 9397 9093 9602 9090
directly. Performance figures given 10/03 9898 9857 9607 10190 9592
represent the fund and are not intended to 11/03 10089 10048 9691 10328 9710
reflect actual variable product values. 12/03 10676 10618 10199 10964 10306
They do not reflect sales charges, 1/04 10836 10779 10387 11157 10462
expenses and fees assessed in connection 2/04 11056 10998 10531 11396 10682
with a variable product. Sales charges, 3/04 11016 10959 10372 11297 10555
expenses and fees, which are determined by 4/04 10866 10799 10209 11021 10360
the variable product issuers, will vary 5/04 10966 10899 10349 11133 10436
and will lower the total return.* 6/04 11237 11170 10550 11396 10665
7/04 10626 10559 10201 11235 10409
ABOUT INDEXES USED IN THIS REPORT 8/04 10556 10489 10242 11395 10484
9/04 10686 10609 10353 11572 10608
The unmanaged Standard & Poor's Composite 10/04 10876 10799 10511 11764 10721
Index of 500 Stocks (the S&P 500 11/04 11447 11370 10936 12359 11187
- --Registered Trademark-- Index) is an 12/04 $11858 $11769 $11308 $12773 $11542
index of common stocks frequently used as
a general measure of U.S. stock market Source: Lipper, Inc.
performance.
====================================================================================
The unmanaged Lipper Large-Cap Value
Fund Index represents an average of the The unmanaged Russell 1000--Registered OTHER INFORMATION
performance of the 30 largest Trademark-- Value Index is a subset of the
large capitalization value funds tracked by unmanaged Russell 1000--Registered The returns shown in the Management's
Lipper, Inc., an independent mutual fund Trademark-- Index, which represents the Discussion of Fund Performance are based
performance monitor. performance of the stocks of on net asset values calculated for
large-capitalization companies; the Value shareholder transactions. Generally
subset measures the performance of Russell accepted accounting principles require
1000 companies with lower price/book adjustments to be made to the net assets
ratios and lower forecasted growth values. of the fund at period end for financial
reporting purposes, and as such, the net
The fund is not managed to track the asset values for shareholder transactions
performance of any particular index, and the returns based on those net asset
including the indexes defined here, and values may differ from the net asset
consequently, the performance of the fund values and returns reported in the
may deviate significantly from the Financial Highlights.
performance of the indexes.
Industry classifications used in this
A direct investment cannot be made in report are generally according to the
an index. Unless otherwise indicated, Global Industry Classification Standard,
index results include reinvested which was developed by and is the
dividends, and they do not reflect sales exclusive property and a service mark of
charges. Performance of an index of funds Morgan Stanley Capital International Inc.
reflects fund expenses; performance of a and Standard & Poor's.
market index does not.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIBVAAR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.65%
ADVERTISING-5.04%
Interpublic Group of Cos., Inc. (The)(a) 1,414,300 $ 18,951,620
- ------------------------------------------------------------------------
Omnicom Group Inc. 283,400 23,896,288
========================================================================
42,847,908
========================================================================
AEROSPACE & DEFENSE-1.23%
Honeywell International Inc. 295,200 10,453,032
========================================================================
APPAREL RETAIL-1.95%
Gap, Inc. (The) 786,150 16,603,488
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.48%
Bank of New York Co., Inc. (The) 630,150 21,059,613
========================================================================
BUILDING PRODUCTS-4.58%
American Standard Cos. Inc.(a) 474,150 19,591,878
- ------------------------------------------------------------------------
Masco Corp. 530,700 19,386,471
========================================================================
38,978,349
========================================================================
COMMUNICATIONS EQUIPMENT-0.98%
Motorola, Inc. 486,250 8,363,500
========================================================================
CONSUMER ELECTRONICS-1.25%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 401,850 10,649,025
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.56%
Ceridian Corp.(a) 705,250 12,891,970
- ------------------------------------------------------------------------
First Data Corp. 608,850 25,900,479
========================================================================
38,792,449
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.16%
Cendant Corp. 912,450 21,333,081
- ------------------------------------------------------------------------
H&R Block, Inc. 286,650 14,045,850
========================================================================
35,378,931
========================================================================
ENVIRONMENTAL SERVICES-2.86%
Waste Management, Inc. 811,050 24,282,837
========================================================================
FOOD RETAIL-2.83%
Kroger Co. (The)(a) 902,200 15,824,588
- ------------------------------------------------------------------------
Safeway Inc.(a) 418,750 8,266,125
========================================================================
24,090,713
========================================================================
GENERAL MERCHANDISE STORES-2.25%
Target Corp. 367,600 19,089,468
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-6.14%
Cardinal Health, Inc. 593,300 $ 34,500,395
- ------------------------------------------------------------------------
McKesson Corp. 564,150 17,748,159
========================================================================
52,248,554
========================================================================
HEALTH CARE EQUIPMENT-2.23%
Waters Corp.(a) 405,700 18,982,703
========================================================================
HEALTH CARE FACILITIES-1.66%
HCA, Inc. 353,000 14,105,880
========================================================================
HEALTH CARE SERVICES-0.82%
IMS Health Inc. 301,450 6,996,654
========================================================================
HOTELS, RESORTS & CRUISE LINES-1.24%
Starwood Hotels & Resorts Worldwide, Inc. 180,750 10,555,800
========================================================================
INDUSTRIAL CONGLOMERATES-4.27%
Tyco International Ltd. (Bermuda) 1,015,950 36,310,053
========================================================================
INDUSTRIAL MACHINERY-1.25%
Parker Hannifin Corp. 139,950 10,599,813
========================================================================
INVESTMENT BANKING & BROKERAGE-4.49%
Merrill Lynch & Co., Inc. 308,650 18,448,010
- ------------------------------------------------------------------------
Morgan Stanley 355,150 19,717,928
========================================================================
38,165,938
========================================================================
LEISURE PRODUCTS-0.57%
Mattel, Inc. 247,000 4,814,030
========================================================================
MANAGED HEALTH CARE-2.94%
UnitedHealth Group Inc. 284,000 25,000,520
========================================================================
MOVIES & ENTERTAINMENT-2.44%
Walt Disney Co. (The) 747,550 20,781,890
========================================================================
MULTI-LINE INSURANCE-1.79%
Genworth Financial Inc.-Class A 565,100 15,257,700
========================================================================
OIL & GAS DRILLING-3.60%
ENSCO International Inc. 305,300 9,690,222
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 492,750 20,887,672
========================================================================
30,577,894
========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.64%
Halliburton Co. 505,300 19,827,972
- ------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 217,550 11,160,315
========================================================================
30,988,287
========================================================================
</Table>
AIM V.I. BASIC VALUE FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.02%
Citigroup Inc. 478,550 $ 23,056,539
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 721,790 28,157,028
========================================================================
51,213,567
========================================================================
PHARMACEUTICALS-7.66%
Pfizer Inc. 708,900 19,062,321
- ------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (France)(b) 368,628 29,412,707
- ------------------------------------------------------------------------
Wyeth 392,100 16,699,539
========================================================================
65,174,567
========================================================================
PROPERTY & CASUALTY INSURANCE-2.16%
ACE Ltd. (Cayman Islands) 428,850 18,333,337
========================================================================
SEMICONDUCTOR EQUIPMENT-1.08%
Novellus Systems, Inc.(a) 329,200 9,181,388
========================================================================
SYSTEMS SOFTWARE-3.82%
Computer Associates International, Inc. 1,044,900 32,454,594
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-5.66%
Fannie Mae 384,550 $ 27,383,806
- ------------------------------------------------------------------------
MGIC Investment Corp. 151,450 10,436,420
- ------------------------------------------------------------------------
Radian Group Inc. 193,250 10,288,630
========================================================================
48,108,856
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $664,886,295) 830,441,338
========================================================================
MONEY MARKET FUNDS-2.69%
Liquid Assets Portfolio-Institutional
Class(c) 11,460,610 11,460,610
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 11,460,610 11,460,610
========================================================================
Total Money Market Funds (Cost
$22,921,220) 22,921,220
========================================================================
TOTAL INVESTMENTS-100.34% (Cost $687,807,515) 853,362,558
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.34%) (2,920,467)
========================================================================
NET ASSETS-100.00% $850,442,091
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 3.45% of the
Fund's Total Investments. See Note 1A.
(c) 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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$664,886,295) $830,441,338
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $22,921,220) 22,921,220
=============================================================
Total investments (cost $687,807,515) 853,362,558
=============================================================
Receivables for:
Investments sold 10,255,259
- -------------------------------------------------------------
Fund shares sold 307,476
- -------------------------------------------------------------
Dividends 853,775
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,879
=============================================================
Total assets 864,803,947
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 12,397,315
- -------------------------------------------------------------
Fund shares reacquired 732,163
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 38,286
- -------------------------------------------------------------
Accrued administrative services fees 952,242
- -------------------------------------------------------------
Accrued distribution fees -- Series II 206,547
- -------------------------------------------------------------
Accrued transfer agent fees 4,094
- -------------------------------------------------------------
Accrued operating expenses 31,209
=============================================================
Total liabilities 14,361,856
=============================================================
Net assets applicable to shares outstanding $850,442,091
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $676,189,019
- -------------------------------------------------------------
Undistributed net investment income 399,038
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 8,300,398
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 165,553,636
=============================================================
$850,442,091
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $496,836,768
_____________________________________________________________
=============================================================
Series II $353,605,323
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 41,971,642
_____________________________________________________________
=============================================================
Series II 30,075,523
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 11.84
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 11.76
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$107,842) $ 8,030,096
- ------------------------------------------------------------
Dividends from affiliated money market funds 366,600
============================================================
Total investment income 8,396,696
============================================================
EXPENSES:
Advisory fees 5,071,350
- ------------------------------------------------------------
Administrative services fees 1,908,101
- ------------------------------------------------------------
Custodian fees 64,584
- ------------------------------------------------------------
Distribution fees -- Series II 742,734
- ------------------------------------------------------------
Transfer agent fees 27,305
- ------------------------------------------------------------
Trustees' fees and retirement benefits 28,847
- ------------------------------------------------------------
Other 96,625
============================================================
Total expenses 7,939,546
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (6,323)
============================================================
Net expenses 7,933,223
============================================================
Net investment income 463,473
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 16,640,634
- ------------------------------------------------------------
Foreign currencies (53,407)
============================================================
16,587,227
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 61,497,364
- ------------------------------------------------------------
Foreign currencies (832)
============================================================
61,496,532
============================================================
Net gain from investment securities and foreign
currencies 78,083,759
============================================================
Net increase in net assets resulting from
operations $78,547,232
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 463,473 $ (364,956)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 16,587,227 (2,580,413)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 61,496,532 116,480,260
==========================================================================================
Net increase in net assets resulting from operations 78,547,232 113,534,891
==========================================================================================
Less distributions to shareholders from net investment
income -- Series I -- (89,726)
==========================================================================================
Share transactions-net:
Series I 141,562,360 152,189,833
- ------------------------------------------------------------------------------------------
Series II 67,072,182 95,111,846
==========================================================================================
Net increase in net assets resulting from share
transactions 208,634,542 247,301,679
==========================================================================================
Net increase in net assets 287,181,774 360,746,844
==========================================================================================
NET ASSETS:
Beginning of year 563,260,317 202,513,473
==========================================================================================
End of year (including undistributed net investment income
(loss) of $399,038 and $(11,028), respectively) $850,442,091 $563,260,317
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BASIC VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. BASIC VALUE FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor. The Fund allocates income
and realized and unrealized capital gains and losses to a class based on
the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
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 next $500
million of the Fund's average daily net assets, plus 0.675% of the next $500
million of the Fund's average daily net assets, plus 0.65% of the Fund's average
daily net assets in excess of $1.5 billion. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.695% of the
first $250 million, plus 0.67% of the next $250 million, plus 0.645% of the next
$500 million, plus 0.62% of the next $1.5 billion, plus 0.595% of the next $2.5
billion, plus 0.57% of the next $2.5 billion, plus 0.545% of the next $2.5
billion, plus 0.52% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
AIM V.I. BASIC VALUE FUND
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $5,972.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $296 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreements for the year ended December 31, 2004, AIM was paid
$1,908,101, of which AIM retained $172,523 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $27,305.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $742,734.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $13,519,448 $101,393,486 $(103,452,324) $ -- $11,460,610 $185,046 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 13,519,448 101,393,486 (103,452,324) -- 11,460,610 181,554 --
==================================================================================================================================
Total $27,038,896 $202,786,972 $(206,904,648) $ -- $22,921,220 $366,600 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $3,021,993 and $8,064,207,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $55 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $55.
AIM V.I. BASIC VALUE FUND
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $4,136
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- -------------------------------------------------------------------------------
Distributions paid from ordinary income $ -- $89,726
_______________________________________________________________________________
===============================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 4,237,807
- ----------------------------------------------------------------------------
Undistributed long-term gain 5,758,155
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 164,283,131
- ----------------------------------------------------------------------------
Temporary book/tax differences (26,021)
- ----------------------------------------------------------------------------
Shares of beneficial interest 676,189,019
============================================================================
Total net assets $850,442,091
____________________________________________________________________________
============================================================================
</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 losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(1,407).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund utilized $6,780,249 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund had no capital loss carryforward as of December 31, 2004.
AIM V.I. BASIC VALUE FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $278,649,020 and $95,714,071, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $173,524,547
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,240,009)
==============================================================================
Net unrealized appreciation of investment securities $164,284,538
______________________________________________________________________________
==============================================================================
</Table>
Cost of investments for tax purposes is $689,078,020.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on December 31, 2004, undistributed net investment income was
decreased by $53,407 and undistributed net realized gain (loss) was increased by
$53,407. Further, as a result of tax deferrals acquired in the reorganization of
LSA Basic Value Fund into the Fund, undistributed net realized gain (loss) was
decreased by $198,785 and shares of beneficial interest increased by $198,785.
These reclassifications had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003
----------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 13,734,851 $149,824,539 19,313,572 $174,114,472
- -------------------------------------------------------------------------------------------------------------------------
Series II 11,573,153 125,795,937 12,433,808 110,104,487
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 8,805 89,726
=========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 2,495,812 27,079,556 -- --
=========================================================================================================================
Reacquired:
Series I (3,284,585) (35,341,735) (2,570,676) (22,014,365)
=========================================================================================================================
Series II (5,416,314) (58,723,755) (1,653,745) (14,992,641)
=========================================================================================================================
19,102,917 $208,634,542 27,531,764 $247,301,679
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 62% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM and
or AIM affiliates may make payments to these entities, which are considered
to be related, for providing services to the Fund, AIM and or AIM affiliates
including but not limited to services such as, securities brokerage, third
party record keeping, account servicing and administrative services. The
Trust has no knowledge as to whether all or any portion of the shares owned
of record are also owned beneficially.
(b) As of the opening of business on May 3, 2004, the Fund acquired all of the
net assets of LSA Basic Value Fund, pursuant to a plan of reorganization
approved by the Trustees of the Fund on December 10, 2003 and by LSA Basic
Value Fund shareholders on March 26, 2004. The acquisition was accomplished
by a tax-free exchange of 2,495,812 shares of the Fund for 2,644,386 shares
of LSA Basic Value Fund outstanding as of the close of business on April 30,
2004. LSA Basic Value Fund's net assets at that date of $27,079,556,
including $3,492,199 of unrealized appreciation, were combined with those of
the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $657,224,099.
AIM V.I. BASIC VALUE 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
--------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.66 $ 7.98 $ 10.25 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.00 0.02(a) 0.01
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.16 2.68 (2.29) 0.25
======================================================================================================================
Total from investment operations 1.18 2.68 (2.27) 0.26
======================================================================================================================
Less dividends from net investment income -- (0.00) (0.00) (0.01)
======================================================================================================================
Net asset value, end of period $ 11.84 $ 10.66 $ 7.98 $ 10.25
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 11.07% 33.63% (22.15)% 2.63%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $496,837 $309,384 $ 97,916 $19,638
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.02%(c) 1.04% 1.16% 1.27%(d)(e)
======================================================================================================================
Ratio of net investment income to average net assets 0.17%(c) 0.01% 0.18% 0.28%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 14% 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 as such, the net asset
value for the financial reporting purposes and the returns based upon
those net asset values may differ from the net asset value and returns
for shareholder transactions. Total returns are not annualized for
periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(c) Ratios are based on average daily net assets of $409,527,963.
(d) After fee waivers and/or expense reimbursements. The ratio of expenses
to average net assets before fee waivers and/or expense reimbursements
was 2.61% for the period September 10, 2001 (date operations commenced)
to December 31, 2001.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
SERIES II
--------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.61 $ 7.96 $ 10.25 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.02) (0.01)(a) 0.00
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.16 2.67 (2.28) 0.26
======================================================================================================================
Total from investment operations 1.15 2.65 (2.29) 0.26
======================================================================================================================
Less distributions:
Dividends from net investment income -- (0.00) (0.00) (0.01)
======================================================================================================================
Net asset value, end of period $ 11.76 $ 10.61 $ 7.96 $ 10.25
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 10.84% 33.29% (22.34)% 2.58%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $353,605 $253,877 $104,597 $ 513
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.27%(c) 1.29% 1.41% 1.44%(d)(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(c) (0.24)% (0.07)% 0.12%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 14% 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 as such, the net asset
value for the financial reporting purposes and the returns based upon
those net asset values may differ from the net asset value and returns
for shareholder transactions. Total returns are not annualized for
periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(c) Ratios are based on average daily net assets of $297,093,467.
(d) After fee waivers and/or expense reimbursements. The ratio of expenses
to average net assets before fee waivers and/or expense reimbursements
was 2.88% for the period September 10, 2001 (date operations commenced)
to December 31, 2001.
(e) Annualized.
(f) Not annualized for periods less than one year.
AIM V.I. BASIC VALUE FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. BASIC VALUE FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. BASIC VALUE FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. BASIC VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Basic Value Fund as of December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the three 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.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. BASIC VALUE FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Basic Value Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- -----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. BASIC VALUE FUND
AIM V.I. BLUE CHIP FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. BLUE CHIP FUND seeks to
provide long-term growth of capital
with a secondary objective of current income.
Unless otherwise stated,information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
======================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
======================================================
====================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
======================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. BLUE CHIP FUND
For the fiscal year ended December 31, the performance of more speculative products and services, financial
2004, AIM V.I. Blue Chip Fund, while stocks with less solid earnings position, market share and management
delivering positive returns, histories within the same sectors. strategy.
underperformed the S&P 500 Index, which
generally represents the performance of HOW WE INVEST We use a bottom-up stock selection
the U.S. stock market. While past process to build a diversified portfolio
performance cannot guarantee comparable When considering stocks for inclusion in of 65 to 100 holdings across the 10
future results, for the fund and the S&P the fund's portfolio, we begin with a major market sectors, and we weight each
500 Index, 2004 was the first year of universe of large-cap, primarily of those sectors in the fund from 50% to
positive back-to-back annual returns domestic companies generally defined by 150% to the corresponding weighting in
since 1999. the Russell 1000 Index. This universe is the Russell 1000 Index. We consider
then broken down along the 10 major selling a fund holding if the outlook
======================================= market sectors, from which we select that led us to purchase the stock either
FUND VS. INDEXES what we consider to be the most fails to materialize or deteriorates so
attractive stocks from each sector based that revised performance expectations no
TOTAL RETURNS, 12/31/03-12/31/04, on three key criteria: growth, value and longer match our stock selection
EXCLUDING VARIABLE PRODUCT ISSUER quality. criteria.
CHARGES. IF VARIABLE PRODUCT ISSUER
CHARGES WERE INCLUDED, RETURNS WOULD o Growth - We seek two types of MARKET CONDITIONS AND YOUR FUND
BE LOWER. growth stocks. Core growth stocks are
stocks of well-established companies The economy showed signs of improvement
Series I Shares 4.67% with strong business franchises. They during the fiscal year, as did the U.S.
Series II Shares 4.28 have leading competitive positions in stock market--particularly in the fourth
S&P 500 Index (Broad Market growing markets with sustainable, quarter of 2004. The Frank Russell
Index/Style-specific Index) 10.87 above-average revenue and earnings Company, which compiles the Russell
Lipper Large-Cap Core Fund growth rates. Earnings momentum stocks market indexes, reported that for all of
Index (Peer Group Index) 8.29 are stocks of companies experiencing 2004, mid-cap stocks outperformed small-
significant positive change leading to and large-cap stocks. Also, value stocks
Source: Lipper,Inc. accelerating revenue or earnings generally outperformed growth stocks for
======================================= growth--usually above market the year. Fund performance was hindered
expectations. by the fund's significant investment in
Fund performance relative to our larger capitalization growth stocks,
indexes was influenced by our mandate to o Value - We apply AIM's which generally lagged the market for
be invested in all sectors of the growth-at-a-reasonable-price strategy to the year.
market. Many traditional growth sectors search for companies whose stocks are
(such as information technology, health trading at attractive valuations Despite these short-term trends, we
care and consumer discretionary) were relative to their potential growth remained true to our investment
relatively weak in 2004, while many rates. strategy. We continued to invest in
traditional non-growth sectors (such as stocks of large, established "blue chip"
utilities, energy and materials) were o Quality - To be considered for growth companies, even as investors
relatively strong. Also, our emphasis on purchase, companies must be qualified as preferred more speculative names.
investing in "blue chip" companies market leaders based on factors such as Likewise, we resisted deploying
within traditional growth sectors superior technology, significant fund assets in defensive
hindered performance as they generally stocks or sectors.
lagged
While our mandate is to maintain
exposure to all market sectors, our
exposure to industries within sectors
can vary. As an
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector 1. Exxon Mobil Corp. 3.5% 1. Pharmaceuticals 6.7%
1. Information Technology 21.2% 2. General Electric Co. 3.1 2. Systems Software 6.1
2. Financials 18.0 3. Citigroup Inc. 3.0 3. Industrial Conglomerates 5.3
3. Industrials 14.5 4. Microsoft Corp. 3.0 4. Other Diversified Financial
4. Health Care 13.2 5. Johnson & Johnson 2.7 Services 5.0
5. Consumer Discretionary 10.4 6. Wal-Mart Stores, Inc. 2.4 5. Investment Banking & Brokerage 3.7
6. Consumer Staples 8.6 7. Tyco International Ltd. (Bermuda) 2.2 6. Hypermarkets & Super Centers 3.6
7. Energy 5.3 8. Cisco Systems, Inc. 2.2 7. Semiconductors 3.6
8. Materials 2.2 9. Procter & Gamble Co. (The) 2.1 8. Computer Hardware 3.6
9. Telecommunication Services 1.7 10. Dell Inc. 2.1 9. Integrated Oil & Gas 3.5
10. Utilities 1.6 10. Communications Equipment 3.4
Money Market Funds Plus Other
Assets Less Liabilities 3.3
*Excluding U.S. Treasury securities and money market fund holdings.
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================================================
</Table>
2
<Table>
AIM V.I. BLUE CHIP FUND
example, within the health care sector, rising energy demand may continue to IN CLOSING
we had little exposure to large benefit the company.
pharmaceutical stocks, many of which At the close of the fiscal year, the
struggled for the year. Instead, we Some fund holdings did not perform fund held 89 stocks, its net assets
concentrated on medical technology and well for the fund. totaled $133.2 million and we believed
specialty pharmaceutical companies, that the fund's investments in
which as a group performed well. Intel surprised many when it market-leading companies in all sectors
Similarly, within the financials sector, announced in September that due to of the market positioned it well for
we were relatively underweighted weaker-than-expected chip demand, its 2005. No one can say how the stock
commercial banks and overweighted in third-quarter sales and earnings would market or the fund may perform in 2005,
market-sensitive financial stocks; thus disappoint. Intel dominates the but we have confidence in our investment
our financials holdings lagged for much semiconductor industry, and its process and strategy, and we feel
of the year, but our market-sensitive announcement hurt the entire optimistic about its long-term
financials performed well in the fourth semiconductor and semiconductor prospects. As always, we thank you for
quarter when stock market indexes rose, equipment industries. Nonetheless, given your continuing investment in AIM V.I.
the pace of initial public offerings the company's commanding market share Blue Chip Fund.
picked up and merger and acquisition and strong financial position, we were
activity increased. confident that Intel would remain the THE VIEWS AND OPINIONS EXPRESSED IN
leader in its industry. Moreover, we MANAGEMENT'S DISCUSSION OF FUND
AS the economy improved, the believed corporations may increase their PERFORMANCE ARE THOSE OF A I M ADVISORS,
industrials sector outperformed the capital spending; doing so would benefit INC. THESE VIEWS AND OPINIONS ARE
broad market, and General Electric was a Intel as companies upgrade their SUBJECT TO CHANGE AT ANY TIME BASED ON
strong contributor to fund performance. computer systems. We therefore continued FACTORS SUCH AS MARKET AND ECONOMIC
We increased our weighting of to hold the stock at the close of the CONDITIONS. THESE VIEWS AND OPINIONS MAY
industrials stocks from market weight to fiscal year. NOT BE RELIED UPON AS INVESTMENT ADVICE
overweight during the year. The world's OR RECOMMENDATIONS, OR AS AN OFFER FOR A
largest company (by market The fund's health care holdings PARTICULAR SECURITY. THE INFORMATION IS
capitalization), GE has shown over many collectively delivered positive returns NOT A COMPLETE ANALYSIS OF EVERY ASPECT
years that it is capable of generating for the fund, but Pfizer disappointed. OF ANY MARKET, COUNTRY, INDUSTRY,
strong, sustainable earnings growth. We In September, Merck (not a fund holding) SECURITY OR THE FUND. STATEMENTS OF FACT
considered GE to be undervalued for much withdrew its Vioxx--Registered ARE FROM SOURCES CONSIDERED RELIABLE,
of 2004, given its diverse business Trademark-- arthritis drug from markets BUT A I M ADVISORS, INC. MAKES NO
lines, many of which may benefit from an worldwide after a study suggested REPRESENTATION OR WARRANTY AS TO THEIR
improving economy. long-term use of the drug might increase COMPLETENESS OR ACCURACY. ALTHOUGH
the risk of heart attack and stroke. HISTORICAL PERFORMANCE IS NO GUARANTEE
Given the spike in oil, natural gas Pfizer came under pressure to withdraw OF FUTURE RESULTS, THESE INSIGHTS MAY
and gasoline prices we saw in 2004, it's its highly profitable Celebrex due to HELP YOU UNDERSTAND OUR INVESTMENT
not surprising that Exxon Mobil was similar safety concerns. We reduced our MANAGEMENT PHILOSOPHY.
another top-performing stock for the Pfizer holdings due to concerns over the
fund. The world's second-largest company company's slowing product pipeline and MONIKA H. DEGAN,
(by market capitalization) reported litigation risk, but did not eliminate Chartered Financial
record earnings in 2004 as a result of the stock from the fund, given its [DEGAN Analyst, senior
higher energy prices. A long-time attractive valuation. PHOTO] portfolio manager,
holding, Exxon Mobil remained in the is the lead manager
portfolio at year-end because we of AIM V.I. Blue
expected strengthening U.S. and world Chip Fund. Ms. Degan, who has been in
economies and the investment business since 1991,
joined AIM in 1995 as an investment
PRINCIPAL RISKS OF INVESTING IN THE FUND officer and portfolio analyst for equity
securities and was promoted to her
The fund may invest up to 25% of its assets in the securities of non-U.S. current position in 1997. She received a
issuers. International investing presents certain risks not associated with B.B.A. in finance and an M.B.A. in
investing solely in the United States. These include risks relating to finance and international business, both
fluctuations in the value of the U.S. dollar relative to the values of other from the University of Houston.
currencies, the custody arrangements made for the fund's foreign holdings,
differences in accounting, political risks and the lesser degree of public KIRK L. ANDERSON,
information required to be provided by non-U.S. companies. portfolio manager,
[ANDERSON is a manager of AIM
PHOTO] V.I. Blue Chip Fund.
Mr. Anderson joined
AIM in 1994 in the
fund services area. He moved to
portfolio administration in 1995, became
an analyst in 1997, and was named a
portfolio manager in 2003. Mr. Anderson
earned a B.A. in political science from
Texas A&M University and an M.S. in
finance from the University of Houston.
Assisted by the Large Cap Growth Team
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. BLUE CHIP FUND
EXAMPLE together with the amount you invested, the fund and other funds. To do so,
to estimate the expenses that you paid compare this 5% hypothetical example
As a shareholder of the fund, you incur over the period. Simply divide your with the 5% hypothetical examples that
ongoing costs, including management account value by $1,000 (for example, an appear in the shareholder reports of the
fees; distribution and/or service fees $8,600 account value divided by $1,000 = other funds.
(12b-1); and other fund expenses. This 8.6), then multiply the result by the
example is intended to help you number in the table under the heading Please note that the expenses shown
understand your ongoing costs (in entitled "Actual Expenses Paid During in the table are meant to highlight your
dollars) of investing in the fund and to Period" to estimate the expenses you ongoing costs only. Therefore, the
compare these costs with ongoing costs paid on your account during this period. hypothetical information is useful in
of investing in other mutual funds. The comparing ongoing costs only, and will
example is based on an investment of HYPOTHETICAL EXAMPLE FOR not help you determine the relative
$1,000 invested at the beginning of the COMPARISON PURPOSES total costs of owning different funds.
period and held for the entire period,
July 1, 2004 - December 31, 2004. The table below also provides
information about hypothetical account
The actual and hypothetical expenses values and hypothetical expenses based
in the examples below do not represent on the fund's actual expense ratio and
the effect of any fees or other expenses an assumed rate of return of 5% per year
assessed in connection with a variable before expenses, which is not the fund's
product; if they did, the expenses shown actual return. The hypothetical account
would be higher while the ending account values and expenses may not be used to
values shown would be lower. estimate your actual ending account
balance or expenses you paid for the
ACTUAL EXPENSES period. You may use this information to
compare the ongoing costs of investing
The table below provides information in
about actual account values and actual
expenses. You may use the information in
this table,
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,038.80 $5.64 $1,019.61 $5.58
Series II 1,000.00 1,036.50 6.91 1,018.35 6.85
(1)The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual expenses
and will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period July 1, 2004, to
December 31, 2004, was 3.88% and 3.65% for Series I and Series II shares,
respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.10% and 1.35%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. BLUE CHIP FUND
Past performance cannot guarantee ======================================================================================
comparable future results. RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 12/29/99-12/31/04 Index data from 12/31/99
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same DATE AIM V.I. BLUE CHIP S&P 500 LIPPER LARGE-CAP
percent change in price; in a linear FUND-SERIES I INDEX CORE FUND INDEX
chart each scale increment always 12/29/99 $10000
represents the same absolute change in 12/99 10000 $10000 $10000
price. In this example, the scale 1/00 9700 9498 9596
increment between $4,000 and $8,000 is 2/00 9920 9318 9593
the same as that between $8,000 and 3/00 10760 10229 10427
$16,000. In a linear chart, the latter 4/00 10330 9921 10086
scale increment would be twice as large. 5/00 10020 9718 9829
The benefit of using a logarithmic scale 6/00 10460 9957 10189
is that it better illustrates 7/00 10370 9802 10030
performance during the early years 8/00 10990 10410 10722
before reinvested distributions and 9/00 10300 9861 10151
compounding create the potential for the 10/00 10050 9819 10034
original investment to grow to very 11/00 9149 9045 9151
large numbers. Had the chart used a 12/00 9181 9090 9263
linear scale along its vertical axis, 1/01 9371 9412 9525
you would not be able to see as clearly 2/01 8141 8554 8639
the movements in the value of the fund 3/01 7361 8013 8109
and the indexes during the fund's early 4/01 8101 8635 8725
years. We use a logarithmic scale in 5/01 8080 8693 8774
financial reports of funds that have 6/01 7790 8481 8541
more than five years of performance 7/01 7540 8398 8417
history. 8/01 6960 7873 7922
9/01 6320 7237 7320
AVERAGE ANNUAL TOTAL RETURNS 10/01 6560 7375 7493
- ---------------------------- 11/01 7090 7941 7984
As of 12/31/04 12/01 7112 8010 8074
1/02 6962 7893 7947
SERIES I SHARES 2/02 6712 7741 7814
Inception (12/29/99) -7.20% 3/02 6992 8032 8080
5 Years -7.21 4/02 6471 7546 7657
1 Year 4.67 5/02 6321 7490 7601
6/02 5891 6957 7076
SERIES II SHARES 7/02 5491 6415 6551
Inception -7.46% 8/02 5522 6457 6604
5 Years -7.47 9/02 4982 5756 5963
1 Year 4.28 10/02 5411 6262 6426
11/02 5572 6630 6713
Returns since the inception date of 12/02 5251 6241 6360
Series II shares are historical. All 1/03 5101 6077 6193
other returns are the blended returns of 2/03 5081 5986 6111
the historical performance of the fund's 3/03 5171 6044 6162
Series II shares since their inception 4/03 5551 6542 6616
and the restated historical performance 5/03 5801 6886 6937
of the fund's Series I shares (for 6/03 5821 6974 7005
periods prior to inception of the Series 7/03 5961 7097 7116
II shares) adjusted to reflect the 8/03 6071 7235 7253
higher Rule 12b-1 fees applicable to the 9/03 5961 7159 7160
Series II shares. The inception date of 10/03 6271 7563 7510
the fund's Series I shares is 12/29/99. 11/03 6332 7630 7573
The inception date of the fund's Series 12/03 6572 8030 7937
II shares is 3/13/02. The Series I and 1/04 6652 8177 8049
Series II shares invest in the same 2/04 6702 8291 8144
portfolio of securities and will have 3/04 6622 8166 8017
substantially similar performance, 4/04 6452 8038 7892
except to the extent that expenses borne 5/04 6542 8148 7973
by each class differ. 6/04 6622 8306 8115
7/04 6342 8031 7828
8/04 6312 8063 7833
9/04 6362 8151 7923
10/04 6442 8275 8030
11/04 6672 8610 8335
12/04 $ 6879 $ 8903 $ 8595
Source: Lipper, Inc.
======================================================================================
The performance data quoted represent The unmanaged Russell
past performance and cannot guarantee 1000--Registered Trademark-- Index
comparable future results; current represents the performance of the stocks
performance may be lower or higher. of large-capitalization companies.
Please contact your variable product
issuer or financial advisor for the most The unmanaged Standard & Poor's
recent month-end variable product Composite Index of 500 Stocks (the S&P
performance. Performance figures reflect 500--Registered Trademark-- Index) is an
fund expenses, reinvested distributions index of common stocks frequently used
and changes in net asset value. as a general measure of U.S. stock
Investment return and principal value market performance.
will fluctuate so that you may have a
gain or loss when you sell shares. The fund is not managed to track the
performance of any particular index,
AIM V.I. Blue Chip Fund, a series including the indexes defined here, and
portfolio of AIM Variable Insurance consequently, the performance of the
Funds, is currently offered through fund may deviate significantly from the
insurance companies issuing variable performance of the indexes.
products. You cannot purchase shares of
the fund directly. Performance figures A direct investment cannot be made
given represent the fund and are not in an index. Unless otherwise indicated,
intended to reflect actual variable index results include reinvested
product values. They do not reflect dividends, and they do not reflect sales
sales charges, expenses and fees charges. Performance of an index of
assessed in connection with a variable funds reflects fund expenses;
product. Sales charges, expenses and performance of a market index does not.
fees, which are determined by the
variable product issuers, will vary and OTHER INFORMATION
will lower the total return.*
The returns shown in the Management's
ABOUT INDEXES USED IN THIS REPORT Discussion of Fund Performance are based
on net asset values calculated for
The unmanaged Lipper Large-Cap Core Fund shareholder transactions. Generally
Index represents an average of the accepted accounting principles require
performance of the 30 largest adjustments to be made to the net assets
large-capitalization core equity funds of the fund at period end for financial
tracked by Lipper, Inc., an independent reporting purposes, and as such, the net
mutual fund performance monitor. asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
Industry classifications used in this
report are generally according to the
Global Industry Classification Standard,
which was developed by and is the
exclusive property and a service mark of
Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIBCH-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.72%
AEROSPACE & DEFENSE-2.10%
Honeywell International Inc. 28,000 $ 991,480
- ------------------------------------------------------------------------
United Technologies Corp. 17,400 1,798,290
========================================================================
2,789,770
========================================================================
AIR FREIGHT & LOGISTICS-1.28%
United Parcel Service, Inc.-Class B 19,900 1,700,654
========================================================================
ALUMINUM-0.51%
Alcoa Inc. 21,500 675,530
========================================================================
APPLICATION SOFTWARE-0.54%
Amdocs Ltd. (United Kingdom)(a) 27,400 719,250
========================================================================
BIOTECHNOLOGY-2.27%
Amgen Inc.(a) 28,100 1,802,615
- ------------------------------------------------------------------------
Genentech, Inc.(a) 22,400 1,219,456
========================================================================
3,022,071
========================================================================
BUILDING PRODUCTS-0.88%
Masco Corp. 32,200 1,176,266
========================================================================
COMMUNICATIONS EQUIPMENT-3.43%
Cisco Systems, Inc.(a) 148,100 2,858,330
- ------------------------------------------------------------------------
Motorola, Inc. 43,300 744,760
- ------------------------------------------------------------------------
QUALCOMM Inc. 22,800 966,720
========================================================================
4,569,810
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.80%
Best Buy Co., Inc. 18,000 1,069,560
========================================================================
COMPUTER HARDWARE-3.61%
Dell Inc.(a) 65,500 2,760,170
- ------------------------------------------------------------------------
International Business Machines Corp. 20,800 2,050,464
========================================================================
4,810,634
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.99%
EMC Corp.(a) 89,000 1,323,430
========================================================================
CONSUMER FINANCE-2.90%
American Express Co. 32,000 1,803,840
- ------------------------------------------------------------------------
MBNA Corp. 24,700 696,293
- ------------------------------------------------------------------------
SLM Corp. 25,600 1,366,784
========================================================================
3,866,917
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.98%
Automatic Data Processing, Inc. 29,400 1,303,890
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
DEPARTMENT STORES-0.61%
J.C. Penney Co., Inc. 19,600 $ 811,440
========================================================================
DIVERSIFIED BANKS-2.98%
Bank of America Corp. 40,000 1,879,600
- ------------------------------------------------------------------------
U.S. Bancorp 24,400 764,208
- ------------------------------------------------------------------------
Wells Fargo & Co. 21,200 1,317,580
========================================================================
3,961,388
========================================================================
DIVERSIFIED CHEMICALS-0.99%
Dow Chemical Co. (The) 26,600 1,316,966
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.38%
Apollo Group, Inc.-Class A(a) 8,600 694,106
- ------------------------------------------------------------------------
Cendant Corp. 49,100 1,147,958
========================================================================
1,842,064
========================================================================
ELECTRIC UTILITIES-1.04%
FPL Group, Inc. 13,500 1,009,125
- ------------------------------------------------------------------------
Southern Co. (The) 11,200 375,424
========================================================================
1,384,549
========================================================================
ENVIRONMENTAL SERVICES-0.78%
Waste Management, Inc. 34,800 1,041,912
========================================================================
FOOTWEAR-1.21%
NIKE, Inc.-Class B 17,700 1,605,213
========================================================================
GENERAL MERCHANDISE STORES-0.80%
Target Corp. 20,400 1,059,372
========================================================================
HEALTH CARE EQUIPMENT-2.54%
Medtronic, Inc. 31,700 1,574,539
- ------------------------------------------------------------------------
Waters Corp.(a) 18,000 842,220
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 12,000 961,440
========================================================================
3,378,199
========================================================================
HOME IMPROVEMENT RETAIL-1.96%
Home Depot, Inc. (The) 61,000 2,607,140
========================================================================
HOTELS RESORTS & CRUISE LINES-1.64%
Carnival Corp. (Panama) 20,400 1,175,652
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 17,300 1,010,320
========================================================================
2,185,972
========================================================================
HOUSEHOLD PRODUCTS-2.89%
Colgate-Palmolive Co. 20,600 1,053,896
- ------------------------------------------------------------------------
Procter & Gamble Co. (The) 50,700 2,792,556
========================================================================
3,846,452
========================================================================
</Table>
AIM V.I. BLUE CHIP FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.56%
Fortune Brands, Inc. 9,600 $ 740,928
========================================================================
HYPERMARKETS & SUPER CENTERS-3.62%
Costco Wholesale Corp. 33,600 1,626,576
- ------------------------------------------------------------------------
Wal-Mart Stores, Inc. 60,500 3,195,610
========================================================================
4,822,186
========================================================================
INDUSTRIAL CONGLOMERATES-5.29%
General Electric Co. 114,000 4,161,000
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 80,700 2,884,218
========================================================================
7,045,218
========================================================================
INDUSTRIAL GASES-0.65%
Air Products & Chemicals, Inc. 15,000 869,550
========================================================================
INDUSTRIAL MACHINERY-2.01%
Danaher Corp. 27,300 1,567,293
- ------------------------------------------------------------------------
Eaton Corp. 15,400 1,114,344
========================================================================
2,681,637
========================================================================
INTEGRATED OIL & GAS-3.46%
Exxon Mobil Corp. 90,000 4,613,400
========================================================================
INTEGRATED TELECOMMUNICATIONS SERVICES-0.93%
SBC Communications Inc. 48,000 1,236,960
========================================================================
INTERNET RETAIL-0.80%
eBay Inc.(a) 9,200 1,069,776
========================================================================
INTERNET SOFTWARE & SERVICES-0.39%
Yahoo! Inc.(a) 13,600 512,448
========================================================================
INVESTMENT BANKING & BROKERAGE-3.69%
Goldman Sachs Group, Inc. (The) 18,600 1,935,144
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 27,000 1,613,790
- ------------------------------------------------------------------------
Morgan Stanley 24,600 1,365,792
========================================================================
4,914,726
========================================================================
IT CONSULTING & OTHER SERVICES-0.65%
Accenture Ltd.-Class A (Bermuda)(a) 32,100 866,700
========================================================================
MANAGED HEALTH CARE-1.74%
UnitedHealth Group Inc. 26,300 2,315,189
========================================================================
MULTI-LINE INSURANCE-1.81%
American International Group, Inc. 31,100 2,042,337
- ------------------------------------------------------------------------
Genworth Financial Inc.-Class A 13,700 369,900
========================================================================
2,412,237
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.61%
Dominion Resources, Inc. 12,000 812,880
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
OIL & GAS DRILLING-0.41%
ENSCO International Inc. 17,000 $ 539,580
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.43%
BJ Services Co. 12,200 567,788
- ------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 20,000 1,339,000
========================================================================
1,906,788
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.98%
Citigroup Inc. 83,400 4,018,212
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 67,000 2,613,670
========================================================================
6,631,882
========================================================================
PERSONAL PRODUCTS-1.28%
Gillette Co. (The) 38,000 1,701,640
========================================================================
PHARMACEUTICALS-6.65%
Allergan, Inc. 11,400 924,198
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 15,400 690,844
- ------------------------------------------------------------------------
Johnson & Johnson 55,900 3,545,178
- ------------------------------------------------------------------------
Lilly (Eli) & Co. 11,800 669,650
- ------------------------------------------------------------------------
Pfizer Inc. 76,000 2,043,640
- ------------------------------------------------------------------------
Wyeth 23,000 979,570
========================================================================
8,853,080
========================================================================
PROPERTY & CASUALTY INSURANCE-1.01%
Allstate Corp. (The) 26,100 1,349,892
========================================================================
RAILROADS-0.80%
Canadian National Railway Co. (Canada) 17,300 1,059,625
========================================================================
RESTAURANTS-1.46%
McDonald's Corp. 60,700 1,946,042
========================================================================
SEMICONDUCTOR EQUIPMENT-0.97%
Applied Materials, Inc.(a) 38,900 665,190
- ------------------------------------------------------------------------
KLA-Tencor Corp.(a) 13,500 628,830
========================================================================
1,294,020
========================================================================
SEMICONDUCTORS-3.62%
Analog Devices, Inc. 20,500 756,860
- ------------------------------------------------------------------------
Intel Corp. 78,100 1,826,759
- ------------------------------------------------------------------------
Linear Technology Corp. 17,400 674,424
- ------------------------------------------------------------------------
Microchip Technology Inc. 24,000 639,840
- ------------------------------------------------------------------------
Xilinx, Inc. 31,000 919,150
========================================================================
4,817,033
========================================================================
SOFT DRINKS-0.83%
PepsiCo. Inc. 21,200 1,106,640
========================================================================
SPECIALTY STORES-0.54%
Bed Bath & Beyond Inc.(a) 18,000 716,940
========================================================================
</Table>
AIM V.I. BLUE CHIP FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SYSTEMS SOFTWARE-6.06%
Microsoft Corp. 147,700 $ 3,945,067
- ------------------------------------------------------------------------
Oracle Corp.(a) 131,200 1,800,064
- ------------------------------------------------------------------------
Symantec Corp.(a) 36,600 942,816
- ------------------------------------------------------------------------
VERITAS Software Corp.(a) 48,200 1,376,110
========================================================================
8,064,057
========================================================================
THRIFTS & MORTGAGE FINANCE-0.62%
Fannie Mae 11,600 826,036
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.74%
Vodafone Group PLC-ADR (United Kingdom) 35,800 980,204
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $109,796,951) 128,775,743
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. TREASURY BILLS-0.37%
2.15%, 03/17/05 (Cost $497,756)(b)(c) $ 500,000(d) $ 497,890
========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-4.28%
Liquid Assets Portfolio-Institutional
Class(e) 2,849,475 2,849,475
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 2,849,475 2,849,475
========================================================================
Total Money Market Funds (Cost
$5,698,950) 5,698,950
========================================================================
TOTAL INVESTMENTS-101.37% (Cost $115,993,657) 134,972,583
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.37%) (1,822,488)
========================================================================
NET ASSETS-100.00% $133,150,095
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The market value of this security at December 31, 2004
represented 0.37% of the Fund's Total Investments. See Note 1A.
(c) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1F and Note 8.
(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. BLUE CHIP FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$110,294,707) $129,273,633
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $5,698,950) 5,698,950
=============================================================
Total investments (cost $115,993,657) 134,972,583
=============================================================
Receivables for:
Investments sold 688,075
- -------------------------------------------------------------
Variation margin 2,609
- -------------------------------------------------------------
Fund shares sold 54,521
- -------------------------------------------------------------
Dividends 136,109
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 25,306
=============================================================
Total assets 135,879,203
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 2,516,862
- -------------------------------------------------------------
Fund shares reacquired 13,914
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 28,099
- -------------------------------------------------------------
Accrued administrative services fees 153,722
- -------------------------------------------------------------
Accrued distribution fees -- Series II 890
- -------------------------------------------------------------
Accrued transfer agent fees 341
- -------------------------------------------------------------
Accrued operating expenses 15,280
=============================================================
Total liabilities 2,729,108
=============================================================
Net assets applicable to shares outstanding $133,150,095
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $139,728,789
- -------------------------------------------------------------
Undistributed net investment income 703,281
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures contracts (26,294,051)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 19,012,076
=============================================================
$133,150,095
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $131,686,967
_____________________________________________________________
=============================================================
Series II $ 1,463,128
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 19,176,067
_____________________________________________________________
=============================================================
Series II 214,473
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.87
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.82
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$2,525) $2,109,668
- ------------------------------------------------------------
Dividends from affiliated money market funds 43,413
- ------------------------------------------------------------
Interest 6,469
============================================================
Total investment income 2,159,550
============================================================
EXPENSES:
Advisory fees 970,308
- ------------------------------------------------------------
Administrative services fees 359,043
- ------------------------------------------------------------
Custodian fees 25,659
- ------------------------------------------------------------
Distribution fees -- Series II 3,469
- ------------------------------------------------------------
Transfer agent fees 7,392
- ------------------------------------------------------------
Trustees' fees and retirement benefits 14,461
- ------------------------------------------------------------
Other 55,469
============================================================
Total expenses 1,435,801
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (906)
============================================================
Net expenses 1,434,895
============================================================
Net investment income 724,655
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 715,322
- ------------------------------------------------------------
Futures contracts 102,131
============================================================
817,453
============================================================
Change in net unrealized appreciation of:
Investment securities 3,996,465
- ------------------------------------------------------------
Futures contracts 19,092
============================================================
4,015,557
============================================================
Net gain from investment securities and futures
contracts 4,833,010
============================================================
Net increase in net assets resulting from
operations $5,557,665
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 724,655 $ 129,864
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures contracts 817,453 (3,545,045)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and futures contracts 4,015,557 24,418,057
==========================================================================================
Net increase in net assets resulting from operations 5,557,665 21,002,876
==========================================================================================
Distributions to shareholders from net investment
income -- Series I (134,718) --
==========================================================================================
Share transactions-net:
Series I 3,778,955 36,219,348
- ------------------------------------------------------------------------------------------
Series II 104,980 858,157
==========================================================================================
Net increase in net assets resulting from share
transactions 3,883,935 37,077,505
==========================================================================================
Net increase in net assets 9,306,882 58,080,381
==========================================================================================
NET ASSETS:
Beginning of year 123,843,213 65,762,832
==========================================================================================
End of year (including undistributed net investment income
of $703,281 and $113,344, respectively). $133,150,095 $123,843,213
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
AIM V.I. BLUE CHIP FUND
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
AIM V.I. BLUE CHIP 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 0.75% 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. Effective January 1, 2005
through December 31, 2009, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.695% of
the first $250 million, plus 0.67% of the next $250 million, plus 0.645% of the
next $500 million, plus 0.62% of the next $1.5 billion, plus 0.595% of the next
$2.5 billion, plus 0.57% of the next $2.5 billion, plus 0.545% of the next $2.5
billion, plus 0.52% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $792.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $112 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$359,043, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $7,392.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $3,469.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $2,005,186 $18,143,697 $(17,299,408) $ -- $2,849,475 $21,821 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,005,186 18,143,697 (17,299,408) -- 2,849,475 21,592 --
==================================================================================================================================
Total $4,010,372 $36,287,394 $(34,598,816) $ -- $5,698,950 $43,413 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
AIM V.I. BLUE CHIP FUND
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $524,981 and $9,296,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $2 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $2.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,920
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--FUTURES CONTRACTS
On December 31, 2004, $254,000 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 5 Mar-05/Long $1,517,125 $33,150
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
AIM V.I. BLUE CHIP FUND
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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------
Distributions paid from ordinary income $134,718 $ --
________________________________________________________________________________
================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 728,567
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 13,450,141
- ----------------------------------------------------------------------------
Temporary book/tax differences (25,286)
- ----------------------------------------------------------------------------
Capital loss carryforward (20,732,116)
- ----------------------------------------------------------------------------
Shares of beneficial interest 139,728,789
============================================================================
Total net assets $133,150,095
____________________________________________________________________________
============================================================================
</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 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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $412,473 capital loss carryforward in the current period
to offset net realized capital gain for federal income tax purposes. The Fund
has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2008 $ 14,647
- -----------------------------------------------------------------------------
December 31, 2009 5,392,628
- -----------------------------------------------------------------------------
December 31, 2010 11,780,141
- -----------------------------------------------------------------------------
December 31, 2011 3,544,700
=============================================================================
Total capital loss carryforward $20,732,116
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $52,613,155 and $47,924,137, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $17,238,353
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,788,212)
===============================================================================
Net unrealized appreciation of investment securities $13,450,141
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $121,522,442.
</Table>
AIM V.I. BLUE CHIP FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,292,562 $ 34,996,471 9,203,880 $ 53,263,047
- ----------------------------------------------------------------------------------------------------------------------
Series II 45,425 299,097 320,667 1,892,028
======================================================================================================================
Issued as reinvestment of dividends -- Series I 19,754 134,718 -- --
======================================================================================================================
Reacquired:
Series I (4,776,958) (31,352,234) (3,034,247) (17,043,699)
- ----------------------------------------------------------------------------------------------------------------------
Series II (29,772) (194,117) (173,989) (1,033,871)
======================================================================================================================
551,011 $ 3,883,935 6,316,311 $ 37,077,505
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 93% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
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,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.57 $ 5.25 $ 7.11 $ 9.18 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.01(b) (0.00)(b) (0.01) 0.02(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 1.31 (1.86) (2.06) (0.84)
============================================================================================================================
Total from investment operations 0.31 1.32 (1.86) (2.07) (0.82)
============================================================================================================================
Less dividends from net investment income (0.01) -- -- -- --
============================================================================================================================
Net asset value, end of period $ 6.87 $ 6.57 $ 5.25 $ 7.11 $ 9.18
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 4.67% 25.14% (26.16)% (22.54)% (8.18)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $131,687 $122,543 $65,490 $60,129 $29,787
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.11%(d) 1.13% 1.18% 1.26% 1.31%(e)
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.56%(a)(d) 0.14% (0.03)% (0.17)% 0.07%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 38% 24% 38% 19% 15%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a)Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.02 and 0.22%, respectively.
(b)Calculated using average shares outstanding.
(c)Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d)Ratios are based on average daily net assets of $127,986,711.
(e)After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.13% for the year ended December 31, 2000.
AIM V.I. BLUE CHIP FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------
YEAR ENDED MARCH 13, 2002
DECEMBER 31, (DATE SALES
--------------------- COMMENCED) TO
2004 2003 DECEMBER 31, 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.54 $ 5.24 $ 7.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.01)(b) (0.01)(b)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.26 1.31 (1.75)
========================================================================================================
Total from investment operations 0.28 1.30 (1.76)
========================================================================================================
Net asset value, end of period $ 6.82 $ 6.54 $ 5.24
________________________________________________________________________________________________________
========================================================================================================
Total return(c) 4.28% 24.81% (25.14)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,463 $1,301 $ 273
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets 1.36%(d) 1.38% 1.43%(e)
========================================================================================================
Ratio of net investment income (loss) to average net assets 0.31%(a)(d) (0.11)% (0.28)%(e)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(f) 38% 24% 38%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a)Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $0.00 and (0.03)%,
respectively.
(b)Calculated using average shares outstanding.
(c)Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d)Ratios are based on average daily net assets of $1,387,655.
(e)Annualized.
(f)Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
AIM V.I. BLUE CHIP FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
AIM V.I. BLUE CHIP FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. BLUE CHIP FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Blue Chip Fund as of December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. BLUE CHIP FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Blue Chip Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- -----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 100% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of ordinary dividends paid, 0.29% was derived from U.S. Treasury Obligations.
AIM V.I. BLUE CHIP FUND
AIM V.I. CAPITAL APPRECIATION FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. CAPITAL APPRECIATION FUND seeks
to provide growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Stocks, as measured by most domestic which generally outperformed large-cap MARKET CONDITIONS AND YOUR FUND
market indexes, rallied in the fourth stocks, than some of its peers.
quarter of 2004, enabling the fund to In 2004, the economy exhibited signs of
record positive returns for the year. HOW WE INVEST strength. Gross domestic product (GDP),
the broadest measure of overall economic
======================================= We use a bottom-up approach to activity, expanded at an annualized rate
FUND VS. INDEXES investing, selecting stocks based on our of 4.0% in the third quarter of 2004 and
qualitative and fundamental analysis of 3.1% in the fourth quarter. As we were
Total returns, 12/31/03-12/31/04, individual companies. We believe that generally optimistic about the economy,
excluding variable product issuer earnings are the primary factor driving we continued to favor
charges. If variable product issuer stock prices over the long term. We seek accelerating-growth stocks over
charges were included, returns would to own the stocks of companies with core-growth holdings in the portfolio.
be lower. long-term records of earnings growth as At the close of the reporting period,
well as those that have experienced accelerating-growth stocks composed
Series I Shares 6.62% positive earnings revisions. We consider about 65% of the portfolio while
selling a stock if a company experiences core-growth holdings made up about 35%.
Series II Shares 6.33 decelerating or disappointing earnings,
the stock's price reaches our valuation This strategy detracted from fund
S&P 500 Index target or we find a more attractive performance for much of the year, but
(Broad Market Index) 10.87 investment option. benefited it in the fourth quarter of
2004. We observed that for the first
Russell 1000 Growth Index The fund generally consists of three quarters of the year, investors
(Style-specific Index) 6.30 defensive core-growth holdings and more favored more defensive stocks in energy,
aggressive accelerating-growth stocks. utilities and telecommunication
Lipper Multi-Cap Growth Fund Core-growth holdings--the stocks of services, the three best-performing
Index (Peer Group Index) 11.26 companies with consistent long-term sectors for the entire reporting period.
earnings growth records--may provide While the fund had exposure to the
Source: Lipper, Inc. some protection in a declining market, energy sector, it had little or no
======================================= but they may not appreciate as much when weighting in telecommunication services
stocks are rising. Accelerating-growth or utilities, which are generally not
At the close of the reporting stocks tend to perform better than considered growth sectors. At the close
period, nearly two-thirds of the fund's core-growth holdings in an improving of the year, the fund's three largest
assets were invested in large-cap growth economic environment. However, they tend sector weightings were information
stocks. The fund underperformed the S&P to be more volatile during market technology, health care and industrials.
500 Index for the year because that downturns. The performance of these sectors
benchmark includes value stocks, which improved in the fourth quarter,
generally outperformed growth stocks We endeavor to adjust the balance benefiting fund performance.
over the period. Favorable stock between core-growth holdings and
selection in the industrials and health accelerating-growth stocks in the Over the year, we increased the
care sectors and an overweight position portfolio based on an ongoing analysis fund's exposure to the energy, materials
in energy relative to the Russell 1000 of economic and market conditions. and industrials sectors. We believe that
Growth Index helped the fund track that companies in these sectors could benefit
benchmark. We believe the fund from the industrialization of developing
underperformed the Lipper Multi-Cap countries. For the year, industrials
Growth Fund Index because it had less and energy were the most positive
exposure to mid- and small-cap stocks, contributors to fund performance, and
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector 1. Microsoft Corp. 2.3% 1. Health Care Equipment 6.3%
2. Dell Inc. 2.3 2. Communications Equipment 5.6
1. Information Technology 28.7% 3. Cisco Systems, Inc. 2.1 3. Systems Software 5.2
2. Health Care 16.3 4. Biomet, Inc. 2.0 4. Semiconductors 4.6
3. Industrials 13.3 5. Yahoo! Inc. 1.8 5. Pharmaceuticals 4.2
4. Consumer Discretionary 12.0 6. Robert Half International Inc. 1.7 6. Industrial Machinery 3.8
5. Financials 8.4 7. Johnson & Johnson 1.6 7. Computer Hardware 3.5
6. Energy 7.7 8. Staples, Inc. 1.5 8. Consumer Finance 3.4
7. Materials 6.5 9. Caremark Rx, Inc. 1.4 9. Data Processing & Outsourced
8. Consumer Staples 4.2 10. Microchip Technology Inc. 1.4 Services 2.8
9. Telecommunication Services 0.8 10. Specialty Stores 2.7
Money market funds plus other
assets less liabilities 2.1
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
the portfolio's materials holdings Celebrex. We reduced the fund's holdings KENNETH A. ZSCHAPPEL,
outperformed those of the Russell 1000 in this stock. senior portfolio
Growth Index. [ZSCHAPPEL manager, is lead
IN CLOSING PHOTO] manager of AIM V.I
Simultaneously, we reduced the fund's Capital Appreciation
exposure to consumer discretionary, one Considering the challenging market for Fund. He joined AIM
of the weaker-performing sectors for the large-cap growth stocks, we are pleased in 1990 and in 1992 became a portfolio
portfolio relative to the Russell 1000 to have provided positive returns for analyst for equity securities,
Growth Index. Within this sector, we our investors. However, we are always specializing in technology and health
reduced the fund's exposure to media striving to improve performance while care. He was elected investment officer
companies, which generally failed to adhering to the fund's investment of A I M Capital Management, Inc. in
realize increases in advertising discipline. It is important to remember 1995. A native of Austin, Texas, he
revenue. We also reduced the fund's that market segments and investment received a B.A. in political science
exposure to certain retailers that we styles go in and out of favor. We from Baylor University.
believed were most vulnerable to a encourage investors to maintain a
decline in consumer spending due to long-term perspective. We appreciate CHRISTIAN A. COSTANZO,
higher oil prices. your continued participation in AIM V.I. Chartered Financial
Capital Appreciation Fund. [COSTANZO Analyst and portfolio
Stocks that contributed to fund PHOTO] manager, is a manager
performance included Autodesk, a design The views and opinions expressed in of AIM V.I. Capital
software company, and Yahoo!, a leading Management's Discussion of Fund Appreciation Fund. He
Internet provider of products and Performance are those of A I M Advisors, joined AIM in 1995 as an analyst and
services. Autodesk produces design 3-D Inc. These views and opinions are assumed his current duties in 1997. Prior
graphic software used mainly by subject to change at any time based on to joining AIM, he worked as a business
architects and engineers. It recently factors such as market and economic analyst from 1991 to 1993. He holds a
changed its business strategy for its conditions. These views and opinions may B.A. in biology and economics from the
key products, moving from single-product not be relied upon as investment advice University of Virginia and an M.B.A.
to annual subscription sales. This or recommendations, or as an offer for a from The University of Texas at Austin.
strategy has provided the company with particular security. The information is
more predictable earnings, a key not a complete analysis of every aspect ROBERT J. LLOYD,
consideration in our investment process. of any market, country, industry, Chartered Financial
Yahoo!'s stock rose over the reporting security or the fund. Statements of fact [LLOYD Analyst and
period as the company reported record are from sources considered reliable, PHOTO] portfolio manager,
revenue for six consecutive quarters. but A I M Advisors, Inc. makes no is a manager of AIM
representation or warranty as to their V.I. Capital
Detracting from fund performance were completeness or accuracy. Although Appreciation Fund. He joined AIM in 2000
Clear Channel Communications, the historical performance is no guarantee as a senior analyst for the technology
leading radio station owner in the of future results, these insights may funds. He was promoted to portfolio
United States, and Pfizer, one of the help you understand our investment manager in 2001. He received a B.B.A.
world's largest pharmaceutical management philosophy. from the University of Notre Dame and an
companies. Clear Channel Communication's M.B.A. from the University of Chicago.
stock declined amid concerns about
declining advertising revenue and an BRYAN A. UNTERHALTER,
indecency claim filed against it by the portfolio manager, is
Federal Communications Commission. [UNTERHALTER a manager of AIM V.I.
Pfizer's stock declined amid concerns PHOTO] Capital Appreciation
about health risks surrounding its major Fund. He began his
pain reliever, investment career in
1995 as an equity trader. In 1997, he
PRINCIPAL RISKS OF INVESTING IN THE FUND joined AIM as a domestic equity trader
and later became an analyst on AIM's
Investing in small and mid-size companies involves risks not associated with International (Europe/Canada) investment
investing in more established companies, including business risk, significant management team in 1998. He was promoted
stock price fluctuations and illiquidity. to his current position in 2003. He
received a B.A. from The University of
The fund may invest up to 25% of its assets in the securities of non-U.S. Texas at Austin and an M.B.A. from the
issuers. International investing presents certain risks not associated with University of St. Thomas.
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 Assisted by the Multi-Cap Growth Team
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.
=======================================================================================
TOTAL NET ASSETS $1.0 BILLION
TOTAL NUMBER OF HOLDINGS* 150
======================================================================================= [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES account values and expenses may not be
used to estimate your actual ending
As a shareholder of the fund, you incur The table below provides information account balance or expenses you paid for
ongoing costs, including management about actual account values and actual the period. You may use this information
fees; distribution and/or service fees expenses. You may use the information in to compare the ongoing costs of
(12b-1); and other fund expenses. This this table, together with the amount you investing in the fund and other funds.
example is intended to help you invested, to estimate the expenses that To do so, compare this 5% hypothetical
understand your ongoing costs (in you paid over the period. Simply divide example with the 5% hypothetical
dollars) of investing in the fund and to your account value by $1,000 (for examples that appear in the shareholder
compare these costs with ongoing costs example, an $8,600 account value divided reports of the other funds.
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the
example is based on an investment of result by the number in the table under Please note that the expenses shown in
$1,000 invested at the beginning of the the heading entitled "Actual Expenses the table are meant to highlight your
period and held for the entire period, Paid During Period" to estimate the ongoing costs only. Therefore, the
July 1, 2004-December 31, 2004. expenses you paid on your account during hypothetical information is useful in
this period. comparing ongoing costs only, and will
The actual and hypothetical expenses not help you determine the relative
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR total costs of owning different funds.
the effect of any fees or other expenses COMPARISON PURPOSES
assessed in connection with a variable
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the fund's
actual return. The hypothetical
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,044.70 $4.73 $1,020.51 $4.67
Series II 1,000.00 1,043.10 6.01 1,019.25 5.94
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 4.47% and 4.31% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.92% and 1.17% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 5/5/93-12/31/04 Index data from 4/30/93
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same AIM V.I. CAPITAL APPRECIATION S&P 500 RUSSELL 1000 LIPPER MULTI-CAP
percent change in price; in a linear DATE FUND-SERIES I INDEX GROWTH INDEX GROWTH FUND INDEX
chart each scale increment always 4/30/1993 $10000 $10000 $10000 $10000
represents the same absolute change in 6/93 10200 10297 10256 10645
price. In this example, the scale 9/93 11370 10562 10409 11422
increment between $5,000 and $10,000 is 12/93 11950 10807 10809 11583
the same as that between $10,000 and 3/94 11820 10398 10332 11144
$20,000. In a linear chart, the latter 6/94 11099 10441 10225 10657
scale increment would be twice as large. 9/94 12239 10950 11012 11391
The benefit of using a logarithmic scale 12/94 12249 10949 11092 11256
is that it better illustrates 3/95 13343 12013 12149 12089
performance during the early years 6/95 15101 13159 13342 13428
before reinvested distributions and 9/95 17259 14204 14553 14801
compounding creates the potential for 12/95 16621 15058 15216 15052
the original investment to grow to very 3/96 17647 15866 16033 15823
large numbers. Had the chart used a 6/96 18601 16577 17053 16615
linear scale along its vertical axis, 9/96 19346 17090 17667 17131
you would not be able to see as clearly 12/96 19547 18513 18734 17739
the movements in the value of the fund 3/97 18362 19011 18835 17144
and the indexes during the fund's early 6/97 21180 22326 22397 19908
years. We use a logarithmic scale in 9/97 24190 23998 24080 22484
financial reports of funds that have 12/97 22192 24687 24446 21810
more than five years of performance 3/98 24609 28129 28150 24885
history. 6/98 25039 29063 29428 25461
9/98 21346 26178 26755 21701
======================================= 12/98 26480 31748 33909 27218
AVERAGE ANNUAL TOTAL RETURNS 3/99 26386 33329 36064 28944
As of 12/31/04 6/99 29006 35674 37452 31108
9/99 28206 33452 36080 29930
SERIES I SHARES 12/99 38300 38425 45152 39834
Inception (5/5/93) 9.00% 3/00 43619 39305 48369 45554
10 Years 8.35 6/00 41456 38261 47064 42780
5 Years -6.51 9/00 43834 37891 44533 43135
1 Year 6.62 12/00 34124 34928 35027 35033
3/01 26910 30790 27706 27241
SERIES II SHARES 6/01 28759 32590 30039 29861
10 Years 8.09% 9/01 22120 27809 24208 21975
5 Years -6.75 12/01 26180 30780 27873 26218
1 Year 6.33 3/02 26119 30865 27152 25321
======================================= 6/02 22465 26732 22082 20940
9/02 18789 22116 18759 17369
Returns since the inception date of 12/02 19801 23980 20101 18399
Series II shares are historical. All 3/03 19450 23225 19887 18258
other returns are the blended returns of 6/03 22053 26798 22732 21275
the historical performance of the fund's 9/03 22945 27507 23621 22372
Series II shares since their inception 12/03 25625 30854 26081 24909
and the restated historical performance 3/04 25856 31376 26286 25790
of the fund's Series I shares (for 6/04 26158 31916 26795 26060
periods prior to inception of the Series 9/04 24834 31319 25395 24800
II shares) adjusted to reflect the 12/04 $27322 $34209 $27724 $27715
higher Rule 12b-1 fees applicable to the
Series II shares. The inception date of Source: Lipper, Inc.
the fund's Series II shares is 8/21/01. ======================================================================================
The Series I and Series II shares performance may be lower or higher. price/book ratios and higher forecasted
invest in the same portfolio of Please contact your variable product growth values.
securities and will have substantially issuer or your financial advisor for the
similar performance, except to the most recent month-end performance. The fund is not managed to track the
extent that expenses borne by each class Performance figures reflect fund performance of any particular index,
differ. expenses, reinvested distributions and including the indexes defined here, and
changes in net asset value. Investment consequently, the performance of the
The performance data quoted represent return and principal value will fund may deviate significantly from the
past performance and cannot guarantee fluctuate so that you may have a gain or performance of the indexes.
comparable future results; current loss when you sell shares.
A direct investment cannot be made in
AIM V.I. Capital Appreciation Fund, a an index. Unless otherwise indicated,
series portfolio of AIM Variable index results include reinvested
Insurance Funds, is currently offered dividends, and they do not reflect sales
through insurance companies issuing charges. Performance of an index of funds
variable products. You cannot purchase reflects fund expenses; performance of a
shares of the fund directly. Performance market index does not.
figures given represent the fund and are
not intended to reflect actual variable OTHER INFORMATION
product values. They do not reflect
sales charges, expenses and fees The returns shown in the Management's
assessed in connection with a variable Discussion of Fund Performance are based
product. Sales charges, expenses and on net asset values calculated for
fees, which are determined by the shareholder transactions. Generally
variable product issuers, will vary and accepted accounting principles require
will lower the total return.* adjustments to be made to the net assets
of the fund at period end for financial
ABOUT INDEXES USED IN THIS REPORT reporting purposes, and as such, the net
asset value for shareholder transactions
The unmanaged Standard & Poor's and the returns based on those net asset
Composite Index of 500 Stocks (the S&P values may differ from the net asset
500--Registered Trademark-- Index) is an values and returns reported in the
index of common stocks frequently used Financial Highlights.
as a general measure of U.S. stock
market performance. Industry classifications used in this
report are generally according to the
The unmanaged Lipper Multi-Cap Growth Global Industry Classification Standard,
Fund Index represents an average of the which was developed by and is the
performance of the 30 largest exclusive property and a service mark of
multi-capitalization growth funds Morgan Stanley Capital International
tracked by Lipper, Inc., an independent Inc. and Standard & Poor's.
mutual fund performance monitor.
The unmanaged Russell 1000--Registered
Trademark-- Growth Index is a subset of
the unmanaged Russell 1000 Index, which
represents the performance of the stocks
of large-capitalization companies; the
Growth subset measures the performance
of Russell 1000 companies with higher
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VICAP-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.95%
ADVERTISING-1.01%
Lamar Advertising Co.-Class A(a)(b) 241,400 $ 10,327,092
==========================================================================
AEROSPACE & DEFENSE-0.65%
Honeywell International Inc. 187,500 6,639,375
==========================================================================
AIR FREIGHT & LOGISTICS-1.13%
Expeditors International of Washington, Inc. 73,900 4,129,532
- --------------------------------------------------------------------------
FedEx Corp. 75,100 7,396,599
==========================================================================
11,526,131
==========================================================================
AIRLINES-0.38%
Air China Ltd.-Class H (China)(a) 666,000 257,050
- --------------------------------------------------------------------------
Southwest Airlines Co. 225,000 3,663,000
==========================================================================
3,920,050
==========================================================================
APPAREL RETAIL-0.37%
TJX Cos., Inc. (The) 150,000 3,769,500
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.83%
Coach, Inc.(a) 150,000 8,460,000
==========================================================================
APPLICATION SOFTWARE-1.40%
Autodesk, Inc. 269,400 10,223,730
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a) 90,000 4,099,500
==========================================================================
14,323,230
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.27%
Investors Financial Services Corp.(b) 56,200 2,808,876
==========================================================================
BIOTECHNOLOGY-2.05%
Amgen Inc.(a) 110,000 7,056,500
- --------------------------------------------------------------------------
Biogen Idec Inc.(a) 88,700 5,908,307
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 229,100 8,016,209
==========================================================================
20,981,016
==========================================================================
BROADCASTING & CABLE TV-1.14%
Clear Channel Communications, Inc. 152,500 5,107,225
- --------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 224,960 6,584,579
==========================================================================
11,691,804
==========================================================================
CASINOS & GAMING-0.08%
Las Vegas Sands Corp.(a)(b) 17,800 854,400
==========================================================================
COMMUNICATIONS EQUIPMENT-5.65%
Avaya Inc.(a) 225,000 3,870,000
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 1,124,900 21,710,570
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a) 377,000 $ 9,217,650
- --------------------------------------------------------------------------
Juniper Networks, Inc.(a) 300,000 8,157,000
- --------------------------------------------------------------------------
Lucent Technologies Inc.-Wts., expiring
12/10/07(a)(c) 8,165 12,901
- --------------------------------------------------------------------------
Motorola, Inc. 221,100 3,802,920
- --------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 375,000 5,876,250
- --------------------------------------------------------------------------
QUALCOMM Inc. 122,400 5,189,760
==========================================================================
57,837,051
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.52%
Best Buy Co., Inc. 90,300 5,365,626
==========================================================================
COMPUTER HARDWARE-3.53%
Apple Computer, Inc.(a) 118,400 7,624,960
- --------------------------------------------------------------------------
Dell Inc.(a) 562,500 23,703,750
- --------------------------------------------------------------------------
Sun Microsystems, Inc.(a) 899,900 4,841,462
==========================================================================
36,170,172
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.44%
EMC Corp.(a) 300,000 4,461,000
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.15%
Caterpillar Inc. 110,800 10,804,108
- --------------------------------------------------------------------------
Deere & Co. 150,000 11,160,000
==========================================================================
21,964,108
==========================================================================
CONSUMER FINANCE-3.43%
Advance America Cash Advance Centers Inc.(a) 33,600 769,440
- --------------------------------------------------------------------------
American Express Co. 187,500 10,569,375
- --------------------------------------------------------------------------
Capital One Financial Corp. 73,900 6,223,119
- --------------------------------------------------------------------------
MBNA Corp. 337,500 9,514,125
- --------------------------------------------------------------------------
SLM Corp. 150,000 8,008,500
==========================================================================
35,084,559
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.84%
Affiliated Computer Services, Inc.-Class A(a) 51,700 3,111,823
- --------------------------------------------------------------------------
Automatic Data Processing, Inc. 150,000 6,652,500
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 337,512 13,564,607
- --------------------------------------------------------------------------
Paychex, Inc. 167,400 5,704,992
==========================================================================
29,033,922
==========================================================================
DEPARTMENT STORES-0.37%
Sears, Roebuck & Co.(b) 73,900 3,771,117
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DIVERSIFIED BANKS-0.69%
Bank of America Corp. 150,000 $ 7,048,500
==========================================================================
DIVERSIFIED CHEMICALS-1.50%
Dow Chemical Co. (The) 96,100 4,757,911
- --------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 110,800 5,434,740
- --------------------------------------------------------------------------
Eastman Chemical Co. 88,700 5,120,651
==========================================================================
15,313,302
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.47%
Cintas Corp. 110,800 4,859,688
==========================================================================
DIVERSIFIED METALS & MINING-0.65%
Foundation Coal Holdings, Inc.(a) 35,500 818,630
- --------------------------------------------------------------------------
Phelps Dodge Corp. 59,100 5,846,172
==========================================================================
6,664,802
==========================================================================
DRUG RETAIL-0.56%
Walgreen Co. 150,000 5,755,500
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.25%
Emerson Electric Co. 76,600 5,369,660
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 150,000 7,432,500
==========================================================================
12,802,160
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.55%
Agilent Technologies, Inc.(a) 232,500 5,603,250
==========================================================================
EMPLOYMENT SERVICES-1.72%
Robert Half International Inc. 599,900 17,655,057
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.56%
Monsanto Co. 103,400 5,743,870
==========================================================================
FOOD RETAIL-0.48%
Whole Foods Market, Inc.(b) 51,700 4,929,595
==========================================================================
FOOTWEAR-0.47%
NIKE, Inc.-Class B 52,500 4,761,225
==========================================================================
GOLD-1.12%
Newmont Mining Corp. 156,300 6,941,283
- --------------------------------------------------------------------------
Placer Dome Inc. (Canada) 241,500 4,554,690
==========================================================================
11,495,973
==========================================================================
HEALTH CARE EQUIPMENT-6.29%
Bard (C.R.), Inc. 96,400 6,167,672
- --------------------------------------------------------------------------
Becton, Dickinson & Co. 155,100 8,809,680
- --------------------------------------------------------------------------
Biomet, Inc. 475,525 20,633,030
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 119,200 7,435,696
- --------------------------------------------------------------------------
Medtronic, Inc. 120,500 5,985,235
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
St. Jude Medical, Inc.(a) 104,200 $ 4,369,106
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 123,300 5,331,492
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 71,300 5,712,556
==========================================================================
64,444,467
==========================================================================
HEALTH CARE SERVICES-1.40%
Caremark Rx, Inc.(a) 364,170 14,359,223
==========================================================================
HEALTH CARE SUPPLIES-0.80%
Alcon, Inc. (Switzerland) 101,600 8,188,960
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.26%
Electronic Arts Inc.(a) 43,800 2,701,584
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.65%
Carnival Corp. (Panama) 110,800 6,385,404
- --------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 73,900 4,023,116
- --------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 110,800 6,470,720
==========================================================================
16,879,240
==========================================================================
HOUSEHOLD PRODUCTS-0.74%
Procter & Gamble Co. (The) 137,800 7,590,024
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.84%
Wal-Mart Stores, Inc. 162,000 8,556,840
==========================================================================
INDUSTRIAL CONGLOMERATES-1.46%
General Electric Co. 225,000 8,212,500
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 187,500 6,701,250
==========================================================================
14,913,750
==========================================================================
INDUSTRIAL GASES-0.88%
Air Products & Chemicals, Inc. 88,700 5,141,939
- --------------------------------------------------------------------------
Praxair, Inc. 88,700 3,916,105
==========================================================================
9,058,044
==========================================================================
INDUSTRIAL MACHINERY-3.80%
Danaher Corp. 150,000 8,611,500
- --------------------------------------------------------------------------
Eaton Corp. 73,900 5,347,404
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 53,700 4,976,916
- --------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 165,000 13,249,500
- --------------------------------------------------------------------------
Parker Hannifin Corp. 88,700 6,718,138
==========================================================================
38,903,458
==========================================================================
INTEGRATED OIL & GAS-2.02%
ChevronTexaco Corp. 44,300 2,326,193
- --------------------------------------------------------------------------
ConocoPhillips 37,500 3,256,125
- --------------------------------------------------------------------------
Exxon Mobil Corp. 225,000 11,533,500
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 60,800 3,548,288
==========================================================================
20,664,106
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INTERNET RETAIL-1.36%
eBay Inc.(a) 120,000 $ 13,953,600
==========================================================================
INTERNET SOFTWARE & SERVICES-2.49%
Google Inc.-Class A(a)(b) 37,000 7,144,700
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 487,500 18,369,000
==========================================================================
25,513,700
==========================================================================
INVESTMENT BANKING & BROKERAGE-0.37%
Goldman Sachs Group, Inc. (The) 36,900 3,839,076
==========================================================================
LIFE & HEALTH INSURANCE-0.42%
AFLAC Inc. 108,800 4,334,592
==========================================================================
MANAGED HEALTH CARE-1.61%
Aetna Inc. 52,000 6,487,000
- --------------------------------------------------------------------------
PacifiCare Health Systems, Inc.(a) 70,600 3,990,312
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 68,300 6,012,449
==========================================================================
16,489,761
==========================================================================
MOTORCYCLE MANUFACTURERS-0.31%
Harley-Davidson, Inc. 52,500 3,189,375
==========================================================================
MOVIES & ENTERTAINMENT-0.67%
DreamWorks Animation SKG, Inc.-Class A(a) 16,900 633,919
- --------------------------------------------------------------------------
Viacom Inc.-Class B 170,777 6,214,575
==========================================================================
6,848,494
==========================================================================
MULTI-LINE INSURANCE-0.94%
American International Group, Inc. 73,900 4,853,013
- --------------------------------------------------------------------------
Genworth Financial Inc.-Class A 177,000 4,779,000
==========================================================================
9,632,013
==========================================================================
OIL & GAS DRILLING-1.18%
ENSCO International Inc. 182,800 5,802,072
- --------------------------------------------------------------------------
GlobalSantaFe Corp. (Cayman Islands) 73,700 2,440,207
- --------------------------------------------------------------------------
Patterson-UTI Energy, Inc. 195,000 3,792,750
==========================================================================
12,035,029
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.01%
Baker Hughes Inc. 126,000 5,376,420
- --------------------------------------------------------------------------
BJ Services Co. 130,400 6,068,816
- --------------------------------------------------------------------------
Halliburton Co. 112,500 4,414,500
- --------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 92,400 4,740,120
==========================================================================
20,599,856
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.00%
Apache Corp. 73,900 3,737,123
- --------------------------------------------------------------------------
Barrett (Bill) Corp.(a) 22,900 732,571
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Burlington Resources Inc. 84,800 $ 3,688,800
- --------------------------------------------------------------------------
Devon Energy Corp. 210,000 8,173,200
- --------------------------------------------------------------------------
XTO Energy, Inc. 118,200 4,181,916
==========================================================================
20,513,610
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.44%
Valero Energy Corp. 99,000 4,494,600
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.85%
Citigroup Inc. 210,000 10,117,800
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 225,000 8,777,250
==========================================================================
18,895,050
==========================================================================
PACKAGED FOODS & MEATS-0.90%
Hershey Foods Corp. 75,000 4,165,500
- --------------------------------------------------------------------------
Kellogg Co. 113,200 5,055,512
==========================================================================
9,221,012
==========================================================================
PERSONAL PRODUCTS-0.68%
Gillette Co. (The) 156,300 6,999,114
==========================================================================
PHARMACEUTICALS-4.19%
Johnson & Johnson 254,400 16,134,048
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 200,000 7,022,000
- --------------------------------------------------------------------------
Pfizer Inc. 379,500 10,204,755
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 319,500 9,540,270
==========================================================================
42,901,073
==========================================================================
REGIONAL BANKS-0.46%
Commerce Bancorp, Inc.(b) 73,600 4,739,840
==========================================================================
RESTAURANTS-0.47%
McDonald's Corp. 150,000 4,809,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.73%
Applied Materials, Inc.(a) 237,500 4,061,250
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 73,900 3,442,262
==========================================================================
7,503,512
==========================================================================
SEMICONDUCTORS-4.57%
Analog Devices, Inc. 262,500 9,691,500
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a) 236,000 4,205,520
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 24,048 441,521
- --------------------------------------------------------------------------
Linear Technology Corp. 240,000 9,302,400
- --------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 110,800 3,930,076
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 119,200 5,052,888
- --------------------------------------------------------------------------
Microchip Technology Inc. 533,425 14,221,111
==========================================================================
46,845,016
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ex
SPECIALTY CHEMICALS-0.79%
Ecolab Inc. 118,200 $ 4,152,366
- --------------------------------------------------------------------------
Rohm & Haas Co. 88,700 3,923,201
==========================================================================
8,075,567
==========================================================================
SPECIALTY STORES-2.73%
Bed Bath & Beyond Inc.(a) 259,200 10,323,936
- --------------------------------------------------------------------------
Staples, Inc. 460,700 15,530,197
- --------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 59,000 2,067,360
==========================================================================
27,921,493
==========================================================================
STEEL-1.05%
Nucor Corp. 88,700 4,642,558
- --------------------------------------------------------------------------
United States Steel Corp.(b) 118,800 6,088,500
==========================================================================
10,731,058
==========================================================================
SYSTEMS SOFTWARE-5.19%
Adobe Systems Inc. 88,700 5,565,038
- --------------------------------------------------------------------------
McAfee Inc.(a) 150,000 4,339,500
- --------------------------------------------------------------------------
Microsoft Corp. 899,900 24,036,329
- --------------------------------------------------------------------------
Oracle Corp.(a) 665,800 9,134,776
- --------------------------------------------------------------------------
Symantec Corp.(a) 180,000 4,636,800
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 189,600 5,413,080
==========================================================================
53,125,523
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.04%
CDW Corp. 160,600 $ 10,655,810
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.26%
UAP Holding Corp.(a) 153,200 2,645,764
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.84%
Nextel Communications, Inc.-Class A(a) 286,800 8,604,000
==========================================================================
Total Common Stocks & Other Equity Interests
(Cost $748,658,752) 1,002,998,185
==========================================================================
MONEY MARKET FUNDS-2.19%
Liquid Assets Portfolio-Institutional
Class(d) 11,214,768 11,214,768
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 11,214,768 11,214,768
==========================================================================
Total Money Market Funds (Cost $22,429,536) 22,429,536
==========================================================================
TOTAL INVESTMENTS-100.14% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $771,088,288) 1,025,427,721
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.98%
STIC Prime Portfolio-Institutional
Class(d)(e) 30,500,985 30,500,985
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $30,500,985) 30,500,985
==========================================================================
TOTAL INVESTMENTS-103.12% (Cost $801,589,273) 1,055,928,706
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.12%) (31,957,206)
==========================================================================
NET ASSETS-100.00% $1,023,971,500
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Acquired as a result of a litigation settlement.
(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 8.
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, 2004
<Table>
ASSETS:
Investments, at market value
(cost $748,658,752)* $1,002,998,185
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $52,930,521) 52,930,521
=============================================================
Total investments (cost $801,589,273) 1,055,928,706
=============================================================
Foreign currencies, at market value
(cost $995) 1,063
- -------------------------------------------------------------
Receivables for:
Fund shares sold 299,142
- -------------------------------------------------------------
Dividends 640,842
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 85,559
- -------------------------------------------------------------
Other assets 195
=============================================================
Total assets 1,056,955,507
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 874,503
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 131,126
- -------------------------------------------------------------
Collateral upon return of securities loaned 30,500,985
- -------------------------------------------------------------
Accrued administrative services fees 1,308,037
- -------------------------------------------------------------
Accrued distribution fees -- Series II 73,233
- -------------------------------------------------------------
Accrued transfer agent fees 9,574
- -------------------------------------------------------------
Accrued operating expenses 86,549
=============================================================
Total liabilities 32,984,007
=============================================================
Net assets applicable to shares outstanding $1,023,971,500
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,192,245,994
- -------------------------------------------------------------
Undistributed net investment income 405,760
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (423,019,755)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 254,339,501
=============================================================
$1,023,971,500
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 886,989,712
_____________________________________________________________
=============================================================
Series II $ 136,981,788
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 39,099,953
_____________________________________________________________
=============================================================
Series II 6,088,304
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 22.69
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 22.50
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $30,403,992
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$81,826) $ 9,661,410
- ------------------------------------------------------------
Dividends from affiliated money market funds
(including securities lending income of
$34,371**) 404,503
- ------------------------------------------------------------
Interest 1,982
============================================================
Total investment income 10,067,895
============================================================
EXPENSES:
Advisory fees 6,192,972
- ------------------------------------------------------------
Administrative services fees 2,510,722
- ------------------------------------------------------------
Custodian fees 123,395
- ------------------------------------------------------------
Distribution fees -- Series II 237,184
- ------------------------------------------------------------
Transfer agent fees 59,852
- ------------------------------------------------------------
Trustees' fees and retirement benefits 37,110
- ------------------------------------------------------------
Other 265,811
============================================================
Total expenses 9,427,046
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (6,566)
- ------------------------------------------------------------
Net expenses 9,420,480
============================================================
Net investment income 647,415
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 53,311,012
- ------------------------------------------------------------
Foreign currencies (147,108)
- ------------------------------------------------------------
Option contracts written 109,088
============================================================
53,272,992
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 5,402,099
- ------------------------------------------------------------
Foreign currencies (2,769)
============================================================
5,399,330
============================================================
Net gain from investment securities, foreign
currencies and option contracts 58,672,322
============================================================
Net increase in net assets resulting from
operations $59,319,737
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 647,415 $ (2,109,655)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 53,272,992 (55,883,702)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 5,399,330 283,914,620
==============================================================================================
Net increase in net assets resulting from operations 59,319,737 225,921,263
______________________________________________________________________________________________
==============================================================================================
Share transactions-net:
Series I (103,365,150) (38,246,197)
- ----------------------------------------------------------------------------------------------
Series II 58,730,811 34,680,159
==============================================================================================
Net increase (decrease) in net assets resulting from share
transactions (44,634,339) (3,566,038)
==============================================================================================
Net increase in net assets 14,685,398 222,355,225
==============================================================================================
NET ASSETS:
Beginning of year 1,009,286,102 786,930,877
==============================================================================================
End of year (including undistributed net investment income
(loss) of $405,760 and $(92,177), respectively) $1,023,971,500 $1,009,286,102
______________________________________________________________________________________________
==============================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. CAPITAL APPRECIATION FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
AIM V.I. CAPITAL APPRECIATION 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 0.65% 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 advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds (excluding investments made in affiliated money market funds
with cash collateral from securities loaned by the Fund). Voluntary fee waivers
or reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $6,076.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $487 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$2,510,722, of which AIM retained $242,606 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $59,852.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $237,184.
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, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 9,991,889 $242,162,757 $(240,939,878) $ -- $11,214,768 $186,888 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 9,991,889 242,162,757 (240,939,878) -- 11,214,768 183,244 --
==================================================================================================================================
Subtotal $19,983,778 $484,325,514 $(481,879,756) $ -- $22,429,536 $370,132 $ --
==================================================================================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $30,149,300 $209,531,200 $(239,680,500) $ -- $ -- $ 22,072 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 101,226,130 (70,725,145) -- 30,500,985 12,299 --
==================================================================================================================================
Subtotal $30,149,300 $310,757,330 $(310,405,645) $ -- $30,500,985 $ 34,371 $ --
==================================================================================================================================
Total $50,133,078 $795,082,844 $(792,285,401) $ -- $52,930,521 $404,503 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $15,654,362 and $6,824,466,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $3 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $3.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $4,962
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $30,403,992 were
on loan to brokers. The loans were secured by cash collateral of $30,500,985
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $34,371 for securities
lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of period -- $ --
- -----------------------------------------------------------------------------------
Written 960 117,995
- -----------------------------------------------------------------------------------
Closed (550) (86,765)
- -----------------------------------------------------------------------------------
Expired (410) (31,230)
===================================================================================
End of period -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 504,993
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 245,305,642
- ------------------------------------------------------------------------------
Temporary book/tax differences (113,920)
- ------------------------------------------------------------------------------
Capital loss carryforward (413,971,209)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,192,245,994
==============================================================================
Total net assets $1,023,971,500
______________________________________________________________________________
==============================================================================
</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 losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation on
foreign currencies of $68.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. The Fund utilized $53,503,895 of capital loss carryforward in the
AIM V.I. CAPITAL APPRECIATION FUND
current period to offset net realized capital gain for federal income tax
purposes. The Fund has a capital loss carryforward as of December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------------------
December 31, 2009 $201,213,913
- -----------------------------------------------------------------------------------------------------------
December 31, 2010 156,444,344
- -----------------------------------------------------------------------------------------------------------
December 31, 2011 56,312,952
===========================================================================================================
Total capital loss carryforward $413,971,209
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 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, 2004 was $731,700,851 and $773,872,679, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $259,916,362
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,610,788)
============================================================================
Net unrealized appreciation of investment securities $245,305,574
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $810,623,132.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and return of capital distributions, on December 31, 2004,
undistributed net investment income was decreased by $149,478 and undistributed
net realized gain (loss) was increased by $149,478. This reclassification had no
effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 6,397,229 $ 136,561,015 12,106,592 $ 220,433,208
- --------------------------------------------------------------------------------------------------------------------------
Series II 3,114,855 66,251,744 2,366,684 43,712,246
==========================================================================================================================
Reacquired:
Series I (11,416,993) (239,926,165) (14,425,506) (258,679,405)
- --------------------------------------------------------------------------------------------------------------------------
Series II (357,082) (7,520,933) (495,187) (9,032,087)
==========================================================================================================================
(2,261,991) $ (44,634,339) (447,417) $ (3,566,038)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 43% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
AIM V.I. CAPITAL APPRECIATION FUND
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,
---------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.28 $ 16.43 $ 21.72 $ 30.84 $ 35.58
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.39 4.89 (5.24) (7.17) (3.79)
=================================================================================================================================
Total from investment operations 1.41 4.85 (5.29) (7.22) (3.84)
=================================================================================================================================
Less distributions from net realized gains -- -- -- (1.90) (0.90)
=================================================================================================================================
Net asset value, end of period $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.62% 29.52% (24.35)% (23.28)% (10.91)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $886,990 $938,820 $763,038 $1,160,236 $1,534,209
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.91%(d) 0.85% 0.85% 0.85% 0.82%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.09%(a)(d) (0.23)% (0.27)% (0.22)% (0.17)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 74% 61% 67% 65% 98%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $916,455,300.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------
AUGUST 21, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.16 $ 16.38 $ 21.70 $23.19
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.36 4.87 (5.23) 0.45
============================================================================================================================
Total from investment operations 1.34 4.78 (5.32) 0.41
============================================================================================================================
Less distributions from net realized gains -- -- -- (1.90)
============================================================================================================================
Net asset value, end of period $ 22.50 $ 21.16 $ 16.38 $21.70
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 6.33% 29.18% (24.52)% 1.94%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $136,982 $70,466 $23,893 $3,527
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.16%(d) 1.10% 1.10% 1.09%(e)
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.16)%(a)(d) (0.48)% (0.52)% (0.46)%(e)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(f) 74% 61% 67% 65%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.08) and (0.42)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $94,873,436.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. CAPITAL APPRECIATION FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Capital Appreciation Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ------------------------------------------------------------------------------------------------
(1)* Bob R. Baker................................................ 485,251,764 20,583,220
Frank S. Bayley............................................. 485,193,740 20,641,244
James T. Bunch.............................................. 485,846,832 19,988,152
Bruce L. Crockett........................................... 485,356,560 20,478,424
Albert R. Dowden............................................ 485,381,238 20,453,746
Edward K. Dunn, Jr. ........................................ 484,642,618 21,192,366
Jack M. Fields.............................................. 485,417,523 20,417,461
Carl Frischling............................................. 484,781,819 21,053,165
Robert H. Graham............................................ 485,247,575 20,587,409
Gerald J. Lewis............................................. 484,388,317 21,446,667
Prema Mathai-Davis.......................................... 484,212,736 21,622,248
Lewis F. Pennock............................................ 485,257,174 20,577,810
Ruth H. Quigley............................................. 483,391,857 22,443,127
Louis S. Sklar.............................................. 484,592,297 21,242,687
Larry Soll, Ph.D. .......................................... 484,654,198 21,180,786
Mark H. Williamson.......................................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. CAPITAL DEVELOPMENT FUND seeks long-term
growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Stocks, as measured by most domestic During the reporting period, mid-cap valued stocks of companies that possess
market indexes, rallied in the fourth value stocks outperformed mid-cap growth the qualities for potential continued
quarter of 2004. The market upswing, stocks. The fund's emphasis on growth.
combined with strong stock selection, attractively priced growth stocks helped
enabled the fund to post double-digit it perform in line with its peer group We consider selling a stock if a
returns for the year. index. company's fundamentals deteriorate, a
stock's price reaches our valuation
======================================= HOW WE INVEST target or we find a more attractive
FUND VS. INDEXES investment option.
We use a bottom-up approach to
Total returns, 12/31/03-12/31/04, investing, selecting stocks based on an MARKET CONDITIONS AND YOUR FUND
excluding variable product issuer analysis of individual companies. We
charges. If variable product issuer also seek to own stocks that are Stocks, as measured by the performance
charges were included, returns would favorably priced relative to the rest of of the S&P 500 Index, struggled for the
be lower. the market. Our goal is to produce first three quarters of 2004, amid
consistent returns over the long term by concerns about high oil prices, rising
Series I Shares 15.50% adhering to our investment process in interest rates and uncertainty
all market environments. surrounding the U.S. presidential
Series II Shares 15.27 election. The index rallied as the
Our investment process involves: election campaign drew to a close and
S&P 500 Index continued to rise through the end of the
(Broad Market Index) 10.87 o Identifying mid-capitalization year.
companies that we believe have
Russell Midcap Index sustainable revenue and earnings growth The fund was favorably positioned to
(Style-specific Index) 20.22 and that have stock prices which are low take advantage of this rally.
relative to their projected growth Information technology and consumer
Lipper Mid-Cap Core Fund rates; discretionary stocks, which had
Index (Peer Group Index) 15.44 struggled for much of the year, led the
o Applying fundamental research to fourth quarter upswing, and the fund had
Source: Lipper, Inc. identify stocks of companies with large significant exposure to these sectors,
======================================= potential markets, cash-generating benefiting its performance. The fund
business models, improving balance also had relatively large weightings in
For the year, mid-cap stocks sheets and solid management teams; the health care and industrials sectors,
generally outperformed large-cap which also performed well for the fund.
stocks. The fund's focus on mid-cap o Using a variety of valuation While industrials performed well for
stocks helped it outperform the techniques to determine target buy much of the year, health care did not
large-cap oriented S&P 500 Index. It prices and a stock's valuation upside rally until the fourth quarter.
underperformed the Russell Midcap Index and downside potential.
because of underweight positions Energy was the best-performing sector
relative to this benchmark in We believe the application of this for the entire year because of rising
financials, utilities and materials. investment process results in a oil and gas prices. The fund was
Additionally, the fund's holdings in the portfolio of attractively overweight in this sector relative to
materials and financials sectors the Russell Midcap Index, and it also
generally underperformed those of the was one of the better-performing sectors
index. The fund had relatively little for the portfolio.
exposure to utilities because we have
not typically found companies in this
sector that exhibit the growth
characteristics we seek in selecting
stocks.
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector 1. iShares Nasdaq Biotechnology 1. Health Care Services 5.2%
Index Fund 2.0% 2. Health Care Equipment 4.8
1. Information Technology 20.4% 2. CB Richard Ellis Group, 3. Real Estate 4.7
2. Consumer Discretionary 18.7 Inc.-Class A 1.5 4. Application Software 4.1
3. Health Care 15.5 3. Autodesk, Inc. 1.4 5. Diversified Commercial 3.8
4. Industrials 14.4 4. Caremark Rx, Inc. 1.4 Services
5. Financials 13.2 5. Harrah's Entertainment, Inc. 1.4 6. Communications Equipment 3.4
6. Energy 5.1 6. New Century Financial Corp. 1.3 7. Data Processing & Outsourced
7. Consumer Staples 3.2 7. Jackson Hewitt Tax Service Services 3.4
8. Materials 3.1 Inc. 1.3 8. Wireless Telecommunication
9. Telecommunication Services 3.0 8. Williams Cos., Inc. (The) 1.3 Services 3.0
10. Utilities 1.1 9. Cooper Industries Ltd. 9. Oil & Gas Refining, Marketing
Money Market Funds Plus Other Class A (Bermuda) 1.3 & Transportation 2.9
Assets Less Liabilities 2.3 10. Fisher Scientific 10. Industrial Machinery 2.7
International Inc. 1.2
TOTAL NET ASSETS $183.4 MILLION
TOTAL NUMBER OF HOLDINGS* 107
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
Every sector that the fund was a retooled business model that places Although historical performance is no
invested in contributed positively to more emphasis on selling upgrades of the guarantee of future results, these
performance for the year. Please keep in firm's software and collecting ongoing insights may help you understand our
mind that the fund's sector weightings maintenance fees from its customers. investment management philosophy.
are primarily a by product of our stock
selection process, which is based on an Detracting from fund performance were
analysis of individual companies. UTStarcom, a telecommunications PAUL J. RASPLICKA,
equipment manufacturer, and Siebel, a Chartered Financial
Mid- and small-cap stocks made up leading provider of CAD software. Both [RASPLICKA Analyst and senior
more than 95% of the portfolio's companies revised their earnings PHOTO] portfolio manager,
composition at the close of the estimates downward, causing their stocks is lead manager of
reporting period. These two asset to decline in the wake of these AIM V.I. Capital
classes led the market rally in the announcements. The fund did not own Development Fund. Mr. Rasplicka began
fourth quarter, and were the top either stock at the close of the year. his investment career in 1982. A native
performers for the year. of Denver, Mr. Rasplicka is a magna cum
IN CLOSING laude graduate of the University of
o CB Richard Ellis Group, a company Colorado at Boulder with a B.S. in
reflective of our investment discipline, We are pleased to have provided positive business administration. He received an
was a strong contributor to fund returns for our investors for the year. M.B.A. from the University of Chicago.
performance. An industry leader, CB However, we are always striving to He is also a Chartered Investment
Richard Ellis Group is the world's improve performance while adhering to Counselor.
largest commercial real estate services the fund's investment discipline, which
company with operations in more than 48 focuses on the attractively priced MICHAEL CHAPMAN,
countries. Because of its size and stocks of mid-cap companies with the Chartered Financial
global presence, the company is often potential to deliver sustainable [CHAPMAN Analyst and
able to provide a broader range of earnings growth. We appreciate your PHOTO] portfolio manager,
expertise and services than many of its continued participation in AIM V.I. began his investment
smaller competitors. We believe the Capital Development Fund. career in 1995. He
company could potentially benefit from a joined AIM in 2001 and was promoted to
modest cyclical upturn in the office The views and opinions expressed in his current position as a manager of AIM
leasing market. Our valuation analysis Management's Discussion of Fund V.I. Capital Development Fund in 2002.
also indicates that stock may have Performance are those of A I M Advisors, Mr. Chapman has a B.S. in petroleum
strong upside potential. Inc. These views and opinions are engineering and an M.A. in energy and
subject to change at any time based on mineral resources from the University of
o Autodesk, a maker of computer-aided factors such as market and economic Texas.
design (CAD) software used by architects conditions. These views and opinions may
and engineers, also enhanced fund not be relied upon as investment advice Assisted by the Small/Mid-Cap Core Team
performance. The company benefited from or recommendations, or as an offer for a
increased demand for its software. One particular security. The information is
of the key factors that we look for in not a complete analysis of every aspect
selecting holdings for the fund is a of any market, country, industry,
potential catalyst for future growth. We security or the fund. Statements of fact
believe the management team of this are from sources considered reliable,
company is committed to expanding the but A I M Advisors, Inc. makes no
business, as illustrated by the representation or warranty as to their
successful implementation of completeness or accuracy.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in small and mid-size companies involves risks not associated with investing
in more established companies, including business risk, significant stock price
fluctuations and illiquidity.
The fund may invest up to 25% of its assets in the securities of non-U.S. issuers.
International investing presents certain risks not associated with investing solely in
the United States. These include risks relating to fluctuations in the value of the U.S.
dollar relative to the values of other currencies, the custody arrangements made for the
fund's foreign holdings, differences in accounting, political risks and the lesser degree
of public information required to be provided by non-U.S. companies.
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES actual return. The hypothetical account
values and expenses may not be used to
As a shareholder of the fund, you incur The table below provides information estimate your actual ending account
ongoing costs, including management about actual account values and actual balance or expenses you paid for the
fees; distribution and/or service fees expenses. You may use the information in period. You may use this information to
(12b-1); and other fund expenses. This this table, together with the amount you compare the ongoing costs of investing
example is intended to help you invested, to estimate the expenses that in the fund and other funds. To do so,
understand your ongoing costs (in you paid over the period. Simply divide compare this 5% hypothetical example
dollars) of investing in the fund and to your account value by $1,000 (for with the 5% hypothetical examples that
compare these costs with ongoing costs example, an $8,600 account value divided appear in the shareholder reports of the
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the other funds.
example is based on an investment of result by the number in the table under
$1,000 invested at the beginning of the the heading entitled "Actual Expenses Please note that the expenses shown
period and held for the entire period, Paid During Period" to estimate the in the table are meant to highlight your
July 1, 2004-December 31, 2004. expenses you paid on your account during ongoing costs only. Therefore, the
this period. hypothetical information is useful in
The actual and hypothetical expenses comparing ongoing costs only, and will
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR not help you determine the relative
the effect of any fees or other expenses COMPARISON PURPOSES total costs of owning different funds.
assessed in connection with a variable
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,095.50 $5.79 $1,019.61 $5.58
Series II 1,000.00 1,094.70 7.11 1,018.35 6.85
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 9.55% and 9.47% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.10% and 1.35% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee =======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 5/1/98-12/31/04 Index data from 4/30/98
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same
percent change in price; in a linear AIM V.I. CAPITAL DEVELOPMENT S&P 500 RUSSELL MIDCAP LIPPER MID-CAP
chart each scale increment always DATE FUND-SERIES I INDEX INDEX CORE FUND INDEX
represents the same absolute change in 4/30/98 $10000 $10000 $10000 $10000
price. In this example, the scale 6/98 9530 10227 9825 9594
increment between $5,000 and $10,000 is 9/98 7760 9212 8368 7832
the same as that between $10,000 and 12/98 9249 11172 9911 9530
$20,000. In a linear chart, the latter 3/99 8547 11729 9865 9073
scale increment would be twice as large. 6/99 9431 12554 10936 10237
The benefit of using a logarithmic scale 9/99 9209 11772 9996 9577
is that it better illustrates 12/99 11941 13522 11718 12217
performance during the early years 3/00 14402 13832 12900 13988
before reinvested distributions and 6/00 13336 13464 12318 13519
compounding create the potential for the 9/00 13799 13334 13157 14030
original investment to grow to very 12/00 13044 12291 12685 12981
large numbers. Had the chart used a 3/01 11398 10835 11354 11494
linear scale along its vertical axis, 6/01 12894 11469 12436 12939
you would not be able to see as clearly 9/01 10393 9786 10215 10459
the movements in the value of the fund 12/01 11990 10832 11971 12345
and the indexes during the fund's early 3/02 12622 10861 12480 12802
years. We use a logarithmic scale in 6/02 11407 9407 11288 11443
financial reports of funds that have 9/02 8987 7783 9297 9570
more than five years of performance 12/02 9428 8439 10034 10200
history. 3/03 9227 8173 9796 9812
6/03 10804 9430 11586 11640
======================================= 9/03 11266 9680 12331 12322
AVERAGE ANNUAL TOTAL RETURNS 12/03 12764 10858 14053 13932
As of 12/31/04 3/04 13476 11042 14776 14546
6/04 13456 11231 14990 14699
SERIES I SHARES 9/04 13003 11021 14864 14387
Inception (5/1/98) 5.99% 12/04 $14742 $12038 $16895 $16083
5 Years 4.31
1 Year 15.50 Source: Lipper, Inc.
======================================================================================
SERIES II SHARES
Inception 5.74% Performance figures reflect fund dividends, and they do not reflect sales
5 Years 4.06 expenses, reinvested distributions and charges. Performance of an index of
1 Year 15.27 changes in net asset value. Investment funds reflects fund expenses;
======================================= return and principal value will performance of a market index does not.
fluctuate so that you may have a gain or
Returns since the inception date of loss when you sell shares. OTHER INFORMATION
Series II shares are historical. All
other returns are the blended returns of AIM V.I. Capital Development Fund, a The returns shown in the Management's
the historical performance of the fund's series portfolio of AIM Variable Discussion of Fund Performance are based
Series II shares since their inception Insurance Funds, is currently offered on net asset values calculated for
and the restated historical performance through insurance companies issuing shareholder transactions. Generally
of the fund's Series I shares (for variable products. You cannot purchase accepted accounting principles require
periods prior to inception of the Series shares of the fund directly. Performance adjustments to be made to the net assets
II shares) adjusted to reflect the figures given represent the fund and are of the fund at period end for financial
higher Rule 12b-1 fees applicable to the not intended to reflect actual variable reporting purposes, and as such, the net
Series II shares. The inception date of product values. They do not reflect asset value for shareholder transactions
the fund's Series II shares is 8/21/01. sales charges, expenses and fees and the returns based on those net asset
assessed in connection with a variable values may differ from the net asset
The Series I and Series II shares product. Sales charges, expenses and values and returns reported in the
invest in the same portfolio of fees, which are determined by the Financial Highlights.
securities and will have substantially variable product issuers, will vary and
similar performance, except to the will lower the total return.* Industry classifications used in this
extent that expenses borne by each class report are generally according to the
differ. ABOUT INDEXES USED IN THIS REPORT Global Industry Classification Standard,
which was developed by and is the
The performance data quoted represent The unmanaged Standard & Poor's exclusive property and a service mark of
past performance and cannot guarantee Composite Index of 500 Stocks (the S&P Morgan Stanley Capital International
comparable future results; current 500--Registered Trademark-- Index) is an Inc. and Standard & Poor's.
performance may be lower or higher. index of common stocks frequently used
Please consult the variable product as a general measure of U.S. stock
issuer or your financial advisor for the market performance.
most recent month-end performance.
The unmanaged Lipper Mid-Cap Core
Fund Index represents an average of the
performance of the 30 largest
mid-capitalization core funds tracked by
Lipper, Inc., an independent mutual fund
performance monitor.
The unmanaged Russell
Midcap--Registered Trademark-- Index
represents the performance of the stocks
of domestic mid-capitalization
companies.
The fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
consequently, the performance of the
fund may deviate significantly from the
performance of the indexes.
A direct investment cannot be made
in an index. Unless otherwise indicated,
index results include reinvested
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VICDV-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.68%
ADVERTISING-1.01%
R.H. Donnelley Corp.(a) 31,300 $ 1,848,265
=======================================================================
AIR FREIGHT & LOGISTICS-0.95%
Robinson (C.H.) Worldwide, Inc. 31,500 1,748,880
=======================================================================
APPAREL RETAIL-2.09%
Abercrombie & Fitch Co.-Class A 40,500 1,901,475
- -----------------------------------------------------------------------
Ross Stores, Inc. 67,000 1,934,290
=======================================================================
3,835,765
=======================================================================
APPLICATION SOFTWARE-4.12%
Amdocs Ltd. (United Kingdom)(a) 75,200 1,974,000
- -----------------------------------------------------------------------
Autodesk, Inc. 67,400 2,557,830
- -----------------------------------------------------------------------
Intuit Inc.(a) 43,700 1,923,237
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 24,000 1,093,200
=======================================================================
7,548,267
=======================================================================
BIOTECHNOLOGY-1.61%
Charles River Laboratories International,
Inc.(a) 30,000 1,380,300
- -----------------------------------------------------------------------
Martek Biosciences Corp.(a) 30,800 1,576,960
=======================================================================
2,957,260
=======================================================================
BUILDING PRODUCTS-1.07%
American Standard Cos. Inc.(a) 47,400 1,958,568
=======================================================================
CASINOS & GAMING-2.50%
Harrah's Entertainment, Inc. 37,300 2,494,997
- -----------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 87,900 2,095,536
=======================================================================
4,590,533
=======================================================================
COMMERCIAL PRINTING-1.16%
Donnelley (R.R.) & Sons Co. 60,077 2,120,117
=======================================================================
COMMUNICATIONS EQUIPMENT-3.42%
Avaya Inc.(a) 106,200 1,826,640
- -----------------------------------------------------------------------
Harris Corp. 27,500 1,699,225
- -----------------------------------------------------------------------
Plantronics, Inc. 43,900 1,820,533
- -----------------------------------------------------------------------
Scientific-Atlanta, Inc. 28,000 924,280
=======================================================================
6,270,678
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.69%
Emulex Corp.(a) 75,000 1,263,000
=======================================================================
CONSUMER ELECTRONICS-0.74%
Garmin Ltd. (Cayman Islands) 22,200 1,350,648
=======================================================================
CONSUMER FINANCE-0.56%
AmeriCredit Corp.(a)(b) 42,300 1,034,235
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-3.41%
Alliance Data Systems Corp.(a) 42,700 $ 2,027,396
- -----------------------------------------------------------------------
CSG Systems International, Inc.(a) 76,300 1,426,810
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 26,600 1,386,392
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 46,337 1,412,815
=======================================================================
6,253,413
=======================================================================
DEPARTMENT STORES-0.86%
Kohl's Corp.(a) 32,000 1,573,440
=======================================================================
DISTILLERS & VINTNERS-0.98%
Constellation Brands, Inc.-Class A(a) 38,600 1,795,286
=======================================================================
DIVERSIFIED BANKS-0.74%
Centennial Bank Holdings, Inc. (Acquired
12/27/04; Cost $1,358,700)(a)(c)(d)(e) 129,400 1,358,700
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.83%
Career Education Corp.(a) 46,200 1,848,000
- -----------------------------------------------------------------------
Cintas Corp. 19,200 842,112
- -----------------------------------------------------------------------
Corrections Corp. of America(a) 47,800 1,933,510
- -----------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 95,000 2,398,750
=======================================================================
7,022,372
=======================================================================
DRUG RETAIL-0.91%
Shoppers Drug Mart Corp. (Canada)(a) 54,000 1,674,568
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.25%
Cooper Industries, Ltd.-Class A (Bermuda) 33,700 2,287,893
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.63%
Aeroflex Inc.(a) 92,000 1,115,040
- -----------------------------------------------------------------------
Amphenol Corp.-Class A(a) 50,800 1,866,392
=======================================================================
2,981,432
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.98%
Benchmark Electronics, Inc.(a) 52,800 1,800,480
=======================================================================
EMPLOYMENT SERVICES-0.93%
Manpower Inc. 35,400 1,709,820
=======================================================================
ENVIRONMENTAL SERVICES-1.44%
Republic Services, Inc. 55,200 1,851,408
- -----------------------------------------------------------------------
Stericycle, Inc.(a) 17,100 785,745
=======================================================================
2,637,153
=======================================================================
GENERAL MERCHANDISE STORES-1.83%
Dollar General Corp. 77,100 1,601,367
- -----------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 61,100 1,752,348
=======================================================================
3,353,715
=======================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.71%
Henry Schein, Inc.(a) 18,800 $ 1,309,232
=======================================================================
HEALTH CARE EQUIPMENT-4.84%
Bio-Rad Laboratories, Inc.-Class A(a) 22,700 1,302,299
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 36,600 2,283,108
- -----------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 22,500 1,716,750
- -----------------------------------------------------------------------
PerkinElmer, Inc. 82,300 1,850,927
- -----------------------------------------------------------------------
Waters Corp.(a) 36,700 1,717,193
=======================================================================
8,870,277
=======================================================================
HEALTH CARE FACILITIES-0.99%
Community Health Systems Inc.(a) 65,000 1,812,200
=======================================================================
HEALTH CARE SERVICES-5.20%
Caremark Rx, Inc.(a) 63,563 2,506,289
- -----------------------------------------------------------------------
Covance Inc.(a) 31,900 1,236,125
- -----------------------------------------------------------------------
DaVita, Inc.(a) 53,450 2,112,879
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 24,200 1,849,848
- -----------------------------------------------------------------------
Renal Care Group, Inc.(a) 50,900 1,831,891
=======================================================================
9,537,032
=======================================================================
HEALTH CARE SUPPLIES-0.92%
Cooper Cos., Inc. (The) 23,800 1,680,042
=======================================================================
HOME FURNISHINGS-0.59%
Tempur-Pedic International Inc.(a) 51,300 1,087,560
=======================================================================
HOMEBUILDING-1.19%
Ryland Group, Inc. (The) 38,000 2,186,520
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.67%
Hilton Hotels Corp. 84,400 1,919,256
- -----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 35,000 1,905,400
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 18,400 1,074,560
=======================================================================
4,899,216
=======================================================================
HOUSEWARES & SPECIALTIES-2.18%
Jarden Corp.(a) 42,800 1,859,232
- -----------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 64,600 2,143,428
=======================================================================
4,002,660
=======================================================================
HYPERMARKETS & SUPER CENTERS-0.85%
BJ's Wholesale Club, Inc.(a) 53,700 1,564,281
=======================================================================
INDUSTRIAL MACHINERY-2.68%
Eaton Corp. 13,400 969,624
- -----------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 23,000 1,846,900
- -----------------------------------------------------------------------
Parker Hannifin Corp. 27,700 2,097,998
=======================================================================
4,914,522
=======================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 47,900 1,972,043
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INTEGRATED OIL & GAS-0.90%
Murphy Oil Corp. 20,500 $ 1,649,225
=======================================================================
INVESTMENT COMPANIES -- EXCHANGE TRADED
FUNDS-1.98%
iShares Nasdaq Biotechnology Index Fund(a)(b) 48,100 3,626,740
=======================================================================
LEISURE PRODUCTS-1.93%
Brunswick Corp. 40,600 2,009,700
- -----------------------------------------------------------------------
Polaris Industries Inc. 22,600 1,537,252
=======================================================================
3,546,952
=======================================================================
METAL & GLASS CONTAINERS-0.99%
Pactiv Corp.(a) 71,500 1,808,235
=======================================================================
MULTI-LINE INSURANCE-0.85%
Quanta Capital Holdings Ltd. (Bermuda)(a) 35,900 330,998
- -----------------------------------------------------------------------
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/20/04-9/16/04; Cost
$1,372,870)(a)(c)(e) 133,100 1,227,182
=======================================================================
1,558,180
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.13%
Questar Corp. 40,800 2,079,168
=======================================================================
OFFICE ELECTRONICS-0.53%
Zebra Technologies Corp.-Class A(a) 17,375 977,865
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.37%
BJ Services Co. 16,000 744,640
- -----------------------------------------------------------------------
Halliburton Co. 45,000 1,765,800
=======================================================================
2,510,440
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.86%
Ashland Inc. 28,300 1,652,154
- -----------------------------------------------------------------------
Kinder Morgan, Inc. 17,300 1,265,149
- -----------------------------------------------------------------------
Williams Cos., Inc. (The) 142,500 2,321,325
=======================================================================
5,238,628
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.05%
CapitalSource Inc.(a) 75,300 1,932,951
=======================================================================
PAPER PACKAGING-0.73%
Sealed Air Corp.(a) 25,100 1,337,077
=======================================================================
PHARMACEUTICALS-1.18%
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 67,500 2,156,625
=======================================================================
REAL ESTATE-4.73%
Aames Investment Corp. 147,000 1,572,900
- -----------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-04/02/04; Cost $1,413,655)(c)(d) 90,000 1,552,500
- -----------------------------------------------------------------------
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
REAL ESTATE-(CONTINUED)
KKR Financial Corp. (Acquired 08/05/04; Cost
$1,505,000)(a)(c)(d) 150,500 $ 1,572,725
- -----------------------------------------------------------------------
New Century Financial Corp. 37,800 2,415,798
- -----------------------------------------------------------------------
People's Choice Financial Corp. (Acquired
12/21/04; Cost $1,566,000)(a)(c)(d)(e) 156,600 1,566,000
=======================================================================
8,679,923
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.48%
CB Richard Ellis Group, Inc.-Class A(a) 81,000 2,717,550
=======================================================================
REGIONAL BANKS-0.74%
Zions Bancorp 20,000 1,360,600
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.37%
Cabot Microelectronics Corp.(a)(b) 21,300 853,065
- -----------------------------------------------------------------------
KLA-Tencor Corp.(a) 39,100 1,821,278
- -----------------------------------------------------------------------
Novellus Systems, Inc.(a) 59,700 1,665,033
=======================================================================
4,339,376
=======================================================================
SEMICONDUCTORS-2.30%
ATI Technologies Inc. (Canada)(a) 89,300 1,731,527
- -----------------------------------------------------------------------
Broadcom Corp.-Class A(a) 27,500 887,700
- -----------------------------------------------------------------------
Microchip Technology Inc. 59,600 1,588,936
=======================================================================
4,208,163
=======================================================================
SOFT DRINKS-0.46%
Cott Corp. (Canada)(a) 34,300 848,239
=======================================================================
SPECIALTY CHEMICALS-1.41%
Ecolab Inc. 23,900 839,607
- -----------------------------------------------------------------------
Great Lakes Chemical Corp. 61,400 1,749,286
=======================================================================
2,588,893
=======================================================================
SPECIALTY STORES-1.08%
Advance Auto Parts, Inc.(a) 45,200 1,974,336
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SYSTEMS SOFTWARE-0.49%
McAfee Inc.(a) 31,300 $ 905,509
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.48%
CDW Corp. 13,300 882,455
=======================================================================
TRUCKING-1.06%
Sirva Inc.(a) 101,200 1,945,064
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.97%
American Tower Corp.-Class A(a) 101,300 1,863,920
- -----------------------------------------------------------------------
NII Holdings Inc.(a) 36,600 1,736,670
- -----------------------------------------------------------------------
SpectraSite, Inc.(a) 31,700 1,835,430
=======================================================================
5,436,020
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $141,467,774) 179,118,287
=======================================================================
MONEY MARKET FUNDS-2.79%
Liquid Assets Portfolio-Institutional
Class(f) 2,558,677 2,558,677
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 2,558,677 2,558,677
=======================================================================
Total Money Market Funds (Cost
$5,117,354) 5,117,354
=======================================================================
TOTAL INVESTMENTS-100.47% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $146,585,128) 184,235,641
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.16%
Liquid Assets Portfolio-Institutional
Class(f)(g) 2,893,043 2,893,043
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 2,893,043 2,893,043
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $5,786,086) 5,786,086
=======================================================================
TOTAL INVESTMENTS-103.63% (Cost $152,371,214) 190,021,727
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.63%) (6,654,476)
=======================================================================
NET ASSETS-100.00% $183,367,251
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$7,277,107, which represented 3.97% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $6,049,925, which
represented 3.30 % of the Fund's Net Assets.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at December 31, 2004 was $4,151,882, which represented 2.18% of
the Fund's Total Investments. See Note 1A.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$141,467,774)* $179,118,287
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $10,903,440) 10,903,440
=============================================================
Total investments (cost $152,371,214) 190,021,727
=============================================================
Receivables for:
Investments sold 382,413
- -------------------------------------------------------------
Fund shares sold 88,229
- -------------------------------------------------------------
Dividends 131,537
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 36,099
=============================================================
Total assets 190,660,005
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,082,348
- -------------------------------------------------------------
Fund shares reacquired 78,399
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 39,659
- -------------------------------------------------------------
Collateral upon return of securities loaned 5,786,086
- -------------------------------------------------------------
Accrued administrative services fees 241,045
- -------------------------------------------------------------
Accrued distribution fees -- Series II 40,006
- -------------------------------------------------------------
Accrued transfer agent fees 1,707
- -------------------------------------------------------------
Accrued operating expenses 23,504
=============================================================
Total liabilities 7,292,754
=============================================================
Net assets applicable to shares outstanding $183,367,251
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $156,980,754
- -------------------------------------------------------------
Undistributed net investment income (loss) (35,887)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (11,228,129)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 37,650,513
=============================================================
$183,367,251
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $112,027,987
_____________________________________________________________
=============================================================
Series II $ 71,339,264
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,630,026
_____________________________________________________________
=============================================================
Series II 4,897,613
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 14.68
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 14.57
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $5,654,888
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 1,221,573
- ------------------------------------------------------------
Dividends from affiliated money market funds
(including securities lending income of
$31,795**) 124,958
============================================================
Total investment income 1,346,531
============================================================
EXPENSES:
Advisory fees 1,138,855
- ------------------------------------------------------------
Administrative services fees 410,377
- ------------------------------------------------------------
Custodian fees 23,311
- ------------------------------------------------------------
Distribution fees -- Series II 128,961
- ------------------------------------------------------------
Transfer agent fees 14,152
- ------------------------------------------------------------
Trustees' fees and retirement benefits 14,936
- ------------------------------------------------------------
Other 62,602
============================================================
Total expenses 1,793,194
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (1,942)
- ------------------------------------------------------------
Net expenses 1,791,252
============================================================
Net investment income (loss) (444,721)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 12,987,098
- ------------------------------------------------------------
Foreign currencies (1,126)
============================================================
12,985,972
============================================================
Change in net unrealized appreciation of
investment securities 10,570,249
============================================================
Net gain from investment securities and foreign
currencies 23,556,221
============================================================
Net increase in net assets resulting from
operations $23,111,500
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (444,721) $ (184,564)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 12,985,972 5,550,292
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 10,570,249 24,988,390
==========================================================================================
Net increase in net assets resulting from operations 23,111,500 30,354,118
==========================================================================================
Share transactions-net:
Series I 3,400,003 144,211
- ------------------------------------------------------------------------------------------
Series II 29,492,919 11,878,034
==========================================================================================
Net increase in net assets resulting from share
transactions 32,892,922 12,022,245
==========================================================================================
Net increase in net assets 56,004,422 42,376,363
==========================================================================================
NET ASSETS:
Beginning of year 127,362,829 84,986,466
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(35,887) and $(30,180), respectively) $183,367,251 $127,362,829
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
AIM V.I. CAPITAL DEVELOPMENT FUND
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the
AIM V.I. CAPITAL DEVELOPMENT FUND
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. 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.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to 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. Effective January 1, 2005
through June 30, 2006, AIM has contractually agreed to waive advisory fees to
the extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.745% of the
first $250 million, plus 0.73% of the next $250 million, plus 0.715% of the next
$500 million, plus 0.70% of the next $1.5 billion, plus 0.685% of the next $2.5
billion, plus 0.67% of the next $2.5 billion, plus 0.655% of the next $2.5
billion, plus 0.64% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $1,414.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $112 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement, for the year ended December 31, 2004, AIM was paid
$410,377, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $14,152.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers
AIM V.I. CAPITAL DEVELOPMENT FUND
who purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $128,961.
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, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-
Institutional
Class $4,175,645 $43,400,552 $(45,017,520) $ -- $2,558,677 $47,072 $ --
- ----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,175,645 43,400,552 (45,017,520) -- 2,558,677 46,091 --
======================================================================================================================
Subtotal $8,351,290 $86,801,104 $(90,035,040) $ -- $5,117,354 $93,163 $ --
======================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-
Institutional
Class $ 6,104,966 $ 20,091,901 $ (23,303,824) $ -- $ 2,893,043 $16,105 $ --
- ------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,104,966 20,039,510 (23,251,433) -- 2,893,043 15,690 --
========================================================================================================================
Subtotal $12,209,932 $ 40,131,411 $ (46,555,257) $ -- $ 5,786,086 $31,795 $ --
========================================================================================================================
Total $20,561,222 $126,932,515 $(136,590,297) $ -- $10,903,440 $124,958 $ --
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $4,783,758 and $2,164,579,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $416 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $416.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
AIM V.I. CAPITAL DEVELOPMENT FUND
During the year ended December 31, 2004, the Fund paid legal fees of $2,954
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $5,654,888 were
on loan to brokers. The loans were secured by cash collateral of $5,786,086
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $31,795 for securities
lending transactions.
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 year ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 37,520,627
- ----------------------------------------------------------------------------
Temporary book/tax differences (35,887)
- ----------------------------------------------------------------------------
Capital loss carryforward (11,098,243)
- ----------------------------------------------------------------------------
Shares of beneficial interest 156,980,754
============================================================================
Total net assets $183,367,251
____________________________________________________________________________
============================================================================
</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 losses on
wash sales and tax 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 trustee deferral of compensation and
retirement plan expenses.
AIM V.I. CAPITAL DEVELOPMENT FUND
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $12,981,388 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $11,098,243
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $167,053,382 and $134,246,747, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $38,237,253
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (716,626)
=========================================================================
Net unrealized appreciation of investment securities $37,520,627
_________________________________________________________________________
=========================================================================
Cost of investments for tax purposes is $152,501,100.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2004, undistributed net
investment income was increased by $439,014, undistributed net realized gain
(loss) was increased by $1,126 and shares of beneficial interest decreased by
$440,140. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,264,587 $ 16,685,624 938,089 $ 10,475,808
- ----------------------------------------------------------------------------------------------------------------------
Series II 2,916,252 38,179,047 1,393,053 15,390,421
======================================================================================================================
Reacquired:
Series I (1,015,409) (13,285,621) (1,012,963) (10,331,597)
- ----------------------------------------------------------------------------------------------------------------------
Series II (672,418) (8,686,128) (337,849) (3,512,387)
======================================================================================================================
2,493,012 $ 32,892,922 980,330 $ 12,022,245
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 79% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping, account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record are also owned beneficially.
AIM V.I. CAPITAL DEVELOPMENT 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,
------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.71 $ 9.39 $ 11.94 $ 12.99 $ 11.89
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.01) (0.01)(a) (0.02) (0.01)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.00 3.33 (2.54) (1.03) 1.11
==========================================================================================================================
Total from investment operations 1.97 3.32 (2.55) (1.05) 1.10
==========================================================================================================================
Net asset value, end of period $ 14.68 $ 12.71 $ 9.39 $ 11.94 $ 12.99
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 15.50% 35.36% (21.36)% (8.08)% 9.25%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $112,028 $93,813 $70,018 $92,732 $74,874
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 1.10%(c) 1.13% 1.14% 1.16% 1.19%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.21)%(c) (0.13)% (0.08)% (0.16)% (0.07)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 93% 95% 121% 125% 110%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connections with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $100,262,715.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.38% for the year ended December 31, 2000.
<Table>
<Caption>
SERIES II
---------------------------------------------------------
AUGUST 21, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.64 $ 9.36 $ 11.94 $11.88
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.03) (0.03)(a) (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.99 3.31 (2.55) 0.07
=======================================================================================================================
Total from investment operations 1.93 3.28 (2.58) 0.06
=======================================================================================================================
Net asset value, end of period $ 14.57 $ 12.64 $ 9.36 $11.94
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 15.27% 35.04% (21.61)% 0.50%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $71,339 $33,550 $14,969 $2,767
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 1.35%(c) 1.38% 1.39% 1.41%(d)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.46)%(c) (0.38)% (0.33)% (0.41)%(d)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(e) 93% 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 as such, net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less then one year and do not reflect charges assessed in connections
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $51,584,582.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. CAPITAL DEVELOPMENT FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. CAPITAL DEVELOPMENT FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Capital Development Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. CORE EQUITY FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. CORE EQUITY FUND seeks to
provide growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
======================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
======================================================
===================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
=====================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. CORE EQUITY FUND
This fund seeks to identify large that are experiencing some near-term near-term distress. This is often in
companies with attractive long-term price weakness due to temporary setbacks contrast to prevailing market sentiment.
growth prospects-- companies that are or market trends. From such companies we For example, when oil prices tapered
managed by good stewards of capital select those with both consistent free from the historic highs seen in October,
whose track records and business plans cash flow profiles and management teams many investors indiscriminately sold
suggest a strong likelihood of success. able to direct them through the setback energy stocks, particularly oil service
and on to achieve long-term capital company stocks, causing their prices to
======================================= appreciation and lower downside risk. We decline. We used that opportunity to
FUND VS. INDEXES believe these attributes are consistent purchase oil service companies
with the expectations shareholders have GlobalSantaFe and BJ Services. Though
TOTAL RETURNS, 12/31/03-12/31/04, for a core equity fund designed to such companies' short-term price
EXCLUDING VARIABLE PRODUCT ISSUER complement their more aggressive equity movements are often affected by oil
CHARGES. IF VARIABLE PRODUCT ISSUER investments. prices, we believe that worldwide demand
CHARGES WERE INCLUDED, RETURNS WOULD for oil will continue to cause
BE LOWER. MARKET CONDITIONS AND YOUR FUND exploration and production companies to
increase production, which directly
Series I Shares 8.97% In the relatively flat market benefits oil service companies. The
Series II Shares 8.67 environment of spring and early summer fund's holdings in industrials and
S&P 500 Index 2004, the fund outperformed its energy provided the most significant
(Broad Market Index) 10.87 benchmark indexes. In the fourth quarter contribution to fund performance.
Russell 1000 Index of the year, the market rewarded the
(Style-specific Index) 11.40 stocks of many companies with weaker Two long-term fund holdings in
Lipper Large-Cap Core Fund financial positions and less predictable industrials, Tyco (security and
Index (Peer Group Index) 8.29 earnings and cash flow profiles. Thus fire-protection systems) and Norfolk
the market rewarded stocks that were not Southern (railroad transport), were
SOURCE: LIPPER, INC. in the fund's portfolio. Because of its among top individual contributors to
======================================= greater upward movement, the fourth fund performance this period. Our
quarter virtually determined the year's original research showed them to be
AIM V.I. Core Equity Fund narrowly market results. However, as the market established businesses with significant
outperformed its peer group index. Its focused on more cyclical stocks rather market share and relatively predictable
underperformance as compared to its two than stocks with more stable profiles, cash flow. We were able to purchase
market indexes can be attributed to an we found opportunities to purchase these stocks at a time when their market
underweight position in financials and select undervalued companies with strong prices were below what we believed to be
weak relative performance by its long-term prospects. their fair value. As capital
holdings in the consumer discretionary expenditures recovered in recent months,
and health care sectors. As stated, we focus on companies with the strong market positions of these
strong long-term potential that are companies have enabled them to generate
HOW WE INVEST experiencing some significant returns.
Throughout the year we adhered to our Despite weakness in the fourth
investment discipline. We invest in quarter, the energy sector was among the
growing companies with strong business best-performing sectors in both the fund
attributes and its benchmarks for
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By Sector
1. Information Technology 15.5% 1. General Mills, Inc. 3.1% 1. Pharmaceuticals 12.4%
2. Energy 13.2 2. Microsoft Corp. 2.9 2. Integrated Oil & Gas 7.8
3. Financials 12.8 3. Merck & Co. Inc 2.6 3. Packaged Foods & Meats 7.0
4. Consumer Staples 12.7 4. BP PLC-ADR (United Kingdom) 2.4 4. Semiconductors 4.4
5. Industrials 12.6 5. GlaxoSmithKline PLC-ADR 5. Systems Software 4.4
6. Health Care 12.4 (United Kingdom) 2.3 6. Industrial Conglomerates 3.7
7. Consumer Discretionary 6.3 6. Forest Laboratories, Inc. 2.1 7. Property & Casualty Insurance 3.6
8. Materials 2.7 7. Kroger Co. (The) 2.0 8. Publishing 3.5
9. Utilities 2.0 8. Waste Management, Inc. 2.0 9. Oil & Gas Equipment &
10. Telecommunication Services 1.0 9. Tyco International Ltd. Services 3.3
Money Market Funds Plus Other (Bermuda) 1.9 10. Diversified Banks 2.6
Assets Less Liabilities 8.8 10. Exxon Mobil Corp. 1.9
TOTAL NET ASSETS $1.49 BILLION
The fund's holdings are subject to change, and there is no assurance that the TOTAL NUMBER OF HOLDINGS* 67
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
AIM V.I. CORE EQUITY FUND
the year, consistent with the overall regardless of the advertising better performance than that of the
strength in oil prices. Three of the environment. Lipper index of our peer core funds.
fund's energy holdings at the end of the
year, ChevronTexaco, Exxon Mobil and The fund's underweight position in a The views and opinions expressed in
British Petroleum, have been long-term strong-performing financials sector also Management's Discussion of Fund
fund holdings. detracted from its relative performance Performance are those of A I M Advisors,
in comparison to its benchmarks. For Inc. These views and opinions are
The health care sector was the some time we have noted our significant subject to change at any time based on
worst-performing sector in the S&P 500 underweight in financials. Over the factors such as market and economic
Index. The fund's focus on large period, the financial sector appreciated conditions. These views and opinions may
pharmaceutical companies resulted in on anticipation of takeover activity not be relied upon as investment advice
even weaker performance, as that, in general, did not materialize. or recommendations, or as an offer for a
pharmaceutical stocks suffered from However, we will continue to avoid the particular security. The information is
questions regarding the long-term safety risks inherent in investing in financial not a complete analysis of every aspect
of several high-profile prescription firms with management teams that use of any market, country, industry,
drugs. However, at the close of the significant borrowing to generate security or the fund. Statements of fact
period, the fund remained invested in earnings. Our concerns are further are from sources considered reliable,
select pharmaceutical companies such as escalated by the fact that the cost of but A I M Advisors, Inc. makes no
Merck and GlaxoSmithKline that we the primary product for many financials representation or warranty as to their
believe offer compelling relative value firms--money--rises along with interest completeness or accuracy. Although
based on their strong free cash flow rates. historical performance is no guarantee
profiles, even factoring in the of future results, these insights may
difficult industry backdrop. IN CLOSING help you understand our investment
management philosophy.
The fund's holdings in the consumer At the end of the year our
discretionary sector also were a drag to company-by-company fundamental research RONALD S. SLOAN,
fund performance. Despite strong showed that businesses were finding it Chartered Financial
performances over the period from select increasingly hard to squeeze out greater [SLOAN Analyst, senior
fund holdings in this area such as efficiencies in productivity. That PHOTO] portfolio manager,
Kohl's, other consumer discretionary research and relatively high commodity is lead manager of
stocks disappointed. In particular, the prices led us to believe that the AIM V.I. Core Equity
fund's media stocks detracted, economic environment did not support Fund. Mr. Sloan has 34 years of
coinciding with generally above-average earnings growth for most experience in the investment industry.
lower-than-expected advertising revenues companies. Because of its emphasis on He joined AIM in 1998. Mr. Sloan
across the industry. These holdings companies with moderate yet stable attended the University of Missouri,
included publishers Gannett, New York earnings growth and reasonable where he received both a B.S. in
Times and Tribune Co. However, at the valuations, we believe the fund is well business administration and an M.B.A.
end of the period, we remained committed suited for shareholders who are looking
to our investments in these companies, for a core equity fund to complement Assisted by the Mid/Large Cap Core Team
as we believe that these companies are more aggressive investments and provide
guided by strong management teams with a downside protection if markets weaken.
track record of increasing their That is our view of the role of a core
companies' free cash flow and allocating equity fund, and we were pleased that we
it to the benefit of shareholders, could do that in 2004, while providing
slightly
PRINCIPAL RISKS OF INVESTING IN THE FUND
The fund may invest up to 25% of its assets in the securities of non-U.S. issuers.
International investing presents certain risks not associated with investing solely
in the United States. These include risks relating to fluctuations in the value of
the U.S. dollar relative to the values of other currencies, the custody arrangements
made for the fund's foreign holdings, differences in accounting, political risks and
the lesser degree of public information required to be provided by non-U.S. companies.
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. CORE EQUITY FUND
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's actual
ongoing costs, including management about actual account values and actual return. The hypothetical account values
fees; distribution and/or service fees expenses. You may use the information in and expenses may not be used to estimate
(12b-1); and other fund expenses. This this table, together with the amount you your actual ending account balance or
example is intended to help you invested, to estimate the expenses that expenses you paid for the period. You
understand your ongoing costs (in you paid over the period. Simply divide may use this information to compare the
dollars) of investing in the fund and to your account value by $1,000 (for ongoing costs of investing in the fund
compare these costs with ongoing costs example, an $8,600 account value divided and other funds. To do so, compare this
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the 5% hypothetical example with the 5%
example is based on an investment of result by the number in the table under hypothetical examples that appear in the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses shareholder reports of the other funds.
period and held for the entire period, Paid During Period" to estimate the
July 1, 2004-December 31, 2004. expenses you paid on your account during Please note that the expenses shown
this period. in the table are meant to highlight your
The actual and hypothetical expenses ongoing costs only. Therefore, the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
the effect of any fees or other expenses COMPARISON PURPOSES comparing ongoing costs only, and will
assessed in connection with a variable not help you determine the relative
product; if they did, the expenses shown The table below also provides total costs of owning different funds.
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,047.20 $4.79 $1,020.46 $4.72
Series II 1,000.00 1,045.60 6.07 1,019.20 5.99
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1,
2004, to December 31, 2004, was 4.72% and 4.56% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.93% and 1.18% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. CORE EQUITY FUND
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 12/31/94-12/31/04
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same DATE AIM V.I. CORE EQUITY S&P 500 RUSSELL 1000 LIPPER LARGE-CAP
percent change in price; in a linear FUND-SERIES I INDEX INDEX CORE FUND INDEX
chart each scale increment always 12/31/94 $10000 $10000 $10000 $10000
represents the same absolute change in 3/95 10868 10973 10951 10788
price. In this example, the scale 6/95 12015 12019 11982 11680
increment between $5,000 and $10,000 is 9/95 13302 12973 13050 12550
the same as that between $10,000 and 12/95 13389 13753 13777 13176
$20,000. In a linear chart, the latter 3/96 14053 14491 14536 13854
scale increment would be twice as large. 6/96 14645 15141 15129 14356
The benefit of using a logarithmic scale 9/96 15162 15609 15622 14812
is that it better illustrates 12/96 16059 16909 16869 15790
performance during the early years 3/97 15931 17363 17130 15921
before reinvested distributions and 6/97 18740 20392 20010 18595
compounding create the potential for the 9/97 20643 21919 21757 20024
original investment to grow to very 12/97 20189 22548 22411 20404
large numbers. Had the chart used a 3/98 22617 25691 25407 23157
linear scale along its vertical axis, 6/98 23099 26544 26043 24085
you would not be able to see as clearly 9/98 20380 23910 23358 21324
the movements in the value of the fund 12/98 25776 28997 28467 25900
and the indexes during the fund's early 3/99 27904 30441 29641 27023
years. We use a logarithmic scale in 6/99 29530 32583 31753 28518
financial reports of funds that have 9/99 28063 30554 29656 26656
more than five years of performance 12/99 34599 35096 34420 30911
history. 3/00 37470 35900 35923 32230
6/00 34983 34946 34689 31495
======================================= 9/00 35333 34608 34937 31379
AVERAGE ANNUAL TOTAL RETURNS 12/00 29563 31902 31739 28633
3/01 23525 28122 27751 25065
As of 12/31/04 6/01 25422 29767 29502 26401
9/01 19947 25399 25008 22628
SERIES I SHARES 12/01 22815 28113 27788 24959
Inception (5/2/94) 9.42% 3/02 23075 28191 27993 24975
10 Years 10.07 6/02 21131 24416 24226 21874
5 Years -5.47 9/02 18160 20200 20129 18433
1 Year 8.97 12/02 19259 21902 21771 19659
3/03 18318 21212 21131 19048
SERIES II SHARES 6/03 21119 24476 24457 21655
10 Years 9.80% 9/03 21641 25124 25190 22131
5 Years -5.71 12/03 23960 28181 28279 24535
1 Year 8.67 3/04 24075 28658 28817 24781
======================================= 6/04 24934 29151 29221 25085
9/04 24296 28606 28692 24490
Returns since the inception date of 12/04 $26111 $31245 $31504 $26569
Series II shares are historical. All
other returns are the blended returns of Source: Lipper, Inc.
the historical performance of the fund's ======================================================================================
Series II shares since their inception
and the restated historical performance may be lower or higher. Please contact consequently, the performance of the
of the fund's Series I shares (for your variable product issuer or fund may deviate significantly from the
periods prior to inception of the Series financial advisor for the most recent performance of the indexes.
II shares) adjusted to reflect the month-end variable performance.
higher Rule 12b-1 fees applicable to the Performance figures reflect fund A direct investment cannot be made
Series II shares. The inception date of expenses, reinvested distributions and in an index. Unless otherwise indicated,
the fund's Series II shares is 10/24/01. changes in net asset value. Investment index results include reinvested
The Series I and Series II shares invest return and principal value will dividends, and they do not reflect sales
in the same portfolio of securities and fluctuate so that you may have a gain or charges. Performance of an index of
will have substantially similar loss when you sell shares. funds reflects fund expenses;
performance, except to the extent that performance of a market index does not.
expenses borne by each class differ. AIM V.I. Core Equity Fund, a series
portfolio of AIM Variable Insurance OTHER INFORMATION
The performance data quoted represent Funds, is currently offered through
past performance and cannot guarantee insurance companies issuing variable The returns shown in the Management's
comparable future results; current products. You cannot purchase shares of Discussion of Fund Performance are based
performance the fund directly. Performance figures on net asset values calculated for
given represent the fund and are not shareholder transactions. Generally
intended to reflect actual variable accepted accounting principles require
product values. They do not reflect adjustments to be made to the net assets
sales charges, expenses and fees of the fund at period end for financial
assessed in connection with a variable reporting purposes, and as such, the net
product. Sales charges, expenses and asset values for shareholder
fees, which are determined by the transactions and the returns based on
variable product issuers, will vary and those net asset values may differ from
will lower the total return.* the net asset values and returns
reported in the Financial Highlights.
ABOUT INDEXES USED IN THIS REPORT
Industry classifications used in this
The unmanaged Standard & Poor's report are generally according to the
Composite Index of 500 Stocks (the S&P Global Industry Classification Standard,
500--Registered Trademark-- Index) is an which was developed by and is the
index of common stocks frequently used exclusive property and a service mark of
as a general measure of U.S. stock Morgan Stanley Capital International
market performance. Inc. and Standard & Poor's.
The unmanaged Russell 1000 Index
represents the performance of the stocks
of large-capitalization companies.
The unmanaged Lipper Large-Cap Core
Fund Index represents an average of the
performance of the 30 largest
large-capitalization core equity funds
tracked by Lipper, Inc., an independent
mutual fund performance monitor.
The fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VICEQ-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-91.21%
AEROSPACE & DEFENSE-1.28%
Northrop Grumman Corp. 350,700 $ 19,064,052
==========================================================================
BREWERS-1.50%
Heineken N.V. (Netherlands)(a)(b) 674,949 22,409,073
==========================================================================
BUILDING PRODUCTS-1.01%
Masco Corp. 411,500 15,032,095
==========================================================================
COMMUNICATIONS EQUIPMENT-1.01%
Nokia Oyi-ADR (Finland) 965,000 15,121,550
==========================================================================
COMPUTER HARDWARE-1.39%
International Business Machines Corp. 210,500 20,751,090
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.98%
First Data Corp. 344,800 14,667,792
==========================================================================
DEPARTMENT STORES-1.79%
Kohl's Corp.(c) 542,000 26,650,140
==========================================================================
DIVERSIFIED BANKS-2.58%
Bank of America Corp. 506,600 23,805,134
- --------------------------------------------------------------------------
Wachovia Corp. 278,050 14,625,430
==========================================================================
38,430,564
==========================================================================
DIVERSIFIED CHEMICALS-1.26%
Dow Chemical Co. (The) 379,800 18,803,898
==========================================================================
ELECTRIC UTILITIES-1.02%
FPL Group, Inc. 203,600 15,219,100
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.02%
Emerson Electric Co. 217,100 15,218,710
==========================================================================
ENVIRONMENTAL SERVICES-2.02%
Waste Management, Inc. 1,005,400 30,101,676
==========================================================================
FOOD RETAIL-2.04%
Kroger Co. (The)(c) 1,733,700 30,409,098
==========================================================================
HOUSEHOLD PRODUCTS-1.13%
Kimberly-Clark Corp. 257,000 16,913,170
==========================================================================
INDUSTRIAL CONGLOMERATES-3.68%
General Electric Co. 718,800 26,236,200
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 802,500 28,681,350
==========================================================================
54,917,550
==========================================================================
INDUSTRIAL MACHINERY-1.37%
Dover Corp. 488,500 20,487,690
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INTEGRATED OIL & GAS-7.76%
Amerada Hess Corp. 258,600 $ 21,303,468
- --------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 625,550 36,532,120
- --------------------------------------------------------------------------
ChevronTexaco Corp. 282,000 14,807,820
- --------------------------------------------------------------------------
Exxon Mobil Corp. 555,300 28,464,678
- --------------------------------------------------------------------------
Murphy Oil Corp. 181,500 14,601,675
==========================================================================
115,709,761
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.02%
ALLTEL Corp. 257,700 15,142,452
==========================================================================
INTERNET RETAIL-0.99%
IAC/InterActiveCorp(c) 536,100 14,807,082
==========================================================================
INVESTMENT BANKING & BROKERAGE-1.57%
Morgan Stanley 421,700 23,412,784
==========================================================================
IT CONSULTING & OTHER SERVICES-1.48%
Accenture Ltd.-Class A (Bermuda)(c) 818,300 22,094,100
==========================================================================
LIFE & HEALTH INSURANCE-1.10%
Prudential Financial, Inc. 298,900 16,427,544
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.94%
Dominion Resources, Inc. 207,900 14,083,146
==========================================================================
OFFICE ELECTRONICS-1.80%
Xerox Corp.(c) 1,581,500 26,901,315
==========================================================================
OIL & GAS DRILLING-2.17%
GlobalSantaFe Corp. (Cayman Islands) 517,000 17,117,870
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(c) 296,000 15,181,840
==========================================================================
32,299,710
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.31%
Baker Hughes Inc. 486,300 20,750,421
- --------------------------------------------------------------------------
BJ Services Co. 319,000 14,846,260
- --------------------------------------------------------------------------
Smith International, Inc.(c) 254,300 13,836,463
==========================================================================
49,433,144
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.09%
Citigroup Inc. 335,700 16,174,026
==========================================================================
PACKAGED FOODS & MEATS-7.01%
Campbell Soup Co. 725,700 21,691,173
- --------------------------------------------------------------------------
General Mills, Inc. 942,000 46,826,820
- --------------------------------------------------------------------------
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
[wKraft Foods Inc.-Class A 581,700 $ 20,714,337
- --------------------------------------------------------------------------
Sara Lee Corp. 634,500 15,316,830
==========================================================================
104,549,160
==========================================================================
PAPER PRODUCTS-1.40%
Georgia-Pacific Corp. 548,300 20,550,284
- --------------------------------------------------------------------------
Neenah Paper, Inc.(b)(c) 7,787 253,856
==========================================================================
20,804,140
==========================================================================
PHARMACEUTICALS-12.44%
Bristol-Myers Squibb Co. 819,200 20,987,904
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(c) 690,000 30,953,400
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 716,500 33,954,935
- --------------------------------------------------------------------------
Johnson & Johnson 251,000 15,918,420
- --------------------------------------------------------------------------
Merck & Co. Inc. 1,212,600 38,972,964
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 785,200 23,446,072
- --------------------------------------------------------------------------
Wyeth 501,600 21,363,144
==========================================================================
185,596,839
==========================================================================
PROPERTY & CASUALTY INSURANCE-3.55%
ACE Ltd. (Cayman Islands) 517,800 22,135,950
- --------------------------------------------------------------------------
Chubb Corp. (The) 201,000 15,456,900
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 414,988 15,383,605
==========================================================================
52,976,455
==========================================================================
PUBLISHING-3.49%
Gannett Co., Inc. 225,500 18,423,350
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A 359,500 14,667,600
- --------------------------------------------------------------------------
Tribune Co. 450,800 18,996,712
==========================================================================
52,087,662
==========================================================================
RAILROADS-2.27%
Norfolk Southern Corp. 433,400 15,684,746
- --------------------------------------------------------------------------
Union Pacific Corp. 269,600 18,130,600
==========================================================================
33,815,346
==========================================================================
REGIONAL BANKS-1.87%
BB&T Corp. 355,400 14,944,570
- --------------------------------------------------------------------------
SunTrust Banks, Inc. 175,900 12,995,492
==========================================================================
27,940,062
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SEMICONDUCTORS-4.42%
Analog Devices, Inc. 379,400 $ 14,007,448
- --------------------------------------------------------------------------
Intel Corp. 946,800 22,145,652
- --------------------------------------------------------------------------
National Semiconductor Corp. 894,800 16,061,660
- --------------------------------------------------------------------------
Xilinx, Inc. 462,200 13,704,230
==========================================================================
65,918,990
==========================================================================
SOFT DRINKS-0.98%
Coca-Cola Co. (The) 350,700 14,599,641
==========================================================================
SYSTEMS SOFTWARE-4.42%
Computer Associates International, Inc. 704,700 21,887,982
- --------------------------------------------------------------------------
Microsoft Corp. 1,647,000 43,991,370
==========================================================================
65,879,352
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.05%
Washington Mutual, Inc. 369,900 15,639,372
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,166,527,688) 1,360,489,331
==========================================================================
MONEY MARKET FUNDS-8.89%
Liquid Assets Portfolio-Institutional
Class(d) 66,319,755 66,319,755
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 66,319,755 66,319,755
==========================================================================
Total Money Market Funds (Cost
$132,639,510) 132,639,510
==========================================================================
TOTAL INVESTMENTS-100.10% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,299,167,198) 1,493,128,841
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.32%
STIC Prime Portfolio-Institutional
Class(d)(e) 4,769,488 4,769,488
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,769,488) 4,769,488
==========================================================================
TOTAL INVESTMENTS-100.42% (Cost
$1,303,936,686) 1,497,898,329
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.42%) (6,262,458)
==========================================================================
NET ASSETS-100.00% $1,491,635,871
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 1.50% of the
Fund's Total Investments. See Note 1A.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Non-income producing security.
(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 8.
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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,166,527,688)* $1,360,489,331
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $137,408,998) 137,408,998
=============================================================
Total investments (cost $1,303,936,686) 1,497,898,329
_____________________________________________________________
=============================================================
Receivables for:
Investments sold 1,071,821
- -------------------------------------------------------------
Fund shares sold 28,606
- -------------------------------------------------------------
Dividends 2,424,443
- -------------------------------------------------------------
Investment matured (Note 10) 1,135,900
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 108,951
=============================================================
Total assets 1,502,668,050
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,656,843
- -------------------------------------------------------------
Fund shares reacquired 1,733,492
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 178,469
- -------------------------------------------------------------
Collateral upon return of securities loaned 4,769,488
- -------------------------------------------------------------
Accrued administrative services fees 2,506,900
- -------------------------------------------------------------
Accrued distribution fees -- Series II 2,537
- -------------------------------------------------------------
Accrued transfer agent fees 3,814
- -------------------------------------------------------------
Accrued operating expenses 180,636
=============================================================
Total liabilities 11,032,179
=============================================================
Net assets applicable to shares outstanding $1,491,635,871
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,598,214,585
- -------------------------------------------------------------
Undistributed net investment income 11,590,806
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (312,131,163)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 193,961,643
=============================================================
$1,491,635,871
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,487,462,489
_____________________________________________________________
=============================================================
Series II $ 4,173,382
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 65,830,667
_____________________________________________________________
=============================================================
Series II 185,656
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 22.60
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 22.48
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $4,510,256
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$137,321) $ 31,148,436
- -------------------------------------------------------------
Dividends from affiliated money market funds
(including securities lending income of
$6,444**) 1,304,676
=============================================================
Total investment income 32,453,112
=============================================================
EXPENSES:
Advisory fees 9,144,411
- -------------------------------------------------------------
Administrative services fees 3,911,626
- -------------------------------------------------------------
Custodian fees 163,693
- -------------------------------------------------------------
Distribution fees -- Series II 9,873
- -------------------------------------------------------------
Transfer agent fees 28,098
- -------------------------------------------------------------
Trustees' fees and retirement benefits 49,786
- -------------------------------------------------------------
Other 416,038
=============================================================
Total expenses 13,723,525
=============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (22,925)
=============================================================
Net expenses 13,700,600
=============================================================
Net investment income 18,752,512
=============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 97,912,492
- -------------------------------------------------------------
Foreign currencies 21,137
=============================================================
97,933,629
=============================================================
Change in net unrealized appreciation of
investment securities 10,319,904
=============================================================
Net gain from investment securities and foreign
currencies 108,253,533
=============================================================
Net increase in net assets resulting from
operations $127,006,045
_____________________________________________________________
=============================================================
</Table>
** Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 18,752,512 $ 12,890,531
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 97,933,629 (24,972,748)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 10,319,904 324,404,651
==============================================================================================
Net increase in net assets resulting from operations 127,006,045 312,322,434
==============================================================================================
Distributions to shareholders from net investment income:
Series I (14,182,082) (14,186,491)
- ----------------------------------------------------------------------------------------------
Series II (32,455) (31,366)
==============================================================================================
Decrease in net assets resulting from distributions (14,214,537) (14,217,857)
==============================================================================================
Share transactions-net:
Series I (180,502,395) (127,008,381)
- ----------------------------------------------------------------------------------------------
Series II 63,621 1,187,509
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (180,438,774) (125,820,872)
==============================================================================================
Net increase (decrease) in net assets (67,647,266) 172,283,705
==============================================================================================
NET ASSETS:
Beginning of year 1,559,283,137 1,386,999,432
==============================================================================================
End of year (including undistributed net investment income
of $11,590,806 and $7,031,694, respectively) $1,491,635,871 $1,559,283,137
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of
AIM V.I. CORE EQUITY FUND
prices furnished by independent pricing services or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ Official
Closing Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor. The Fund allocates income
and realized and unrealized capital gains and losses to a class based on
the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized
AIM V.I. CORE EQUITY FUND
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.
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 advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds (excluding investments made in affiliated money market funds
with cash collateral from securities loaned by the Fund). Voluntary fee waivers
or reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $22,212.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $712 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$3,911,626, of which AIM retained $335,421 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $28,098.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $9,873.
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, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 69,099,940 $251,279,927 $(254,060,112) $ -- $ 66,319,755 $ 652,987 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 69,099,940 251,279,927 (254,060,112) -- 66,319,755 645,245 --
===================================================================================================================================
Subtotal $138,199,880 $502,559,854 $(508,120,224) $ -- $132,639,510 $1,298,232 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 77,703,400 $ (77,703,400) $ -- $ -- $ 4,775 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 32,765,232 (27,995,744) -- 4,769,488 1,669 --
===================================================================================================================================
Subtotal $ -- $110,468,632 $(105,699,144) $ -- $ 4,769,488 $ 6,444 $ --
===================================================================================================================================
Total $138,199,880 $613,028,486 $(613,819,368) $ -- $137,408,998 $1,304,676 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $18,616,211 and $49,159,043,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $1 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $1.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $6,089
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
AIM V.I. CORE EQUITY FUND
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $4,510,256 were
on loan to brokers. The loans were secured by cash collateral of $4,769,488
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $6,444 for securities
lending transactions.
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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $14,214,537 $14,217,857
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 18,797,910
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 171,032,122
- ----------------------------------------------------------------------------
Temporary book/tax differences (153,494)
- ----------------------------------------------------------------------------
Capital loss carryforward (296,255,252)
- ----------------------------------------------------------------------------
Shares of beneficial interest 1,598,214,585
============================================================================
Total net assets $1,491,635,871
____________________________________________________________________________
============================================================================
</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 losses on
wash sales and 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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. CORE EQUITY FUND
The Fund utilized $96,468,555 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $275,037,399
- -----------------------------------------------------------------------------
December 31, 2011 21,217,853
=============================================================================
Total capital loss carryforward $296,255,252
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $730,580,446 and $912,286,740, 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 $188,609,648
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (17,577,526)
==============================================================================
Net unrealized appreciation of investment securities $171,032,122
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,326,866,207.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2004, undistributed net investment income (loss)
was increased by $21,137 and undistributed net realized gain (loss) was
decreased by $21,137. This reclassification had no effect on the net assets of
the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING (a)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 706,992 $ 15,076,577 1,752,378 $ 32,165,026
- ------------------------------------------------------------------------------------------------------------------------
Series II 46,375 984,768 155,224 2,728,158
========================================================================================================================
Issued as reinvestment of dividends:
Series I 633,129 14,182,082 702,995 14,186,491
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,456 32,454 1,561 31,366
========================================================================================================================
Reacquired:
Series I (9,797,694) (209,761,054) (9,709,887) (173,359,898)
- ------------------------------------------------------------------------------------------------------------------------
Series II (44,856) (953,601) (89,175) (1,572,015)
========================================================================================================================
(8,454,598) $(180,438,774) (7,186,904) $(125,820,872)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
()(a)There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 74% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these shareholders are also owned beneficially.
AIM V.I. CORE EQUITY 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,
---------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.94 $ 16.99 $ 20.20 $ 26.19 $ 31.59
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30(a) 0.17(b) 0.12(b) 0.03(c) 0.01(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.58 3.97 (3.27) (6.01) (4.56)
=================================================================================================================================
Total from investment operations 1.88 4.14 (3.15) (5.98) (4.55)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.19) (0.06) (0.01) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.81)
=================================================================================================================================
Total distributions (0.22) (0.19) (0.06) (0.01) (0.85)
=================================================================================================================================
Net asset value, end of period $ 22.60 $ 20.94 $ 16.99 $ 20.20 $ 26.19
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 8.97% 24.42% (15.58)% (22.83)% (14.56)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,487,462 $1,555,475 $1,385,050 $1,916,875 $2,514,262
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.91%(e) 0.81%(f) 0.78% 0.82% 0.84%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.25%(a)(e) 0.91% 0.67% 0.12%(c) 0.04%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 52% 31% 113% 73% 75%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a)Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $0.23 and 0.92%, respectively.
(b)Calculated using average shares outstanding.
(c)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.
(d)Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(e)Ratios are based on average daily net assets of $1,499,286,098.
(f)After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or expenses reimbursements was
0.82%.
<Table>
<Caption>
SERIES II
--------------------------------------------------------------
OCTOBER 24, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
--------------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.85 $16.94 $ 20.19 $18.97
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.21(a) 0.12(b) 0.07(b) (0.00)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.60 3.96 (3.26) 1.23
============================================================================================================================
Total from investment operations 1.81 4.08 (3.19) 1.23
============================================================================================================================
Less dividends from net investment income (0.18) (0.17) (0.06) (0.01)
============================================================================================================================
Net asset value, end of period $22.48 $20.85 $ 16.94 $20.19
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 8.67% 24.15% (15.79)% 6.49%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,173 $3,808 $ 1,949 $ 400
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.16%(d) 1.06%(e) 1.03% 1.03%(f)
============================================================================================================================
Ratio of net investment income (loss) to average net assets 1.00%(a)(d) 0.66% 0.42% (0.10)%(f)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(g) 52% 31% 113% 73%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a)Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $0.14 and 0.67%, respectively.
(b)Calculated using average shares outstanding.
(c)Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d)Ratios are based on average daily net assets of $3,949,042.
(e)After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or expenses reimbursements was
1.07%.
(f)Annualized.
(g)Not annualized for periods less than one year.
AIM V.I. CORE EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. CORE EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. CORE EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. CORE EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Core Equity Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. CORE EQUITY FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Core Equity Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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 None
Trustee, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -----------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -----------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- -----------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -----------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- -----------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. CORE EQUITY FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. CORE EQUITY FUND
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND seeks to
provide longterm growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form NQ. The fund's Form NQ filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms NQ may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
205490102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
12029428090 or by electronic request at the following email address:
publicinfo@sec.gov. The SEC file numbers for the fund are 8117452 and 3357340.
The fund's most recent portfolio holdings, as filed on Form NQ, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 8004104246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the dropdown
menu.
<Table>
==================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
==================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE the two types of stocks, we do work to
maintain balance between the two types
AIM V.I. Dent Demographic Trends Fund rate environment that prevailed all because they will tend to perform
continued to focus on the four market year. differently depending on economic
sectors favored by its subadvisor, Harry conditions and market sentiment.
S. Dent Jr.: financials, consumer HOW WE INVEST
discretionary, health care and MARKET CONDITIONS AND YOUR FUND
information technology. As the fiscal The fund combines the topdown investment
year approach of Harry S. Dent Jr., who Late in the fiscal year investors began
focuses on longterm demographic and reacting positively to a decline in oil
======================================== lifestyle trends; and AIM's bottomup prices, improving economic statistics,
FUND VS. INDEXES approach, which scrutinizes individual and the end of another presidential
companies to identify those we believe election cycle. Chiefly because of
Total returns, 12/31/03-12/31/04, will produce sustainable longterm strong performance during the fourth
excluding variable product issuer revenue, earnings growth and cash flow quarter of the year, 2004 was relatively
charges. If variable product issuer growth. good for investors, as all the major
charges were included, returns would be domestic equity indexes produced
lower. Dent has identified the four sectors positive results.
he believes will do well given ongoing
Series I Shares 8.25% demographic developments, including the One of the bestperforming sectors for
aging of the baby boom generation. The the fund was information technology. In
Series II Shares 7.90 financials, consumer discretionary and fact, four of the fund's top five
health care sectors all reflect the performers for the year were in this
S&P 500 Index aging of the population: the growth of sector. By contrast, information
(Broad Market Index) 10.87 disposable income as obligations such as technology holdings included in the
children's tuition and home mortgages Russell 3000 Growth Index produced
Russell 3000 Growth Index are paid off, the accumulation of assets negative returns for the fiscal year.
(Style-specific Index) 6.93 for retirement and the increased need
for health care services. Facilitating Holdings in information technology
Lipper MultiCap Growth Fund Index advances in all three, and in fact in that have been successful for the fund
(Peer Group Index) 11.26 the entire economy, is the information either during the fiscal year or over
technology sector. the long term include Yahoo! and eBay,
Source: Lipper, Inc. both of which have been fund holdings
======================================== With a focus on these sectors, we for some time. Both represent the
then search company-by-company for: ongoing migration to the Internet,
closed, almost 90% of fund assets were Yahoo! for experiences and eBay for
invested in these sectors. Fund holdings o Earnings-momentum stocks of companies transactions.
in all of these focus sectors produced experiencing accelerating revenue and
positive returns for the year, and the earnings growth above market o Yahoo! also represents a change in the
fund outperformed its style-specific expectations advertising industry. Advertising in the
benchmark. traditional media has been declining,
o Core growth stocks of high-quality, and advertising dollars have been moving
The absence of holdings in other well-managed companies with strong to the Internet. Yahoo! has been the
sectors that performed strongly led to competitive positions in growing markets numbertwo player in attracting this
underperformance relative to the broad revenue stream.
market and the fund's Lipper peer group.
Compared to these indexes, strong While we do not seek a certain ratio o eBay, a leader in electronic commerce,
performance in our focus sectors simply between now includes PayPal, an electronic payment
could not compete with the superior system that can be used to pay for
performance of energy stocks riding the Internet
wave of record high oil prices and
utilities stocks, which were considered
attractive in the low-interest
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Dell Inc. 2.5% 1. Communications Equipment 6.7%
1. Information Technology 35.5% 2. Goldman Sachs Group, Inc. 2. Systems Software 6.3
2. Health Care 21.6 (The) 2.2 3. Health Care Equipment 5.4
3. Consumer Discretionary 19.5 3. eBay Inc 2.2 4. Pharmaceuticals 4.8
4. Financials 12.1 4. Yahoo! Inc. 2.1 5. Biotechnology 4.5
5. Consumer Staples 4.3 5. Alliance Data Systems Corp. 2.0 6. Application Software 3.9
6. Industrials 2.5 6. Aetna Inc. 2.0 7. Consumer Finance 3.7
7. Materials 0.7 7. Target Corp. 1.9 8. Computer Hardware 3.6
8. Symantec Corp. 1.8 9. Cendant Corp. 1.8
Money Market Funds 9. Internet Software & Services 3.6 10. Health Care Services 3.4
Plus Other Assets Less 10. Oracle Corp. 1.7
Liabilities 3.8
The fund's holdings are subject to change, and there is no assurance that the fund will
continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
transactions. PayPal has been a boon for those concerns into tradable securities. The views and opinions expressed in
earnings, providing extra revenue growth Management's Discussion of Fund
to eBay beyond the fees paid for Among holdings that detracted from Performance are those of A I M Advisors,
transactions. performance was VERITAS, the data Inc. These views and opinions are
management and storage firm, which subject to change at any time based on
Downloadable music made Apple another declined after it missed secondquarter factors such as market and economic
strong performer. Apple's stock value 2004 earnings estimates. We trimmed our conditions. These views and opinions may
tripled over the year, largely on the holdings on the basis of this shortfall. not be relied upon as investment advice
strength of the iPod music player. Sales Late in the fiscal year, VERITAS agreed or recommendations, or as an offer for a
of iPod continue to beat expectations, to be acquired by data security firm particular security. The information is
and the company hopes to convert many of Symantec, also a fund holding. The not a complete analysis of every aspect
those iPod purchasers into iMac users. merger indicates that both firms of any market, country, industry,
recognized the need for strategic security or the fund. Statements of fact
During the fiscal year the fund change. are from sources considered reliable,
participated in two visible initial but A I M Advisors, Inc. makes no
public offerings in the tech sector, Pharmaceutical giant Pfizer also representation or warranty as to their
those of Google, the wellknown Internet detracted from performance. In fact, completeness or accuracy. Although
search engine; and of NAVTEQ, whose Pfizer is a leader in its industry with historical performance is no guarantee
digital mapping data base is used in a history of earnings growth. However, of future results, these insights may
most invehicle navigation systems sold recently Pfizer's drug pipeline did not help you understand our investment
in North America and Europe. seem as promising as in the past, management philosophy.
causing us to begin to trim our position
A major nontech contributor to fund even before the controversy erupted over
performance during the fiscal year was a Vioxx, the painkiller developed by rival LANNY H. SACHNOWITZ,
financials sector holding, the Chicago Merck (not a fund holding). By the close senior portfolio
Mercantile Exchange, the largest futures of the fiscal year, we no longer held [SACHNOWITZ manager, is lead
exchange in the United States. The Pfizer. We took our profits during the PHOTO] portfolio manager of
exchange, which has been growing market rally that followed the 2004 AIM V.I. Dent
rapidly, enables buyers and sellers to presidential election. We still consider Demographic Trends
trade either via its trading floors or Pfizer a great company, but we no longer Fund. He joined AIM in 1987 as a money
on an electronic trading platform. It consider it a great stock for our market trader and research analyst. In
offers futures and options on futures in portfolio, especially compared to other 1990, Mr. Sachnowitz's trading
such areas as interest rates, stock opportunities in health care and other responsibilities were expanded to
indexes, foreign exchange rates and sectors. include head of equity trading. He was
commodities--even the weather. Holding named to his current position in 1992.
its stock means the fund can potentially IN CLOSING Mr. Sachnowitz received a B.S. in
benefit from macroeconomic factors such finance from the University of Southern
as interest rates and foreign exchange At the close of the fiscal year, AIM California and an M.B.A. from the
rates, which were important during this V.I. Dent Demographic Trends Fund held University of Houston.
fiscal year. For most of 2004, investors 82 securities and had net assets of
were worried about rising oil prices and $145.2 million. We were pleased to have
interest rates, the presidential provided investors with positive returns KIRK L. ANDERSON,
election cycle and global tensions. The despite the fact that our favored portfolio manager, is
Chicago Mercantile Exchange is a place sectors were not the markets' favorites [ANDERSON a portfolio manager of
where they can translate during 2004. We thank you for your PHOTO] AIM V.I. Dent
continued investment in AIM V.I. Dent Demographic Trends
Demographic Trends Fund. Fund. He joined AIM in
1994 and assumed his current position in
2003. Mr. Anderson earned a B.A. in
PRINCIPAL RISKS OF INVESTING IN THE FUND political science from Texas A&M
University and M.S. in finance from the
Harry S. Dent's stock market scenario for the coming decade, based on historical University of Houston.
data, represents his opinion. Unforeseen events such as rising inflation, declining
productivity, irregular spending and savings patterns, and other social, political
and economic uncertainties could affect corporate earnings and the stock market, JAMES G. BIRDSALL,
negatively altering Mr. Dent's view. portfolio manager, is
[BIRDSALL a portfolio manager of
Investing in small and midsize companies involves risks not associated with PHOTO] AIM V.I. Dent
investing in more established companies, including business risk, significant stock Demographic Trends
price fluctuations and illiquidity. Fund. He has been
associated with AIM Investments since
International investing presents certain risks not associated with investing 1995 and assumed his current position in
solely in the United States. These include risks relating to fluctuations in the 1999. Mr. Birdsall received his B.B.A.
value of the U.S. dollar relative to the values of other currencies, the custody with a concentration in finance from
arrangements made for the fund's foreign holdings, differences in accounting, Stephen F. Austin State University
political risks and the lesser degree of public information required to be provided before earning his M.B.A.with a
by nonU.S. companies. The fund may invest up to 25% of its assets in the securities concentration in finance and
of nonU.S. issuers. international business from the
University of St. Thomas.
The fund may participate in the initial public offering (IPO) market in some
market cycles. Because of the fund's small asset base, any investment the fund may Assisted by the Large Cap Growth Team
make in IPOs may significantly affect the fund's total return. As the fund's assets
grow, the impact of IPO investments will decline, which may reduce the effect of IPO
investments on the fund's total return. [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's actual
ongoing costs including management fees, about actual account values and actual return. The hypothetical account values
distribution and/or service fees (12b1) expenses. You may use the information in and expenses may not be used to estimate
and other fund expenses. This example is this table, together with the amount you your actual ending account balance or
intended to help you understand your invested, to estimate the expenses that expenses you paid for the period. You
ongoing costs (in dollars) of investing you paid over the period. Simply divide may use this information to compare the
in the fund and to compare these costs your account value by $1,000 (for ongoing costs of investing in the fund
with ongoing costs of investing in other example, an $8,600 account value divided and other funds. To do so, compare this
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the 5% hypothetical example with the 5%
investment of $1,000 invested at the result by the number in the table under hypothetical examples that appear in the
beginning of the period and held for the the heading entitled "Actual Expenses shareholder reports of the other funds.
entire period July 1, 2004 - December Paid During Period" to estimate the
31, 2004. expenses you paid on your account during Please note that the expenses shown
this period. in the table are meant to highlight your
The actual and hypothetical expenses ongoing costs only. Therefore, the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON hypothetical information is useful in
the effect of any fees or other expenses PURPOSES comparing ongoing costs only, and will
assessed in connection with a variable not help you determine the relative
product; if they did, the expenses shown The table below also provides total costs of owning different funds.
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) Period(2)(3) (12/31/04) PERIOD(2)(4)
Series I $1,000.00 $1,044.40 $5.96 $1,019.30 $5.89
Series II 1,000.00 1,042.80 7.24 1,018.00 7.15
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1,
2004, to December 31, 2004, was 4.44% and 4.28% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.16% and 1.41% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the onehalf year period). Effective on
January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated
as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.09% and 1.34% for Series I and
Series II shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent fiscal
half year are $5.60 and $6.88 for Series I and Series II shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year are $5.53 and $6.80 for Series I and Series II, respectively.
===================================================================================================================================
</Table>
4
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 12/29/99-12/31/04 Index results from 12/31/99
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same AIM V.I. DENT
percent change in price; in a linear DEMOGRAPHIC TRENDS S&P 500 RUSSELL 3000 LIPPER MULTI-CAP
chart each scale increment always DATE FUND-SERIES I INDEX GROWTH INDEX GROWTH FUND INDEX
represents the same absolute change in 12/29/99 $10000
price. In this example, the scale 12/99 10000 $10000 $10000 $10000
increment between $4,000 and $8,000 is 1/00 9800 9498 9558 9899
the same as that between $8,000 and 2/00 11120 9318 10155 11481
$16,000. In a linear chart, the latter 3/00 11110 10229 10729 11436
scale increment would be twice as large. 4/00 10210 9921 10178 10477
The benefit of using a logarithmic scale 5/00 9400 9718 9639 9771
is that it better illustrates 6/00 10410 9957 10404 10740
performance during the early years 7/00 10340 9802 9938 10402
depicted in the chart before reinvested 8/00 11451 10410 10848 11529
distributions and compounding create the 9/00 10771 9861 9854 10829
potential for the original investment to 10/00 9900 9819 9365 10200
grow to very large numbers. Had the 11/00 8040 9045 7963 8529
chart used a linear scale along its 12/00 8211 9090 7758 8795
vertical axis, you would not be able to 1/01 8491 9412 8301 8973
see as clearly the movements in the 2/01 6571 8554 6911 7660
value of the fund and the indexes in the 3/01 5621 8013 6168 6839
early years depicted. We use a 4/01 6441 8635 6946 7673
logarithmic scale in financial reports 5/01 6381 8693 6863 7632
of funds that have more than five years 6/01 6441 8481 6731 7496
of performance history. 7/01 6051 8398 6534 7092
8/01 5461 7873 6008 6479
======================================= 9/01 4520 7237 5384 5517
AVERAGE ANNUAL TOTAL RETURNS 10/01 4891 7375 5681 5912
11/01 5561 7941 6222 6481
As of 12/31/04 12/01 5591 8010 6236 6582
1/02 5480 7893 6118 6396
SERIES I SHARES 2/202 5090 7741 5854 5999
Inception (12/29/99) -10.81% 3/02 5460 8032 6077 6357
5 Years -10.82 4/02 5080 7546 5606 5971
1 Year 8.25 5/02 4920 7490 5457 5797
6/02 4470 6957 4955 5257
SERIES II SHARES 7/02 4010 6415 4649 4763
Inception -11.02% 8/02 3970 6457 4662 4727
5 Years -11.03 9/02 3590 5756 4187 4360
1 Year 7.90 10/02 3880 6262 4560 4693
======================================= 11/02 4160 6630 4820 4987
12/02 3790 6241 4488 4619
Returns since the inception date of 1/03 3781 6077 4378 4543
Series II shares are historical. All 2/03 3751 5986 4352 4512
other returns are the blended returns of 3/03 3811 6044 4432 4583
the historical performance of the fund's 4/03 4131 6542 4765 4918
Series II shares since their inception 5/03 4461 6886 5022 5280
and the restated historical performance 6/03 4551 6974 5093 5341
of the fund's Series I shares (for 7/03 4701 7097 5237 5507
periods prior to inception of the Series 8/03 4831 7235 5379 5727
II shares) adjusted to reflect the 9/03 4691 7159 5315 5616
higher Rule 12b1 fees applicable to the 10/03 5071 7563 5626 6014
Series II shares. The inception date of 1103 5161 7630 5694 6124
the fund's Series I shares is 12/29/99. 12/03 5210 8030 5877 6253
The inception date of the fund's Series 1/04 5390 8177 6012 6409
II shares is 11/7/01. The Series I and 2/04 5460 8291 6046 6494
Series II shares invest in the same 3/04 5370 8166 5945 6474
portfolio of securities and will have 4/04 5150 8038 5858 6257
substantially similar performance, 5/04 5300 8148 5967 6405
except to the extent that expenses borne 6/04 5400 8306 6051 6542
by each class differ. 7/04 4960 8031 5693 6080
8/04 4850 8063 5657 5995
9/04 5010 8151 5731 6226
10/04 5140 8275 5825 6360
11/34 5380 8610 6049 6702
12/04 $ 5640 $ 8903 $ 6285 $ 6958
Source: Lipper, Inc.
=======================================================================================
The performance data quoted represent The unmanaged Lipper MultiCap Growth
past performance and cannot guarantee Fund Index represents an average of the
comparable future results; current performance of the 30 largest
performance may be lower or higher. multicapitalization growth funds tracked
Please contact your variable product by Lipper, Inc., an independent mutual
issuer or financial advisor for the most fund performance monitor.
recent monthend variable product
performance. Performance figures reflect The unmanaged Russell 3000--Registered
fund expenses, reinvested distributions Trademark-- Growth Index is a subset of
and changes in net asset value. the Russell 3000 Index, an index of common
Investment return and principal value stocks that measures performance of the
will fluctuate so that you may have a largest 3,000 U.S. companies based on
gain or loss when you sell shares. market capitalization; the Growth subset
measures the performance of Russell 3000
AIM V.I. Dent Demographic Trends companies with higher price/book ratios
Fund, a series portfolio of AIM Variable and higher forecasted growth values.
Insurance Funds, is currently offered
through insurance companies issuing The fund is not managed to track the
variable products. You cannot purchase performance of any particular index,
shares of the fund directly. Performance including the indexes defined here, and
figures given represent the fund and are consequently, the performance of the
not intended to reflect actual variable fund may deviate significantly from the
product values. They do not reflect performance of the indexes.
sales charges, expenses and fees
assessed in connection with a variable A direct investment cannot be made in
product. Sales charges, expenses and an index. Unless otherwise indicated,
fees, which are determined by the index results include reinvested
variable product issuers, will vary and dividends, and they do not reflect sales
will lower the total return.* charges. Performance of an index of
funds reflects fund expenses;
ABOUT INDEXES USED IN THIS REPORT performance of a market index does not.
The unmanaged Standard & Poor's OTHER INFORMATION
Composite Index of 500 Stocks (the S&P
500--Registered Trade-- markIndex) is an The returns shown in the Management's
index of commonstocks frequently used Discussion of Fund Performance are based
as a general measure of U.S. stock on net asset values calculated for
market performance. shareholder transactions. Generally
accepted accounting principles require
adjustments to be made to the net assets
of the fund at period end for financial
reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
Industry classifications used in this
report are generally according to the
Global Industry Classification Standard,
which was developed by and is the
exclusive property and a service mark of
Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent monthend performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 8667024402. As mentioned above, for the most recent monthend
performance including variable product charges, please contact your variable
product issuer or financial consultant.
VIDDT-AR-1
5
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.22%
APPAREL RETAIL-1.20%
American Eagle Outfitters, Inc. 12,800 $ 602,880
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 25,000 1,138,250
=======================================================================
1,741,130
=======================================================================
APPLICATION SOFTWARE-3.92%
Amdocs Ltd. (United Kingdom)(a) 92,000 2,415,000
- -----------------------------------------------------------------------
Autodesk, Inc. 37,900 1,438,305
- -----------------------------------------------------------------------
Intuit Inc.(a) 24,200 1,065,042
- -----------------------------------------------------------------------
NAVTEQ Corp.(a) 16,700 774,212
=======================================================================
5,692,559
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.58%
Legg Mason, Inc. 31,350 2,296,701
=======================================================================
BIOTECHNOLOGY-4.54%
Biogen Idec Inc.(a) 23,500 1,565,335
- -----------------------------------------------------------------------
Gen-Probe Inc.(a) 37,500 1,695,375
- -----------------------------------------------------------------------
Genentech, Inc.(a) 27,000 1,469,880
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 53,400 1,868,466
=======================================================================
6,599,056
=======================================================================
BROADCASTING & CABLE TV-0.77%
Univision Communications Inc.-Class A(a) 38,000 1,112,260
=======================================================================
COMMUNICATIONS EQUIPMENT-6.74%
Cisco Systems, Inc.(a) 121,500 2,344,950
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 90,900 2,222,505
- -----------------------------------------------------------------------
Motorola, Inc. 123,200 2,119,040
- -----------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 64,000 1,002,880
- -----------------------------------------------------------------------
QUALCOMM Inc. 26,000 1,102,400
- -----------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 12,000 989,040
=======================================================================
9,780,815
=======================================================================
COMPUTER & ELECTRONICS RETAIL-1.24%
Best Buy Co., Inc. 30,400 1,806,368
=======================================================================
COMPUTER HARDWARE-3.58%
Apple Computer, Inc.(a) 23,500 1,513,400
- -----------------------------------------------------------------------
Dell Inc.(a) 87,500 3,687,250
=======================================================================
5,200,650
=======================================================================
COMPUTER STORAGE & PERIPHERALS-2.50%
EMC Corp.(a) 121,500 1,806,705
- -----------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 21,500 1,827,500
=======================================================================
3,634,205
=======================================================================
CONSUMER FINANCE-3.69%
American Express Co. 41,000 2,311,170
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
CONSUMER FINANCE-(CONTINUED)
Providian Financial Corp.(a) 91,100 $ 1,500,417
- -----------------------------------------------------------------------
SLM Corp. 28,900 1,542,971
=======================================================================
5,354,558
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.99%
Alliance Data Systems Corp.(a) 60,800 2,886,784
=======================================================================
DEPARTMENT STORES-2.03%
Kohl's Corp.(a) 23,000 1,130,910
- -----------------------------------------------------------------------
Nordstrom, Inc. 39,000 1,822,470
=======================================================================
2,953,380
=======================================================================
DISTILLERS & VINTNERS-0.31%
Constellation Brands, Inc.-Class A(a) 9,600 446,496
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.79%
Cendant Corp. 110,900 2,592,842
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.26%
Agilent Technologies, Inc.(a) 76,000 1,831,600
=======================================================================
ENVIRONMENTAL SERVICES-0.73%
Stericycle, Inc.(a) 22,900 1,052,255
=======================================================================
GENERAL MERCHANDISE STORES-1.91%
Target Corp. 53,500 2,778,255
=======================================================================
HEALTH CARE EQUIPMENT-5.40%
Bard (C.R.), Inc. 24,300 1,554,714
- -----------------------------------------------------------------------
DENTSPLY International Inc. 26,000 1,461,200
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 28,000 1,746,640
- -----------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 20,000 1,526,000
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 36,000 1,556,640
=======================================================================
7,845,194
=======================================================================
HEALTH CARE SERVICES-3.45%
Caremark Rx, Inc.(a) 33,400 1,316,962
- -----------------------------------------------------------------------
DaVita, Inc.(a) 56,550 2,235,422
- -----------------------------------------------------------------------
Quest Diagnostics Inc. 15,200 1,452,360
=======================================================================
5,004,744
=======================================================================
HEALTH CARE SUPPLIES-1.40%
Alcon, Inc. (Switzerland) 25,200 2,031,120
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.92%
Carnival Corp. (Panama) 35,800 2,063,154
- -----------------------------------------------------------------------
Hilton Hotels Corp. 80,500 1,830,570
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 6,000 350,400
=======================================================================
4,244,124
=======================================================================
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.52%
Costco Wholesale Corp. 45,500 $ 2,202,655
=======================================================================
INTERNET RETAIL-2.20%
eBay Inc.(a) 27,500 3,197,700
=======================================================================
INTERNET SOFTWARE & SERVICES-3.57%
Google Inc.-Class A(a) 7,500 1,448,250
- -----------------------------------------------------------------------
VeriSign, Inc.(a) 20,400 683,808
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 81,000 3,052,080
=======================================================================
5,184,138
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.22%
Goldman Sachs Group, Inc. (The) 31,000 3,225,240
=======================================================================
IT CONSULTING & OTHER SERVICES-0.73%
Accenture Ltd.-Class A (Bermuda)(a) 39,300 1,061,100
=======================================================================
MANAGED HEALTH CARE-1.98%
Aetna Inc. 23,000 2,869,250
=======================================================================
MOTORCYCLE MANUFACTURERS-0.98%
Harley-Davidson, Inc. 23,500 1,427,625
=======================================================================
MOVIES & ENTERTAINMENT-1.74%
Pixar(a) 9,000 770,490
- -----------------------------------------------------------------------
Walt Disney Co. (The) 63,400 1,762,520
=======================================================================
2,533,010
=======================================================================
PERSONAL PRODUCTS-2.42%
Estee Lauder Cos. Inc. (The)-Class A 47,300 2,164,921
- -----------------------------------------------------------------------
Gillette Co. (The) 30,000 1,343,400
=======================================================================
3,508,321
=======================================================================
PHARMACEUTICALS-4.78%
Eon Labs, Inc.(a) 60,100 1,622,700
- -----------------------------------------------------------------------
Johnson & Johnson 37,000 2,346,540
- -----------------------------------------------------------------------
Sepracor Inc.(a) 24,000 1,424,880
- -----------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR
(United Kingdom) 48,500 1,549,575
=======================================================================
6,943,695
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.51%
Allstate Corp. (The) 42,500 2,198,100
=======================================================================
PUBLISHING-0.83%
Getty Images, Inc.(a) 17,600 1,211,760
=======================================================================
REGIONAL BANKS-1.07%
Bank of Hawaii Corp. 30,600 1,552,644
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
RESTAURANTS-2.11%
Darden Restaurants, Inc. 46,000 $ 1,276,040
- -----------------------------------------------------------------------
Yum! Brands, Inc. 38,000 1,792,840
=======================================================================
3,068,880
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.54%
Novellus Systems, Inc.(a) 80,000 2,231,200
=======================================================================
SEMICONDUCTORS-3.37%
Analog Devices, Inc. 46,200 1,705,704
- -----------------------------------------------------------------------
Microchip Technology Inc. 59,000 1,572,940
- -----------------------------------------------------------------------
National Semiconductor Corp. 90,000 1,615,500
=======================================================================
4,894,144
=======================================================================
SPECIALIZED FINANCE-0.87%
Chicago Mercantile Exchange (The) 5,500 1,257,850
=======================================================================
SPECIALTY CHEMICALS-0.74%
Ecolab Inc. 30,500 1,071,465
=======================================================================
SPECIALTY STORES-1.60%
Cabela's Inc.-Class A(a) 48,600 1,105,164
- -----------------------------------------------------------------------
Tiffany & Co. 38,000 1,214,860
=======================================================================
2,320,024
=======================================================================
SYSTEMS SOFTWARE-6.33%
McAfee Inc.(a) 54,000 1,562,220
- -----------------------------------------------------------------------
Microsoft Corp. 39,900 1,065,729
- -----------------------------------------------------------------------
Oracle Corp.(a) 177,000 2,428,440
- -----------------------------------------------------------------------
Symantec Corp.(a) 103,400 2,663,584
- -----------------------------------------------------------------------
VERITAS Software Corp.(a) 51,700 1,476,035
=======================================================================
9,196,008
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.16%
Doral Financial Corp. (Puerto Rico) 34,200 1,684,350
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $113,018,117) 139,724,255
=======================================================================
MONEY MARKET FUNDS-3.53%
Liquid Assets Portfolio-Institutional
Class(b) 2,563,954 2,563,954
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(b) 2,563,954 2,563,954
=======================================================================
Total Money Market Funds (Cost
$5,127,908) 5,127,908
=======================================================================
TOTAL INVESTMENTS-99.75% (Cost $118,146,025) 144,852,163
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.25% 356,731
=======================================================================
NET ASSETS-100.00% $145,208,894
_______________________________________________________________________
=======================================================================
</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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$113,018,117) $139,724,255
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $5,127,908) 5,127,908
=============================================================
Total investments (cost $118,146,025) 144,852,163
=============================================================
Receivables for:
Investments sold 1,346,102
- -------------------------------------------------------------
Fund shares sold 122,187
- -------------------------------------------------------------
Dividends 70,595
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 25,344
=============================================================
Total assets 146,416,391
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 833,293
- -------------------------------------------------------------
Fund shares reacquired 85,272
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 27,701
- -------------------------------------------------------------
Accrued administrative services fees 175,448
- -------------------------------------------------------------
Accrued distribution fees -- Series II 46,587
- -------------------------------------------------------------
Accrued transfer agent fees 2,651
- -------------------------------------------------------------
Accrued operating expenses 36,545
=============================================================
Total liabilities 1,207,497
=============================================================
Net assets applicable to shares outstanding $145,208,894
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $152,426,466
- -------------------------------------------------------------
Undistributed net investment income (loss) (21,905)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (33,901,805)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 26,706,138
=============================================================
$145,208,894
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 76,039,516
_____________________________________________________________
=============================================================
Series II $ 69,169,378
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,483,766
_____________________________________________________________
=============================================================
Series II 12,348,464
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 5.64
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 5.60
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$6,008) $ 977,044
- ------------------------------------------------------------
Dividends from affiliated money market funds 78,259
============================================================
Total investment income 1,055,303
============================================================
EXPENSES:
Advisory fees 1,115,158
- ------------------------------------------------------------
Administrative services fees 385,564
- ------------------------------------------------------------
Custodian fees 41,165
- ------------------------------------------------------------
Distribution fees -- Series II 164,476
- ------------------------------------------------------------
Transfer agent fees 15,213
- ------------------------------------------------------------
Trustees' fees and retirement benefits 14,642
- ------------------------------------------------------------
Other 59,197
============================================================
Total expenses 1,795,415
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (1,595)
============================================================
Net expenses 1,793,820
============================================================
Net investment income (loss) (738,517)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 4,553,886
- ------------------------------------------------------------
Option contracts written 73,547
============================================================
4,627,433
============================================================
Change in net unrealized appreciation of
investment securities 6,264,074
============================================================
Net gain from investment securities and option
contracts 10,891,507
============================================================
Net increase in net assets resulting from
operations $10,152,990
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (738,517) $ (483,214)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 4,627,433 1,783,016
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and option contracts 6,264,074 20,805,019
==========================================================================================
Net increase in net assets resulting from operations 10,152,990 22,104,821
==========================================================================================
Share transactions-net:
Series I 5,206,868 25,556,644
- ------------------------------------------------------------------------------------------
Series II 5,328,383 38,614,358
==========================================================================================
Net increase in net assets resulting from share
transactions 10,535,251 64,171,002
==========================================================================================
Net increase in net assets 20,688,241 86,275,823
==========================================================================================
NET ASSETS:
Beginning of year 124,520,653 38,244,830
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(21,905) and $(19,450), respectively) $145,208,894 $124,520,653
__________________________________________________________________________________________
==========================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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.
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, effective
July 1, 2004, the Fund pays an advisory fee to AIM at the annual rate of 0.77%
of the first $2 billion of the Fund's average daily net assets, plus 0.72% of
the Fund's average daily net assets in excess of $2 billion. Prior to July 1,
2004, the Fund paid 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 exceeding $2 billion. Under the terms of the
sub-advisory agreement between AIM and H.S. Dent, effective July 1, 2004, AIM
pays H.S. Dent at the annual rate of 6.49% of the net management fee for the
Fund, however, no sub-advisory fee shall be due with respect to the Fund if the
net
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
assets of the Fund fall below $50 million. Prior to July 1, 2004, AIM paid 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. Effective January 1, 2005 through December 31, 2009, AIM has
contractually agreed to waive advisory fees to the extent necessary so that the
advisory fees payable by the Fund (based on the Fund's average daily net assets)
do not exceed the annual rate of 0.695% of the first $250 million, plus 0.67% of
the next $250 million, plus 0.645% of the next $500 million, plus 0.62% of the
next $1.5 billion, plus 0.595% of the next $2.5 billion, plus 0.57% of the next
$2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the Fund's
average daily net assets in excess of $10 billion. AIM has contractually agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors. For the year ended December 31, 2004, AIM waived
fees of $1,326.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $112 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$385,564, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $15,213.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $164,476.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,258,463 $37,405,198 $(39,099,707) $ -- $2,563,954 $39,507 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,258,463 37,405,198 (39,099,707) -- 2,563,954 38,752 --
==================================================================================================================================
Total $8,516,926 $74,810,396 $(78,199,414) $ -- $5,127,908 $78,259 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $3,275,883 and $1,566,001,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $157 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $157.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,939
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 254 84,867
- -----------------------------------------------------------------------------------
Closed (29) (49,318)
- -----------------------------------------------------------------------------------
Expired (225) (35,549)
===================================================================================
End of year -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income & long term capital gain distributions paid during
the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 25,714,518
- --------------------------------------------------------------------------
Temporary book/tax differences (24,754)
- --------------------------------------------------------------------------
Capital loss carryforward (32,907,336)
- --------------------------------------------------------------------------
Shares of beneficial interest 152,426,466
==========================================================================
Total net assets $145,208,894
__________________________________________________________________________
==========================================================================
</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 losses on
wash sales and the treatment of return of capital.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $4,301,405 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $19,305,574
- -----------------------------------------------------------------------------
December 31, 2010 13,601,762
=============================================================================
Total capital loss carryforward $32,907,336
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $195,866,361 and $185,767,597, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 26,350,298
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (635,780)
===============================================================================
Net unrealized appreciation of investment securities $ 25,714,518
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $119,137,645.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and prior year return of capital distribution, on December 31, 2004,
undistributed net investment income (loss) was increased by $736,062,
undistributed net realized gain (loss) increased by $906 and shares of
beneficial interest decreased by $736,968. This reclassification had no effect
on the net assets of the Fund.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,599,332 $ 19,023,172 7,197,545 $33,332,639
- ---------------------------------------------------------------------------------------------------------------------
Series II 4,811,300 25,774,483 9,405,244 43,085,074
=====================================================================================================================
Reacquired:
Series I (2,626,910) (13,816,304) (1,735,831) (7,775,995)
- ---------------------------------------------------------------------------------------------------------------------
Series II (3,910,303) (20,446,100) (996,565) (4,470,716)
=====================================================================================================================
1,873,419 $ 10,535,251 13,870,393 $64,171,002
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 91% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
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,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.21 $ 3.79 $ 5.59 $ 8.21 $ 10.00
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a)(b) (0.03)(a) (0.03)(a) (0.05)(a) (0.07)(a)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.45 1.45 (1.77) (2.57) (1.72)
=================================================================================================================
Total from investment operations 0.43 1.42 (1.80) (2.62) (1.79)
=================================================================================================================
Net asset value, end of period $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(c) 8.25% 37.47% (32.20)% (31.91)% (17.90)%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $76,040 $65,162 $26,747 $39,226 $41,300
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.18%(d) 1.30% 1.30% 1.38% 1.40%
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.19%(d) 1.30% 1.43% 1.44% 1.63%
=================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.42)%(b)(d) (0.61)% (0.67)% (0.79)% (0.69)%
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate 141% 139% 208% 144% 92%
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the Ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the Ratio of Net
investment (loss) to average net assets excluding the special dividend
are $(0.03) and (0.52)%, respectively.
(c) Included adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon these
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $71,813,731.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------
NOVEMBER 7, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.19 $ 3.78 $ 5.58 $ 5.33
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a)(b) (0.03)(a) (0.04)(a) (0.01)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 1.44 (1.76) 0.26
====================================================================================================================
Total from investment operations 0.41 1.41 (1.80) 0.25
====================================================================================================================
Net asset value, end of period $ 5.60 $ 5.19 $ 3.78 $ 5.58
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 7.90% 37.30% (32.26)% 4.69%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $69,169 $59,358 $11,498 $3,552
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.43%(d) 1.45% 1.45% 1.45%(e)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.44%(d) 1.55% 1.68% 1.61%(e)
====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.67)%(b)(d) (0.76)% (0.82)% (0.85)%(e)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(f) 141% 139% 208% 144%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the Ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the Ratio of Net
investment (loss) to average net assets excluding the special dividend
are $(0.04) and (0.77)%, respectively.
(c) Included adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon these
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $65,790,371.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement payment will be made available for distribution to the shareholders
of those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement payment by AIM and ADI will be
made available for distribution to the shareholders of those AIM Funds advised
by AIM that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. Under the settlements
with the NYAG and COAG, AIM has agreed to reduce management fees on certain
equity and balanced AIM Funds by $15 million per year for the next five years,
based upon effective fee rates and assets under management as of July 1, 2004,
and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
which proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Dent Demographic Trends Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker H.S. Dent Advisors,
Suite 100 11 Greenway Plaza Inc. 1818 Market Street Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400 6515 Gwin Road
Houston, TX 77046-1173 Suite 100 Philadelphia, PA Oakland, CA 94611
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
AIM V.I. DIVERSIFIED INCOME FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. DIVERSIFIED INCOME FUND seeks to achieve a
high level of current income.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
===================================================
=================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
We are pleased to report that for the 8% to non-U.S. dollar denominated bonds securities. We look for securities with
year ended December 31, 2004, AIM V.I. helped the fund boost its return. attractive yield opportunities,
Diversified Income Fund outperformed the improving credit quality and potential
Lehman U.S. Aggregate Bond Index, which The fund's average credit quality of for capital gains. By combining
represents the performance of the U.S. A was appreciably higher than that of perspectives from both the portfolio and
investment-grade bond market. The fund its peer group, as represented by the security level, we seek to consistently
slightly underperformed its peer group Lipper BBB Rated Fund Index. Since the add value over time, while minimizing
and its style-specific index, which fund's risk profile is lower than that portfolio risk.
approximates the types of securities in of the index, it was to be expected that
which the fund invests. this index's total return would be To manage risk, we usually keep the
higher than that of the fund, as higher- fund's duration within a year and a half
======================================== risk assets outperformed less risky over or under that of its style-specific
FUND VS. INDEXES assets during 2004. index. In addition, we typically place
limits on the concentration of holdings
Total returns, 12/31/03-12/31/04, HOW WE INVEST of any single issuer within the fund's
excluding variable product issuer portfolio.
charges. If variable product issuer The fund holds a broadly diversified
charges were included, returns would be portfolio of corporate and government MARKET CONDITIONS AND YOUR FUND
lower. bonds, primarily with intermediate
maturities. These include U.S. The strong returns of high yield bonds
Series I Shares 5.03% dollar-denominated bonds of foreign- boosted the fund's results for 2004. On
based entities as well as bonds of average, the high yield sector
Series II Shares 4.69 U.S.-based entities. Most are outperformed all investment-grade
investment-grade holdings, which tend to sectors during the year, as investors
Lehman U.S. Aggregate Bond Index be more stable in value because their were seeking higher yields and were
(Broad Market Index) 4.34 issuers tend to be in stronger financial willing to accept the additional risk.
positions.
Lehman U.S. Credit Index Non-U.S. dollar denominated bonds, i.e.
(Style-specific Index) 5.24 In addition, we seek to augment fund bonds denominated in foreign currencies,
performance by investing a limited also generally provided higher returns
Lipper BBB Rated Fund Index portion of the fund's assets--typically than their U.S. counterparts because
(Peer Group Index) 5.30 about 10% each--in high-yield bonds and international interest rates generally
non-U.S. dollar denominated bonds when fell, as most foreign central banks were
Source: Lipper, Inc. we find value in such investments. not as quick to raise short-term
======================================== interest rates as the U.S. Federal
Our investment process uses top-down Reserve (the Fed). Such bonds gave fund
The fund's outperformance of the Lehman strategies involving duration performance an additional boost because,
U.S. Aggregate Bond Index occurred management, yield-curve positioning and as the dollar weakened over the year,
largely because the fund, unlike the sector allocation. In addition, we use exchange rates magnified the dollar
index, held 9 to 10% of its assets in bottom-up strategies involving credit value of their returns. To take profits,
high-yield bonds. These higher risk analysis in the selection of specific we selectively reduced our non-U.S.
profile bonds outperformed the U.S. dollar denominated bond holdings. As the
investment-grade bonds that compose the U.S. dollar strengthened toward year
Lehman U.S. Aggregate Bond Index. end, we decreased our overall currency
Additionally, an allocation of exposure by increasing our currency
approximately hedges. All our non-U.S. dollar
denominated bonds were hedged at
</Table>
<Table>
<Caption>
==================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 FIXED INCOME ISSUERS* TOP 10 INDUSTRIES*
By credit rating, as of 12/31/04
1. Federal National Mortgage 1. Other Diversified Financial
A and above 51.5% Association (FNMA) 5.2% Services 11.6%
BBB 39.9 2. General Motors Acceptance Corp. 2.7 2. Diversified Banks 11.0
Below investment grade 9.8 3. Ford Motor Credit Co. 2.5 3. Sovereign Debt 10.6
Money Market Funds Plus 4. Patrons' Legacy 2.3 4. Consumer Finance 8.0
Other Assets Less
Liabilities -1.1 5. United Kingdom (Treasury of) 5. U.S. Mortgage-Backed Securities 5.4
(United Kingdom) 2.2
TOTAL NET ASSETS $66.0 million 6. Broadcasting & Cable TV 4.9
TOTAL NUMBER OF HOLDINGS* 237 6. Russian Federation (Russia) 2.1
AVERAGE CREDIT QUALITY 7. Integrated Telecommunication
RATING A 7. Santander Financial Issuances Services 4.0
AVERAGE EFFECTIVE (Cayman Islands) 1.9
DURATION 4.66 years 8. Integrated Oil & Gas 3.8
AVERAGE MATURITY 8.57 years 8. Capital One Financial Corp. 1.9
9. Regional Banks 3.7
9. Federal Home Loan Mortgage Corp.
(FHLMC) 1.6 10. Electric Utilities 3.0
10. HCA, Inc. 1.6
*Excluding money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================================================
</Table>
2
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
the end of the year with only a small bonds (two- to five-year maturities) reason, we continue to recommend that
exposure to the New Zealand dollar than to long-term bonds. In the latter investors keep their assets diversified
remaining. half of the year, as the Fed raised among various classes of securities. As
short-term interest rates five times, always, we thank you for your continued
Among U.S. investment-grade these short bonds' values declined. investment in AIM V.I. Diversified
securities, corporate bonds performed Meanwhile, longer-term bonds appreciated Income Fund.
best, and it helped the fund's results in value as their interest rates
relative to the Lehman U.S. Aggregate actually declined. Taken together, these The views and opinions expressed in
Bond Index that the fund held a larger price changes created a flattening of Management's Discussion of Fund
proportion of assets in corporate the yield curve, detracting from fund Performance are those of A I M Advisors,
securities than did the index. results. Inc. These views and opinions are
subject to change at any time based on
We reduced the fund's corporate Favorable security selection helped factors such as market and economic
holdings through the year as their fund performance. In particular, we conditions. These views and opinions may
valuations became rich in our analysis. avoided owning long automobile bonds. not be relied upon as investment advice
However, they continued to outperform, Our negative judgment of them proved or recommendations, or as an offer for a
particularly in the fourth quarter. The well founded, as autos were one of the particular security. The information is
fund's average credit quality of A was worst-performing sectors in the Lehman not a complete analysis of every aspect
due in part to owning some Treasuries, U.S. Credit Index. of any market, country, industry,
which are rated AAA, the highest security or the fund. Statements of fact
quality. These had a lower yield than The fund's high yield holdings were are from sources considered reliable,
corporate bonds for the year. Both of concentrated in the BB range, the but A I M Advisors, Inc. makes no
these factors hampered fund results highest credit rating in the high yield representation or warranty as to their
compared to the all-corporate Lehman category, to minimize potential completeness or accuracy. Although
U.S. Credit Index. volatility. While offering less yield, historical performance is no guarantee
these typically hold their value better of future results, these insights may
During 2004 we kept the fund's than lower-rated high-yield bonds during help you understand our investment
duration between four and five years, periods when the economy softens. management philosophy.
about a year shorter than that of the
index. This strategy is designed to IN CLOSING JAN H. FRIEDLI, senior
reduce the fund's risk of principal loss portfolio manager, is
in case of interest rate increases. The As the year ended, the fund was [FRIEDLI lead manager of AIM V.I.
economy had been growing for several positioned for our expectation that the PHOTO] Diversified Income Fund.
quarters, and we anticipated that longer Fed would continue gradually increasing He began his investment
maturity interest rates would rise as the target federal funds rate, though at career in 1990 and
the Fed began raising its target federal a measured pace. We kept the fund's joined AIM in 1999. Mr. Friedli
funds rate to forestall the inflation duration a bit short to reduce graduated cum laude from Villanova
that often accompanies economic growth. sensitivity to volatility during any University with a B.S. in computer
As it turned out, the Fed did raise the such interest rate changes. science and earned an M.B.A. with honors
rate but longer maturity interest rates from the University of Chicago.
actually fell. The fund performed well While we were pleased to have provided
in the first half of the year as longer strong current income for our CAROLYN L. GIBBS,
maturity interest rates rose, but less shareholders in 2004, we recognize that Chartered Financial
well in the second half of the year than funds' prospects shift with changing [GIBBS Analyst, senior
it would have if this defensive posture economic conditions, and that there are PHOTO] portfolio manager, is
had been reduced somewhat. likely to be periods during which the a manager of AIM V.I.
fund underperforms the broad market. For Diversified Income Fund.
In terms of yield curve exposure, the this She has been in the investment business
fund maintained greater exposure to since 1983. Ms. Gibbs received a B.A. in
short-term English from Texas Christian University
and an M.B.A. in finance from The
PRINCIPAL RISKS OF INVESTING IN THE FUND Wharton School at the University of
Pennsylvania.
The fund may invest up to 50% of its assets in the securities of non-U.S.
issuers. International investing presents certain risks not associated with SCOT W. JOHNSON,
investing solely in the United States. These include risks relating to Chartered Financial
fluctuations in the value of the U.S. dollar relative to the values of other [JOHNSON Analyst, senior
currencies, the custody arrangements made for the fund's foreign holdings, PHOTO] portfolio manager, is
differences in accounting, political risks and the lesser degree of public a manager of AIM V.I.
information required to be provided by non-U.S. companies. Diversified Income Fund.
He joined AIM in 1994. He received both
The fund invests in higher-yielding, lower-rated corporate bonds, commonly known his bachelor's degree in economics and
as junk bonds, which have a greater risk of price fluctuation and loss of an M.B.A. in finance from Vanderbilt
principal and income than do U.S. government securities such as U.S. Treasury University.
bills, notes and bonds, for which principal and any applicable interest are
guaranteed by the government if held to maturity. Assisted by the Investment Grade Team
The fund may participate in the initial public offering (IPO) market in some [RIGHT ARROW GRAPHIC]
market cycles. Because of the fund's small asset base, any investment the fund
may make in IPOs may significantly affect the fund's total return. As the fund's FOR FURTHER INFORMATION ON YOUR FUND,
assets grow, the impact of IPO investments will decline, which may reduce the ITS EXPENSES AND ITS LONG-TERM
effect of IPO investments on the fund's total return. PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES hypothetical expenses based on the
fund's actual expense ratio and an
As a shareholder of the fund, you incur The table below provides information assumed rate of return of 5% per year
ongoing costs, including management about actual account values and actual before expenses, which is not the fund's
fees; distribution and/or service fees expenses. You may use the information in actual return. The hypothetical account
(12b-1); and other fund expenses. This this table, together with the amount you values and expenses may not be used to
example is intended to help you invested, to estimate the expenses that estimate your actual ending account
understand your ongoing costs (in you paid over the period. Simply divide balance or expenses you paid for the
dollars) of investing in the fund and to your account value by $1,000 (for period. You may use this information to
compare these costs with ongoing costs example, an $8,600 account value divided compare the ongoing costs of investing
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the in the fund and other funds. To do so,
example is based on an investment of result by the number in the table under compare this 5% hypothetical example
$1,000 invested at the beginning of the the heading entitled "Actual Expenses with the 5% hypothetical examples that
period and held for the entire period, Paid During Period" to estimate the appear in the shareholder reports of the
July 1, 2004-December 31, 2004. expenses you paid on your account during other funds.
this period.
The actual and hypothetical expenses Please note that the expenses shown
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR in the table are meant to highlight your
the effect of any fees or other expenses COMPARISON PURPOSES ongoing costs only. Therefore, the
assessed in connection with a variable hypothetical information is useful in
product; if they did, the expenses shown The table below also provides comparing ongoing costs only, and will
would be higher while the ending account information about hypothetical account not help you determine the relative
values shown would be lower. values and total costs of owning different funds.
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,048.00 $5.25 $1,020.01 $5.18
Series II 1,000.00 1,046.90 6.53 1,018.75 6.44
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 4.80% and 4.69% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.02% and 1.27% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee =======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 12/31/94-12/31/04
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same AIM V.I.
percent change in price; in a linear DIVERSIFIED LEHMAN U.S. LIPPER BBB
chart each scale increment always INCOME FUND- AGGREGATE LEHMAN U.S. RATED
represents the same absolute change in DATE SERIES I BOND INDEX CREDIT INDEX FUND INDEX
price. In this example, the scale 12/31/94 $10000 $10000 $10000 $10000
increment between $5,000 and $10,000 is 3/95 10531 10504 10592 10475
the same as that between $10,000 and 6/95 11115 11144 11380 11207
$20,000. In a linear chart, the latter 9/95 11485 11363 11649 11479
scale increment would be twice as large. 12/95 11902 11847 12225 12017
The benefit of using a logarithmic scale 3/96 11902 11637 11909 11772
is that it better illustrates 6/96 12152 11704 11962 11823
performance during the early years 9/96 12497 11920 12202 12083
depicted in the chart before reinvested 12/96 13116 12278 12626 12527
distributions and compounding create the 3/97 12900 12209 12499 12443
potential for the original investment to 6/97 13484 12657 13014 12962
grow to very large numbers. Had the 9/97 14082 13078 13524 13466
chart used a linear scale along its 12/97 14348 13463 13918 13815
vertical axis, you would not be able to 3/98 14830 13672 14131 14058
see as clearly the movements in the 6/98 14944 13992 14495 14343
value of the fund and the indexes during 9/98 14780 14583 15021 14521
the early years depicted. We use a 12/98 14862 14632 15111 14643
logarithmic scale in financial reports 3/99 14876 14560 15004 14612
of funds that have more than five years 6/99 14563 14432 14769 14442
of performance history. 9/99 14535 14530 14811 14439
12/99 14577 14512 14816 14479
======================================= 3/00 14693 14832 15028 14749
AVERAGE ANNUAL TOTAL RETURNS 6/00 14432 15091 15213 14825
As of 12/31/04 9/00 14664 15546 15680 15203
12/00 14677 16199 16207 15615
SERIES I SHARES 3/01 15047 16691 16900 16141
Inception (5/5/93) 5.15% 6/01 14877 16785 17079 16216
10 Years 5.96 9/01 15094 17559 17734 16639
5 Years 4.13 12/01 15204 17567 17893 16779
1 Year 5.03 3/02 14953 17584 17844 16729
6/02 14969 18233 18362 17039
SERIES II SHARES 9/02 15152 19069 19186 17452
10 Years 5.69% 12/02 15551 19369 19776 17986
5 Years 3.86 3/03 15985 19638 20251 18442
1 Year 4.69 6/03 16835 20130 21224 19331
======================================= 9/03 16799 20100 21194 19400
12/03 16988 20164 21299 19739
Returns since the inception date of 3/04 17451 20700 21995 20233
Series II shares are historical. All 6/04 17026 20194 21242 19683
other returns are the blended returns of 9/04 17623 20839 22135 20418
the historical performance of the fund's 12/04 $17845 $21038 $22414 $20786
Series II shares since their inception Source: Lipper, Inc.
and the restated historical performance ===================================================================================
of the fund's Series I shares (for
periods prior to inception of the Series may be lower or higher. Please contact The fund is not managed to track the
II shares) adjusted to reflect the your variable product issuer or performance of any particular index,
higher Rule 12b-1 fees applicable to the financial advisor for the most recent including the indexes defined here, and
Series II shares. The inception date of month-end variable product performance. consequently, the performance of the
the fund's Series II shares is 3/14/02. Performance figures reflect fund fund may deviate significantly from the
The Series I and Series II shares invest expenses, reinvested distributions and performance of the indexes.
in the same portfolio of securities and changes in net asset value. Investment
will have substantially similar return and principal value will A direct investment cannot be made in
performance, except to the extent that fluctuate so that you may have a gain or an index. Unless otherwise indicated,
expenses borne by each class differ. loss when you sell shares. index results include reinvested
dividends, and they do not reflect sales
The performance data quoted represent AIM V.I. Diversified Income Fund, a charges. Performance of an index of
past performance and cannot guarantee series portfolio of AIM Variable funds reflects fund expenses;
comparable future results; current Insurance Funds, is currently offered performance of a market index does not.
performance through insurance companies issuing
variable products. You cannot purchase OTHER INFORMATION
shares of the fund directly. Performance
figures given represent the fund and are The returns shown in the Management's
not intended to reflect actual variable Discussion of Fund Performance are based
product values. They do not reflect on net asset values calculated for
sales charges, expenses and fees shareholder transactions. Generally
assessed in connection with a variable accepted accounting principles require
product. Sales charges, expenses and adjustments to be made to the net assets
fees, which are determined by the of the fund at period end for financial
variable product issuers, will vary and reporting purposes, and as such, the net
will lower the total return.* asset values for shareholder
transactions and the returns based on
ABOUT INDEXES USED IN THIS REPORT those net asset values may differ from
the net asset values and returns
The unmanaged Lehman U.S. Aggregate Bond reported in the Financial Highlights.
Index, which represents the U.S.
investment-grade fixed-rate bond market The average credit quality of the
(including government and corporate fund's holdings as of the close of the
securities, mortgage pass-through reporting period represents the weighted
securities and asset-backed securities), average quality rating of the securities
is compiled by Lehman Brothers, a global in the portfolio as assigned by
investment bank. Nationally Recognized Statistical Rating
Organizations based on assessment of the
The Lehman U.S. Credit Index consists credit quality of the individual
of publicly issued U.S. corporate and securities.
specified foreign debentures and secured
notes that meet the specified maturity, Effective duration is a measure of a
liquidity, and quality requirements. It bond fund's price sensitivity to changes
is compiled by Lehman Brothers, a global in interest rates. It also takes into
investment bank. To qualify, bonds must account mortgage prepayments, puts,
be SEC-registered. adjustable coupons and potential call
dates.
The unmanaged Lipper BBB-Rated Fund
Index represents an average of the 30 Industry classifications used in this
largest BBB-rated bond funds tracked by report are generally according to the
Lipper, Inc., an independent mutual fund Global Industry Classification Standard,
performance monitor. which was developed by and is the
exclusive property and a service mark of
Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-71.86%
ADVERTISING-0.22%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05(a) $ 139,000 $ 143,405
=======================================================================
AEROSPACE & DEFENSE-0.50%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(a) 300,000 328,188
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.42%
Bank of New York Institutional Capital
Trust-Series A, Bonds, 7.78%, 12/01/26
(Acquired 06/12/03; Cost $298,178)(a)(b) 250,000 275,795
=======================================================================
AUTO PARTS & EQUIPMENT-0.26%
Lear Corp.-Series B, Sr. Unsec. Gtd. Notes,
7.96%, 05/15/05(a) 171,000 174,500
=======================================================================
AUTOMOBILE MANUFACTURERS-0.46%
General Motors Corp., Unsec. Global Notes,
6.25%, 05/01/05(a) 300,000 302,835
=======================================================================
BROADCASTING & CABLE TV-4.93%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(a)(c) 350,000 346,500
- -----------------------------------------------------------------------
Cablevision Systems Corp.-New York Group, Sr.
Floating Rate Notes, 6.67%, 04/01/09
(Acquired 03/30/04; Cost $185,000)(a)(b)(d) 185,000 197,950
- -----------------------------------------------------------------------
Charter Communications Operating, LLC/Charter
Communications Operating Capital Corp.,
Sr. Second Lien Notes, 8.00%, 04/30/12
(Acquired 05/11/04; Cost $154,000)(a)(b) 160,000 167,600
- -----------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(a) 150,000 196,414
- -----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13(a) 500,000 533,225
- -----------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05(a) 100,000 101,700
- -----------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Gtd. Notes,
6.38%, 05/15/05(a) 100,000 101,183
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 6.63%, 02/15/06(a) 125,000 128,869
- -----------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes, 7.88%,
12/15/07(a) 155,000 168,562
- -----------------------------------------------------------------------
Rogers Cablesystems Ltd. (Canada)-Series B,
Sr. Sec. Second Priority Yankee Notes,
10.00%, 03/15/05(a) 500,000 508,125
- -----------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05(a) 100,000 100,625
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05(a) 300,000 308,457
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-(CONTINUED)
Time Warner Cos., Inc.,
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(a) $ 225,000 $ 264,674
- -----------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(a) 100,000 133,697
=======================================================================
3,257,581
=======================================================================
BUILDING PRODUCTS-0.31%
Building Materials Corp. of America-Series B,
Sr. Unsec. Notes, 7.75%, 07/15/05(a) 200,000 204,500
=======================================================================
COMMODITY CHEMICALS-0.20%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08(a) 115,000 133,112
=======================================================================
CONSUMER FINANCE-7.96%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18(a) 150,000 173,988
- -----------------------------------------------------------------------
Capital One Capital I, Sub. Floating Rate
Bonds, 3.71%, 02/01/27 (Acquired
09/15/04-09/16/04; Cost
$457,755)(a)(b)(e)(f) 450,000 457,501
- -----------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes, 7.25%, 05/01/06(a) 600,000 628,644
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 8.75%, 02/01/07(a) 300,000 329,982
- -----------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(a) 250,000 273,827
- -----------------------------------------------------------------------
Ford Motor Credit Co.,
Global Notes, 7.60%, 08/01/05(a) 360,000 368,204
- -----------------------------------------------------------------------
Notes, 6.75%, 05/15/05(a) 100,000 101,254
- -----------------------------------------------------------------------
Unsec. Floating Rate Global Notes, 2.31%,
04/28/05(a)(f) 200,000 199,930
- -----------------------------------------------------------------------
Unsec. Global Notes, 6.50%, 01/25/07(a) 300,000 312,105
- -----------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 02/01/06(a) 410,000 422,763
- -----------------------------------------------------------------------
Unsec. Global Notes, 7.50%, 03/15/05(a) 225,000 227,018
- -----------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
4.44%, 03/04/05(a)(f) 70,000 70,150
- -----------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06(a) 610,000 611,318
- -----------------------------------------------------------------------
Global Notes, 7.50%, 07/15/05(a) 200,000 204,244
- -----------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05(a) 590,000 594,130
- -----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06(a)(g) 275,000 282,254
=======================================================================
5,257,312
=======================================================================
DISTILLERS & VINTNERS-0.28%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) 170,000 186,575
=======================================================================
DIVERSIFIED BANKS-9.57%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $334,806)(a)(b)(h) 300,000 318,660
- -----------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%(a)(h) $ 250,000 $ 264,702
- -----------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $66,543)(a)(b)(e) 60,000 61,731
- -----------------------------------------------------------------------
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $245,938)(a)(b)(e) 250,000 240,952
- -----------------------------------------------------------------------
Bangkok Bank PCL (Hong Kong), Unsec. Sub
Notes, 9.03%, 03/15/29 (Acquired
11/09/04-11/17/04; Cost $561,794)(a)(b)(e) 475,000 573,942
- -----------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 3.04%, 06/08/28(a)(f) 300,000 289,683
- -----------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$430,724)(a)(b)(h) 350,000 424,158
- -----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$632,715)(a)(b)(e) 500,000 590,010
- -----------------------------------------------------------------------
Chohung Bank (South Korea), Unsec. Sub.
Second Tier Notes, 11.50%, 04/01/10
(Acquired 07/01/04; Cost $372,642)(a)(b)(e) 350,000 356,636
- -----------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Global Notes, 6.88%, 03/15/12(a) 175,000 195,297
- -----------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium Term Euro Notes,
3.09%,(d)(h) 500,000 495,000
- -----------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91%, (Acquired 06/07/04; Cost
$275,000)(a)(b)(h) 275,000 291,607
- -----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27(a) 260,000 292,253
- -----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06(a) 200,000 221,950
- -----------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$186,504)(a)(b)(h) 200,000 189,754
- -----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
2.94%(a)(d)(h) 180,000 160,537
- -----------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 2.13%, 08/29/87(a)(d) 200,000 164,637
- -----------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 2.13%(a)(d)(h) 280,000 247,193
- -----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(a) 300,000 391,539
- -----------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(a)(h) 200,000 191,474
- -----------------------------------------------------------------------
Woori Bank (South Korea), Unsec. Sub. Second
Tier Notes, 11.75%, 03/01/10 (Acquired
07/01/04; Cost $370,615)(a)(b)(e) 350,000 359,170
=======================================================================
6,320,885
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.68%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(a)(h) 375,000 449,509
=======================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-2.31%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05(a) $ 100,000 $ 103,883
- -----------------------------------------------------------------------
Consolidated Edison Co. of New York-Series
96A, Unsec. Deb., 7.75%, 06/01/26(a)(i) 300,000 326,460
- -----------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Sec. Gtd. Second
Priority Notes, 10.13%, 07/15/13 (Acquired
08/01/03; Cost $143,865)(a)(b) 145,000 166,206
- -----------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage
Floating Rate Notes, 2.72%, 04/03/06(a)(f) 50,000 50,045
- -----------------------------------------------------------------------
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07(a) 200,000 217,956
- -----------------------------------------------------------------------
Yorkshire Power Finance (Cayman
Islands)-Series B, Sr. Unsec. Gtd. Unsub.
Global Notes, 6.50%, 02/25/08(a) 625,000 660,013
=======================================================================
1,524,563
=======================================================================
FOOD RETAIL-0.36%
Couche-Tard U.S. L.P./Couche-Tard Finance
Corp., Sr. Sub. Global Notes, 7.50%,
12/15/13(a) 80,000 86,400
- -----------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05(a) 150,000 149,015
=======================================================================
235,415
=======================================================================
GAS UTILITIES-1.91%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08(a) 600,000 642,996
- -----------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05(a) 500,000 514,960
- -----------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05(a) 100,000 101,280
=======================================================================
1,259,236
=======================================================================
GENERAL MERCHANDISE STORES-0.13%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 80,000 85,600
=======================================================================
HEALTH CARE EQUIPMENT-0.11%
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%,
05/01/12(a) 65,000 72,800
=======================================================================
HEALTH CARE FACILITIES-1.60%
HCA, Inc., Notes, 7.00%, 07/01/07(a) 450,000 475,821
- -----------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05(a) 575,000 584,091
=======================================================================
1,059,912
=======================================================================
HOMEBUILDING-2.54%
D.R. Horton, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 02/01/09(a) 200,000 224,250
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 08/15/11(a) 400,000 460,500
- -----------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10(a) 490,000 525,437
- -----------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05(a) 100,000 102,892
- -----------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
HOMEBUILDING-(CONTINUED)
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10(a) $ 175,000 $ 190,741
- -----------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.13%, 05/01/12(a) 155,000 172,825
=======================================================================
1,676,645
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.29%
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(a) 180,000 193,500
=======================================================================
HOUSEWARES & SPECIALTIES-1.13%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08(a) 690,000 747,477
=======================================================================
INDUSTRIAL CONGLOMERATES-0.12%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$84,920)(a)(b)(e) 75,000 79,855
=======================================================================
INTEGRATED OIL & GAS-3.16%
Amerada Hess Corp., Unsec. Notes, 7.13%,
03/15/33(a) 540,000 594,437
- -----------------------------------------------------------------------
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(a) 300,000 322,374
- -----------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06(a) 300,000 317,970
- -----------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28(a) 540,000 615,654
- -----------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05(a) 230,000 235,939
=======================================================================
2,086,374
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-4.04%
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.25%, 03/01/31(a) 260,000 352,817
- -----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06(a) 100,000 103,553
- -----------------------------------------------------------------------
Qwest Communications International Inc., Sr.
Notes, 7.25%, 02/15/11 (Acquired
03/11/04-03/22/04; Cost $191,000)(a)(b) 200,000 207,500
- -----------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Global
Notes, 7.13%, 01/30/06(a) 50,000 52,009
- -----------------------------------------------------------------------
Sprint Corp., Deb., 9.25%, 04/15/22(a) 300,000 399,765
- -----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 8.00%,
06/01/11(a) 175,000 207,354
- -----------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(a)(i) 300,000 312,321
- -----------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(a) 400,000 505,268
- -----------------------------------------------------------------------
Unsec. Gtd. Deb., 6.94%, 04/15/28(a) 150,000 167,484
- -----------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb., 6.13%, 01/15/13(a) 175,000 186,485
- -----------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(a) 175,000 171,232
=======================================================================
2,665,788
=======================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
INVESTMENT BANKING & BROKERAGE-0.16%
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05(a) $ 100,000 $ 102,877
=======================================================================
LIFE & HEALTH INSURANCE-1.66%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $321,152)(a)(b) 325,000 338,595
- -----------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost $588,417)(a)(b)(i) 500,000 596,415
- -----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(a) 150,000 161,934
=======================================================================
1,096,944
=======================================================================
METAL & GLASS CONTAINERS-0.39%
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%,
05/15/13(a) 235,000 259,088
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.67%
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) 168,856 189,963
- -----------------------------------------------------------------------
Calpine Generating Co. LLC, Sec. Floating
Rate Global Notes, 7.76%, 04/01/10(a)(f) 155,000 152,675
- -----------------------------------------------------------------------
Dominion Resources, Inc.-Series B, Sr. Unsec.
Unsub. Global Notes, 7.63%, 07/15/05(a) 100,000 102,509
=======================================================================
445,147
=======================================================================
MUNICIPALITIES-2.14%
Industry (City of), California Urban
Development Agency (Project 3); Tax
Allocation Series 2003 B, 6.10%,
05/01/24(a)(i)(j) 650,000 669,500
- -----------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB,
3.69%, 07/01/07(a)(i) 225,000 225,371
- -----------------------------------------------------------------------
4.21%, 07/01/08(a)(i) 300,000 302,250
- -----------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB, 0.27%,
07/10/30(a)(i)(k) 225,000 213,075
=======================================================================
1,410,196
=======================================================================
OFFICE ELECTRONICS-0.33%
Xerox Corp., Sr. Unsec. Notes, 7.63%,
06/15/13(a) 200,000 220,500
=======================================================================
OIL & GAS DRILLING-0.15%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05(a) 100,000 101,068
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.47%
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11(a) 400,000 452,000
- -----------------------------------------------------------------------
Parker & Parsley Petroleum Co., Sr. Unsec.
Notes, 8.88%, 04/15/05(a) 200,000 203,282
- -----------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Petrozuata Finance, Inc., (Venezuela)-Series
A, Gtd. Notes, 7.63%, 04/01/09 (Acquired
10/13/04; Cost $315,114)(a)(b)(e) $ 297,278 $ 310,833
=======================================================================
966,115
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.62%
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(a)(h) 250,000 298,150
- -----------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87% (Acquired 06/16/04; Cost
$452,500)(a)(b)(h) 400,000 463,564
- -----------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(a) 285,000 319,485
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07(a) 400,000 423,392
- -----------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 7.38%,
12/15/14(a) 325,000 360,588
- -----------------------------------------------------------------------
8.63%, 02/01/22(a) 475,000 552,283
- -----------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $399,732)(a)(b)(e) 400,000 391,516
- -----------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 01/10/03-09/22/04; Cost
$525,327)(a)(b)(e) 453,889 540,745
- -----------------------------------------------------------------------
Targeted Return Index Securities Trust-Series
HY 2004-I, Sec. Bonds, 8.22%, 08/01/15
(Acquired 12/01/04; Cost $82,690)(a)(b)(e) 76,279 83,581
- -----------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(a)(h) 250,000 279,360
=======================================================================
3,712,664
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.29%
FGIC Corp., Sr. Unsec. Unsub. Notes, 6.00%,
01/15/34 (Acquired 12/07/04; Cost
$330,106)(a)(b)(e) 325,000 336,349
- -----------------------------------------------------------------------
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12(a) 700,000 795,277
- -----------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired
01/21/04-03/23/04; Cost $392,074)(a)(b)(e) 375,000 378,446
=======================================================================
1,510,072
=======================================================================
REAL ESTATE-1.04%
Health Care Property Investors, Inc., Sr.
Unsec. Notes, 6.88%, 06/08/05(a) 100,000 101,611
- -----------------------------------------------------------------------
Host Marriott L.P.-Series I, Unsec. Gtd.
Global Notes, 9.50%, 01/15/07(a) 325,000 357,500
- -----------------------------------------------------------------------
HRPT Properties Trust, Sr. Unsec. Notes,
6.70%, 02/23/05(a) 75,000 75,404
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
REAL ESTATE-(CONTINUED)
Spieker Properties, Inc.,
Medium Term Notes, 8.00%, 07/19/05(a) $ 100,000 $ 102,565
- -----------------------------------------------------------------------
Unsec. Unsub. Notes, 6.88%, 02/01/05(a) 50,000 50,153
=======================================================================
687,233
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.52%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(a) 325,000 341,539
=======================================================================
REGIONAL BANKS-3.69%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 3.95%, 03/01/34(a)(f) 550,000 570,152
- -----------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08(a) 350,000 352,534
- -----------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 2.97%, 06/01/28(a)(f) 100,000 94,972
- -----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.87%(a)(d)(h) 1,250,000 1,242,684
- -----------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(a) 175,000 178,056
=======================================================================
2,438,398
=======================================================================
REINSURANCE-0.20%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.00%, 02/15/26(a) 125,000 135,094
=======================================================================
RESTAURANTS-0.35%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25(a) 220,000 233,352
=======================================================================
SOVEREIGN DEBT-3.84%
Federative Republic of Brazil (Brazil)-Series
EI-L, Floating Rate Bonds, 3.06%,
04/15/06(a)(d) 192,000 192,469
- -----------------------------------------------------------------------
Republic of Peru (Peru), Unsec. Global Notes,
9.13%, 01/15/08(a) 240,000 274,800
- -----------------------------------------------------------------------
Russian Federation (Russia),
Unsec. Unsub. Bonds, 5.00%, 03/31/30
(Acquired 05/18/04; Cost $360,250)(a)(b) 400,000 413,360
- -----------------------------------------------------------------------
Unsec. Unsub. Bonds, 8.75%, 07/24/05
(Acquired 09/10/04; Cost $52,475)(a)(b) 50,000 51,400
- -----------------------------------------------------------------------
Unsec. Unsub. Euro Bonds, 8.75%, 07/24/05
(Acquired 05/14/04; Cost $554,663)(a)(b) 525,000 540,173
- -----------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS, 10.00%,
06/26/07
(Acquired 05/14/04; Cost $364,406)(a)(b) 325,000 368,095
- -----------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes,
6.63%, 03/03/15(a) 150,000 160,965
- -----------------------------------------------------------------------
7.50%, 04/08/33(a) 500,000 538,075
=======================================================================
2,539,337
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.49%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27(a) 275,000 325,344
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
TOBACCO-1.36%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13(a) $ 300,000 $ 324,594
- -----------------------------------------------------------------------
Unsec. Global Notes, 7.00%, 07/15/05(a) 450,000 458,906
- -----------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06(a) 110,000 112,912
=======================================================================
896,412
=======================================================================
TRUCKING-1.41%
Hertz Corp. (The), Sr. Global Notes, 8.25%,
06/01/05(a) 200,000 204,082
- -----------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08(a) 650,000 723,743
=======================================================================
927,825
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.59%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 6.88%, 04/18/05(a) 40,000 40,443
- -----------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10(a) 320,000 350,080
=======================================================================
390,523
=======================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $46,897,474) 47,461,090
=======================================================================
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-8.79%(L)
AUSTRALIA-1.42%
New South Wales Treasury Corp. (Sovereign
Debt), Gtd. Euro Bonds, 5.50%,
08/01/14(a) AUD 1,200,000 935,215
=======================================================================
CAYMAN ISLANDS-0.66%
Sutton Bridge Financing Ltd. (Electric
Utilities)-REGS, Gtd. Euro Bonds, 8.63%,
06/30/22 (Acquired 05/29/97; Cost
$347,741)(a)(b)(e) GBP 207,168 435,824
=======================================================================
GERMANY-1.31%
Bundesrepublik Deutschland (Sovereign Debt)-
Series 99, Euro Bonds, 4.50%, 07/04/09(a)
EUR 600,000 865,219
=======================================================================
ITALY-1.80%
Buoni Poliennali Del Tesoro (Sovereign Debt),
Euro Bonds, 5.00%, 02/01/12(a) EUR 400,000 596,006
- -----------------------------------------------------------------------
Italian Government (Sovereign Debt), Unsec.
Unsub. Global Bonds, 5.88%, 08/14/08(a) AUD 750,000 591,667
=======================================================================
1,187,673
=======================================================================
LUXEMBOURG-1.38%
International Bank for Reconstruction &
Development (The) (Diversified
Banks)-Series E, Sr. Unsec. Medium Term
Global Notes, 6.42%, 08/20/07(a)(m) NZD 1,500,000 912,561
=======================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
UNITED KINGDOM-2.22%
United Kingdom (Treasury of) (Sovereign
Debt), Bonds,
7.25%, 12/07/07(a) GBP 100,000 $ 206,395
- -----------------------------------------------------------------------
4.00%, 03/07/09(a) GBP 300,000 565,067
- -----------------------------------------------------------------------
5.00%, 09/07/14(a) GBP 350,000 696,237
=======================================================================
1,467,699
=======================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $5,217,055) 5,804,191
=======================================================================
U.S. MORTGAGE-BACKED SECURITIES-5.37%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.63%
Pass Through Ctfs.,
8.50%, 03/01/10(a) $ 2,314 2,434
- -----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32(a) 64,786 68,175
- -----------------------------------------------------------------------
6.00%, 05/01/17 to 11/01/33(a) 447,832 463,986
- -----------------------------------------------------------------------
5.50%, 09/01/17(a) 164,267 169,925
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/15(n) 369,580 375,443
=======================================================================
1,079,963
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.00%
Pass Through Ctfs.,
7.00%, 02/01/16 to 09/01/32(a) 80,221 85,069
- -----------------------------------------------------------------------
6.50%, 05/01/16 to 09/01/34(a) 364,480 383,035
- -----------------------------------------------------------------------
6.00%, 05/01/17 to 07/01/17(a) 52,850 55,429
- -----------------------------------------------------------------------
5.00%, 11/01/18(a) 140,847 143,281
- -----------------------------------------------------------------------
7.50%, 04/01/29 to 07/01/34(a) 187,147 200,656
- -----------------------------------------------------------------------
8.00%, 04/01/32(a) 40,553 43,785
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 01/01/20 to 01/01/35(q) 676,259 689,220
- -----------------------------------------------------------------------
6.00%, 01/01/35(n) 371,075 383,783
=======================================================================
1,984,258
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.74%
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32(a) 43,600 47,122
- -----------------------------------------------------------------------
8.50%, 11/15/24(a) 33,708 37,002
- -----------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31(a) 14,270 15,172
- -----------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32(a) 88,520 93,292
- -----------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32(a) 105,872 109,896
- -----------------------------------------------------------------------
5.50%, 02/15/34(a) 180,875 184,884
=======================================================================
487,368
=======================================================================
Total U.S. Mortgage-Backed Securities
(Cost $3,529,356) 3,551,589
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-3.17%
INTEGRATED OIL & GAS-0.61%
Shell Frontier Oil & Gas Inc.-Series C, 2.38%
Floating Rate Pfd.(f) 4 $ 400,000
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(b)(e)(o)(p) 275 0
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.72%
ABN AMRO XVIII Custodial Receipts-Series
MM18, 2.79% Floating Rate Pfd. (Acquired
09/10/04; Cost $200,000)(b)(e)(q) 2 200,000
- -----------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 2.75%
Floating Rate Pfd. (Acquired
03/17/04-09/28/04; Cost $925,032)(b)(e)(f) 950 937,650
=======================================================================
1,137,650
=======================================================================
U.S. AGENCY SECURITIES-0.84%
Fannie Mae-Series J, 4.72% Pfd.(a) 5,550 280,275
- -----------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd.(a) 5,450 275,736
=======================================================================
556,011
=======================================================================
Total Stocks & Other Equity Interests
(Cost $2,078,619) 2,093,661
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
ASSET-BACKED SECURITIES-5.18%
OTHER DIVERSIFIED FINANCIAL SERVICES-4.21%
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-08/20/02; Cost $511,034)(a)(b) $ 500,000 595,902
- -----------------------------------------------------------------------
Patrons' Legacy- Series 2003-III, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$512,705)(b)(e) 500,000 508,681
- -----------------------------------------------------------------------
Series 2004-I, Ctfs., 6.67%, 02/04/17
(Acquired 04/30/04; Cost $1,000,000)(b)(e) 1,000,000 1,019,403
- -----------------------------------------------------------------------
Twin Reefs Pass Through Trust, Floating Rate
Pass Through Ctfs., 3.37% (Acquired
12/07/04; Cost $400,000)(a)(b)(e)(h)(r) 400,000 402,276
- -----------------------------------------------------------------------
Yorkshire Power Pass-Through Asset Trust
(Cayman Islands)-Series 2000-1, Pass
Through Ctfs., 8.25%, 02/15/05 (Acquired
09/22/03; Cost $268,315)(a)(b)(e) 250,000 251,372
=======================================================================
2,777,634
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-0.54%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$351,994)(a)(b)(e) $ 350,000 $ 356,976
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.43%
Sovereign Bank-Class A-1, Pass Through Ctfs.,
10.20%, 06/30/05 (Acquired 09/22/04; Cost
$324,424)(a)(b)(e) 278,663 286,942
=======================================================================
Total Asset-Backed Securities (Cost
$3,314,784) 3,421,552
=======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-1.33%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-1.33%
Unsec. Floating Rate Global Notes,
3.68%, 02/17/09(a)(r) 575,000 580,393
- -----------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08(a) 300,000 296,211
=======================================================================
876,604
=======================================================================
Total U.S. Government Agency Securities
(Cost $865,115) 876,604
=======================================================================
U.S. TREASURY SECURITIES-2.70%
U.S. TREASURY NOTES-0.80%
5.00%, 02/15/11(a) 500,000 532,185
=======================================================================
U.S. TREASURY BONDS-1.58%
7.25%, 05/15/16 to 08/15/22(a) 825,000 1,041,070
=======================================================================
U.S. TREASURY STRIPS-0.32%
5.98%, 11/15/23(a)(s) 550,000 209,600
=======================================================================
Total U.S. Treasury Securities (Cost
$1,723,516) 1,782,855
=======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-2.62%
Liquid Assets Portfolio-Institutional
Class(t) 866,287 866,287
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(t) 866,287 866,287
=======================================================================
Total Money Market Funds (Cost
$1,732,574) 1,732,574
=======================================================================
TOTAL INVESTMENTS-101.02% (Cost $65,358,493) 66,724,116
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.02%) (675,116)
=======================================================================
NET ASSETS-100.00% $66,049,000
_______________________________________________________________________
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
Investment Abbreviations:
<Table>
AUD - Australian Dollar
Ctfs. - Certificates
Deb. - Debentures
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $59,982,362, which represented 89.90% of the Fund's Total
Investments. See Note 1A.
(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 December 31, 2004 was
$14,767,125, which represented 22.36% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered illiquid.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The market value of this security at December 31, 2004
represented 0.52% of the Fund's Total Investments.
(d) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2004.
(e) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $9,160,391, which
represented 13.87% of the Fund's Net Assets.
(f) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2004.
(g) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 9.
(h) Perpetual bond with no specified maturity date.
(i) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Guaranty Insurance Co., Financial
Security Assurance Inc., or MBIA Insurance Corp.
(j) Interest on this security is taxable income to the Fund.
(k) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield at December 31, 2004. Bond will convert to a fixed coupon
rate at a specified future date.
(l) Foreign denominated security. Par value is denominated in currency
indicated.
(m) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(n) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note .
(o) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
December 31, 2004 represented 0.00% of the Fund's Total Investments. See
Note 1A.
(p) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(q) Interest rate is redetermined annually. Rate shown is the rate in effect on
December 31, 2004.
(r) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
(s) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(t) 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, 2004
<Table>
ASSETS:
Investments, at market value (cost $63,625,919) $ 64,991,542
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,732,574) 1,732,574
=============================================================
Total investments (cost $65,358,493) 66,724,116
=============================================================
Foreign currencies, at market value (cost $129) 142
- -------------------------------------------------------------
Receivables for:
Investments sold 19,000
- -------------------------------------------------------------
Variation margin 27,406
- -------------------------------------------------------------
Fund shares sold 30,718
- -------------------------------------------------------------
Dividends and interest 971,979
- -------------------------------------------------------------
Principal paydowns 29,213
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 53,425
- -------------------------------------------------------------
Other assets 12,678
=============================================================
Total assets 67,868,677
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,453,504
- -------------------------------------------------------------
Fund shares reacquired 14,286
- -------------------------------------------------------------
Foreign currency contracts 49,361
- -------------------------------------------------------------
Foreign currency contracts outstanding 152,398
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 57,923
- -------------------------------------------------------------
Accrued administrative services fees 60,994
- -------------------------------------------------------------
Accrued distribution fees -- Series II 602
- -------------------------------------------------------------
Accrued transfer agent fees 1,134
- -------------------------------------------------------------
Accrued operating expenses 29,475
=============================================================
Total liabilities 1,819,677
=============================================================
Net assets applicable to shares outstanding $ 66,049,000
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 81,838,381
- -------------------------------------------------------------
Undistributed net investment income 3,434,766
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts and futures
contracts (20,529,821)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and futures contracts 1,305,674
=============================================================
$ 66,049,000
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 65,069,097
_____________________________________________________________
=============================================================
Series II $ 979,903
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,441,978
_____________________________________________________________
=============================================================
Series II 112,966
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 8.74
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 8.67
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $3,460,514
- ------------------------------------------------------------
Dividends 21,100
- ------------------------------------------------------------
Dividends from affiliated money market funds 12,055
============================================================
Total investment income 3,493,669
============================================================
EXPENSES:
Advisory fees 417,563
- ------------------------------------------------------------
Administrative services fees 164,221
- ------------------------------------------------------------
Custodian fees 25,365
- ------------------------------------------------------------
Distribution fees -- Series II 2,237
- ------------------------------------------------------------
Transfer agent fees 8,357
- ------------------------------------------------------------
Trustees' fees and retirement benefits 13,001
- ------------------------------------------------------------
Professional fees 36,252
- ------------------------------------------------------------
Other 36,339
============================================================
Total expenses 703,335
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (571)
============================================================
Net expenses 702,764
============================================================
Net investment income 2,790,905
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,401,917
- ------------------------------------------------------------
Foreign currencies (38,896)
- ------------------------------------------------------------
Foreign currency contracts (433,137)
- ------------------------------------------------------------
Futures contracts (39,935)
============================================================
889,949
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (438,426)
- ------------------------------------------------------------
Foreign currencies (5,368)
- ------------------------------------------------------------
Foreign currency contracts 15,643
- ------------------------------------------------------------
Futures contracts 109,615
============================================================
(318,536)
============================================================
Net gain from investment securities, foreign
currencies, foreign currency contracts and
futures contracts 571,413
============================================================
Net increase in net assets resulting from
operations $3,362,318
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,790,905 $ 3,397,940
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and futures
contracts 889,949 3,040,109
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (318,536) (140,037)
========================================================================================
Net increase in net assets resulting from operations 3,362,318 6,298,012
========================================================================================
Distributions to shareholders from net investment income:
Series I (3,692,613) (4,397,603)
- ----------------------------------------------------------------------------------------
Series II (55,546) (44,727)
========================================================================================
Decrease in net assets resulting from distributions (3,748,159) (4,442,330)
========================================================================================
Share transactions-net:
Series I (6,418,302) (644,786)
- ----------------------------------------------------------------------------------------
Series II 231,857 644,619
========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (6,186,445) (167)
========================================================================================
Net increase (decrease) in net assets (6,572,286) 1,855,515
========================================================================================
NET ASSETS:
Beginning of year 72,621,286 70,765,771
========================================================================================
End of year (including undistributed net investment income
of $3,434,766 and $3,690,139, respectively) $66,049,000 $72,621,286
________________________________________________________________________________________
========================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on
AIM V.I. DIVERSIFIED INCOME FUND
historical data, that the closing price in the principal market where a
foreign security trades is not the current market value as of the close of
the NYSE. Foreign securities meeting the approved degree of certainty that
the price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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. Dollar roll transactions are considered borrowings under the
1940 Act. 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.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a
AIM V.I. DIVERSIFIED INCOME FUND
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. 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.
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 contractually agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors. For the year ended December 31, 2004, AIM waived
fees of $217.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $111 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$164,221, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $8,357.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $2,237.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. DIVERSIFIED INCOME 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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME
- ------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 791,463 $17,736,081 $(17,661,257) $ -- $ 866,287 $ 6,076
- ------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 791,463 17,736,081 (17,661,257) -- 866,287 5,979
========================================================================================================================
Total $1,582,926 $35,472,162 $(35,322,514) $ -- $1,732,574 $12,055
________________________________________________________________________________________________________________________
========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- --------------------
Liquid Assets
Portfolio-
Institutional
Class $ --
- --------------------
STIC Prime
Portfolio-
Institutional
Class --
====================
Total $ --
____________________
====================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $35,252 and $0, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $243 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $243.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,787
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
AIM V.I. DIVERSIFIED INCOME FUND
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
SETTLEMENT ----------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------
01/20/05 AUD 1,900,000 $1,379,115 $1,483,919 $(104,804)
- -----------------------------------------------------------------------------------------
01/20/05 EUR 1,050,000 1,361,556 1,424,522 (62,966)
- -----------------------------------------------------------------------------------------
03/14/05 GBP 970,000 1,873,070 1,852,390 20,680
- -----------------------------------------------------------------------------------------
03/14/05 NZD 340,000 236,810 242,118 (5,308)
=========================================================================================
4,260,000 $4,850,551 $5,002,949 $(152,398)
_________________________________________________________________________________________
=========================================================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On December 31, 2004, $300,489 principal amount of investment grade corporate
bonds 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
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 54 Mar-05/Long $11,318,062 $ 8,199
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 69 Mar-05/Long 7,557,656 49,920
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 7 Mar-05/Long 783,563 7,512
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 11 Mar-05/Long 1,237,500 21,476
=====================================================================================================================
$20,896,781 $87,107
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $3,748,159 $4,442,330
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,499,164
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 1,370,964
- ----------------------------------------------------------------------------
Temporary book/tax differences (64,398)
- ----------------------------------------------------------------------------
Capital loss carryforward (20,289,344)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (305,767)
- ----------------------------------------------------------------------------
Shares of beneficial interest 81,838,381
============================================================================
Total net assets $ 66,049,000
____________________________________________________________________________
============================================================================
</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 treatment of defaulted
bonds 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 $5,341.
AIM V.I. DIVERSIFIED INCOME FUND
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $20,289,344 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund utilized $490,475 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2006 $ 284,800
- -----------------------------------------------------------------------------
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 $20,289,344
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 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, 2004 was $76,278,233 and $82,972,624, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,775,077
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (409,454)
==============================================================================
Net unrealized appreciation of investment securities $1,365,623
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $65,358,493.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, paydowns on mortgage backed securities and premium amortization,
on December 31, 2004, undistributed net investment income was increased by
$701,881 and undistributed net realized gain (loss) was decreased by $701,881.
This reclassification had no effect on the net assets of the Fund.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 731,021 $ 6,558,756 1,328,205 $ 11,971,880
- ----------------------------------------------------------------------------------------------------------------------
Series II 25,137 224,174 69,869 624,220
======================================================================================================================
Issued as reinvestment of dividends:
Series I 422,495 3,692,613 501,437 4,397,603
- ----------------------------------------------------------------------------------------------------------------------
Series II 6,399 55,546 5,123 44,727
======================================================================================================================
Reacquired:
Series I (1,857,496) (16,669,671) (1,893,686) (17,014,269)
- ----------------------------------------------------------------------------------------------------------------------
Series II (5,373) (47,863) (2,658) (24,328)
======================================================================================================================
(677,817) $ (6,186,445) 8,290 $ (167)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate the own 81% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
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,
---------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.82 $ 8.60 $ 9.13 $ 9.49 $ 10.06
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.42(a) 0.55(a) 0.67(a)(b) 0.76(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.08 0.37 (0.35) (0.35) (0.69)
=============================================================================================================================
Total from investment operations 0.44 0.79 0.20 0.32 0.07
=============================================================================================================================
Less dividends from net investment income (0.52) (0.57) (0.73) (0.68) (0.64)
=============================================================================================================================
Net asset value, end of period $ 8.74 $ 8.82 $ 8.60 $ 9.13 $ 9.49
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 5.03% 9.24% 2.30% 3.48% 0.80%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,069 $71,860 $70,642 $79,875 $83,722
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.01%(d) 0.95% 0.94% 0.93% 0.90%
=============================================================================================================================
Ratio of net investment income to average net assets 4.01%(d) 4.71% 6.15% 6.87%(b) 7.84%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 113% 153% 86% 79% 74%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $68,698,992.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------
MARCH 14, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.78 $8.58 $ 8.97
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.40(a) 0.42(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.08 0.37 (0.08)
======================================================================================================
Total from investment operations 0.41 0.77 0.34
======================================================================================================
Less dividends from net investment income (0.52) (0.57) (0.73)
======================================================================================================
Net asset value, end of period $8.67 $8.78 $ 8.58
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 4.69% 9.02% 3.90%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 980 $ 762 $ 124
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 1.26%(c) 1.20% 1.19%(d)
======================================================================================================
Ratio of net investment income to average net assets 3.76%(c) 4.46% 5.90%(d)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(e) 113% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average net assets of $894,859.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. DIVERSIFIED INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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. Diversified Income Fund as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. DIVERSIFIED INCOME FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Diversified Income Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ------------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 0% is eligible for the dividends received deduction for
corporations.
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GOVERNMENT SECURITIES FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. GOVERNMENT SECURITIES FUND seeks to achieve
a high level of current income consistent with reasonable
concern for safety of principal.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
This was a year in which the fund was bonds in 2004, and bonds with longer Based upon our assessment of the
challenged by an environment of rising maturities typically offer a higher risks as they relate to the market
interest rates. We are pleased to have interest rate in return for the environment, we make adjustments to the
met that challenge with returns purchaser's willingness to commit to the portfolio by changing the weighting of
comparable to those of our peer group longer term. The difference in the the three sectors (Treasury bonds,
index. Many competitors invest up to 20% fund's performance and that of its agency bonds and mortgage-backed
of their funds' assets in corporate style-specific index results from our securities) and by modifying the
bonds to increase yield; ours is a pure decision to keep the fund's duration duration of the portfolio.
government fund that avoids the credit shorter than that of the benchmark.
risk associated with corporate bonds. Effective duration is a measure of a
HOW WE INVEST bond fund's price sensitivity to changes
======================================= in interest rates. It also takes into
FUND VS. INDEXES This fund invests in securities that are account mortgage prepayments, puts,
issued, guaranteed or otherwise backed adjustable coupons and potential call
Total returns, 12/31/03-12/31/04, by the U.S. government or its sponsored dates. Shortening the effective duration
excluding variable product issuer entities, including U.S. Treasury bonds, of the portfolio helps mitigate changes
charges. If variable product issuer agency bonds and mortgage-backed to the fund's share price, but bonds of
charges were included, returns would securities. shorter duration typically carry lower
be lower. yields than longer-duration bonds.
The fund may invest in securities of However, we believe that the risk of NAV
Series I Shares 2.56% all maturities, but we maintain an volatility far outweighs the risk of
intermediate-duration portfolio--one diminished income. That is, we manage
Series II Shares 2.27 with a weighted average effective the fund first for security of principal
maturity between three and 10 years. and then dividend yield.
Lehman U.S. Aggregate Bond (Weighted average effective maturity is
Index (Broad Market Index) 4.34 a measure, as estimated by the fund's MARKET CONDITIONS AND YOUR FUND
portfolio managers, of the length of
Lehman Intermediate time the average security in a bond fund Good news for the economy often results
U.S. Government and Mortgage will mature or be redeemed by its in a sell-off in the bond market, the
Index (Style-specific Index) 3.66 issuer.) result of which increases bond yields.
Bad news for the economy triggers the
Lipper Intermediate We continually monitor the market buying of bonds, resulting in price
U.S. Government Bond Fund environment to guard against: 1) the increases and a corresponding drop in
Index (Peer Group Index) 2.85 risk of rising rates eroding the yield. Many such events occurred during
relative stability of the fund's net the year, but we managed the fund based
Source: Lipper, Inc. asset value (NAV)--a risk to the safety upon the ongoing trend of rising rates.
======================================= of principal--and 2) risk to the
portfolio's yield. Though the Federal Reserve Board (the
For the fiscal year ended December 31, Fed) did not raise the fed funds target
2004, the fund underperformed the Lehman rate until mid-year, the warnings of
U.S. Aggregate Bond Index, which such a move began in March. Of course,
represents the broad market of at the beginning of the year,
investment-grade bonds, including bonds
of all types and maturities.
Corporate bonds outperformed government
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP FIXED INCOME ISSUERS*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector, based on total investments 1. Federal National Mortgage Association (FNMA) 45.5%
2. Federal Home Loan Mortgage Corp. (FHLMC) 28.9
1. Mortgage U.S. Agency Obligations 61.2% 3. Government National Mortgage Association (GNMA) 9.8
2. Non-Mortgage U.S. Agency Obligations 20.0 4. U.S. Treasury 8.8
3. U.S. Treasury Obligations 7.6 5. Federal Home Loan Bank 4.5
4. Money Market Funds 11.2 6. Federal Farm Credit Bank 3.4
7. Tennessee Valley Authority 1.8
8. Private Export Funding Company 0.7
TOTAL NET ASSETS $670 MILLION
TOTAL NUMBER OF HOLDINGS* 473
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
this influential short-term interest low-duration, seasoned mortgages-- The views and opinions expressed in
rate was at a 46-year low. At 1%, we mortgages whose underlying borrowers had Management's Discussion of Fund
knew that the target rate would already had plenty of opportunity to Performance are those of A I M Advisors,
inevitably go up; it was a simply a refinance--so that there was less risk Inc. These views and opinions are
matter of when. We had begun to manage of prepayment. Our dominant weighting of subject to change at any time based on
the fund for a rising-rate scenario in mortgage-backed securities benefited the factors such as market and economic
2003, and we continued to do so fund's total return. As was true within conditions. These views and opinions may
throughout 2004. the broad market, the fund's not be relied upon as investment advice
mortgage-backed securities outperformed or recommendations, or as an offer for a
After its initial increase in June, both agency bonds and Treasury bonds. particular security. The information is
the Fed raised its target rate four more not a complete analysis of every aspect
times, each time increasing it by 25 A third strategy employed during the of any market, country, industry,
basis points (0.25%). As of December 31, period was the use of a type of security or the fund. Statements of fact
2004, the rate stood at 2.25%, and the short-term borrowing known as a reverse are from sources considered reliable,
statement issued at that time indicated repurchase agreement (reverse repo), but A I M Advisors, Inc. makes no
that increases could be expected to whereby a fund loans securities in representation or warranty as to their
continue. exchange for cash according to an completeness or accuracy. Although
agreement stipulating when the borrower historical performance is no guarantee
Our strategies for managing the fund will return the security. The fund then of future results, these insights may
in a rising-rate environment were deploys the cash into either help you understand our investment
consistently applied throughout the cash-equivalent trades or management philosophy.
period. They included maintaining a longer-maturity securities to enhance
portfolio with a shorter duration than total return. While the fund is SCOT W. JOHNSON,
the fund's style-specific index and typically fully invested, reverse repo's Chartered Financial
overweighting the fund's exposure to provide ready cash to take advantage of [JOHNSON Analyst, senior
higher-coupon mortgage-backed tactical opportunities in the bond PHOTO] portfolio manager,
securities. market. is lead manager of
AIM V.I. Government
Throughout the year, we maintained IN CLOSING Securities Fund. Mr. Johnson joined AIM
the portfolio's duration at less than in 1994. He received both a B.A. in
three years. The monthly portfolio We believe that within a variety of economics and an M.B.A. in finance from
duration calculations ranged between market environments, an Vanderbilt University.
2.33 years and 2.85 years. For the intermediate-duration portfolio of
fiscal year ended December 31, 2004, the government bonds and mortgage- backed CLINT DUDLEY,
average duration of the Lehman securities has the potential to provide Chartered Financial
Intermediate U.S. Government and greater total returns than a portfolio [DUDLEY Analyst, portfolio
Mortgage Index was 3.08 years. Our invested in only one of those sectors. PHOTO] manager, is a
short-duration stance is based on the We also believe that active management manager of AIM V.I.
knowledge that a portfolio of longer can add value by weighting sectors and Government
duration may result in higher returns, managing duration to take advantage of Securities Fund. Mr. Dudley joined AIM
but greater NAV instability can also prevailing market conditions. in 1998, was promoted to money market
result. portfolio manager in 2000 and assumed
his current duties in 2001. He received
We also maintained a fairly both a B.B.A. and an M.B.A. from Baylor
consistent weighting of mortgage-backed University.
securities amounting to approximately
three-fourths of the portfolio. We
sought out high-coupon,
PRINCIPAL RISKS OF INVESTING IN THE FUND
U.S. Treasury securities such as bills, notes and bonds offer a high degree of
safety, and they guarantee the payment of principal and any applicable interest
if held to maturity. Fund shares are not insured, and their value and yield will
vary with market conditions.
The fund may invest a portion of its assets in mortgage-backed securities, which
may lose value if mortgages are prepaid in response to falling interest rates.
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's actual
ongoing costs including management fees, about actual account values and actual return. The hypothetical account values
distribution and/or service fees (12b-1) expenses. You may use the information in and expenses may not be used to estimate
and other fund expenses. This example is this table, together with the amount you your actual ending account balance or
intended to help you understand your invested, to estimate the expenses that expenses you paid for the period. You
ongoing costs (in dollars) of investing you paid over the period. Simply divide may use this information to compare the
in the fund and to compare these costs your account value by $1,000 (for ongoing costs of investing in the fund
with ongoing costs of investing in other example, an $8,600 account value divided and other funds. To do so, compare this
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the 5% hypothetical example with the 5%
investment of $1,000 invested at the result by the number in the table under hypothetical examples that appear in the
beginning of the period and held for the the heading entitled "Actual Expenses shareholder reports of the other funds.
entire period, July 1, 2004-December 31, Paid During Period" to estimate the
2004. expenses you paid on your account during Please note that the expenses shown
this period. in the table are meant to highlight your
The actual and hypothetical expenses ongoing costs only. Therefore, the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
the effect of any fees or other expenses COMPARISON PURPOSES comparing ongoing costs only, and will
assessed in connection with a variable not help you determine the relative
product; if they did, the expenses shown The table below also provides total costs of owning different funds.
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,024.00 $4.53 $1,020.66 $4.52
Series II 1,000.00 1,022.70 5.80 1,019.41 5.79
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 2.40% and 2.27% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.89% and 1.14% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 12/31/94-12/31/04
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same
percent change in price; in a linear AIM V.I. GOVERNMENT LEHMAN U.S. LIPPER INTERMEDIATE
chart each scale increment always SECURITIES AGGREGATE U.S. GOVERNMENT
represents the same absolute change in DATE FUND-SERIES I BOND INDEX BOND FUND INDEX
price. In this example, the scale 12/31/94 $10000 $10000 $10000
increment between $5,000 and $10,000 is 3/95 10399 10504 10443
the same as that between $10,000 and 6/95 10968 11144 10965
$20,000. In a linear chart, the latter 9/95 11111 11363 11143
scale increment would be twice as large. 12/95 11555 11847 11557
The benefit of using a logarithmic scale 3/96 11328 11637 11371
is that it better illustrates 6/96 11351 11704 11409
performance during the early years 9/96 11533 11920 11599
before reinvested distributions and 12/96 11820 12278 11906
compounding create the potential for the 3/97 11772 12209 11845
original investment to grow to very 6/97 12130 12657 12232
large numbers. Had the chart used a 9/97 12465 13078 12598
linear scale along its vertical axis, 12/97 12783 13463 12921
you would not be able to see as clearly 3/98 12963 13672 13105
the movements in the value of the fund 6/98 13250 13992 13386
and the indexes during the fund's early 9/98 13776 14583 13985
years. We use a logarithmic scale in 12/98 13770 14632 13977
financial reports of funds that have 3/99 13659 14560 13871
more than five years of performance 6/99 13487 14432 13734
history. 9/99 13586 14530 13820
12/99 13589 14512 13783
======================================= 3/00 13831 14832 14068
AVERAGE ANNUAL TOTAL RETURNS 6/00 14061 15091 14271
As of 12/31/04 9/00 14419 15546 14684
12/00 14965 16199 15323
SERIES I SHARES 3/01 15261 16691 15757
Inception (5/5/93) 5.19% 6/01 15287 16785 15796
10 Years 6.11 9/01 15985 17559 16552
5 Years 5.89 12/01 15924 17567 16483
1 Year 2.56 3/02 15964 17584 16463
6/02 16476 18233 17109
SERIES II SHARES 9/02 17319 19069 17966
10 Years 5.84% 12/02 17452 19369 18131
5 Years 5.62 3/03 17481 19638 18298
1 Year 2.27 6/03 17732 20130 18640
9/03 17592 20100 18544
======================================= 12/03 17588 20164 18527
3/04 17874 20700 18935
Returns since the inception date of 6/04 17614 20194 18498
Series II shares are historical. All 9/04 17931 20839 18948
other returns are the blended returns of 12/04 $18095 $21038 $19054
the historical performance of the fund's
Series II shares since their inception Source: Lipper, Inc.
and the restated historical performance ======================================================================================
of the fund's Series I shares (for
periods prior to inception of the Series The performance data quoted represent The unmanaged Lehman Intermediate
II shares) adjusted to reflect the past performance and cannot guarantee U.S. Government and Mortgage Index is a
higher Rule 12b-1 fees applicable to the comparable future results; current market-weighted combination of the
Series II shares. The inception date of performance may be lower or higher. unmanaged Lehman Brothers Intermediate
the fund's Series II shares is 9/19/01. Please contact your variable product U.S. Government Bond Index and the
The Series I and Series II shares invest issuer or financial advisor for the most unmanaged Lehman Brothers Mortgage
in the same portfolio of securities and recent month-end variable product Backed Securities Fixed Rate (MBS FR)
will have substantially similar performance. Performance figures reflect Index. The Lehman Brothers Intermediate
performance, except to the extent that fund expenses, reinvested distributions U.S. Government Bond Index represents
expenses borne by each class differ. and changes in net asset value. the performance of intermediate- and
Investment return and principal value long-term U.S. Treasury and U.S.
will fluctuate so that you may have a government agency securities. The MBS FR
gain or loss when you sell shares. Index covers 30- and 15-year
mortgage-backed pass-through securities
AIM V.I. Government Securities Fund, offered by Ginnie Mae, Fannie Mae, and
a series portfolio of AIM Variable Freddie Mac. The indexes are compiled by
Insurance Funds, is currently offered Lehman Brothers, a global investment
through insurance companies issuing bank.
variable products. You cannot purchase
shares of the fund directly. Performance The Lipper Intermediate U.S.
figures given represent the fund and are Government Bond Fund Index represents an
not intended to reflect actual variable average of the 30 largest
product values. They do not reflect intermediate-term U.S. government bond
sales charges, expenses and fees funds tracked by Lipper, Inc., an
assessed in connection with a variable independent mutual fund performance
product. Sales charges, expenses and monitor.
fees, which are determined by the
variable product issuers, will vary and The fund is not managed to track the
will lower the total return.* performance of any particular index,
including the indexes defined here, and
ABOUT INDEXES USED IN THIS REPORT consequently, the performance of the
fund may deviate significantly from the
The unmanaged Lehman U.S. Aggregate Bond performance of the index.
Index, which represents the U.S.
investment-grade fixed-rate bond market A direct investment cannot be made
(including government and corporate in an index. Unless otherwise indicated,
securities, mortgage pass-through index results include reinvested
securities and asset-backed securities), dividends, and they do not reflect sales
is compiled by Lehman Brothers, a global charges. Performance of an index of
investment bank. funds reflects fund expenses;
performance of a market index does not.
OTHER INFORMATION
The returns shown in the Management's
Discussion of Fund Performance are based
on net asset values calculated for
shareholder transactions. Generally
accepted accounting principles require
adjustments to be made to the net assets
of the fund at period end for financial
reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIGOV-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-71.21%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-21.98%
Pass Through Ctfs.,
6.00%, 11/01/08 to 02/01/34(a) $ 9,181,410 $ 9,596,716
- --------------------------------------------------------------------------
6.50%, 12/01/08 to 11/01/34(a) 29,158,667 30,811,103
- --------------------------------------------------------------------------
7.00%, 11/01/10 to 11/01/34(a) 42,313,582 44,867,011
- --------------------------------------------------------------------------
8.00%, 12/01/15 to 05/01/32(a) 5,664,259 6,119,158
- --------------------------------------------------------------------------
5.00%, 05/01/18(a) 10,764,717 10,943,995
- --------------------------------------------------------------------------
4.50%, 05/01/19(a) 16,957,370 16,916,535
- --------------------------------------------------------------------------
10.50%, 08/01/19(a) 25,060 27,791
- --------------------------------------------------------------------------
8.50%, 09/01/20 to 10/01/29(a) 1,385,299 1,509,472
- --------------------------------------------------------------------------
10.00%, 03/01/21(a) 382,732 426,148
- --------------------------------------------------------------------------
9.00%, 06/01/21(a) 2,131,010 2,368,630
- --------------------------------------------------------------------------
7.05%, 05/20/27(a) 1,289,944 1,365,114
- --------------------------------------------------------------------------
7.50%, 09/01/29 to 08/01/34(a) 6,531,832 6,998,459
- --------------------------------------------------------------------------
5.50%, 10/01/33 to 01/01/34(a) 6,357,398 6,464,715
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/15(b)(c) 8,732,000 8,870,513
==========================================================================
147,285,360
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-39.44%
Pass Through Ctfs.,
7.50%, 11/01/09 to 07/01/34(a) 15,867,216 17,103,696
- --------------------------------------------------------------------------
6.50%, 10/01/10 to 08/01/34(a) 45,110,272 47,608,656
- --------------------------------------------------------------------------
7.00%, 07/01/11 to 11/01/34(a) 54,300,546 57,604,531
- --------------------------------------------------------------------------
8.50%, 06/01/12 to 10/01/33(a) 7,912,822 8,712,645
- --------------------------------------------------------------------------
10.00%, 03/01/16(a) 146,513 160,685
- --------------------------------------------------------------------------
6.00%, 06/01/16 to 02/01/34(a) 39,375,216 41,252,411
- --------------------------------------------------------------------------
5.00%, 11/01/17 to 08/01/33(a) 3,189,967 3,245,121
- --------------------------------------------------------------------------
8.00%, 12/01/17 to 08/01/32(a) 6,875,957 7,416,057
- --------------------------------------------------------------------------
5.50%, 09/01/33 to 11/01/33(a) 5,847,539 5,943,402
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/20 to 01/01/35(b)(c) 14,789,250 14,746,245
- --------------------------------------------------------------------------
5.50%, 01/01/20 to 01/01/35(b)(c) 27,093,309 27,800,183
- --------------------------------------------------------------------------
8.50%, 12/01/30(b) 1,519,829 1,666,587
- --------------------------------------------------------------------------
6.00%, 01/01/35(b)(c) 29,920,200 30,944,885
==========================================================================
264,205,104
==========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
<Caption>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-9.79%
Pass Through Ctfs.,
7.50%, 03/15/08 to 07/15/32(a) $ 2,919,218 $ 3,145,927
- --------------------------------------------------------------------------
9.00%, 09/15/08 to 09/20/17(a) 512,179 571,852
- --------------------------------------------------------------------------
11.00%, 10/15/15(a) 7,927 8,951
- --------------------------------------------------------------------------
9.50%, 09/15/16(a) 4,597 5,176
- --------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19(a) 6,051 6,820
- --------------------------------------------------------------------------
6.50%, 10/15/18 to 09/20/34(a) 37,552,312 39,658,319
- --------------------------------------------------------------------------
10.00%, 06/15/19(a) 136,951 152,800
- --------------------------------------------------------------------------
7.00%, 07/15/19 to 03/15/34(a) 4,143,801 4,409,083
- --------------------------------------------------------------------------
8.00%, 07/15/24 to 11/15/31(a) 2,439,046 2,673,626
- --------------------------------------------------------------------------
8.50%, 02/15/25(a) 60,189 66,006
- --------------------------------------------------------------------------
6.00%, 10/15/31 to 08/15/34(a) 14,334,491 14,889,235
==========================================================================
65,587,795
==========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $477,601,854) 477,078,259
==========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-23.36%
FEDERAL FARM CREDIT BANK-3.35%
Bonds,
6.00%, 06/11/08(a) 2,600,000 2,800,590
- --------------------------------------------------------------------------
5.75%, 01/18/11(a) 2,000,000 2,168,400
- --------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28(a) 2,500,000 2,661,075
- --------------------------------------------------------------------------
Unsec. Bonds,
7.25%, 06/12/07(a) 13,625,000 14,857,381
==========================================================================
22,487,446
==========================================================================
FEDERAL HOME LOAN BANK-4.52%
Unsec. Bonds,
6.50%, 11/15/05(a) 275,000 283,396
- --------------------------------------------------------------------------
7.25%, 02/15/07(a) 895,000 966,367
- --------------------------------------------------------------------------
4.88%, 05/15/07(a) 4,000,000 4,138,720
- --------------------------------------------------------------------------
3.50%, 11/15/07(a) 4,650,000 4,653,487
- --------------------------------------------------------------------------
5.48%, 01/28/09(a) 1,500,000 1,595,925
- --------------------------------------------------------------------------
6.00%, 12/23/11(a) 18,000,000 18,633,600
==========================================================================
30,271,495
==========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-6.92%
Unsec. Global Notes,
3.75%, 08/03/07(a) 14,375,000 14,410,937
- --------------------------------------------------------------------------
5.13%, 10/15/08(a) 4,000,000 4,197,640
- --------------------------------------------------------------------------
4.38%, 02/04/10(a) 27,700,000(d) 27,776,452
==========================================================================
46,385,029
==========================================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.07%
Unsec. Global Bonds,
6.63%, 11/15/30(a) $ 700,000 $ 833,525
- --------------------------------------------------------------------------
Unsec. Global Notes,
7.00%, 07/15/05(a) 8,100,000 8,287,434
- --------------------------------------------------------------------------
3.66%, 02/25/09(a) 26,055,000 25,742,601
- --------------------------------------------------------------------------
3.85%, 04/14/09(a) 4,695,000 4,668,051
- --------------------------------------------------------------------------
Unsec. Medium Term Notes,
7.38%, 03/28/05(a) 300,000 303,498
- --------------------------------------------------------------------------
Unsec. Sub. Disc. Deb.,
7.37%, 10/09/19(a)(e) 1,800,000 808,146
==========================================================================
40,643,255
==========================================================================
PRIVATE EXPORT FUNDING COMPANY-0.69%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09(a) 2,701,000 3,021,096
- --------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06(a) 1,500,000 1,590,045
==========================================================================
4,611,141
==========================================================================
TENNESSEE VALLEY AUTHORITY-1.81%
Series A, Bonds,
6.79%, 05/23/12(a) 5,000,000 5,756,750
- --------------------------------------------------------------------------
Series G, Global Bonds,
5.38%, 11/13/08(a) 6,000,000 6,353,400
==========================================================================
12,110,150
==========================================================================
Total U.S. Government Agency Securities
(Cost $156,138,280) 156,508,516
==========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
<Caption>
U.S. TREASURY SECURITIES-8.81%
U.S. TREASURY NOTES-7.07%
4.63%, 05/15/06(a) $14,375,000 $ 14,707,350
- --------------------------------------------------------------------------
2.38%, 08/31/06(a) 7,500,000 7,423,800
- --------------------------------------------------------------------------
4.00%, 11/15/12(a) 1,480,000 1,478,846
- --------------------------------------------------------------------------
4.25%, 08/15/13 to 08/15/14(a) 23,700,000(d) 23,775,277
==========================================================================
47,385,273
==========================================================================
U.S. TREASURY BONDS-1.51%
9.25%, 02/15/16(a) 550,000 785,213
- --------------------------------------------------------------------------
7.50%, 11/15/16 to 11/15/24(a) 6,050,000 7,935,707
- --------------------------------------------------------------------------
7.63%, 02/15/25(a) 550,000 744,474
- --------------------------------------------------------------------------
6.88%, 08/15/25(a) 500,000 630,080
==========================================================================
10,095,474
==========================================================================
U.S. TREASURY STRIPS-0.23%
6.79%, 11/15/18(a)(e) 3,005,000 1,525,037
==========================================================================
Total U.S. Treasury Securities (Cost
$58,397,910) 59,005,784
==========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-13.02%
Government & Agency Portfolio-Institutional
Class(f) (Cost $87,204,509) 87,204,509 87,204,509
==========================================================================
TOTAL INVESTMENTS-116.40% (Cost $779,342,553) 779,797,068
==========================================================================
OTHER ASSETS LESS LIABILITIES-(16.40%) (109,842,889)
==========================================================================
NET ASSETS-100.00% $ 669,954,179
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
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) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $608,564,146, which represented 78.04% of the Fund's Total
Investments. See Note 1A.
(b) Security purchased on forward commitment basis.
(c) This security is subject to dollar roll transactions. See Note 1F.
(d) All or a portion of principal amount has been deposited in escrow with
broker as collateral for reverse repurchase agreements outstanding at
December 31, 2004.
(e) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(f) 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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$692,138,044) $692,592,559
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $87,204,509) 87,204,509
=============================================================
Total investments (cost $779,342,553) 779,797,068
_____________________________________________________________
=============================================================
Receivables for:
Fund shares sold 1,307,885
- -------------------------------------------------------------
Dividends and interest 4,868,049
- -------------------------------------------------------------
Principal paydowns 76,478
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 64,379
- -------------------------------------------------------------
Other assets 381
=============================================================
Total assets 786,114,240
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 82,630,469
- -------------------------------------------------------------
Fund shares reacquired 149,502
- -------------------------------------------------------------
Reverse repurchase agreements 32,400,000
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 80,852
- -------------------------------------------------------------
Accrued interest expense 8,501
- -------------------------------------------------------------
Accrued administrative services fees 789,439
- -------------------------------------------------------------
Accrued distribution fees -- Series II 11,070
- -------------------------------------------------------------
Accrued transfer agent fees 3,836
- -------------------------------------------------------------
Accrued operating expenses 86,392
=============================================================
Total liabilities 116,160,061
=============================================================
Net assets applicable to shares outstanding $669,954,179
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $663,884,982
- -------------------------------------------------------------
Undistributed net investment income 26,688,663
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (21,073,981)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 454,515
=============================================================
$669,954,179
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $652,226,296
_____________________________________________________________
=============================================================
Series II $ 17,727,883
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 54,054,719
_____________________________________________________________
=============================================================
Series II 1,476,666
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.07
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.01
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $23,403,862
- ------------------------------------------------------------
Dividends from affiliated money market funds 947,936
============================================================
Total investment income 24,351,798
============================================================
EXPENSES:
Advisory fees 2,816,229
- ------------------------------------------------------------
Administrative services fees 1,561,525
- ------------------------------------------------------------
Custodian fees 78,847
- ------------------------------------------------------------
Distribution fees -- Series II 48,016
- ------------------------------------------------------------
Interest 530,768
- ------------------------------------------------------------
Transfer agent fees 18,407
- ------------------------------------------------------------
Trustees' fees and retirement benefits 26,426
- ------------------------------------------------------------
Other 180,838
============================================================
Total expenses 5,261,056
============================================================
Less: Fees waived and expenses reimbursed (36,041)
============================================================
Net expenses 5,225,015
============================================================
Net investment income 19,126,783
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (492,458)
- ------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (3,698,196)
============================================================
Net gain (loss) from investment securities (4,190,654)
============================================================
Net increase in net assets resulting from
operations $14,936,129
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 19,126,783 $ 16,274,785
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (492,458) (3,652,253)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (3,698,196) (7,310,145)
==========================================================================================
Net increase in net assets resulting from operations 14,936,129 5,312,387
==========================================================================================
Distributions to shareholders from net investment income:
Series I (24,312,926) (12,494,932)
- ------------------------------------------------------------------------------------------
Series II (614,972) (517,056)
==========================================================================================
Total distributions from net investment income (24,927,898) (13,011,988)
==========================================================================================
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 (24,927,898) (13,208,897)
==========================================================================================
Share transactions-net:
Series I 135,529,759 105,720,568
- ------------------------------------------------------------------------------------------
Series II (4,390,961) 7,735,685
==========================================================================================
Net increase in net assets resulting from share
transactions 131,138,798 113,456,253
==========================================================================================
Net increase in net assets 121,147,029 105,559,743
==========================================================================================
NET ASSETS:
Beginning of year 548,807,150 443,247,407
==========================================================================================
End of year (including undistributed net investment income
of $26,688,663 and $24,867,108, respectively) $669,954,179 $548,807,150
__________________________________________________________________________________________
==========================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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 specific 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").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
AIM V.I. GOVERNMENT SECURITIES FUND
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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. Dollar roll transactions are considered borrowings under the
1940 Act. 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.
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 contractually agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $35,684.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $357 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$1,561,525, of which AIM retained $147,552 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $18,407.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to
AIM V.I. GOVERNMENT SECURITIES FUND
the extent necessary to limit total annual fund operating Expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $48,016.
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. The Fund and the money market fund below have the
same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in an
affiliated money market fund for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Government &
Agency
Portfolio-
Institutional
Class $29,711,054 $586,841,000 $(529,347,545) $ -- $87,204,509 $947,936 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $3,924
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 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. During the year ended December 31,
2004, the Fund had average borrowings for the number of days the borrowings were
outstanding in the amount of $35,052,077 with a weighted average interest rate
of 1.51% and interest expense of $530,768.
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $24,927,898 $13,015,275
- ----------------------------------------------------------------------------------------
Long-term capital gain -- 193,622
========================================================================================
Total distributions $24,927,898 $13,208,897
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 26,757,784
- ----------------------------------------------------------------------------
Undistributed appreciation -- investments 212,050
- ----------------------------------------------------------------------------
Temporary book/tax differences (69,121)
- ----------------------------------------------------------------------------
Capital loss carryforward (19,635,413)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (1,196,103)
- ----------------------------------------------------------------------------
Shares of beneficial interest 663,884,982
============================================================================
Total net assets $669,954,179
____________________________________________________________________________
============================================================================
</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 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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2011 $11,708,442
- -----------------------------------------------------------------------------
December 31, 2012 7,926,971
=============================================================================
Total capital loss carryforward $19,635,413
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $691,458,178 and $539,422,895, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 3,336,728
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,124,678)
===============================================================================
Net unrealized appreciation of investment securities $ 212,050
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $779,585,018.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on
mortgage-backed securities, on December 31, 2004, undistributed net investment
income was increased by $7,622,670 and undistributed net realized gain (loss)
was decreased by $7,622,670. This reclassification had no effect on the net
assets of the Fund.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
========================================================================================================================
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2004 2003
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 16,435,650 $202,834,635 27,798,982 $ 345,400,431
- ------------------------------------------------------------------------------------------------------------------------
Series II 359,723 4,410,391 1,689,953 20,857,500
========================================================================================================================
Issued as reinvestment of dividends:
Series I 2,015,997 24,312,926 1,038,804 12,683,804
- ------------------------------------------------------------------------------------------------------------------------
Series II 51,247 614,971 43,218 525,093
========================================================================================================================
Reacquired:
Series I (7,431,260) (91,617,802) (20,353,168) (252,363,667)
- ------------------------------------------------------------------------------------------------------------------------
Series II (768,954) (9,416,323) (1,106,652) (13,646,908)
========================================================================================================================
10,662,403 $131,138,798 9,111,137 $ 113,456,253
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 6% of the outstanding shares of
the Fund. The Fund and the Fund's principal underwriter or advisor, are
parties to participation agreements with these entities whereby these
entities sell units of interest in separate accounts funding variable
products that are invested in the Fund. The Fund, AIM and/or AIM
affiliates may make payments to this entity, which is considered to be
related to the Fund, for providing services to the Fund, AIM and/or AIM
affiliates including but not limited to services such as securities
brokerage, third party record keeping, account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by this shareholder is also
owned beneficially.
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 DECEMBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.23 $ 12.40 $ 11.53 $ 11.16 $ 10.63
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40(a) 0.36(a) 0.49(a) 0.59(a)(b) 0.66(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.09) (0.23) 0.61 0.12 0.41
=================================================================================================================================
Total from investment operations 0.31 0.13 1.10 0.71 1.07
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.47) (0.30) (0.23) (0.34) (0.54)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00) -- -- --
=================================================================================================================================
Total distributions (0.47) (0.30) (0.23) (0.34) (0.54)
=================================================================================================================================
Net asset value, end of period $ 12.07 $ 12.23 $ 12.40 $ 11.53 $ 11.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.56% 1.07% 9.59% 6.41% 10.12%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $652,226 $526,482 $428,322 $150,660 $84,002
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.87%(d) 0.76% 0.81% 1.08% 0.97%
=================================================================================================================================
Ratio of net investment income to average net assets 3.20%(d) 2.93% 4.01% 5.09%(b) 6.03%
=================================================================================================================================
Ratio of interest expense to average net assets 0.09%(d) 0.01% 0.01% 0.28% 0.12%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 95% 265% 170% 199% 87%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 as such, the net asset
value for financial reporting purpose and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $578,844,331.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.17 $ 12.35 $ 11.52 $11.84
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.33(a) 0.46(a) 0.16(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.08) (0.22) 0.60 (0.14)
====================================================================================================================
Total from investment operations 0.28 0.11 1.06 0.02
====================================================================================================================
Less distributions:
Dividends from net investment income (0.44) (0.29) (0.23) (0.34)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.00) -- --
====================================================================================================================
Total distributions (0.44) (0.29) (0.23) (0.34)
====================================================================================================================
Net asset value, end of period $ 12.01 $ 12.17 $ 12.35 $11.52
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 2.27% 0.93% 9.25% 0.22%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,728 $22,325 $14,926 $ 946
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 1.12%(c) 1.01% 1.06% 1.41%(d)
====================================================================================================================
Ratio of net investment income to average net assets 2.95%(c) 2.68% 3.76% 4.76%(d)
====================================================================================================================
Ratio of interest expense to average net assets 0.09%(c) 0.01% 0.01% 0.28%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 95% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year do not reflect charges assessed in connection with a
variable product which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $19,206,467.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
acceptable to the staff of the SEC. Under the settlements with the NYAG and
COAG, AIM has agreed to reduce management fees on certain equity and balanced
AIM Funds by $15 million per year for the next five years, based upon effective
fee rates and assets under management as of July 1, 2004, and not to increase
certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. GOVERNMENT SECURITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. GOVERNMENT SECURITIES FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Government Securities Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- -----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 0% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 6.87% was derived from U.S. Treasury
Obligations.
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. GROWTH FUND seeks to provide growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended December 31, broad market for the year. In addition, We consider selling holdings if we see
2004, AIM V.I. Growth Fund slightly growth stocks and large-cap stocks, which slowing growth rates or an earnings
underperformed the S&P 500 Index, which are the type of equities in which the fund disappointment. Other "sell" indicators
represents the performance of the U.S. typically invests the bulk of its assets, include negative earnings estimate
stock market. But solid stock selection, were out of favor for much of the year. revisions, fundamental changes in the
especially in the health care and competitive position of a company within
industrials sectors, and to a lesser HOW WE INVEST its industry, or changes in management
degree, the information technology sector, that may be considered detrimental.
helped the fund outperform its We believe that while many factors Alternatively, we simply may find a more
style-specific and peer group indexes. For contribute to a company's long-term promising investment opportunity.
the fund and for the S&P 500 Index, 2004 potential for share-price appreciation,
was the first year of positive earnings can be one of the most important. MARKET CONDITIONS AND YOUR FUND
back-to-back annual returns since 1999. We look for two types of companies:
While past performance cannot guarantee The economy showed signs of improvement
comparable future results, we were pleased o Stocks of established companies during the fiscal year, as did the U.S.
to deliver positive returns to our experiencing significant positive change stock market, particularly in the fourth
shareholders. leading to accelerating revenue or quarter of 2004. The Frank Russell
earnings growth--usually above market Company, which compiles the Russell market
========================================== expectations. These are what we call indexes, reported that for 2004, mid-cap
FUND VS. INDEXES "accelerating growth" stocks. The catalyst stocks outperformed small- and large-cap
for accelerating revenue or earnings stocks. Also, value stocks generally
Total returns, 12/31/03-12/31/04, growth may be internal or external, and it outperformed growth stocks for the year.
excluding variable product issuer charges. may or may not be sustainable over the The fund's investment strategy of
If variable product issuer charges were long term. emphasizing larger, well-established
included, returns would be lower. growth companies--an asset class that was
o Stocks of well-established, well-managed out of favor for much of the fiscal
Series I Shares 8.23% companies with leading competitive year--accounted for the fund's performance
Series II Shares 8.00 positions in growing markets are what we relative to the broad market, as
S&P 500 Index (Broad Market Index) 10.87 call "core growth" stocks. Such companies larger-capitalization stocks and growth
Russell 1000 Growth Index are generally long-term market leaders with stocks generally lagged the market.
(Style-specific Index) 6.30 sustainable, above-average revenue and However, our bottom-up stock selection
earnings growth rates, often leading to process helped fund performance relative
Lipper Large-Cap Growth Fund Index premium valuations. to our style-specific and peer group
(Peer Group Index) 7.45 indexes.
We follow a bottom-up selection process
Source: Lipper, Inc. that combines quantitative and fundamental The fund's health care, industrials and
========================================== analysis to identify companies generating consumer discretionary holdings
sustainable, above-average earnings and contributed most to fund performance.
The fund lagged the S&P 500 Index cash flow growth that is not fully While the information technology sector
because of its minimal exposure to the reflected in investor expectations or was among the weaker-performing sectors of
energy, utilities and materials equity valuations. the market for the year, the fund's
sectors--traditionally non-growth sectors information technology holdings, as a
of the market--which were among the group, boasted positive returns, while
strongest performing sectors of the those of its style-specific index were
negative.
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector
1. Information Technology 31.6% 1. Tyco International Ltd. (Bermuda) 4.1% 1. Systems Software 5.9%
2. Consumer Discretionary 17.8 2. Dell Inc. 2.5 2. Communications Equipment 5.3
3. Health Care 15.7 3. Yahoo! Inc. 2.3 3. Pharmaceuticals 4.9
4. Industrials 13.4 4. Aetna Inc. 2.0 4. Industrial Conglomerates 4.8
5. Financials 10.5 5. Johnson & Johnson 2.0 5. Investment Banking & Brokerage 3.9
6. Consumer Staples 6.8 6. Target Corp. 1.9 6. Managed Health Care 3.7
7. Energy 3.0 7. Cendant Corp. 1.9 7. Computer Hardware 3.6
8. Materials 0.7 8. Rockwell Automation, Inc. 1.7 8. Semiconductors 3.5
Money market funds plus other 9. Cisco Systems, Inc. 1.7 9. Consumer Finance 3.4
assets less liabilities 0.5 10. Goldman Sachs Group, Inc. (The) 1.7 10. Internet Software & Services 3.4
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
AIM V.I. GROWTH FUND
<Table>
<Caption>
What were some of the individual stocks in its industry, we sold our holdings The views and opinions expressed in
that affected fund performance in 2004, before the close of the fiscal year Management's Discussion of Fund
and how do they fit within our investment because of the possibility that earnings Performance are those of A I M Advisors,
strategy? might disappoint again, and because we Inc. These views and opinions are subject
identified more attractive investment to change at any time based on factors
Apple Computer was a standout performer opportunities. such as market and economic conditions.
for the fund. The company's iPod These views and opinions may not be relied
- --Registered Trademark-- digital music While the fund's health care holdings upon as investment advice or
player has become the industry standard, collectively delivered positive returns recommendations, or as an offer for a
and sales remain strong. We liked Apple for the fund, Pfizer was one stock in the particular security. The information is
because of its market dominance and sector that disappointed. In September, not a complete analysis of every aspect of
because we believed Apple's computer and Merck (not a fund holding) announced that any market, country, industry, security or
accessory sales may improve--and its it was withdrawing its Vioxx--Registered the fund. Statements of fact are from
earnings power may improve--given that the Trademark-- arthritis drug from markets sources considered reliable, but A I M
iPod has the potential to spur incremental worldwide after a study suggested long-term Advisors, Inc. makes no representation or
product sales. use of the drug might increase the risk of warranty as to their completeness or
heart attacks and strokes. Soon accuracy. Although historical performance
Likewise, Research In Motion thereafter, Pfizer came under pressure to is no guarantee of future results, these
contributed positively to fund performance withdraw its highly profitable Celebrex insights may help you understand our
for the year. The company is perhaps best due to similar safety concerns. While the investment management philosophy.
known for its Blackberry--Registered company did not withdraw the product,
Trademark-- wireless communication device, there were indications that prescriptions LANNY H. SACHNOWITZ,
which--like Apple's iPod--dominates its written for Celebrex declined sharply late senior portfolio manager,
market. In September, the company in the year. We reduced our Pfizer [SACHNOWIT is the lead portfolio
announced that Blackberry subscribers had holdings to a minimal position due to PHOTO] manager of AIM V.I.
surpassed 1.6 million, and that its concerns over the company's slowing Growth Fund. He joined
year-over-year third-quarter earnings rose product pipeline and litigation risk, but AIM in 1987 as a money
by 147%. However, because the stock had did not eliminate the stock from the fund, market trader and research analyst. In
more than tripled in value and had become given its attractive valuation. 1990, Mr. Sachnowitz became head of equity
expensive, we took our profits and reduced trading, and in 1991, he was named to his
our holdings before the close of the year. IN CLOSING current position. Mr. Sachnowitz received
a B.S. in finance from the University of
Some fund holdings--despite maintaining At the close of the fiscal year, the fund Southern California and an M.B.A. from the
market-leading positions within their held 90 stocks and its net assets totaled University of Houston.
industries--did not perform as well as $378.3 million. After experiencing three
Apple and Research In Motion, however. very difficult years from 2000 to 2002, JAMES G. BIRDSALL,
the broad U.S. stock market posted portfolio manager, is a
Intel, for example, surprised many when positive returns in calendar years 2003 [BIRDSALL manager of AIM V.I. Growth
it announced in September that due to and 2004, as did the fund. No one can say PHOTO] Fund. He has been
weaker-than-expected chip demand, its how the stock market or the fund may associated with AIM
third-quarter sales and earnings would perform in 2005, but as 2004 ended we felt Investments since 1997,
disappoint. Because of the company's cautiously optimistic. As always, we thank and assumed his current position in 1999.
dominance of its industry, the you for your continuing investment in AIM Mr. Birdsall received his B.B.A. with a
announcement hurt not only Intel, but V.I. Growth Fund. concentration in finance from Stephen F.
other semiconductor and semiconductor Austin State University before earning his
equipment companies. While we remained M.B.A. with a concentration in finance and
confident that Intel would remain the international business from the University
leader of St. Thomas.
Assisted by the Large Cap Growth Team
PRINCIPAL RISKS OF INVESTING IN THE FUND
International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The fund may invest up to 25% of its assets in
the securities of non-U.S. issuers.
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ABOUT YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
AIM V.I. GROWTH FUND
<Table>
<Caption>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE You may use the information in this table, balance or expenses you paid for the
together with the amount you invested, to period. You may use this information to
As a shareholder of the fund, you incur estimate the expenses that you paid over compare the ongoing costs of investing in
ongoing costs including management fees, the period. Simply divide your account the fund and other funds. To do so,
distribution and/or service fees (12b-1) value by $1,000 (for example, an $8,600 compare this 5% hypothetical example with
and other fund expenses. This example is account value divided by $1,000 = 8.6), the 5% hypothetical examples that appear
intended to help you understand your then multiply the result by the number in in the shareholder reports of the other
ongoing costs (in dollars) of investing in the table under the heading entitled funds.
the fund and to compare these costs with "Actual Expenses Paid During Period" to
ongoing costs of investing in other mutual estimate the expenses you paid on your Please note that the expenses shown in
funds. The example is based on an account during this period. the table are meant to highlight your
investment of $1,000 invested at the ongoing costs only. Therefore, the
beginning of the period and held for the HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
entire period, July 1, 2004 - December 31, COMPARISON PURPOSES comparing ongoing costs only, and will not
2004. help you determine the relative total
The table below also provides information costs of owning different funds.
The actual and hypothetical expenses in about hypothetical account values and
the examples below do not represent the hypothetical expenses based on the fund's
effect of any fees or other expenses actual expense ratio and an assumed rate
assessed in connection with a variable of return of 5% per year before expenses,
product; if they did, the expenses shown which is not the fund's actual return. The
would be higher while the ending account hypothetical account values and expenses
values shown would be lower. may not be used to estimate the actual
ending account
ACTUAL EXPENSES
The table below provides information about
actual account values and actual expenses.
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,039.50 $4.82 $1,020.41 $4.77
Series II 1,000.00 1,037.80 6.10 1,019.15 6.04
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 3.95% and 3.78% for Series I and II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.94% and 1.19% for Series I and II shares, respectively) multiplied
by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. GROWTH FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ========================================================================================
comparable future results. RESULTS OF A $10,000 INVESTMENT
12/31/94-12/31/04
In evaluating this chart, please note
that the chart uses a logarithmic scale [MOUNTAIN CHART]
along the vertical axis (the value scale).
This means that each scale increment AIM V.I. GROWTH LIPPER LARGE-CAP RUSSELL 1000 S&P 500
always represents the same percent change DATE FUND SERIES I GROWTH FUND INDEX GROWTH INDEX INDEX
in price; in a linear chart each scale 12/31/94 $10000 $10000 $10000 $10000
increment always represents the same 3/95 10906 10721 10952 10973
absolute change in price. In this example, 6/95 12240 11959 12028 12019
the scale increment between $5,000 and 9/95 13677 13150 13120 12973
$10,000 is the same as that between 12/95 13478 13492 13718 13753
$10,000 and $20,000. In a linear chart, 3/96 14215 14208 14454 14491
the latter scale increment would be twice 6/96 14589 14840 15374 15141
as large. The benefit of using a 9/96 15288 15474 15928 15609
logarithmic scale is that it better 12/96 15914 16266 16889 16909
illustrates performance during the early 3/97 15689 16175 16980 17363
years before reinvested distributions and 6/97 18381 18984 20191 20392
compounding create the potential for the 9/97 20489 20750 21709 21919
original investment to grow to very large 12/97 20190 20754 22039 22548
numbers. Had the chart used a linear scale 3/98 22868 23792 25378 25691
along its vertical axis, you would not be 6/98 23998 25003 26530 26544
able to see as clearly the movements in 9/98 21189 22431 24120 23910
the value of the fund and the indexes 12/98 27080 28323 30569 28997
during the fund's early years. We use a 3/99 29034 30568 32512 30441
logarithmic scale in financial reports of 6/99 30484 31718 33764 32583
funds that have more than five years of 9/99 29885 30417 32527 30554
performance history. 12/99 36621 38185 40705 35096
3/00 41366 41287 43606 35900
AVERAGE ANNUAL TOTAL RETURNS 6/00 38415 38274 42429 34946
- ------------------------------------------ 9/00 37447 37635 40147 34608
As of 12/31/04 12/00 29114 30671 31578 31902
3/01 21125 23905 24978 28122
Series I Shares 6/01 21537 25513 27081 29767
10 Years 6.56% 9/01 17712 20443 21824 25399
5 Years -12.41 12/01 19248 23350 25128 28113
1 Year 8.23 3/02 18566 22758 24478 28191
6/02 15274 19157 19908 24416
Series II Shares 9/02 12415 16087 16912 20200
10 Years 6.30% 12/02 13286 16786 18122 21902
5 Years -12.62 3/03 13086 16527 17928 21212
1 Year 8.00 6/03 15132 18760 20493 24476
9/03 15697 19358 21295 25124
Returns since the inception date of Series 12/03 17437 21312 23513 28181
II shares are historical. All other 3/04 17873 21571 23697 28658
returns are the blended returns of the 6/04 18155 21776 24157 29151
historical performance of the fund's 9/04 17060 20820 22894 28606
Series II shares since their inception and 12/04 $18875 $22900 $24994 $31245
the restated historical performance of the Source: Lipper, Inc.
fund's Series I shares (for periods prior =======================================================================================
to inception of the Series II shares)
adjusted to reflect the higher Rule 12b-1 performance may be lower or higher. Please The unmanaged Standard & Poor's
fees applicable to the Series II shares. contact your variable product issuer or Composite Index of 500 Stocks (the S&P
The inception date of the fund's Series II financial advisor for the most recent 500--Registered Trademark-- Index) is an
shares is 9/19/01. The Series I and Series month-end variable product performance. index of common stocks frequently used as
II shares invest in the same portfolio of Performance figures reflect fund expenses, a general measure of U.S. stock market
securities and will have substantially reinvested distributions and changes in performance.
similar performance, except to the extent net asset value. Investment return and
that expenses borne by each class differ. principal value will fluctuate so that you The fund is not managed to track the
may have a gain or loss when you sell performance of any particular index,
The performance data quoted represent shares. including the indexes defined here, and
past performance and cannot guarantee consequently, the performance of the fund
comparable future results; current AIM V.I. Growth Fund, a series may deviate significantly from the
portfolio of AIM Variable Insurance Funds, performance of the index.
is currently offered through insurance
companies issuing variable products. You A direct investment cannot be made in
cannot purchase shares of the fund an index. Unless otherwise indicated,
directly. Performance figures given index results include reinvested
represent the fund and are not intended to dividends, and they do not reflect sales
reflect actual variable product values. charges. Performance of an index of funds
They do not reflect sales charges, reflects fund expenses; performance of a
expenses and fees assessed in connection market index does not.
with a variable product. Sales charges,
expenses and fees, which are determined by OTHER INFORMATION
the variable product issuers, will vary
and will lower the total return.* The returns shown in the Management's
Discussion of Fund Performance are based
ABOUT INDEXES USED IN THIS REPORT on net asset values calculated for
shareholder transactions. Generally
The unmanaged Lipper Large-Cap Growth accepted accounting principles require
Fund Index represents an average of the adjustments to be made to the net assets
performance of the 30 largest of the fund at period end for financial
large-capitalization growth funds tracked reporting purposes, and as such, the net
by Lipper, Inc., an independent mutual asset values for shareholder transactions
fund performance monitor. and the returns based on those net asset
values may differ from the net asset
The unmanaged Russell 1000--Registered values and returns reported in the
Trademark-- Growth Index is a subset of Financial Highlights.
the unmanaged Russell 1000 Index, which
represents the performance of the stocks Industry classifications used in this
of large-capitalization companies; the report are generally according to the
Growth subset measures the performance of Global Industry Classification Standard,
Russell 1000 companies with higher which was developed by and is the
price/book ratios and higher forecasted exclusive property and a service mark of
growth values. Morgan Stanley Capital International Inc.
and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 8667024402. As mentioned above, for the most recent month-end
performance including variable product charges, please contact your variable
product issuer or financial consultant.
5 VIGRO-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.49%
AEROSPACE & DEFENSE-1.39%
Boeing Co. (The) 55,000 $ 2,847,350
- -----------------------------------------------------------------------
General Dynamics Corp. 23,000 2,405,800
=======================================================================
5,253,150
=======================================================================
AIR FREIGHT & LOGISTICS-0.60%
FedEx Corp. 23,000 2,265,270
=======================================================================
APPAREL RETAIL-0.76%
Chico's FAS, Inc.(a) 63,000 2,868,390
=======================================================================
APPLICATION SOFTWARE-2.39%
Amdocs Ltd. (United Kingdom)(a) 235,000 6,168,750
- -----------------------------------------------------------------------
Intuit Inc.(a) 65,000 2,860,650
=======================================================================
9,029,400
=======================================================================
BIOTECHNOLOGY-3.12%
Biogen Idec Inc.(a) 63,000 4,196,430
- -----------------------------------------------------------------------
Genentech, Inc.(a) 70,000 3,810,800
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 108,000 3,778,920
=======================================================================
11,786,150
=======================================================================
BROADCASTING & CABLE TV-0.77%
Univision Communications Inc.-Class A(a) 100,000 2,927,000
=======================================================================
COMMUNICATIONS EQUIPMENT-5.30%
Cisco Systems, Inc.(a) 340,000 6,562,000
- -----------------------------------------------------------------------
Motorola, Inc. 313,000 5,383,600
- -----------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 165,000 2,585,550
- -----------------------------------------------------------------------
QUALCOMM Inc. 70,000 2,968,000
- -----------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 31,000 2,555,020
=======================================================================
20,054,170
=======================================================================
COMPUTER & ELECTRONICS RETAIL-0.74%
Best Buy Co., Inc. 47,000 2,792,740
=======================================================================
COMPUTER HARDWARE-3.58%
Apple Computer, Inc.(a) 62,000 3,992,800
- -----------------------------------------------------------------------
Dell Inc.(a) 227,000 9,565,780
=======================================================================
13,558,580
=======================================================================
COMPUTER STORAGE & PERIPHERALS-2.45%
EMC Corp.(a) 310,000 4,609,700
- -----------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 55,000 4,675,000
=======================================================================
9,284,700
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
CONSUMER FINANCE-3.40%
American Express Co. 85,000 $ 4,791,450
- -----------------------------------------------------------------------
MBNA Corp. 138,000 3,890,220
- -----------------------------------------------------------------------
SLM Corp. 78,000 4,164,420
=======================================================================
12,846,090
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.34%
Alliance Data Systems Corp.(a) 46,000 2,184,080
- -----------------------------------------------------------------------
Automatic Data Processing, Inc. 65,000 2,882,750
=======================================================================
5,066,830
=======================================================================
DEPARTMENT STORES-2.42%
J.C. Penney Co., Inc. 71,000 2,939,400
- -----------------------------------------------------------------------
Kohl's Corp.(a) 60,000 2,950,200
- -----------------------------------------------------------------------
Nordstrom, Inc. 70,000 3,271,100
=======================================================================
9,160,700
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.85%
Cendant Corp. 300,000 7,014,000
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.51%
Cooper Industries, Ltd.-Class A (Bermuda) 43,000 2,919,270
- -----------------------------------------------------------------------
Rockwell Automation, Inc. 133,000 6,590,150
=======================================================================
9,509,420
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.27%
Agilent Technologies, Inc.(a) 200,000 4,820,000
=======================================================================
FOOTWEAR-1.22%
NIKE, Inc.-Class B 51,000 4,625,190
=======================================================================
GENERAL MERCHANDISE STORES-1.92%
Target Corp. 140,000 7,270,200
=======================================================================
HEALTH CARE EQUIPMENT-1.78%
Bard (C.R.), Inc. 47,000 3,007,060
- -----------------------------------------------------------------------
Waters Corp.(a) 80,000 3,743,200
=======================================================================
6,750,260
=======================================================================
HEALTH CARE SERVICES-1.15%
Caremark Rx, Inc.(a) 86,000 3,390,980
- -----------------------------------------------------------------------
IMS Health Inc. 41,700 967,857
=======================================================================
4,358,837
=======================================================================
HEALTH CARE SUPPLIES-1.07%
Alcon, Inc. (Switzerland) 50,000 4,030,000
=======================================================================
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.02%
Home Depot, Inc. (The) 90,000 $ 3,846,600
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.36%
Hilton Hotels Corp. 185,000 4,206,900
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 16,000 934,400
=======================================================================
5,141,300
=======================================================================
HOUSEHOLD PRODUCTS-1.72%
Procter & Gamble Co. (The) 118,000 6,499,440
=======================================================================
HOUSEWARES & SPECIALTIES-1.06%
Fortune Brands, Inc. 52,000 4,013,360
=======================================================================
HYPERMARKETS & SUPER CENTERS-1.54%
Costco Wholesale Corp. 120,000 5,809,200
=======================================================================
INDUSTRIAL CONGLOMERATES-4.84%
Textron Inc. 40,000 2,952,000
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 430,000 15,368,200
=======================================================================
18,320,200
=======================================================================
INDUSTRIAL MACHINERY-2.23%
Danaher Corp. 60,000 3,444,600
- -----------------------------------------------------------------------
Eaton Corp. 30,000 2,170,800
- -----------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 35,000 2,810,500
=======================================================================
8,425,900
=======================================================================
INTEGRATED OIL & GAS-1.51%
BP PLC-ADR (United Kingdom) 32,000 1,868,800
- -----------------------------------------------------------------------
ChevronTexaco Corp. 35,000 1,837,850
- -----------------------------------------------------------------------
ConocoPhillips 23,000 1,997,090
=======================================================================
5,703,740
=======================================================================
INTERNET RETAIL-1.83%
Amazon.com, Inc.(a) 22,500 996,525
- -----------------------------------------------------------------------
eBay Inc.(a) 51,000 5,930,280
=======================================================================
6,926,805
=======================================================================
INTERNET SOFTWARE & SERVICES-3.36%
Google Inc.-Class A(a) 20,000 3,862,000
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 235,000 8,854,800
=======================================================================
12,716,800
=======================================================================
INVESTMENT BANKING & BROKERAGE-3.85%
Goldman Sachs Group, Inc. (The) 63,000 6,554,520
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 47,000 4,111,560
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 65,000 3,885,050
=======================================================================
14,551,130
=======================================================================
MANAGED HEALTH CARE-3.67%
Aetna Inc. 62,000 7,734,500
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MANAGED HEALTH CARE-(CONTINUED)
UnitedHealth Group Inc. 70,000 $ 6,162,100
=======================================================================
13,896,600
=======================================================================
MOTORCYCLE MANUFACTURERS-0.75%
Harley-Davidson, Inc. 47,000 2,855,250
=======================================================================
MOVIES & ENTERTAINMENT-1.46%
Pixar(a) 24,000 2,054,640
- -----------------------------------------------------------------------
Walt Disney Co. (The) 125,000 3,475,000
=======================================================================
5,529,640
=======================================================================
OFFICE ELECTRONICS-1.06%
Xerox Corp.(a) 235,000 3,997,350
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.53%
BJ Services Co. 62,000 2,885,480
- -----------------------------------------------------------------------
Varco International, Inc.(a) 100,000 2,915,000
=======================================================================
5,800,480
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.63%
Citigroup Inc. 85,000 4,095,300
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 150,000 5,851,500
=======================================================================
9,946,800
=======================================================================
PERSONAL PRODUCTS-2.76%
Estee Lauder Cos. Inc. (The)-Class A 125,000 5,721,250
- -----------------------------------------------------------------------
Gillette Co. (The) 105,000 4,701,900
=======================================================================
10,423,150
=======================================================================
PHARMACEUTICALS-4.86%
Johnson & Johnson 120,000 7,610,400
- -----------------------------------------------------------------------
Pfizer Inc. 80,000 2,151,200
- -----------------------------------------------------------------------
Sepracor Inc.(a) 63,000 3,740,310
- -----------------------------------------------------------------------
Wyeth 115,000 4,897,850
=======================================================================
18,399,760
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.62%
Allstate Corp. (The) 45,000 2,327,400
=======================================================================
RESTAURANTS-2.43%
McDonald's Corp. 150,000 4,809,000
- -----------------------------------------------------------------------
Yum! Brands, Inc. 93,000 4,387,740
=======================================================================
9,196,740
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.55%
Novellus Systems, Inc.(a) 210,000 5,856,900
=======================================================================
SEMICONDUCTORS-3.46%
Analog Devices, Inc. 135,000 4,984,200
- -----------------------------------------------------------------------
Microchip Technology Inc. 135,000 3,599,100
- -----------------------------------------------------------------------
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
National Semiconductor Corp. 250,000 $ 4,487,500
=======================================================================
13,070,800
=======================================================================
SOFT DRINKS-0.75%
PepsiCo, Inc. 54,000 2,818,800
=======================================================================
SPECIALTY CHEMICALS-0.74%
Ecolab Inc. 80,000 2,810,400
=======================================================================
SYSTEMS SOFTWARE-5.87%
McAfee Inc.(a) 140,000 4,050,200
- -----------------------------------------------------------------------
Microsoft Corp. 130,000 3,472,300
- -----------------------------------------------------------------------
Oracle Corp.(a) 415,000 5,693,800
- -----------------------------------------------------------------------
Symantec Corp.(a) 210,000 5,409,600
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
VERITAS Software Corp.(a) 125,000 $ 3,568,750
=======================================================================
22,194,650
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $288,480,773) 376,350,272
=======================================================================
MONEY MARKET FUNDS-1.18%
Liquid Assets Portfolio-Institutional
Class(b) 2,220,563 2,220,563
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(b) 2,220,563 2,220,563
=======================================================================
Total Money Market Funds (Cost
$4,441,126) 4,441,126
=======================================================================
TOTAL INVESTMENTS-100.67% (Cost $292,921,899) 380,791,398
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.67%) (2,519,916)
=======================================================================
NET ASSETS-100.00% $378,271,482
_______________________________________________________________________
=======================================================================
</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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$288,480,773) $ 376,350,272
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $4,441,126) 4,441,126
=============================================================
Total investments (cost $292,921,899) 380,791,398
=============================================================
Foreign currencies, at market value (cost
$123) 152
- -------------------------------------------------------------
Receivables for:
Investments sold 3,260,626
- -------------------------------------------------------------
Fund shares sold 26,267
- -------------------------------------------------------------
Dividends 228,611
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 68,110
- -------------------------------------------------------------
Other assets 6,638
=============================================================
Total assets 384,381,802
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 5,019,433
- -------------------------------------------------------------
Fund shares reacquired 493,964
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 91,314
- -------------------------------------------------------------
Accrued administrative services fees 464,967
- -------------------------------------------------------------
Accrued distribution fees -- Series II 8,337
- -------------------------------------------------------------
Accrued operating expenses 32,305
=============================================================
Total liabilities 6,110,320
=============================================================
Net assets applicable to shares outstanding $ 378,271,482
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 723,536,883
- -------------------------------------------------------------
Undistributed net investment income (loss) (75,266)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (433,059,662)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 87,869,527
=============================================================
$ 378,271,482
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 365,108,091
_____________________________________________________________
=============================================================
Series II $ 13,163,391
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 22,742,817
_____________________________________________________________
=============================================================
Series II 826,197
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 16.05
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 15.93
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$24,155) $ 3,293,334
- ------------------------------------------------------------
Dividends from affiliated money market funds 65,374
============================================================
Total investment income 3,358,708
============================================================
EXPENSES:
Advisory fees 2,428,388
- ------------------------------------------------------------
Administrative services fees 911,928
- ------------------------------------------------------------
Custodian fees 30,729
- ------------------------------------------------------------
Distribution fees -- Series II 29,693
- ------------------------------------------------------------
Transfer agent fees 21,499
- ------------------------------------------------------------
Trustees' fees and retirement benefits 21,067
- ------------------------------------------------------------
Other 97,086
============================================================
Total expenses 3,540,390
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (1,756)
============================================================
Net expenses 3,538,634
============================================================
Net investment income (loss) (179,926)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 34,312,412
- ------------------------------------------------------------
Option contracts written 202,375
============================================================
34,514,787
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (5,082,670)
- ------------------------------------------------------------
Foreign currencies 11
============================================================
(5,082,659)
============================================================
Net gain from investment securities, foreign
currencies and option contracts 29,432,128
============================================================
Net increase in net assets resulting from
operations $29,252,202
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (179,926) $ (486,112)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 34,514,787 (4,198,771)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (5,082,659) 102,214,600
==========================================================================================
Net increase in net assets resulting from operations 29,252,202 97,529,717
==========================================================================================
Share transactions-net:
Series I (55,702,056) (64,742,379)
- ------------------------------------------------------------------------------------------
Series II 2,385,025 5,557,072
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (53,317,031) (59,185,307)
==========================================================================================
Net increase (decrease) in net assets (24,064,829) 38,344,410
==========================================================================================
NET ASSETS:
Beginning of year 402,336,311 363,991,901
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(75,266) and $(71,307), respectively) $378,271,482 $402,336,311
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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.
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 advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short
AIM V.I. GROWTH FUND
sales; (v) extraordinary items (these are expenses that are not anticipated to
arise from the Fund's day-to-day operations), or items designated as such by the
Fund's Board of Trustees; (vi) expenses related to a merger or reorganization,
as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $1,483.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $271 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$911,928, of which AIM retained $98,297 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $21,499.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $29,693.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,393,449 $ 69,051,555 $ (71,224,441) $ -- $2,220,563 $32,925 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,393,449 69,051,555 (71,224,441) -- 2,220,563 32,449 --
==================================================================================================================================
Total $8,786,898 $138,103,110 $(142,448,882) $ -- $4,441,126 $65,374 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $2 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $2.
AIM V.I. GROWTH FUND
NOTE 5--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $10,803,473 and $2,496,705,
respectively.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $3,520
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 672 230,482
- ------------------------------------------------------------------------------------
Closed (72) (122,444)
- ------------------------------------------------------------------------------------
Expired (600) (108,038)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
AIM V.I. GROWTH FUND
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 83,962,469
- -----------------------------------------------------------------------------
Temporary book/tax differences (82,466)
- -----------------------------------------------------------------------------
Capital loss carryforward (429,145,404)
- -----------------------------------------------------------------------------
Shares of beneficial interest 723,536,883
=============================================================================
Total net assets $ 378,271,482
_____________________________________________________________________________
=============================================================================
</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 losses on
wash sales and other tax deferrals. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation on foreign currencies
of $28.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $427,958,083 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund utilized $30,838,198 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $299,869,553
- -----------------------------------------------------------------------------
December 31, 2010 103,262,179
- -----------------------------------------------------------------------------
December 31, 2011 26,013,672
=============================================================================
Total capital loss carryforward $429,145,404
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of April 30, 2004, the date of the
reorganization of INVESCO VIF-Growth Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $316,237,039 and $369,268,747, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $85,133,126
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,170,685)
===============================================================================
Net unrealized appreciation of investment securities $83,962,441
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $296,828,957.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses on
December 31, 2004, undistributed net investment income (loss) was increased by
$176,132, undistributed net realized gain (loss) was increased by $3,374,294 and
shares of beneficial interest decreased by $3,550,426. Further, as a result of
tax deferrals acquired in the reorganization of INVESCO VIF-Growth Fund into the
Fund, undistributed net investment income (loss) was decreased by $165,
undistributed net realized gain (loss) was decreased by $5,101,442 and shares of
beneficial interest increased by $5,101,607. These reclassifications had no
effect on the net assets of the Fund.
AIM V.I. GROWTH FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,624,088 $ 39,797,986 5,011,173 $ 64,150,735
- -------------------------------------------------------------------------------------------------------------------------
Series II 417,397 6,230,930 572,562 7,394,324
=========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 451,258 6,684,290 -- --
=========================================================================================================================
Reacquired:
Series I (6,809,056) (102,184,332) (10,506,555) (128,893,114)
- -------------------------------------------------------------------------------------------------------------------------
Series II (255,813) (3,845,905) (150,413) (1,837,252)
=========================================================================================================================
(3,572,126) $ (53,317,031) (5,073,233) $ (59,185,307)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are six entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate the own 70% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
(b) As of the opening of business on April 30, 2004, the Fund acquired all of
the net assets of INVESCO VIF-Growth Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on December 9, 2003 and
INVESCO VIF-Growth Fund shareholders on April 2, 2004. The acquisition was
accomplished by a tax-free exchange of 451,258 shares of the Fund for
1,093,801 shares of INVESCO VIF-Growth Fund outstanding as of the close of
business April 29, 2004. INVESCO VIF-Growth Fund's net assets at that date
of $6,684,290 including $435,251 of unrealized appreciation were combined
with those of the Fund. The aggregate net assets of the Fund immediately
before the acquisition were $388,609,444.
AIM V.I. GROWTH 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,
----------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.83 $ 11.30 $ 16.37 $ 24.81 $ 32.25
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02) (0.03)(b) (0.03)(b) 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.23 3.55 (5.04) (8.37) (6.60)
==============================================================================================================================
Total from investment operations 1.22 3.53 (5.07) (8.40) (6.57)
==============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.04) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.87)
==============================================================================================================================
Total distributions -- -- -- (0.04) (0.87)
==============================================================================================================================
Net asset value, end of period $ 16.05 $ 14.83 $ 11.30 $ 16.37 $ 24.81
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) 8.23% 31.24% (30.97)% (33.86)% (20.49)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $365,108 $392,533 $361,259 $601,648 $879,182
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 0.91%(d) 0.89% 0.91% 0.88% 0.83%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.04)%(a)(d) (0.13)% (0.21)% (0.17)% 0.11%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 88% 101% 195% 239% 162%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.03) and (0.14)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $372,021,041.
AIM V.I. GROWTH FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------- DECEMBER 31,
2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.75 $11.27 $ 16.36 $14.67
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.03) (0.06)(b) (0.02)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.22 3.51 (5.03) 1.75
=============================================================================================================================
Total from investment operations 1.18 3.48 (5.09) 1.73
=============================================================================================================================
Less dividends from net investment income -- -- -- (0.04)
=============================================================================================================================
Net asset value, end of period $ 15.93 $14.75 $ 11.27 $16.36
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 8.00% 30.88% (31.11)% 11.79%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,163 $9,803 $ 2,733 $ 604
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.16%(d) 1.14% 1.16% 1.17%(e)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.29)%(a)(d) (0.38)% (0.46)% (0.46)%(e)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(f) 88% 101% 195% 239%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.06) and (0.39)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $11,877,028.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
AIM V.I. GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of
AIM V.I. GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund as of December 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the years or periods
in the five year period then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. GROWTH FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Growth Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 12, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- -----------------------------------------------------------------------------------------------
(1)* Bob R. Baker................................................ 485,251,764 20,583,220
Frank S. Bayley............................................. 485,193,740 20,641,244
James T. Bunch.............................................. 485,846,832 19,988,152
Bruce L. Crockett........................................... 485,356,560 20,478,424
Albert R. Dowden............................................ 485,381,238 20,453,746
Edward K. Dunn, Jr.......................................... 484,642,618 21,192,366
Jack M. Fields.............................................. 485,417,523 20,417,461
Carl Frischling............................................. 484,781,819 21,053,165
Robert H. Graham............................................ 485,247,575 20,587,409
Gerald J. Lewis............................................. 484,388,317 21,446,667
Prema Mathai-Davis.......................................... 484,212,736 21,622,248
Lewis F. Pennock............................................ 485,257,174 20,577,810
Ruth H. Quigley............................................. 483,391,857 22,443,127
Louis S. Sklar.............................................. 484,592,297 21,242,687
Larry Soll, Ph.D. .......................................... 484,654,198 21,180,786
Mark H. Williamson.......................................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. GROWTH FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
AIM V.I. GROWTH FUND
AIM V.I. HIGH YIELD FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. HIGH YIELD FUND seeks to
provide a high level of current income.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. HIGH YIELD FUND
For the second consecutive year, high portfolio gave the fund a competitive economic growth and improved
yield bonds produced positive total edge compared to its peer group. fundamentals, in the form of improved
returns for shareholders. It was also balance sheets and cash flow generation,
the second year in a row that the asset HOW WE INVEST created the framework for this year's
class outperformed nearly all performance.
fixed-income groups. Given the sometimes volatile nature of
high yield companies, risk control Although short-term interest rates
======================================= measures prove important when managing rose during 2004--the Federal Reserve
FUND VS. INDEXES high yield funds. We manage risk in the raised the federal funds rate five
portfolio through a set of internal risk times--the long-end of the yield curve
TOTAL RETURNS, 12/31/03-12/31/04, parameters or controls. For instance, we actually declined. The yield on the
EXCLUDING VARIABLE PRODUCT ISSUER hold a large number of securities in the 10-year Treasury, for example, was lower
CHARGES. IF VARIABLE PRODUCT ISSUER portfolio, limit issuer size and spread at the end of 2004 than at the end of
CHARGES WERE INCLUDED, RETURNS WOULD assets across a variety of industries. 2003. High yield spreads--the difference
BE LOWER. We believe these factors help minimize between yields on high yield bonds and
issuer specific risk. We also take comparable Treasuries--tightened more
Series I Shares 11.25% credit cycles and economic factors into than 100 basis points (100 basis points
consideration so we can adapt the = 1%) during the year. At year-end, the
Series II Shares 11.14 portfolio to take advantage of changing spread-to-Treasuries had narrowed to
market environments. approximately 320 basis points--a level
Lehman U.S. Aggregate Bond not seen since 1998.
Index (Broad Market Index) 4.34 Security selection is based on
fundamental analysis conducted by our Given the interest rate environment,
Lehman High Yield Index team of research analysts. This yields on most high yield investments,
(Style-specific Index) 11.13 bottom-up investment approach is then including high yield mutual funds,
augmented by an ongoing review of declined. AIM V.I. High Yield Fund was
Lipper High Yield Bond Fund securities' relative value. not immune to this trend and also
Index (Peer Group Index) 10.34 witnessed a drop in yield during the
MARKET CONDITIONS AND YOUR FUND year.
Source: Lipper, Inc.
======================================= After a few missteps in the first half Yields and bond prices share an
of the year--high yield bonds sold off inverse relationship, however, so lower
As illustrated by the table above, in February, March and May--the high yields mean higher bond prices. A number
AIM V.I. High Yield Fund outperformed or yield market staged a seven-month rally of investments in the fund witnessed
tracked all benchmark indexes during the to end the year with a double-digit significant price appreciation, many
fiscal year. We attribute the fund's gain. Low volatility, continued after recovering from distressed
strong comparative performance to situations. Adelphia Communications, a
several factors. High yield markets large U.S. cable television company
outperformed investment grade markets plagued by scandal, staged its recovery
during the fiscal year (the Lehman U.S. as more market participants began to
Aggregate Bond Index is comprised of realize the value of cable investments.
investment grade bonds). Additionally, Mission Energy Holdings fell on hard
strong credit selection and a times but
well-diversified
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 ISSUERS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By credit quality rating 1. Adelphia Communications Corp. 2.2% 1. Broadcasting & Cable TV 7.6%
1. BBB% 0.3% 2. NTELOS Inc. 1.7 2. Wireless Telecommunication
2. BB% 22.9 3. Calpine Corp. 1.7 Services 6.7
3. B% 50.8 4. Owens-Brockway Glass Container Inc. 1.4 3. Multi-Utilities & Unregulated
4. CCC% 9.4 5. Grupo Transportacion Power 6.6
5. CC% 0.1 Ferroviaria Mexicana, S.A. de C.V. 4. Integrated Telecommunication
6. NR% 3.7 (Mexico) 1.2 Services 5.8
7. Equity 3.7 6. Host Marriott L.P. 1.1 5. Metal & Glass Containers 4.2
Money Market Funds Plus 7. Midwest Generation, LLC 1.1 6. Electric Utilities 3.5
Other Assets Less Liabilities 9.1 8. Reliant Energy Inc. 1.0 7. Health Care Facilities 3.5
9. Jean Coutu Group (PJC) Inc. 8. Specialty Chemicals 2.7
Sources for credit quality rating: (The)(Canada) 1.0 9. Casinos & Gaming 2.6
Moody's and Standard & Poor's. 10. Qwest Capital Funding, Inc. 1.0 10. Paper Products 2.5
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
<Caption>
AIM V.I. HIGH YIELD FUND
recovered as the company's earnings and Aside from the market downturn in The views and opinions expressed in
ability to generate proceeds from asset May, little detracted from the fund's Management's Discussion of Fund
sales surprised many investors. performance during the year. A few Performance are those of A I M Advisors,
issues did prove a drag on performance Inc. These views and opinions are
Across industries and sectors there including Delta Airlines, Pegasus subject to change at any time based on
was not much return dispersion or Communications and aaiPharma. Pegasus factors such as market and economic
volatility as the overwhelming majority filed bankruptcy after DirectTV conditions. These views and opinions may
of sectors provided high single-digit or announced plans to terminate its not be relied upon as investment advice
low double-digit returns. Therefore, relationship with the broadcast or recommendations, or as an offer for a
credit selection was critical to satellite provider. We have particular security. The information is
performance during the year. Given our substantially reduced our position in not a complete analysis of every aspect
bottom-up investment strategy and Pegasus. Both Delta and aaiPharma were of any market, country, industry,
dedicated team of research analysts, close to filing bankruptcy. As we security or the fund. Statements of fact
this environment favored the fund. believed these positions posed material are from sources considered reliable,
downside risks, we sold them both. but A I M Advisors, Inc. makes no
On a credit-quality basis, representation or warranty as to their
lower-credit quality tiers easily IN CLOSING completeness or accuracy. Although
outdistanced the highest rated high historical performance is no guarantee
yield category, BB-rated bonds. Market During 2004, high yield bond performance of future results, these insights may
momentum and a fourth-quarter rally was supported by continued improvement help you understand our investment
pushed CCC-rated securities to the in market fundamentals. It was a year management philosophy.
performance lead for the year. While the that default rates fell precipitously
fund had decreased exposure to this and the upgrade/downgrade ratio--a PETER EHRET,
credit category, enough exposure measure of the number of issues that Chartered Financial
remained for the fund to benefit from were upgraded compared to the number of [EHRET Analyst, senior
this trend. issues that were downgraded--markedly PHOTO] portfolio manager,
increased. The balance of rising stars is co-manager of AIM
During the fiscal year, we reduced (issues upgraded to investment grade) to V.I. High Yield
some of the fund's exposure to risk. In fallen angels also continued to improve. Fund. Mr. Ehret joined AIM in 2001. He
2003, we believed investors were being graduated cum laude with a B.S. in
paid to take more risk; in 2004 however, High yield investors will remember economics from the University of
our sentiment changed. We began to look 2004 as a good encore to 2003's strong Minnesota. He also has an M.S. in real
for opportunities to sell some lower performance. We are pleased to report estate appraisal and investment analysis
quality paper as we felt valuations for these trends and to provide our from the University of Wisconsin-Madison.
those issues had become less attractive. shareholders strong absolute and
We are also cautious of our BB-rated relative fund returns for the fiscal CAROLYN GIBBS,
exposure as this credit category is more year. Chartered Financial
correlated with Treasury yields and [GIBBS Analyst, senior
therefore carries more interest rate PHOTO] portfolio manager,
risk. The B-rated area of the market is co-manager of AIM
remains our focus. V.I. High Yield
Fund. Ms. Gibbs has been in the
investment business since 1983. She is a
PRINCIPAL RISKS OF INVESTING IN THE FUND Phi Beta Kappa graduate from Texas
Christian University, where she received
The fund invests in higher-yielding, lower-rated corporate bonds, commonly known a B.A. in English. She also received an
as junk bonds, which have a greater risk of price fluctuation and loss of M.B.A. in finance from The Wharton
principal and income than do U.S. government securities such as U.S. Treasury School at the University of Pennsylvania.
bills, notes and bonds, for which principal and any applicable interest are
guaranteed by the government if held to maturity. Assisted by High Yield Taxable Team
U.S. Treasury securities such as bills, notes and bonds offer a high degree
of safety, and they guarantee the payment of principal and any applicable
interest if held to maturity. Fund shares are not insured, and their value and
yield will vary with market conditions.
The fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
fluctuations in the value of the U.S. dollar relative to the values of other
currencies, the custody arrangements made for the fund's foreign holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies.
Portfolio turnover is greater than that of most funds, which may affect
performance.
======================================================================================
TOTAL NET ASSETS $97.7 million
TOTAL NUMBER OF HOLDINGS* 302
====================================================================================== [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
<Caption>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. HIGH YIELD FUND
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's actual
ongoing costs, including management about actual account values and actual return. The hypothetical account values
fees; distribution and/or service fees expenses. You may use the information in and expenses may not be used to estimate
(12b-1); and other fund expenses. This this table, together with the amount you your actual ending account balance or
example is intended to help you invested, to estimate the expenses that expenses you paid for the period. You
understand your ongoing costs (in you paid over the period. Simply divide may use this information to compare the
dollars) of investing in the fund and to your account value by $1,000 (for ongoing costs of investing in the fund
compare these costs with ongoing costs example, an $8,600 account value divided and other funds. To do so, compare this
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the 5% hypothetical example with the 5%
example is based on an investment of result by the number in the table under hypothetical examples that appear in the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses shareholder reports of the other funds.
period and held for the entire period, Paid During Period" to estimate the
July 1, 2004-December 31, 2004. expenses you paid on your account during Please note that the expenses shown
this period. in the table are meant to highlight your
The actual and hypothetical expenses ongoing costs only. Therefore, the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
the effect of any fees or other expenses COMPARISON PURPOSES comparing ongoing costs only, and will
assessed in connection with a variable not help you determine the relative
product; if they did, the expenses shown The table below also provides total costs of owning different funds.
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,094.20 $5.26 $1,020.11 $5.08
Series II 1,000.00 1,094.80 6.27 1,019.15 6.04
(1)The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 9.42% and 9.48% for Series I and Series II shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.00% and 1.19% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
<Caption>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. HIGH YIELD FUND
Past performance cannot guarantee =====================================================================================
comparable future results. RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 5/1/98-12/31/04 Index results from 4/30/98
that the chart uses a logarithmic scale
along the vertical axis (the value [MOUNTAIN CHART]
scale). This means that each scale
increment always represents the same LEHMAN U.S.
percent change in price; in a linear DATE AIM V.I. HIGH YIELD LIPPER HIGH YIELD AGGREGATE LEHMAN HIGH
chart each scale increment always FUND-SERIES I BOND FUND INDEX BOND INDEX YIELD INDEX
represents the same absolute change in
price. In this example, the scale 4/30/98 $10000 $10000 $10000 $10000
increment between $5,000 and $10,000 is 6/98 10050 10006 10180 10071
the same as that between $10,000 and 9/98 9129 9251 10611 9613
$20,000. In a linear chart, the latter 12/98 9239 9542 10647 9817
scale increment would be twice as large. 3/99 9584 9847 10594 9999
The benefit of using a logarithmic scale 6/99 9803 9911 10501 10033
is that it better illustrates 9/99 9720 9737 10572 9890
performance during the early years 12/99 10211 9999 10559 10052
depicted in the chart before reinvested 3/00 10211 9847 10792 9817
distributions and compounding create the 6/00 9883 9807 10980 9930
potential for the original investment to 9/00 9622 9731 11311 9986
grow to very large numbers. Had the 12/00 8270 9028 11787 9463
chart used a linear scale along its 3/01 8479 9337 12145 10065
vertical axis, you would not be able to 6/01 7933 9040 12213 9834
see as clearly the movements in the 9/01 7334 8488 12776 9418
value of the fund and the indexes during 12/01 7858 8934 12782 9962
the early years depicted. We use a 3/02 7784 8971 12794 10130
logarithmic scale in financial reports 6/02 7311 8469 13267 9480
of funds that have more than five years 9/02 7045 8216 13874 9202
of performance history. 12/02 7400 8719 14093 9822
3/03 7829 9256 14289 10570
======================================= 6/03 8584 10091 14646 11638
AVERAGE ANNUAL TOTAL RETURNS 9/03 8851 10394 14625 11961
As of 12/31/04 12/03 9473 11017 14671 12668
3/04 9647 11214 15061 12965
SERIES I SHARES 6/04 9631 11170 14693 12840
Inception (5/1/98) 0.79% 9/04 10059 11602 15163 13462
5 Years 0.63 12/04 $10539 $12156 $15308 $14078
1 Year 11.25
Source: Lipper, Inc.
SERIES II SHARES =====================================================================================
Inception 0.58%
5 Years 0.43 comparable future results; current The unmanaged Lehman High Yield
1 Year 11.14 performance may be lower or higher. Index, which represents the performance
======================================= Please contact your variable product of high-yield debt securities, is
issuer or financial advisor for the most compiled by Lehman Brothers, a global
Returns since the inception date of recent month-end variable product investment bank.
Series II shares are historical. All performance. Performance figures reflect
other returns are the blended returns of fund expenses, reinvested distributions The fund is not managed to track the
the historical performance of the fund's and changes in net asset value. performance of any particular index,
Series II shares since their inception Investment return and principal value including the indexes defined here, and
and the restated historical performance will fluctuate so that you may have a consequently, the performance of the
of the fund's Series I shares (for gain or loss when you sell shares. fund may deviate significantly from the
periods prior to inception of the Series performance of the indexes.
II shares) adjusted to reflect the AIM V.I. High Yield Fund, a series
higher Rule 12b-1 fees applicable to the portfolio of AIM Variable Insurance A direct investment cannot be made
Series II shares. The inception date of Funds, is currently offered through in an index. Unless otherwise indicated,
the fund's Series I shares is 5/1/98. insurance companies issuing variable index results include reinvested
The inception date of the fund's Series products. You cannot purchase shares of dividends, and they do not reflect sales
II shares is 3/26/02. The Series I and the fund directly. Performance figures charges. Performance of an index of
Series II shares invest in the same given represent the fund and are not funds reflects fund expenses;
portfolio of securities and will have intended to reflect actual variable performance of a market index does not.
substantially similar performance, product values. They do not reflect
except to the extent that expenses borne sales charges, expenses and fees OTHER INFORMATION
by each class differ. assessed in connection with a variable
product. Sales charges, expenses and The returns shown in the Management's
The performance data quoted represent fees, which are determined by the Discussion of Fund Performance are based
past performance and cannot guarantee variable product issuers, will vary and on net asset values calculated for
will lower the total return.* Please shareholder transactions. Generally
contact the product issuer or your accepted accounting principles require
financial advisor for the most recent adjustments to be made to the net assets
month end performance. of the fund at period end for financial
reporting purposes, and as such, the net
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder
transactions and the returns based on
The unmanaged Lehman U.S. Aggregate Bond those net asset values may differ from
Index, which represents the U.S. the net asset values and returns
investment-grade fixed-rate bond market reported in the Financial Highlights.
(including government and corporate
securities, mortgage pass-through Industry classifications used in this
securities and asset-backed securities), report are generally according to the
is compiled by Lehman Brothers, a global Global Industry Classification Standard,
investment bank. which was developed by and is the
exclusive property and a service mark of
The unmanaged Lipper High Yield Bond Morgan Stanley Capital International
Fund Index represents an average of the Inc. and Standard & Poor's.
30 largest high-yield bond funds tracked
by Lipper, Inc., an independent mutual The average credit quality of the
fund performance monitor. fund's holdings as of the close of the
reporting period represents the weighted
average quality rating of the securities
in the portfolio as assigned by
Nationally Recognized Statistical Rating
Organizations based on assessment of the
credit quality of the individual
securities.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIHYI-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
BONDS & NOTES-86.43%
ADVERTISING-0.43%
Dex Media Inc., Unsec Disc. Global Notes,
9.00%, 11/15/13(a)(b) $ 200,000 $ 157,500
- -----------------------------------------------------------------------
Dex Media West LLC/Dex Media Finance Co., Sr.
Notes, 5.88%, 11/15/11 (Acquired 11/09/04;
Cost $260,000)(a)(c)(d) 260,000 260,000
=======================================================================
417,500
=======================================================================
AEROSPACE & DEFENSE-1.85%
Argo-Tech Corp., Sr. Unsec. Gtd. Global
Notes, 9.25%, 06/01/11(a) 440,000 485,100
- -----------------------------------------------------------------------
Armor Holdings, Inc., Sr. Sub. Global Notes,
8.25%, 08/15/13(a) 200,000 225,000
- -----------------------------------------------------------------------
Bombardier Recreational Products Inc.
(Canada), Sr. Sub. Global Notes, 8.38%,
12/15/13(a) 70,000 75,250
- -----------------------------------------------------------------------
DRS Technologies Inc.,
Sr. Sub. Notes,
6.88%, 11/01/13 (Acquired 12/15/04; Cost
$73,500)()(a)(c)(d) 70,000 73,500
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 6.88%,
11/01/13(a) 160,000 168,000
- -----------------------------------------------------------------------
K & F Acquisition Inc., Sr. Sub. Notes,
7.75%, 11/15/14 (Acquired 11/05/04; Cost
$70,000)(a)(c)(d) 70,000 72,625
- -----------------------------------------------------------------------
L-3 Communications Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 6.13%, 01/15/14(a) 495,000 512,325
- -----------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11(a) 80,000 90,200
- -----------------------------------------------------------------------
Standard Aero Holdings, Inc. Sr. Sub. Notes,
8.25%, 09/01/14 (Acquired 08/17/04; Cost
$100,000)(a)(c) 100,000 108,500
=======================================================================
1,810,500
=======================================================================
AIR FREIGHT & LOGISTICS-0.29%
Park-Ohio Industries Inc., Sr. Sub. Notes,
8.38%, 11/15/14 (Acquired
11/19/04-12/07/04; Cost $280,875)(a)(c)(d) 280,000 280,700
=======================================================================
AIRLINES-1.02%
Continental Airlines, Inc., Notes, 8.00%,
12/15/05(a) 370,000 367,225
- -----------------------------------------------------------------------
Northwest Airlines Inc., Sr. Unsec. Gtd.
Notes, 8.88%, 06/01/06(a) 650,000 627,250
=======================================================================
994,475
=======================================================================
ALUMINUM-0.14%
Century Aluminum Co., Sr. Unsec. Gtd. Notes,
7.50%, 08/15/14 (Acquired 08/10/04; Cost
$130,000)(a)(c) 130,000 139,100
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS-0.26%
Warnaco Inc., Sr. Unsec. Global Notes, 8.88%,
06/15/13(a) 235,000 259,675
=======================================================================
AUTO PARTS & EQUIPMENT-1.35%
Autocam Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 10.88%, 06/15/14(a) $ 115,000 $ 115,000
- -----------------------------------------------------------------------
Collins & Aikman Products Corp., Sr. Unsec.
Gtd. Global Notes, 10.75%, 12/31/11(a) 155,000 158,875
- -----------------------------------------------------------------------
Delco Remy International, Inc., Sr. Sec.
Floating Rate Global Notes, 6.07%,
04/15/09(a)(e) 130,000 132,600
- -----------------------------------------------------------------------
Metaldyne Corp., Sr. Unsec. Gtd. Notes,
10.00%, 11/01/13 (Acquired
10/20/03-09/23/04; Cost $276,000)(a)(c) 280,000 263,900
- -----------------------------------------------------------------------
R.J. Tower Corp., Sr. Unsec. Gtd. Global
Notes, 12.00%, 06/01/13(a) 340,000 265,200
- -----------------------------------------------------------------------
Tenneco Automotive Inc.-Series B, Sr. Sec.
Second Lien Global Notes, 10.25%,
07/15/13(a) 80,000 94,800
- -----------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13(a) 249,000 290,085
=======================================================================
1,320,460
=======================================================================
BROADCASTING & CABLE TV-7.59%
Adelphia Communications Corp.,
Sr. Unsec. Notes,
9.50%, 03/01/05(a)(f) 850,000 1,032,750
- -----------------------------------------------------------------------
10.88%, 10/01/10(a)(f) 1,030,000 1,019,700
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(a)(f) 140,000 136,500
- -----------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12(a) 385,000 401,362
- -----------------------------------------------------------------------
Cablevision Systems Corp.-New York Group, Sr.
Floating Rate Notes, 6.67%, 04/01/09
(Acquired 03/30/04; Cost $515,000)(a)(c)(g) 515,000 551,050
- -----------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Global Notes, 11.13%,
01/15/11(a) 435,000 395,306
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 9.92%, 04/01/11(a) 200,000 171,250
- -----------------------------------------------------------------------
Charter Communications Operating, LLC/Charter
Communications Operating Capital Corp., Sr.
Second Lien Notes, 8.00%, 04/30/12
(Acquired 05/11/04-07/09/04; Cost
$514,113)(a)(c) 530,000 555,175
- -----------------------------------------------------------------------
CSC Holdings Inc.-Series B, Sr. Unsec. Unsub.
Notes, 7.63%, 04/01/11(a) 395,000 427,587
- -----------------------------------------------------------------------
EchoStar DBS Corp., Sr. Unsec. Gtd. Global
Notes, 5.75%, 10/01/08(a) 590,000 601,800
- -----------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sec. Global
Notes, 9.75%, 12/01/10(a) 250,000 240,625
- -----------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 05/15/03-12/02/04; Cost
$325,574)(a)(c) 336,877 325,928
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05(a)(d)(f) $ 390,000 $ 248,625
- -----------------------------------------------------------------------
Rainbow National Services LLC, Sr. Notes,
8.75%, 09/01/12 (Acquired 08/13/04; Cost
$323,125)(a)(c) 325,000 357,500
- -----------------------------------------------------------------------
Rogers Cable Inc. (Canada), Sr. Sec. Second
Priority Notes, 6.75%, 03/15/15 (Acquired
11/19/04; Cost $35,000)(a)(c)(d) 35,000 35,744
- -----------------------------------------------------------------------
Rogers Wireless Communications Inc. (Canada),
Sr. Sec. Notes, 7.25%, 12/15/12 (Acquired
11/19/04; Cost $175,000)(a)(c)(d) 175,000 185,937
- -----------------------------------------------------------------------
Videotron Ltee (Canada), Sr. Notes, 6.88%,
01/15/14 (Acquired 11/15/04; Cost
$220,500)(a)(c)(d) 210,000 218,400
- -----------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Global
Notes, 12.00%, 06/15/10(a) 429,000 509,437
=======================================================================
7,414,676
=======================================================================
BUILDING PRODUCTS-0.85%
Building Materials Corp. of America,
Sr. Unsec. Gtd. Notes, 8.00%, 12/01/08(a) 390,000 402,675
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 7.75%,
07/15/05(a) 280,000 286,300
- -----------------------------------------------------------------------
THL Buildco Inc. (Nortek Inc.), Sr. Sub.
Notes, 8.50%, 09/01/14 (Acquired 08/12/04;
Cost $130,000)(a)(c) 130,000 136,500()
=======================================================================
825,475
=======================================================================
CASINOS & GAMING-2.56%
Aztar Corp., Sr. Sub. Global Notes, 7.88%,
06/15/14(a) 240,000 265,800
- -----------------------------------------------------------------------
Boyd Gaming Corp., Sr. Sub. Global Notes,
6.75%, 04/15/14(a) 400,000 423,000
- -----------------------------------------------------------------------
Herbst Gaming, Inc., Sr. Sub. Global Notes,
8.13%, 06/01/12(a) 115,000 123,912
- -----------------------------------------------------------------------
Isle of Capri Casinos, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 7.00%, 03/01/14(a) 760,000 784,700
- -----------------------------------------------------------------------
Pinnacle Entertainment, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 03/15/12(a) 455,000 485,712
- -----------------------------------------------------------------------
Poster Financial Group Inc., Sr. Sec. Global
Notes, 8.75%, 12/01/11(a) 130,000 134,550
- -----------------------------------------------------------------------
Seneca Gaming Corp., Sr. Global Notes, 7.25%,
05/01/12(a) 195,000 207,187
- -----------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10(a) 70,000 80,500
=======================================================================
2,505,361
=======================================================================
COMMODITY CHEMICALS-1.58%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08(a) 685,000 792,887
- -----------------------------------------------------------------------
Millennium America Inc., Sr. Unsec. Gtd.
Global Notes, 9.25%, 06/15/08(a) 652,000 748,170
=======================================================================
1,541,057
=======================================================================
COMMUNICATIONS EQUIPMENT-1.02%
Lucent Technologies Inc., Unsec. Unsub.
Global Deb., 6.45%, 03/15/29(a) 465,000 425,475
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nortel Networks Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06(a) $ 350,000 $ 357,875
- -----------------------------------------------------------------------
Superior Essex Communications LLC/Essex Group
Inc., Sr. Global Notes, 9.00%, 04/15/12(a) 205,000 213,200
=======================================================================
996,550
=======================================================================
CONSTRUCTION & ENGINEERING-0.40%
Great Lakes Dredge & Dock Co., Sr. Unsec.
Gtd. Sub. Global Notes, 7.75%, 12/15/13(a) 425,000 391,000
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.26%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03-08/18/03; Cost
$498,815)(a)(c) 505,000 565,600
- -----------------------------------------------------------------------
Navistar International Corp., Sr. Notes,
7.50%, 06/15/11(a) 55,000 59,262
- -----------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11(a) 590,000 665,225
- -----------------------------------------------------------------------
Trinity Industries, Inc., Sr. Global Notes,
6.50%, 03/15/14(a) 530,000 534,637
- -----------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13(a) 365,000 385,075
=======================================================================
2,209,799
=======================================================================
CONSTRUCTION MATERIALS-0.55%
Goodman Global Holding Co.,
Inc., Sr. Floating Rate Notes, 5.76%,
06/15/12 (Acquired 12/15/04; Cost
$15,000)(a)(c)(d)(g) 15,000 15,300
- -----------------------------------------------------------------------
Inc., Sr. Sub. Notes, 7.88%, 12/15/12
(Acquired 12/15/04; Cost $70,000)(a)(c)(d) 70,000 69,650
- -----------------------------------------------------------------------
RMCC Acquisition Co., Sr. Sub. Notes, 9.50%,
11/01/12 (Acquired 10/28/04; Cost
$205,000)(a)(c)(d) 205,000 205,000
- -----------------------------------------------------------------------
U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 8.38%, 04/01/14(a) 225,000 243,562
=======================================================================
533,512
=======================================================================
CONSUMER FINANCE-0.87%
Dollar Financial Group Inc., Sr. Gtd. Global
Notes, 9.75%, 11/15/11(a) 780,000 852,150
=======================================================================
DISTILLERS & VINTNERS-0.28%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) 250,000 274,375
=======================================================================
DIVERSIFIED CHEMICALS-0.31%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09(a) 165,000 191,400
- -----------------------------------------------------------------------
Innophos Inc., Sr. Sub. Notes, 8.88%,
08/15/14 (Acquired 08/03/04; Cost
$100,000)(a)(c) 100,000 108,500
=======================================================================
299,900
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.47%
Cornell Cos., Inc., Sr. Unsec. Gtd. Global
Notes, 10.75%, 07/01/12(a) 240,000 261,000
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Geo Group Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13(a) $ 180,000 $ 193,500
=======================================================================
454,500
=======================================================================
DIVERSIFIED METALS & MINING-0.14%
Massey Energy Co., Sr. Global Notes, 6.63%,
11/15/10(a) 130,000 135,200
=======================================================================
DRUG RETAIL-1.03%
Jean Coutu Group (PJC) Inc. (The) (Canada),
Sr. Notes, 7.63%, 08/01/12 (Acquired
07/20/04; Cost $485,000)(a)(c) 485,000 515,919
- -----------------------------------------------------------------------
Sr. Sub. Notes, 8.50%, 08/01/14 (Acquired
09/16/04-09/17/04; Cost $475,506)(a)(c)(d) 475,000 490,437
=======================================================================
1,006,356
=======================================================================
ELECTRIC UTILITIES-3.48%
Allegheny Energy Supply Co., LLC, Unsec.
Global Notes, 7.80%, 03/15/11(a) 330,000 362,587
- -----------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%,
01/15/14(a) 271,920 279,324
- -----------------------------------------------------------------------
Midwest Generation, LLC,
Sr. Sec. Second Priority Global Notes,
8.75%, 05/01/34(a) 330,000 376,200
- -----------------------------------------------------------------------
Series B., Global Asset-Backed Pass Through
Ctfs., 8.56%, 01/02/16(a) 635,000 714,375
- -----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(a) 705,000 883,012
- -----------------------------------------------------------------------
NRG Energy, Inc., Sr. Sec. Gtd. Second
Priority Notes, 8.00%, 12/15/13 (Acquired
12/17/03-04/12/04; Cost $725,950)(a)(c) 720,000 788,400
=======================================================================
3,403,898
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.61%
Celestica Inc. (Canada), Sr. Sub. Notes,
7.88%, 07/01/11(a) 95,000 102,362
- -----------------------------------------------------------------------
Flextronics International Ltd. (Singapore),
Sr. Sub. Global Notes, 6.50%, 05/15/13(a) 345,000 355,350
- -----------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Sec. Gtd. Global
Notes, 10.38%, 01/15/10(a) 120,000 139,200
=======================================================================
596,912
=======================================================================
ENVIRONMENTAL SERVICES-0.53%
Allied Waste North America, Inc.-Series B,
Sr. Sec. Gtd. Global Notes, 8.50%,
12/01/08(a) 490,000 521,850
=======================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.30%
IMC Global Inc.,
Sr. Unsec. Global Notes, 10.88%,
08/01/13(a) 225,000 282,375
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes,
10.88%, 06/01/08(a) 7,000 8,435
=======================================================================
290,810
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
FOOD RETAIL-0.15%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10(a) $ 125,000 $ 142,187
=======================================================================
FOREST PRODUCTS-0.45%
Ainsworth Lumber Co. Ltd. (Canada),
Sr. Unsec. Yankee Notes,
6.75%, 03/15/14(a) 100,000 98,250
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.75%, 03/15/14(a) 235,000 229,712
- -----------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Global Notes, 7.75%, 11/15/13(a) 100,000 107,500
=======================================================================
435,462
=======================================================================
GAS UTILITIES-0.28%
Inergy LP/Inergy Finance Corp., Sr. Notes,
6.88%, 12/15/14 (Acquired 12/17/04; Cost
$100,000)(a)(c)(d) 100,000 101,000
- -----------------------------------------------------------------------
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13(a) 85,000 92,333
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08(a) 75,000 80,625
=======================================================================
273,958
=======================================================================
HEALTH CARE DISTRIBUTORS-0.10%
National Nephrology Associates, Inc., Sr.
Sub. Notes, 9.00%, 11/01/11 (Acquired
10/16/03; Cost $80,000)(a)(c) 80,000 93,000
=======================================================================
HEALTH CARE EQUIPMENT-1.42%
Bio-Rad Laboratories, Inc., Sr. Sub. Notes,
6.13%, 12/15/14 (Acquired 12/13/04; Cost
$140,000)(a)(c)(d) 140,000 141,400
- -----------------------------------------------------------------------
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%,
05/01/12(a) 337,000 377,440
- -----------------------------------------------------------------------
Medex, Inc., Sr. Sub. Global Notes, 8.88%,
05/15/13(a) 275,000 323,125
- -----------------------------------------------------------------------
MedQuest Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.88%, 08/15/12(a) 320,000 377,600
- -----------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09(a) 150,000 165,000
=======================================================================
1,384,565
=======================================================================
HEALTH CARE FACILITIES-3.47%
Alderwoods Group Inc., Sr. Notes, 7.75%,
09/15/12 (Acquired 08/05/04; Cost
$65,000)(a)(c)(d) 65,000 70,444
- -----------------------------------------------------------------------
Ardent Health Services Inc., Sr. Sub. Global
Notes, 10.00%, 08/15/13(a) 50,000 52,750
- -----------------------------------------------------------------------
Beverly Enterprises, Inc., Sr. Sub. Notes,
7.88%, 06/15/14 (Acquired 06/18/04; Cost
$290,038)(a)(c) 295,000 317,862
- -----------------------------------------------------------------------
Concentra Operating Corp., Sr. Unsec. Gtd.
Sub. Notes, 9.13%, 06/01/12 (Acquired
05/25/04; Cost $113,405)(a)(c) 115,000 129,662
- -----------------------------------------------------------------------
Genesis HealthCare Corp., Sr. Sub. Global
Notes, 8.00%, 10/15/13(a) 160,000 174,400
- -----------------------------------------------------------------------
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09(a) 50,000 51,875
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
HCA, Inc., Global Notes,
5.50%, 12/01/09(a) $ 140,000 $ 140,780
- -----------------------------------------------------------------------
6.38%, 01/15/15(a) 70,000 70,458
- -----------------------------------------------------------------------
HEALTHSOUTH Corp., Sr. Unsec. Global Notes,
8.38%, 10/01/11(a) 695,000 719,325
- -----------------------------------------------------------------------
Tenet Healthcare Corp.,
Sr. Notes, 9.88%, 07/01/14
(Acquired 06/15/04; Cost $214,883)(a)(c) 220,000 239,800
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 6.38%, 12/01/11(a) 345,000 322,575
- -----------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Unsec. Sub. Notes,
7.00%, 11/15/13(a) 545,000 558,625
- -----------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11(a) 470,000 538,150
=======================================================================
3,386,706
=======================================================================
HEALTH CARE SERVICES-0.49%
Quintiles Transnational Corp., Sr. Unsec.
Sub. Global Notes, 10.00%, 10/01/13(a) 250,000 281,250
- -----------------------------------------------------------------------
Team Health Inc., Sr. Sub. Global Notes,
9.00%, 04/01/12(a) 200,000 196,500
=======================================================================
477,750
=======================================================================
HEALTH CARE SUPPLIES-0.21%
Inverness Medical Innovations, Inc., Sr. Sub.
Notes, 8.75%, 02/15/12 (Acquired 02/05/04;
Cost $195,000)(a)(c) 195,000 204,750
=======================================================================
HOMEBUILDING-0.57%
Technical Olympic USA, Inc.,
Sr. Sub. Notes, 7.50%, 01/15/15 (Acquired
12/14/04; Cost $140,000)(a)(c)(d) 140,000 141,400
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.00%,
07/01/10(a) 205,000 220,375
- -----------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 02/15/11(a) 170,000 190,400
=======================================================================
552,175
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.25%
Grupo Posadas S.A. de C.V. (Mexico), Sr.
Notes, 8.75%, 10/04/11 (Acquired 09/27/04;
Cost $500,000)(a)(c)(d) 500,000 536,250
- -----------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(a) 400,000 430,000
- -----------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11(a) 250,000 275,000
- -----------------------------------------------------------------------
La Quinta Properties, Inc., Sr. Global Notes,
8.88%, 03/15/11(a) 120,000 134,400
- -----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia),
Sr. Unsec. Global Notes, 8.00%, 05/15/10(a) 70,000 79,450
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11(a) 450,000 534,375
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.88%, 05/01/12(a) 185,000 211,825
=======================================================================
2,201,300
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.06%
Fedders North America Inc., Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/14(a) $ 70,000 $ 57,400
=======================================================================
HOUSEWARES & SPECIALTIES-0.14%
Ames True Temper Inc., Sr. Sub. Global Notes,
10.00%, 07/15/12(a) 135,000 139,050
=======================================================================
INDUSTRIAL CONGLOMERATES-0.29%
Polypore, Inc., Sr. Sub. Global Notes, 8.75%,
05/15/12(a) 270,000 282,150
=======================================================================
INDUSTRIAL MACHINERY-1.51%
Aearo Co. Inc., Sr. Sub. Global Notes, 8.25%,
04/15/12(a) 140,000 144,900
- -----------------------------------------------------------------------
Dresser-Rand Group Inc., Sr. Sub.Notes,
7.38%, 11/01/14 (Acquired 10/14/04; Cost
$475,000)(a)(c)(d) 475,000 486,875
- -----------------------------------------------------------------------
Manitowoc Co., Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12(a) 143,000 165,165
- -----------------------------------------------------------------------
Valmont Industries, Inc., Sr. Gtd. Sub.
Global Notes, 6.88%, 05/01/14(a) 180,000 187,650
- -----------------------------------------------------------------------
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 10/20/03-09/30/04; Cost
$456,738)(a)(c) 495,000 492,525
=======================================================================
1,477,115
=======================================================================
INTEGRATED OIL & GAS-0.64%
Petrobras International Finance Co. (Cayman
Islands), Sr. Unsec. Unsub. Global Notes,
9.13%, 07/02/13(a) 545,000 620,619
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.67%
Citizens Communications Co., Sr. Notes,
6.25%, 01/15/13(a) 205,000 209,266
- -----------------------------------------------------------------------
Embratel Participacoes S.A.-Series B
(Brazil), Gtd. Global Notes, 11.00%,
12/15/08(a) 270,000 309,150
- -----------------------------------------------------------------------
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07(a) 620,000 606,050
- -----------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10(a) 500,000 543,750
- -----------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
7.00%, 08/03/09(a) 650,000 648,375
- -----------------------------------------------------------------------
7.25%, 02/15/11(a) 345,000 338,962
- -----------------------------------------------------------------------
Qwest Communications International Inc., Sr.
Notes,
7.25%, 02/15/11 (Acquired
01/30/04-05/12/04; Cost $564,753)(a)(c) 595,000 617,312
- -----------------------------------------------------------------------
Qwest Corp., Sr. Notes, 7.88%, 09/01/11
(Acquired 11/18/04; Cost $301,000)(a)(c)(d) 280,000 305,200
=======================================================================
3,578,065
=======================================================================
LEISURE FACILITIES-0.56%
Six Flags, Inc. Sr. Global Notes, 9.63%,
06/01/14(a) 200,000 203,500
- -----------------------------------------------------------------------
Universal City Development Partners, Ltd.,
Sr. Global Notes, 11.75%, 04/01/10(a) 170,000 201,025
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
LEISURE FACILITIES-(CONTINUED)
Universal City Florida Holding Co. I/II,
Sr. Floating Rate Notes, 7.20%, 05/01/10
(Acquired 12/02/04; Cost
$70,000)(a)(c)(d)(e) $ 70,000 $ 73,325
- -----------------------------------------------------------------------
Sr. Notes, 8.38%, 05/01/10
(Acquired 12/02/04; Cost $70,000)(a)(c)(d) 70,000 73,325
=======================================================================
551,175
=======================================================================
LIFE & HEALTH INSURANCE-0.05%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $49,408)(a)(c) 50,000 52,091
=======================================================================
MARINE-0.45%
Overseas Shipholding Group, Inc., Sr. Unsec.
Global Notes, 8.25%, 03/15/13(a) 265,000 297,794
- -----------------------------------------------------------------------
Stena A.B./(Sweden), Sr. Notes, 7.00%,
12/01/16 (Acquired 11/18/04; Cost
$140,000)(a)(c)(d) 140,000 139,300
=======================================================================
437,094
=======================================================================
METAL & GLASS CONTAINERS-4.16%
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13(a) 205,000 220,375
- -----------------------------------------------------------------------
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12(a) 270,000 280,800
- -----------------------------------------------------------------------
Crown European Holdings S.A. (France), Sr.
Sec. Second Lien Global Notes, 9.50%,
03/01/11(a) 120,000 137,400
- -----------------------------------------------------------------------
Graham Packaging Co. Inc., Sr. Notes, 8.50%,
10/15/12 (Acquired 09/29/04; Cost
$475,000)(a)(c)(d) 475,000 499,938
- -----------------------------------------------------------------------
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12(a) 250,000 278,750
- -----------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Notes, 6.75%, 12/01/14
(Acquired 11/23/04; Cost $175,000)(a)(c)(d) 175,000 178,500
- -----------------------------------------------------------------------
Sr. Sec. Gtd. Global Notes,
7.75%, 05/15/11(a) 215,000 233,275
- -----------------------------------------------------------------------
8.75%, 11/15/12(a) 375,000 426,563
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.25%,
05/15/13(a) 455,000 501,638
- -----------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11(a) 285,000 322,763
- -----------------------------------------------------------------------
Pliant Corp.,
Sr. Sec. Disc. Global Notes, 11.13%,
06/15/09(a)(b) 435,000 403,463
- -----------------------------------------------------------------------
Sr. Sec. Second Lien Global Notes, 11.13%,
09/01/09(a) 350,000 384,125
- -----------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Gtd. Global Notes,
10.88%, 07/15/10(a) 185,000 197,025
=======================================================================
4,064,615
=======================================================================
MOVIES & ENTERTAINMENT-1.13%
AMC Entertainment Inc.,
Sr. Unsec. Sub. Global Notes, 9.88%,
02/01/12(a) 325,000 355,875
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 8.00%,
03/01/14(a) 390,000 390,000
- -----------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11(a) 130,000 146,250
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
MOVIES & ENTERTAINMENT-(CONTINUED)
Warner Music Group, Sr. Sub. Notes, 7.38%,
04/15/14 (Acquired 04/01/04; Cost
$205,000)(a)(c) $ 205,000 $ 211,150
=======================================================================
1,103,275
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-6.09%
AES Corp. (The), Sr. Unsec. Unsub. Notes,
7.75%, 03/01/14(a) 755,000 822,006
- -----------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) 562,854 633,210
- -----------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08(a) 85,000 70,125
- -----------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes,
8.75%, 07/15/13
(Acquired 07/10/03-05/11/04; Cost
$391,888)(a)(c) 415,000 343,413
- -----------------------------------------------------------------------
9.63%, 09/30/14
(Acquired 09/28/04; Cost $342,281)(a)(c)(d) 345,000 357,938
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
8.25%, 08/15/05(a) 225,000 228,938
- -----------------------------------------------------------------------
8.75%, 07/15/07(a) 795,000 703,575
- -----------------------------------------------------------------------
Calpine Generating Co., Sec. Floating Rate
Global Notes, 7.76%, 04/01/10(a)(e) 395,000 389,075
- -----------------------------------------------------------------------
CMS Energy Corp.,
Sr. Global Notes, 7.75%, 08/01/10(a) 90,000 98,775
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08(a) 480,000 532,200
- -----------------------------------------------------------------------
Dynegy Holdings Inc.,
Sr. Sec. Gtd. Second Priority Notes,
10.13%, 07/15/13 (Acquired
08/01/03-08/25/03; Cost $301,310)(a)(c) 300,000 343,875
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.75%, 02/15/12(a) 95,000 100,225
- -----------------------------------------------------------------------
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06(a)(d)(f) 85,000 91,588
- -----------------------------------------------------------------------
Reliant Energy Inc.,
Sr. Sec. Notes, 6.75%, 12/15/14(a) 210,000 211,050
- -----------------------------------------------------------------------
Sr. Sec. Global Notes,
9.25%, 07/15/10(a) 380,000 427,500
- -----------------------------------------------------------------------
9.50%, 07/15/13(a) 330,000 377,025
- -----------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LLC- Series B, Sr. Unsec. Asset-Backed Pass
Through Ctfs., 9.24%, 07/02/17(a) 190,553 219,612
=======================================================================
5,950,130
=======================================================================
OFFICE ELECTRONICS-0.49%
Xerox Corp., Sr. Unsec. Notes, 7.63%,
06/15/13(a) 435,000 479,588
=======================================================================
OIL & GAS DRILLING-0.18%
Parker Drilling Co., Sr. Floating Rate Notes,
7.15%, 09/01/10 (Acquired 08/18/04; Cost
$165,000)(a)(c)(e) 165,000 173,663
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.63%
CHC Helicopter Corp. (Canada), Sr. Sub.
Global Notes, 7.38%, 05/01/14(a) 365,000 385,988
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09(a) $ 260,000 $ 289,900
- -----------------------------------------------------------------------
Hanover Compressor Co.,
Sr. Notes, 9.00%, 06/01/14(a) 115,000 129,375
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.63%,
12/15/10(a) 135,000 148,500
- -----------------------------------------------------------------------
Key Energy Services, Inc., Sr. Notes, 6.38%,
05/01/13(a) 335,000 343,375
- -----------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11(a) 265,000 291,831
=======================================================================
1,588,969
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.80%
Paramount Resource Ltd. (Canada), Sr. Yankee
Notes, 8.88%, 07/15/14(a) 188,000 228,420
- -----------------------------------------------------------------------
Stone Energy Corp. Sr. Sub. Notes, 6.75%,
12/15/14 (Acquired 12/08/04; Cost
$70,000)(a)(c)(d) 70,000 70,350
- -----------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Notes, 7.63%,
07/15/11(a) 440,000 478,500
=======================================================================
777,270
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.53%
CITGO Petroleum Corp., Sr. Notes, 6.00%,
10/15/11 (Acquired 10/15/04; Cost
$337,620)(a)(c)(d) 340,000 340,000
- -----------------------------------------------------------------------
El Paso CGP Co., Unsec. Notes, 7.75%,
06/15/10(a) 655,000 691,025
- -----------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Global Notes, 7.75%, 06/01/13(a) 495,000 522,225
- -----------------------------------------------------------------------
MarkWest Energy Partners L.P./MarkWest Energy
Finance Corp., Sr. Notes, 6.88%, 11/01/14
(Acquired 10/19/04-10/20/04; Cost
$372,388)(a)(c)(d) 370,000 377,400
- -----------------------------------------------------------------------
Pacific Energy Partners L.P./Pacific Energy
Finance Corp., Sr. Unsec. Global Notes,
7.13%, 06/15/14(a) 160,000 171,200
- -----------------------------------------------------------------------
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes, 7.50%, 06/15/15(a) 230,000 250,125
- -----------------------------------------------------------------------
Sonat Inc., Sr. Unsec. Notes, 7.63%,
07/15/11(a) 80,000 83,600
- -----------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10(a) 35,000 39,594
=======================================================================
2,475,169
=======================================================================
PACKAGED FOODS & MEATS-0.68%
Del Monte Corp., Sr. Unsec. Sub. Global
Notes, 8.63%, 12/15/12(a) 140,000 157,850
- -----------------------------------------------------------------------
Pinnacle Foods Holding Corp.,
Sr. Sub. Notes, 8.25%, 12/01/13 (Acquired
02/05/04; Cost $202,012)(a)(c) 195,000 186,225
- -----------------------------------------------------------------------
8.25%, 12/01/13 (Acquired 11/20/03; Cost
$100,000)(a)(c) 100,000 95,500
- -----------------------------------------------------------------------
Smithfield Foods, Inc., Sr. Notes, 7.00%,
08/01/11 (Acquired 11/15/04; Cost
$222,600)(a)(c)(d) 210,000 224,175
=======================================================================
663,750
=======================================================================
PAPER PACKAGING-0.27%
Jefferson Smurfit Corp., Sr. Unsec. Gtd.
Unsub. Global Notes, 7.50%, 06/01/13(a) 250,000 268,125
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
PAPER PRODUCTS-2.54%
Bowater Inc., Global Notes, 6.50%,
06/15/13(a) $ 575,000 $ 583,625
- -----------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Unsec. Global
Notes, 7.25%, 02/15/13(a) 415,000 441,975
- -----------------------------------------------------------------------
Cellu Tissue Holdings, Inc., Sec. Gtd. Global
Notes, 9.75%, 03/15/10(a) 315,000 329,175
- -----------------------------------------------------------------------
Georgia-Pacific Corp.,
Sr. Gtd. Global Notes, 7.38%, 07/15/08(a) 100,000 109,000
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.88%,
02/01/10(a) 555,000 648,656
- -----------------------------------------------------------------------
Neenah Paper, Inc., Sr. Notes, 7.38%,
11/15/14 (Acquired 11/18/04; Cost
$157,275)(a)(c)(d) 155,000 157,325
- -----------------------------------------------------------------------
Norske Skog Canada Ltd. (Canada)-Series D,
Sr. Unsec. Gtd. Global Notes, 8.63%,
06/15/11(a) 200,000 215,500
=======================================================================
2,485,256
=======================================================================
PERSONAL PRODUCTS-0.43%
Playtex Products, Inc., Sr. Sec. Global
Notes, 8.00%, 03/01/11(a) 385,000 422,538
=======================================================================
PHARMACEUTICALS-0.78%
Athena Neurosciences Finance, LLC., Sr.
Unsec. Gtd. Unsub. Notes, 7.25%,
02/21/08(a) 210,000 220,500
- -----------------------------------------------------------------------
Elan Finance PLC/Elan Finance Corp.
(Ireland), Sr. Notes, 7.75%, 11/15/11
(Acquired 11/10/04; Cost $70,000)(a)(c)(d) 70,000 75,250
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Unsec. Global Notes, 7.00%, 12/15/11(a) 445,000 466,138
=======================================================================
761,888
=======================================================================
PUBLISHING-0.20%
PRIMEDIA Inc., Sr. Global Notes, 8.00%,
05/15/13(a) 185,000 191,475
=======================================================================
RAILROADS-1.40%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico),
Sr. Gtd. Yankee Notes, 10.25%, 06/15/07(a) 855,000 923,400
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Deb., 11.75%,
06/15/09(a) 200,000 204,000
- -----------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08(a) 210,000 239,400
=======================================================================
1,366,800
=======================================================================
REAL ESTATE-2.11%
Host Marriott L.P.,
Sr. Unsec. Notes, 7.00%, 08/15/12 (Acquired
07/27/04; Cost $339,801)(a)(c) 345,000 367,425
- -----------------------------------------------------------------------
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07(a) 175,000 196,000
- -----------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%,
01/15/07(a) 500,000 550,000
- -----------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
6.50%, 12/15/13(a) 265,000 278,663
- -----------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11(a) 350,000 379,750
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
REAL ESTATE-(CONTINUED)
Ventas Realty L.P./Ventas Capital Corp., Sr.
Unsec. Gtd. Global Notes, 8.75%,
05/01/09(a) $ 255,000 $ 286,238
=======================================================================
2,058,076
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.15%
LNR Property Corp.-Series A, Sr. Sub. Global
Notes, 7.25%, 10/15/13(a) 130,000 146,250
=======================================================================
REGIONAL BANKS-0.20%
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(a) 170,000 194,650
=======================================================================
RESTAURANTS-0.43%
Carrols Corp., Sr. Sub. Notes, 9.00%,
01/15/13 (Acquired 12/09/04; Cost
$70,000)(a)(c)(d) 70,000 72,625
- -----------------------------------------------------------------------
Landry's Restaurants, Inc., Sr. Notes, 7.50%,
12/15/14 (Acquired 12/15/04; Cost
$350,000)(a)(c)(d) 350,000 348,250
=======================================================================
420,875
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.13%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13(a) 140,000 131,600
=======================================================================
SEMICONDUCTORS-1.40%
Advanced Micro Devices, Inc., Sr. Unsec.
Notes, 7.75%, 11/01/12 (Acquired 10/22/04;
Cost $340,000)(a)(c)(d) 340,000 355,300
- -----------------------------------------------------------------------
MagnaChip Semiconductor S.A./MagnaChip
Semiconductor Finance Co.,
Sr. Sec. Notes, 6.88%, 12/15/11
(Acquired 12/16/04; cost $105,000)(a)(c) 105,000 108,938
- -----------------------------------------------------------------------
Sr. Sub. Notes, 8.00%, 12/15/14
(Acquired 12/16/04; cost $70,000)(a)(c) 70,000 73,413
- -----------------------------------------------------------------------
Viasystems Inc., Sr. Unsec. Sub. Global
Notes, 10.50%, 01/15/11(a) 835,000 830,825
=======================================================================
1,368,476
=======================================================================
SPECIALTY CHEMICALS-2.65%
BCP Caylux Holdings Luxembourg S.C.A.
(Luxembourg), Sr. Sub. Notes, 9.63%,
06/15/14 (Acquired 06/03/04; Cost
$215,000)(a)(c) 215,000 242,681
- -----------------------------------------------------------------------
HMP Equity Holdings Corp., Sr. Disc. Global
Notes, 16.26%, 05/15/08(a)(b)(h) 200,000 132,500
- -----------------------------------------------------------------------
Huntsman Advanced Materials LLC, Sr. Sec.
Second Lien Notes, 11.00%, 07/15/10
(Acquired 06/23/03; Cost $170,000)(a)(c) 170,000 203,363
- -----------------------------------------------------------------------
Huntsman International LLC, Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/09(a) 515,000 568,431
- -----------------------------------------------------------------------
Huntsman LLC, Sr. Unsec. Gtd. Global Notes,
11.63%, 10/15/10(a) 123,000 145,755
- -----------------------------------------------------------------------
Nalco Co., Sr. Unsec. Sub. Global Notes,
8.88%, 11/15/13(a) 345,000 379,931
- -----------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11(a) 500,000 538,750
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
SPECIALTY CHEMICALS-(CONTINUED)
Rhodia S.A. (France), Sr. Unsec. Global
Notes, 7.63%, 06/01/10(a) $ 120,000 $ 121,200
- -----------------------------------------------------------------------
Westlake Chemical Corp., Sr. Unsec. Gtd.
Global Notes, 8.75%, 07/15/11(a) 228,000 258,210
=======================================================================
2,590,821
=======================================================================
SPECIALTY STORES-1.66%
Boise Cascade LLC,
Sr. Floating Rate Notes, 5.01%, 10/15/12
(Acquired 10/15/04; Cost
$70,000)(a)(c)(d)(e) 70,000 72,975
- -----------------------------------------------------------------------
Sr. Sub. Notes, 7.13%, 10/15/14 (Acquired
10/15/04; Cost $375,000)(a)(c)(d) 375,000 398,438
- -----------------------------------------------------------------------
Couche-Tard U.S. L.P./Couche-Tard Finance
Corp., Sr. Sub. Global Notes, 7.50%,
12/15/13(a) 170,000 183,600
- -----------------------------------------------------------------------
Nebraska Book Co., Inc., Sr. Unsec. Sub.
Global Notes, 8.63%, 03/15/12(a) 335,000 345,050
- -----------------------------------------------------------------------
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 380,000 406,600
- -----------------------------------------------------------------------
Pep Boys (The)-Manny, Moe & Jack, Sr. Sub.
Notes, 7.50%, 12/15/14(a) 210,000 214,463
=======================================================================
1,621,126
=======================================================================
STEEL-0.35%
IPSCO, Inc. (Canada), Sr. Global Notes,
8.75%, 06/01/13(a) 235,000 271,425
- -----------------------------------------------------------------------
Ryerson Tull, Inc., Sr. Notes, 8.25%,
12/15/11 (Acquired 12/08/04; Cost
$70,000)(a)(c)(d) 70,000 71,400
=======================================================================
342,825
=======================================================================
TEXTILES-0.29%
INVISTA, Sr. Notes, 9.25%, 05/01/12 (Acquired
06/17/04-07/20/04; Cost $253,563)(a)(c) 250,000 279,688
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.36%
United Rentals North America Inc., Sr. Unsec.
Gtd. Global Notes, 6.50%, 02/15/12(a) 360,000 352,800
=======================================================================
TRUCKING-0.43%
Laidlaw International Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 06/15/11(a) 360,000 423,000
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-6.03%
AirGate PCS, Inc.,
Sr. Sec. Floating Rate Notes, 5.85%,
10/15/11 (Acquired 10/07/04; Cost
$105,000)(a)(c)(d)(e) 105,000 108,413
- -----------------------------------------------------------------------
Sr. Sec. Sub. Notes, 9.38%, 09/01/09(a) 181,300 196,257
- -----------------------------------------------------------------------
Alamosa (Delaware), Inc., Sr. Unsec. Gtd.
Disc. Notes, 12.00%, 07/31/09(a) 427,000 465,430
- -----------------------------------------------------------------------
American Tower Corp.,
Sr. Global Notes, 9.38%, 02/01/09(a) 115,000 121,038
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 7.13%, 10/15/12 (Acquired
09/28/04; Cost $340,000)(a)(c)(d) 340,000 351,050
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Centennial Cellular Operating Co./Centennial
Communications Corp., Sr. Unsec. Gtd.
Global Notes, 10.13%, 06/15/13(a) $ 410,000 $ 462,275
- -----------------------------------------------------------------------
Crown Castle International Corp., Sr. Global
Notes, 9.38%, 08/01/11(a) 500,000 562,500
- -----------------------------------------------------------------------
Dobson Communications Corp., Sr. Global
Notes, 8.88%, 10/01/13(a) 370,000 261,775
- -----------------------------------------------------------------------
Innova S. de R.L. (Mexico), Unsec. Global
Notes, 9.38%, 09/19/13(a) 640,000 731,200
- -----------------------------------------------------------------------
iPCS Escrow Co., Sr. Unsec. Notes, 11.50%,
05/01/12
(Acquired 04/22/04; cost $105,000)(a)(c) 105,000 119,963
- -----------------------------------------------------------------------
Iwo Escrow Co.,
Sr. Disc. Notes, 10.75%, 01/15/15 (Acquired
12/14/04; Cost $300,000)(a)(b)(c)(d) 300,000 303,750
- -----------------------------------------------------------------------
Sr. Sec. Notes, 6.32%, 01/15/12 (Acquired
12/14/04; Cost $147,715)(a)(c)(d)(e) 250,000 156,250
- -----------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec.
Notes, 5.95%, 03/15/14(a) 330,000 344,025
- -----------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11(a) 250,000 278,750
- -----------------------------------------------------------------------
Rural Cellular Corp., Sr. Unsec. Global
Notes, 9.88%, 02/01/10(a) 260,000 266,500
- -----------------------------------------------------------------------
SBA Communications Corp., Sr. Notes, 8.50%,
12/01/12 (Acquired 12/01/04; Cost
$140,000)(a)(c)(d) 140,000 143,500
- -----------------------------------------------------------------------
SBA Telecommunications Inc./SBA
Communications Corp., Sr. Unsec. Disc.
Global Notes, 9.75%, 12/15/11(a)(b) 565,000 478,838
- -----------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Notes, 9.88%,
03/01/11 (Acquired 09/29/04; Cost
$72,450)(a)(c)(d) 70,000 78,750
- -----------------------------------------------------------------------
US Unwired Inc.,
Sr. Sec. Floating Rate Global Notes, 6.74%,
06/15/10(a)(e) 190,000 197,600
- -----------------------------------------------------------------------
Series B, Sr. Sec. Second Priority Global
Notes, 10.00%, 06/15/12(a) 65,000 73,613
- -----------------------------------------------------------------------
Western Wireless Corp., Sr. Unsec. Global
Notes, 9.25%, 07/15/13(a) 175,000 191,188
=======================================================================
5,892,665
=======================================================================
Total Bonds & Notes (Cost $78,722,195) 84,417,766
=======================================================================
<Caption>
SHARES
COMMON STOCKS & OTHER EQUITY INTERESTS-3.71%
ALTERNATIVE CARRIERS-0.00%
Netco Government Services Inc.-Wts., expiring
03/01/05(a)(i) 900 0
=======================================================================
BROADCASTING & CABLE TV-0.02%
Ono Finance PLC (United Kingdom)-Wts.,
expiring 05/31/09(d) 550 0
- -----------------------------------------------------------------------
XM Satellite Radio Inc.,-Wts., expiring
03/15/10(a)(i) 230 19,794
=======================================================================
19,794
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
CONSTRUCTION MATERIALS-0.00%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(a)(c)(d)(i) 220 0
=======================================================================
GENERAL MERCHANDISE STORES-0.00%
Travelcenters of America Inc.
Wts., expiring 05/01/09
(Acquired 01/29/01; Cost $0)(a)(c)(d)(i) 300 1,577
- -----------------------------------------------------------------------
Wts., expiring 05/01/09(a)(i) 100 525
=======================================================================
2,102
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.14%
McLeodUSA Inc.-Wts., expiring 04/16/07(i) 8,399 1,764
- -----------------------------------------------------------------------
NTELOS Inc. (Acquired 04/10/03-09/10/03; Cost
$1,612,500)(c)(d)(j)(k) 78,903 1,700,360
- -----------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
07/21/00-11/15/00; Cost $9,735)(c)(d)(i)(j) 1,050 0
- -----------------------------------------------------------------------
Telewest Global, Inc.(k) 21,941 385,723
=======================================================================
2,087,847
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.49%
AES Trust VII-$3.00 Conv. Pfd. 9,800 476,280
=======================================================================
PUBLISHING-0.37%
PRIMEDIA Inc.-Series D, 10.00% Pfd.(a) 3,660 362,340
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.69%
Alamosa Holdings, Inc.-Series B, $18.75 Conv.
Pfd.(a) 349 331,545
- -----------------------------------------------------------------------
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03-04/29/03; Cost
$46,375)(a)(c)(d)(i) 735 185,502
- -----------------------------------------------------------------------
Horizon PCS Inc.-Class A(k) 1,963 48,584
- -----------------------------------------------------------------------
Horizon PCS Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(c)(d)(i) 500 0
- -----------------------------------------------------------------------
iPCS, Inc.(k) 3,704 112,972
- -----------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(c)(d)(i) 100 0
- -----------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01-09/04/01; Cost
$2,600)(a)(c)(d)(i) 240 0
- -----------------------------------------------------------------------
UbiquiTel Operating Co.-Wts., expiring
04/15/10 (Acquired 08/10/00; Cost
$72,450)(a)(c)(d)(i) 300 0
=======================================================================
678,603
=======================================================================
Total Stocks & Other Equity Interests
(Cost $3,110,848) 3,626,966
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
BUNDLED SECURITIES-0.68%
Targeted Return Index Securities Trust-Series
HY 2004-I, Sec. Bonds, 8.21%, 08/01/15
(Acquired 12/01/04; Cost $656,352) (Cost
$656,085)(a)(c) $ 605,465 663,422
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT
MONEY MARKET FUNDS-7.81%
Liquid Assets Portfolio-Institutional
Class(l) 3,812,208 $ 3,812,208
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(l) 3,812,208 3,812,208
=======================================================================
Total Money Market Funds (Cost
$7,624,416) 7,624,416
=======================================================================
TOTAL INVESTMENTS-98.63% (Cost $90,113,544) 96,332,570
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.37% 1,340,744
=======================================================================
NET ASSETS-100.00% $97,673,314
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
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) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $85,982,466, which represented 88.26% of the Fund's Total
Investments. See Note 1A.
(b) Discounted noted at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$20,580,621, which represented 21.07% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $10,945,041, which
represented 11.36% of the Fund's Net Assets.
(e) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2004.
(f) Defaulted security. Adelphia Communications Corp. has filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. Pegasus Communications Corp.
and Mirant Americas Generation, LLC are in default with respect to interest
payments. The aggregate market value of these securities at December 31,
2004 was $2,529,163, which represented 2.62% of the Fund's Total
Investments.
(g) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2004.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at December 31, 2004 was $1,700,360, which represented 1.76% of
the Fund's Total Investments. See Note 1A.
(k) Non-income producing security.
(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. HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $82,489,128) $ 88,708,154
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $7,624,416) 7,624,416
=============================================================
Total investments (cost $90,113,544) 96,332,570
=============================================================
Receivables for:
Investments sold 90,676
- -------------------------------------------------------------
Fund shares sold 111,151
- -------------------------------------------------------------
Dividends and interest 1,623,960
- -------------------------------------------------------------
Investments matured 128,925
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 36,948
=============================================================
Total assets 98,324,230
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 447,715
- -------------------------------------------------------------
Fund shares reacquired 41,875
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 39,123
- -------------------------------------------------------------
Accrued administrative services fees 121,554
- -------------------------------------------------------------
Accrued distribution fees -- Series II 531
- -------------------------------------------------------------
Accrued operating expenses 118
=============================================================
Total liabilities 650,916
=============================================================
Net assets applicable to shares outstanding $ 97,673,314
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $124,932,451
- -------------------------------------------------------------
Undistributed net investment income 5,100,995
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (38,579,158)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 6,219,026
=============================================================
$ 97,673,314
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 96,601,767
_____________________________________________________________
=============================================================
Series II $ 1,071,547
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 14,973,146
_____________________________________________________________
=============================================================
Series II 166,712
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.45
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.43
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $5,742,016
- ------------------------------------------------------------
Dividends 75,934
- ------------------------------------------------------------
Dividends from affiliated money market funds 53,733
============================================================
Total investment income 5,871,683
============================================================
EXPENSES:
Advisory fees 468,562
- ------------------------------------------------------------
Administrative services fees 223,282
- ------------------------------------------------------------
Custodian fees 14,976
- ------------------------------------------------------------
Distribution fees--Series II 2,525
- ------------------------------------------------------------
Transfer agent fees 6,870
- ------------------------------------------------------------
Trustees' fees and retirement benefits 12,917
- ------------------------------------------------------------
Other 52,488
============================================================
Total expenses 781,620
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (1,218)
============================================================
Net expenses 780,402
============================================================
Net investment income 5,091,281
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 2,130,490
- ------------------------------------------------------------
Foreign currencies 2,731
- ------------------------------------------------------------
Net realized gain from investment securities
and foreign currencies 2,133,221
============================================================
Net increase from payments by affiliates -- See
Note 2 181,288
============================================================
2,314,509
============================================================
Change in net unrealized appreciation of
investment securities 1,307,985
============================================================
Net gain from investment securities and foreign
currencies 3,622,494
============================================================
Net increase in net assets resulting from
operations $8,713,775
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,091,281 $ 2,784,123
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 2,133,221 690,170
- ----------------------------------------------------------------------------------------
Net increase from payments by affiliates 181,288 --
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 1,307,985 4,478,128
========================================================================================
Net increase in net assets resulting from operations 8,713,775 7,952,421
========================================================================================
Distributions to shareholders from net investment income:
Series I (2,776,287) (2,487,542)
- ----------------------------------------------------------------------------------------
Series II (29,451) (82,493)
========================================================================================
Decrease in net assets resulting from distributions (2,805,738) (2,570,035)
========================================================================================
Share transactions-net:
Series I 53,510,274 6,969,192
- ----------------------------------------------------------------------------------------
Series II (263,138) 1,040,595
========================================================================================
Net increase in net assets resulting from share
transactions 53,247,136 8,009,787
========================================================================================
Net increase in net assets 59,155,173 13,392,173
========================================================================================
NET ASSETS:
Beginning of year 38,518,141 25,125,968
========================================================================================
End of year (including undistributed net investment income
of $5,100,995 and $2,757,882, respectively). $97,673,314 $38,518,141
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on
AIM V.I. HIGH YIELD FUND
historical data, that the closing price in the principal market where a
foreign security trades is not the current market value as of the close of
the NYSE. Foreign securities meeting the approved degree of certainty that
the price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
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
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.05% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Prior to April 30, 2004, AIM had contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed above) of each
Series to 1.30%
AIM V.I. HIGH YIELD FUND
of average daily net assets, through April 30, 2005. Currently, the only expense
offset arrangements from which the Fund benefits are in the form of credits that
the Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. For
the year ended December 31, 2004, AIM waived fees $623.
For the year ended December 31, 2004 the advisor reimbursed the Fund for the
economic loss of $181,288 for security rights that expired with value in error.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $109 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$223,282, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $6,870.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.20% of
average daily net assets through April 30, 2006. Prior to April 30, 2004, AIM
Distributors had agreed to limit the total operating expenses of Series II
(excluding items (ii) through (vii)) to 1.45% of average daily net assets.
Pursuant to the Plan, for the year ended December 31, 2004, the Series II shares
paid $2,040 after AIM Distributors waived Plan fees of $485.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 60,062 $27,541,187 $(23,789,041) $ -- $3,812,208 $26,913 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 60,062 27,541,187 (23,789,041) -- 3,812,208 26,820 --
==================================================================================================================================
Total $120,124 $55,082,374 $(47,578,082) $ -- $7,624,416 $53,733 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $307,312 and $0, respectively.
AIM V.I. HIGH YIELD FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $1 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $1.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,767
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $2,805,738 $2,570,035
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 5,158,818
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 6,051,209
- --------------------------------------------------------------------------
Temporary book/tax differences (46,381)
- --------------------------------------------------------------------------
Capital loss carryforward (38,422,783)
- --------------------------------------------------------------------------
Shares of beneficial interest 124,932,451
==========================================================================
Total net assets $ 97,673,314
__________________________________________________________________________
==========================================================================
</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 losses on wash sales and
market discount amortization on defaulted securities.
AIM V.I. HIGH YIELD FUND
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $29,929,243 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund utilized $2,084,308 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2008 $ 8,748,094
- -----------------------------------------------------------------------------
December 31, 2009 16,522,906
- -----------------------------------------------------------------------------
December 31, 2010 13,151,783
=============================================================================
Total capital loss carryforward $38,422,783
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $83,161,268 and $62,472,898, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Adelphia Communications Corp., which is in default with respect to the
principal payments on $135,000 par value, Series B Senior Unsecured Notes,
9.25%, which was due October 1, 2002. This estimate was determined in accordance
with the fair valuation procedures authorized by the Board of Trustees.
Unrealized appreciation (depreciation) at December 31, 2004 was $(844).
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $6,643,833
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (592,624)
==============================================================================
Net unrealized appreciation of investment securities $6,051,209
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $90,281,361.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bonds,
capital loss limitation adjustments and foreign currency transactions, on
December 31, 2004, undistributed net investment income (loss) was increased by
$61,827, undistributed net realized gain (loss) was increased by $5,620,106 and
shares of beneficial interest decreased by $5,681,933. Further, as a result of
tax deferrals acquired in the reorganization of INVESCO VIF-High Yield Fund into
the Fund, undistributed net investment income (loss) was decreased by $4,257,
undistributed net realized gain (loss) was decreased by $29,311,925 and shares
of beneficial interest increased by $29,316,182. These reclassifications had no
effect on the net assets of the Fund.
AIM V.I. HIGH YIELD FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,704,960 $ 34,991,504 2,368,232 $13,235,321
- ---------------------------------------------------------------------------------------------------------------------
Series II 124,654 756,371 794,876 4,628,346
=====================================================================================================================
Issued as reinvestment of dividends:
Series I 431,771 2,776,287 421,618 2,487,541
- ---------------------------------------------------------------------------------------------------------------------
Series II 4,595 29,451 14,029 82,493
=====================================================================================================================
Issued in connection with acquisitions:(b)
Series I 8,775,266 53,609,175 -- --
=====================================================================================================================
Reacquired:
Series I (6,180,602) (37,866,692) (1,546,778) (8,753,670)
- ---------------------------------------------------------------------------------------------------------------------
Series II (172,631) (1,048,960) (627,307) (3,670,244)
=====================================================================================================================
8,688,013 $ 53,247,136 1,424,670 $ 8,009,787
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) There are six entities that are record owners of more than 5% of the
outstanding shares of the Fund and in aggregate they own 80% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
those entities, whereby these entities sell units of interest in
separate accounts funding variable products that are invested in the
Fund. The Fund, AIM and/or AIM affiliates may make payments to these
entities, which are considered to be related in the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has
no knowledge as to whether all of any portion of the shares owned of
record by these shareholders are also owned beneficially.
(b) As of the opening of business on April 30, 2004, the Fund acquired all
of the net assets of INVESCO VIF-High Yield Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on December 9, 2003
and INVESCO VIF-High Yield shareholders on April 2, 2004. The
acquisition was accomplished by a tax-free exchange of 8,775,266 shares
of the Fund for 7,477,946 shares of INVESCO VIF-High Yield Fund
outstanding as of the close of business on April 29, 2004. INVESCO
VIF-High Yield Fund's net assets at that date of $53,609,175 including
$2,226,098 of unrealized appreciation were combined with those of the
Fund. The aggregate net assets of the Fund immediately before the
acquisition were $39,413,181.
AIM V.I. HIGH YIELD 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,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.97 $ 5.00 $ 5.31 $ 6.35 $ 9.02
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42(a) 0.49(a) 0.51(a) 0.70(b) 0.91
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.23 0.91 (0.82) (1.01) (2.64)
- ----------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.02 -- -- -- --
======================================================================================================================
Total from investment operations 0.67 1.40 (0.31) (0.31) (1.73)
======================================================================================================================
Less dividends from net investment income (0.19) (0.43) -- (0.73) (0.94)
======================================================================================================================
Net asset value, end of period $ 6.45 $ 5.97 $ 5.00 $ 5.31 $ 6.35
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) 11.25%(d) 28.04% (5.84)% (4.85)% (19.14)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $96,602 $37,267 $24,984 $ 28,799 $26,151
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.04%(e) 1.20% 1.30% 1.21%(f) 1.13%(f)
======================================================================================================================
Ratio of net investment income to average net assets 6.79%(e) 8.54% 10.20% 11.39%(b) 11.44%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 131% 101% 74% 64% 72%
______________________________________________________________________________________________________________________
======================================================================================================================
</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 accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Total return is after reimbursement by the advisor for the economic loss
on security rights that expired with value in error. Total return before
reimbursement by the advisor was 10.90%.
(e) Ratios are based on average daily net assets of $73,959,966.
(f) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.29% and 1.19% for the years ended December 31, 2001 and 2000,
respectively.
AIM V.I. HIGH YIELD FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------
MARCH 26, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.95 $ 4.99 $ 5.27
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.41(a) 0.49(a) 0.38(a)
- ---------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.24 0.90 (0.66)
- ---------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- --
- ---------------------------------------------------------------------------------------------------
Total from investment operations 0.66 1.39 (0.28)
===================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.43) --
===================================================================================================
Net asset value, end of period $ 6.43 $ 5.95 $ 4.99
___________________________________________________________________________________________________
===================================================================================================
Total return(b) 11.14%(c) 27.89% (5.31)%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,072 $1,251 $ 142
___________________________________________________________________________________________________
===================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.24%(d) 1.45% 1.45%(e)
- ---------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.29%(d) 1.45% 1.55%(e)
===================================================================================================
Ratio of net investment income to average net assets 6.59%(d) 8.29% 10.05%(e)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(f) 131% 101% 74%
___________________________________________________________________________________________________
===================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Total returns are not annualized and do not
reflect charges assessed in connection with a variable product, which if
included would reduce total returns.
(c) Total return is after reimbursement by the advisor for the economic loss
on security rights that expired with value in error. Total return before
reimbursement by the advisor was 10.96%
(d) Ratios are based on average daily net assets of $1,009,909.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by
AIM V.I. HIGH YIELD FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal
AIM V.I. HIGH YIELD FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Revenue Service, the United States Attorney's Office for the Southern District
of New York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. HIGH YIELD FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. HIGH YIELD FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. High Yield Fund as of December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. HIGH YIELD FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. High Yield Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- --------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. HIGH YIELD FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. HIGH YIELD FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 3.75% is eligible for the dividends received deduction for
corporations.
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL GROWTH FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. INTERNATIONAL GROWTH FUND seeks to
provide long-term growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND
EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. INTERNATIONAL GROWTH FUND
It was another banner year for prices. Therefore, we look for certain strategy and is underscored by the
international markets. For the second attributes in companies when selecting fund's performance during the reporting
consecutive year, foreign markets stocks for the fund. We focus on period.
produced double-digits gains. In companies with accelerating earnings and
addition, 2004 proved to be the third revenues, strong cash flow generation Foreign mid-cap stocks continued to
year in a row that foreign markets and high return on invested capital outperform their large-cap peers during
outperformed their U.S. counterparts. which also have reasonable valuations. the reporting period. The fund's
Conversely, we might sell a position if multi-cap philosophy--we have the
======================================= a company's earnings outlook flexibility to invest in all
FUND VS. INDEXES deteriorates. capitalization levels--helped the fund's
relative performance as we had greater
Total returns, 12/31/03-12/31/04, We select investments on a exposure to mid-cap stocks than the MSCI
excluding variable product issuer stock-by-stock basis. This means we EAFE Growth Index.
charges. If variable product issuer follow a bottom-up investment approach,
charges were included, returns would focusing on individual stocks, not European markets produced some of the
be lower. sector or country trends. Another best regional returns over the period.
important component of our investment In fact, of the 16 countries that
Series I Shares 24.00% strategy is that we do not hedge comprise the MSCI Europe Index, all
currencies. We believe foreign currency posted positive returns on a
Series II Shares 23.70 exposure increases the diversification dollar denominated basis. On a regional
benefit of international investing. basis, European stocks contributed the
MSCI EAFE most to fund performance. Although we
Index had less exposure to European stocks
(Broad Market Index) 20.25 MARKET CONDITIONS AND YOUR FUND compared to our style-specific index,
the fund posted a higher regional
MSCI EAFE Growth Index During the fiscal year, foreign markets return. We attribute this outperformance
(Style-specific Index) 16.12 generally outperformed domestic markets to our bottom-up investment strategy as
by approximately a 2 to 1 margin. Beyond it was strong stock selection that led
Lipper International Fund generally higher prices for foreign to our higher return.
Index (Peer Group Index) 18.60 stocks, the market's focus changed in
2004. For instance, during much of 2003, Our underweight exposure to Europe
Source: Lipper, Inc. distressed or highly leveraged companies was not indicative of our lack of faith
======================================= were in favor. That sentiment reversed in the region. Rather, we found
in 2004 as stocks with strong earnings, attractive opportunities in other
As the table above illustrates, the fund cash flow and reasonable valuations were countries, including Canada and Mexico.
outperformed all of its benchmarks for rewarded by the market. This environment Higher commodity prices helped boost
the year. We attribute the fund's higher clearly fits with our investment economies and stock markets in both of
return to several factors including these countries. As mentioned earlier,
strong stock selection and our exposure our exposure to stocks in these
to stocks in Canada and Mexico, countries gave the fund a competitive
countries not represented in our broad edge as these countries are not included
market or style-specific benchmarks. in some of the fund's benchmarks.
HOW WE INVEST Mexico's America Movil, a leading
wireless operator in Latin America,
Our investment strategy is based on the illustrates why we
principle that strong earnings can drive
stock
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 COUNTRIES* TOP 10 EQUITY HOLDINGS*
- -----------------------------------------------------------------------------------------------------------------------------------
By sector 1. Japan 15.6% 1. Total S.A. (France) 2.0%
2. United Kingdom 15.6 2. Eni S.p.A. (Italy) 1.9
1. Financials 20.2% 3. France 9.5 3. Infosys Technologies Ltd.
2. Consumer Discretionary 17.4 4. Switzerland 6.1 (India) 1.8
3. Information Technology 10.1 5. Canada 6.1 4. Tesco PLC (United Kingdom) 1.8
4. Consumer Staples 10.1 6. Italy 4.7 5. Reckitt Benckiser PLC
5. Industrials 8.8 7. Australia 3.1 (United Kingdom) 1.8
6. Energy 7.6 8. Ireland 3.1 6. Imperial Tobacco Group PLC
7. Telecommunication Services 6.4 9. Germany 2.9 (United Kingdom) 1.8
8. Health Care 6.0 10. Mexico 2.6 7. Syngenta A.G. (Switzerland) 1.8
9. Materials 5.4 8. Anglo Irish Bank Corp. PLC 1.7
10. Utilities 0.5 (Ireland)
Money Markets Funds Plus Other 9. Vodafone Group PLC
Assets Less Liabilities 7.5 (United Kingdom) 1.7
10. Hoya Corp. (Japan) 1.6
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
<Caption>
AIM V.I. INTERNATIONAL GROWTH FUND
feel we can find attractive time fund holding Taiwan Semiconductor's The views and opinions expressed in
opportunities outside the benchmark and share price declined amid a sell-off of Management's Discussion of Fund
what we look for in a company. America semiconductor stocks. However, third Performance are those of A I M Advisors,
Movil has strong earnings growth quarter 2004 results for the company Inc. These views and opinions are
potential and a long history of proved strong--beating many analysts subject to change at any time based on
management delivering strong results-- expectations--and we continued to own factors such as market and economic
often positive earnings revisions. the stock. conditions. These views and opinions may
not be relied upon as investment advice
Asia/Pacific Rim markets posted Another detractor was Philips or recommendations, or as an offer for a
strong returns for the year, despite a Electronics, a Dutch conglomerate that particular security. The information is
tech sell-off in the summer. Backed by makes consumer electronics and not a complete analysis of every aspect
strong export growth and domestic appliances. The stock had good momentum of any market, country, industry,
demand, Australian stocks set new highs. at the start of the year but continual security or the fund. Statements of fact
Meanwhile, China continued its efforts restructuring as well as downside are from sources considered reliable,
to slow its economy through a variety of pressures from the semiconductor but A I M Advisors, Inc. makes no
measures including an interest rate hike sell-off made us reconsider the stock. representation or warranty as to their
of 27 basis points (0.27%). China's We lost conviction in the name and sold completeness or accuracy. Although
cooling efforts had a negative impact on the position. historical performance is no guarantee
some trading partners, particularly of future results, these insights may
Japan. Foreign exchange proved quite help you understand our investment
favorable for the fund. As mentioned management philosophy.
After rising with little interruption earlier, we don't hedge currencies so
since mid-2003, Japanese markets fell in strong foreign currency appreciation CLAS G. OLSSON,
the second quarter amid concerns over helped boost fund returns. During the senior portfolio
the country's oil dependence and a fiscal year, the euro hit an all-time [OLSSON manager, is co-lead
slowing rate of economic expansion. high against the U.S. dollar. Meanwhile, PHOTO] manager of AIM V.I.
Japanese markets recovered to post gains the Canadian dollar, British pound, International Growth
for the year. Our exposure to India, and Australian dollar and Japanese yen also Fund. Mr. Olsson
particularly in fund holding Infosys appreciated. joined AIM in 1994. Mr. Olsson became a
Technologies, added to fund returns. commissioned naval officer at the Royal
Infosys is another example of a stock IN CLOSING Swedish Naval Academy in 1988. He also
that fits our investment strategy as the received a B.B.A. from The University of
company has growing earnings momentum Despite foreign market outperformance, Texas at Austin.
and significant free cash flow. The international stocks continue to trade
company also announced it would pay a at a discount to the U.S. market on both BARRETT K. SIDES,
cash dividend which is not the norm for a price-to-earnings and senior portfolio
a technology company. price-to-cash-flow valuation basis. [SIDES manager, is co-lead
Therefore, we can easily find reasonably PHOTO] manager of AIM V.I.
Given our performance for the year, priced stocks that fit the fund's International Growth
we have few detractors to report. Our investment strategy. We are pleased to Fund. He joined AIM
five worst performing stocks for the report another strong year for foreign in 1990. Mr. Sides graduated with a B.S.
period all had relatively low weights in markets and to provide shareholders in economics from Bucknell University.
the portfolio. Long- double-digit gains for the fiscal year. He also received a master's in
international business from the
University of St. Thomas.
PRINCIPAL RISKS OF INVESTING IN THE FUND
SHUXIN CAO,
International investing presents certain risks not associated with investing Chartered Financial
solely in the United States. These include risks relating to fluctuations in the [CAO Analyst, portfolio
value of the U.S. dollar relative to the values of other currencies, the custody PHOTO] manager, is a
arrangements made for the fund's foreign holdings, differences in accounting, manager of AIM V.I.
political risks and the lesser degree of public information required to be International Growth
provided by non-U.S. companies. Fund. He joined AIM in 1997. Mr. Cao
graduated from Tianjin Foreign Language
Investing in emerging markets involves greater risk and potential reward than Institute with a B.A. in English. He
investing in more established markets. also received an M.B.A. from Texas A&M
===================================================================================== University and is a Certified Public
Accountant.
TOTAL NET ASSETS $368.1 MILLION
TOTAL NUMBER OF HOLDINGS* 110 JASON T. HOLZER,
===================================================================================== Chartered Financial
[HOLZER Analyst, senior
PHOTO] portfolio manager,
is a manager of AIM
V.I. International
Growth Fund. He joined AIM in 1996. He
received a B.A. in quantitative
economics and an M.S. in
engineering-economic systems from
Stanford University.
Assisted by Asia/Latin America Team and
Europe/Canada Team
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
<Caption>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. INTERNATIONAL GROWTH FUND
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed
rate of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's
ongoing costs including management fees, about actual account values and actual actual return. The hypothetical account
distribution and/or service fees (12b-1) expenses. You may use the information in values and expenses may not be used to
and other fund expenses. This example is this table, together with the amount you estimate your actual ending account
intended to help you understand your invested, to estimate the expenses that balance or expenses you paid for the
ongoing costs (in dollars) of investing you paid over the period. Simply divide period. You may use this information to
in the fund and to compare these costs your account value by $1,000 (for compare the ongoing costs of investing
with ongoing costs of investing in other example, an $8,600 account value divided in the fund and other funds. To do so,
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the compare this 5% hypothetical example
investment of $1,000 invested at the result by the number in the table under with the 5% hypothetical examples that
beginning of the period and held for the the heading entitled "Actual Expenses appear in the shareholder reports of the
entire period, July 1, 2004-December 31, Paid During Period" to estimate the other funds.
2004. expenses you paid on your account during
this period. Please note that the expenses shown
The actual and hypothetical expenses in the table are meant to highlight your
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
the effect of any fees or other expenses COMPARISON PURPOSES hypothetical information is useful in
assessed in connection with a variable comparing ongoing costs only, and will
product; if they did, the expenses shown The table below also provides not help you determine the relative
would be higher while the ending account information about hypothetical account total costs of owning different funds.
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,167.30 $6.27 $1,019.36 $5.84
Series II 1,000.00 1,165.50 7.62 1,018.10 7.10
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1,
2004, to December 31, 2004, was 16.73% and 16.55% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.15% and 1.40% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
<Caption>
AIM V.I. INTERNATIONAL GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note
that the chart uses a logarithmic scale 12/31/94-12/31/04
along the vertical axis (the value
scale). This means that each scale [MOUNTAIN CHART]
increment always represents the same
percent change in price; in a linear DATE AIM V.I. INTERNATIONAL LIPPER INTERNATIONAL MSCI EAFE MSCI EAFE
chart each scale increment always GROWTH FUND-SERIES I FUND INDEX GROWTH INDEX INDEX
represents the same absolute change in 12/94 $10000 $10000 $10000 $10000
price. In this example, the scale 3/95 10035 9751 10217 10186
increment between $5,000 and $10,000 is 6/95 10832 10248 10328 10260
the same as that between $10,000 and 9/95 11398 10807 10765 10688
$20,000. In a linear chart, the latter 12/95 11725 11002 11138 11121
scale increment would be twice as large. 3/96 12506 11487 11452 11442
The benefit of using a logarithmic scale 6/96 13253 11956 11525 11623
is that it better illustrates 9/96 13279 11965 11468 11609
performance during the early years 12/96 14077 12590 11523 11793
depicted in the chart before reinvested 3/97 14111 12901 11280 11609
distributions and compounding create the 6/97 15721 14346 12764 13115
potential for the original investment to 9/97 16271 14620 12859 13023
grow to very large numbers. Had the 12/97 15054 13502 11766 12003
chart used a linear scale along its 3/98 17216 15505 13291 13769
vertical axis, you would not be able to 6/98 17884 15637 13514 13915
see as clearly the movements in the 9/98 15414 13170 11776 11937
value of the fund and the indexes during 12/98 17387 15212 14379 14403
the early years depicted. We use a 3/99 17139 15407 14174 14604
logarithmic scale in financial reports 6/99 18158 16262 14227 14975
of funds that have more than five years 9/99 18999 16810 14813 15632
of performance history. 12/99 26957 20967 18614 18287
3/00 26734 21096 18889 18268
======================================= 6/00 24025 20105 17139 17544
AVERAGE ANNUAL TOTAL RETURNS 9/00 22350 18630 15161 16129
12/00 19834 17881 14051 15696
As of 12/31/04 3/01 16542 15548 11717 13544
6/01 16975 15640 11432 13403
SERIES I SHARES 9/01 14480 13301 9639 11527
10 Years 7.43% 12/01 15167 14425 10598 12330
5 Years -5.35 3/02 15380 14779 10595 12450
1 Year 24.00 6/02 15258 14499 10351 12130
9/02 12237 11656 8377 9737
SERIES II SHARES 12/02 12789 12430 8899 10365
10 Years 7.15% 3/03 11981 11336 8189 9514
5 Years -5.61 6/03 13793 13571 9521 11347
1 Year 23.70 9/03 14448 14642 10155 12269
======================================= 12/03 16507 16904 11746 14364
3/04 17463 17748 12212 14987
Returns since the inception date of 6/04 17536 17556 12037 15020
Series II shares are historical. All 9/04 17782 17526 11846 14978
other returns are the blended returns of 12/04 $20468 $20047 $13640 $17273
the historical performance of the fund's
Series II shares since their inception Source: Lipper, Inc.
and the restated historical performance ======================================================================================
of the fund's Series I shares (for
periods prior to inception of the Series comparable future results; current Trademark--, which represents the
II shares) adjusted to reflect the performance may be lower or higher. performance of foreign stocks tracked by
higher Rule 12b-1 fees applicable to the Please contact your variable product Morgan Stanley Capital International.
Series II shares. The inception date of issuer or financial advisor for the most The Growth portion measures performance
the fund's Series II shares is 9/19/01. recent month-end variable product of companies with higher price/earnings
The Series I and Series II shares invest performance. Performance figures reflect ratios and higher forecasted growth
in the same portfolio of securities and fund expenses, reinvested distributions values.
will have substantially similar and changes in net asset value.
performance, except to the extent that Investment return and principal value The unmanaged MSCI Europe Index is a
expenses borne by each class differ. will fluctuate so that you may have a group of European securities tracked by
gain or loss when you sell shares. Morgan Stanley Capital International.
The performance data quoted represent
past performance and cannot guarantee AIM V.I. International Growth Fund, a The fund is not managed to track the
series portfolio of AIM Variable performance of any particular index,
Insurance Funds, is currently offered including the indexes defined here, and
through insurance companies issuing consequently, the performance of the
variable products. You cannot purchase fund may deviate significantly from the
shares of the fund directly. Performance performance of the indexes.
figures given represent the fund and are
not intended to reflect actual variable A direct investment cannot be made
product values. They do not reflect in an index. Unless otherwise indicated,
sales charges, expenses and fees index results include reinvested
assessed in connection with a variable dividends, and they do not reflect sales
product. Sales charges, expenses and charges. Performance of an index of
fees, which are determined by the funds reflects fund expenses;
variable product issuers, will vary and performance of a market index does not.
will lower the total return.*
OTHER INFORMATION
ABOUT INDEXES USED IN THIS REPORT
The returns shown in the Management's
The unmanaged MSCI Europe, Australasia Discussion of Fund Performance are based
and the Far East Index (the MSCI on net asset values calculated for
EAFE--Registered Trademark--) is a group shareholder transactions. Generally
of foreign securities tracked by Morgan accepted accounting principles require
Stanley Capital International. adjustments to be made to the net assets
of the fund at period end for financial
The unmanaged Lipper International reporting purposes, and as such, the net
Fund Index represents an average of the asset values for shareholder
30 largest international funds tracked transactions and the returns based on
by Lipper, Inc., an independent mutual those net asset values may differ from
fund performance monitor, and is the net asset values and returns
considered representative of reported in the Financial Highlights.
international stocks.
Industry classifications used in this
The unmanaged MSCI Europe, report are generally according to the
Australasia and the Far East (the MSCI Global Industry Classification Standard,
EAFE--Registered Trademark--) Growth which was developed by and is the
Index is a subset of the unmanaged exclusive property and a service mark of
MSCI EAFE--Registered Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIIGR-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-92.43%
AUSTRALIA-3.12%
BHP Billiton Ltd. (Diversified Metals &
Mining)(a) 390,900 $ 4,682,129
- -------------------------------------------------------------------------
Coca-Cola Amatil Ltd. (Soft Drinks)(a)(b) 363,000 2,311,147
- -------------------------------------------------------------------------
Promina Group Ltd. (Property & Casualty
Insurance) (Acquired 05/12/03-08/19/04;
Cost $1,123,132)(a)(c) 546,700 2,314,959
- -------------------------------------------------------------------------
QBE Insurance Group Ltd. (Property & Casualty
Insurance)(a)(b) 181,500 2,185,548
=========================================================================
11,493,783
_________________________________________________________________________
=========================================================================
AUSTRIA-0.61%
Erste Bank der oesterreichischen Sparkassen
A.G. (Diversified Banks) 42,300 2,255,032
=========================================================================
BELGIUM-1.14%
Algemene Maatschappij voor Nijverheidskredit
N.V. (Diversified Banks)(a) 23,100 2,359,052
- -------------------------------------------------------------------------
KBC Bankverzekerings Holding (Diversified
Banks)(a) 24,000 1,835,542
=========================================================================
4,194,594
=========================================================================
BERMUDA-0.64%
Esprit Holdings Ltd. (Apparel Retail)(a) 391,500 2,366,204
=========================================================================
BRAZIL-0.71%
Companhia de Bebidas das Americas-ADR
(Brewers) 92,300 2,614,859
=========================================================================
CANADA-6.08%
Canadian National Railway Co. (Railroads) 51,650 3,140,213
- -------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 43,200 1,842,160
- -------------------------------------------------------------------------
EnCana Corp. (Oil & Gas Exploration &
Production) 39,400 2,242,343
- -------------------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 101,900 4,697,142
- -------------------------------------------------------------------------
Petro-Canada (Integrated Oil & Gas) 21,400 1,089,186
- -------------------------------------------------------------------------
Power Corp. of Canada (Other Diversified
Financial Services) 78,000 2,011,898
- -------------------------------------------------------------------------
Shoppers Drug Mart Corp. (Drug Retail)(d) 69,900 2,167,636
- -------------------------------------------------------------------------
Shoppers Drug Mart Corp. (Drug Retail)
(Acquired 11/18/03; Cost
$533,415)(c)(d)(e)(f) 25,000 775,263
- -------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 125,200 4,416,924
=========================================================================
22,382,765
=========================================================================
FRANCE-9.52%
BNP Paribas S.A. (Diversified Banks)(a) 71,490 5,171,084
- -------------------------------------------------------------------------
Bouygues S.A. (Wireless Telecommunication
Services)(a)(b) 45,000 2,074,639
- -------------------------------------------------------------------------
Lafarge S.A. (Construction Materials)(a) 17,300 1,666,404
- -------------------------------------------------------------------------
Pernod Ricard (Distillers & Vintners)(a)(b) 31,397 4,804,053
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
FRANCE-(CONTINUED)
- -------------------------------------------------------------------------
Renault S.A. (Automobile Manufacturers)(a) 44,000 3,677,825
- -------------------------------------------------------------------------
Societe Generale (Diversified Banks)(a) 32,100 $ 3,242,902
- -------------------------------------------------------------------------
Technip S.A. (Oil & Gas Equipment &
Services)(a)(b) 10,200 1,882,366
- -------------------------------------------------------------------------
Total S.A. (Integrated Oil & Gas)(a)(b) 34,505 7,541,744
- -------------------------------------------------------------------------
Vinci S.A. (Construction & Engineering)(a)(b) 37,250 4,997,103
=========================================================================
35,058,120
=========================================================================
GERMANY-2.94%
Adidas-Salomon A.G. (Apparel, Accessories &
Luxury Goods)(a)(b) 18,000 2,905,177
- -------------------------------------------------------------------------
Continental A.G. (Tires & Rubber)(a) 52,600 3,337,069
- -------------------------------------------------------------------------
Deutsche Telekom A.G. (Integrated
Telecommunication Services)(a)(d) 65,025 1,467,381
- -------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 10/08/03-10/30/03; Cost
$1,583,198)(a)(c) 11,379 3,125,553
=========================================================================
10,835,180
=========================================================================
GREECE-1.72%
EFG Eurobank Ergasias (Diversified Banks)(a) 61,300 2,101,384
- -------------------------------------------------------------------------
OPAP S.A. (Casinos & Gaming) (Acquired
04/02/04-08/27/04; Cost $2,704,227)(a)(c) 152,600 4,213,387
=========================================================================
6,314,771
=========================================================================
HONG KONG-2.08%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(a) 224,000 2,235,087
- -------------------------------------------------------------------------
CNOOC Ltd.-ADR (Oil & Gas Exploration &
Production)(b) 33,300 1,804,527
- -------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Industrial
Conglomerates)(a) 248,000 2,323,384
- -------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Real Estate
Management & Development)(a) 129,000 1,291,061
=========================================================================
7,654,059
=========================================================================
HUNGARY-1.26%
OTP Bank Rt. (Diversified Banks)(a) 150,900 4,644,358
=========================================================================
INDIA-2.35%
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 105,264 1,855,136
- -------------------------------------------------------------------------
Infosys Technologies Ltd. (IT Consulting &
Other Services)(a) 141,580 6,809,188
=========================================================================
8,664,324
=========================================================================
INDONESIA-0.01%
PT Lippo Bank Tbk (Diversified Banks)(a)(d) 228,137 17,095
=========================================================================
IRELAND-3.05%
Anglo Irish Bank Corp. PLC (Diversified
Banks)(a) 257,000 6,232,469
- -------------------------------------------------------------------------
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
IRELAND-(CONTINUED)
CRH PLC (Construction Materials) 95,720 $ 2,555,333
- -------------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks)(a) 145,000 2,433,539
=========================================================================
11,221,341
=========================================================================
ISRAEL-1.30%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 160,800 4,801,488
=========================================================================
ITALY-4.68%
Banca Intesa S.p.A. (Diversified Banks)(a) 380,500 1,824,642
- -------------------------------------------------------------------------
Banco Popolare di Verona e Novara Scrl
(Diversified Banks)(a) 146,000 2,963,016
- -------------------------------------------------------------------------
Eni S.p.A. (Integrated Oil & Gas)(a) 283,800 7,099,434
- -------------------------------------------------------------------------
Mediaset S.p.A. (Broadcasting & Cable TV)(a) 423,200 5,347,091
=========================================================================
17,234,183
=========================================================================
JAPAN-15.59%
Canon Inc. (Office Electronics)(a) 59,600 3,237,755
- -------------------------------------------------------------------------
Daiwa House Industry Co., Ltd.
(Homebuilding)(a) 189,000 2,153,644
- -------------------------------------------------------------------------
Fanuc Ltd. (Industrial Machinery)(a) 48,500 3,191,435
- -------------------------------------------------------------------------
Hoya Corp. (Electronic Equipment
Manufacturers)(a)(b) 53,100 6,001,953
- -------------------------------------------------------------------------
JSR Corp. (Specialty Chemicals)(a) 94,700 2,076,440
- -------------------------------------------------------------------------
Keyence Corp. (Electronic Equipment
Manufacturers)(a)(b) 18,300 4,111,823
- -------------------------------------------------------------------------
Nidec Corp. (Electronic Equipment
Manufacturers)(a) 19,400 2,376,240
- -------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automobile
Manufacturers)(a) 165,100 1,818,087
- -------------------------------------------------------------------------
Nitto Denko Corp. (Specialty Chemicals)(a) 43,800 2,405,885
- -------------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment)(a) 43,100 1,351,636
- -------------------------------------------------------------------------
OMRON Corp. (Electronic Equipment
Manufacturers)(a) 151,300 3,612,015
- -------------------------------------------------------------------------
ORIX Corp. (Consumer Finance)(a) 14,500 1,985,267
- -------------------------------------------------------------------------
Sekisui Chemical Co., Ltd. (Homebuilding)(a) 287,000 2,103,358
- -------------------------------------------------------------------------
SMC Corp. (Industrial Machinery)(a) 14,900 1,710,809
- -------------------------------------------------------------------------
Suzuki Motor Corp. (Automobile
Manufacturers)(a) 93,000 1,701,695
- -------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(a) 81,300 4,106,558
- -------------------------------------------------------------------------
Toyota Motor Corp. (Automobile
Manufacturers)(a) 114,600 4,704,967
- -------------------------------------------------------------------------
Trend Micro Inc. (Application Software)(a)(b) 80,300 4,366,903
- -------------------------------------------------------------------------
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals)(a) 111,800 4,364,490
=========================================================================
57,380,960
=========================================================================
MEXICO-2.60%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 101,736 5,325,880
- -------------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 24,400 1,476,200
- -------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series V
(Hypermarkets & Super Centers) 800,300 2,752,716
=========================================================================
9,554,796
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
NETHERLANDS-1.30%
Royal Numico N.V. (Packaged Foods &
Meats)(a)(b)(d) 50,400 $ 1,810,532
- -------------------------------------------------------------------------
TPG N.V. (Air Freight & Logistics)(a) 109,300 2,961,973
=========================================================================
4,772,505
=========================================================================
NORWAY-0.95%
Telenor A.S.A. (Integrated Telecommunication
Services)(a) 384,000 3,484,145
=========================================================================
SINGAPORE-2.04%
DBS Group Holdings Ltd. (Diversified
Banks)(a) 220,000 2,169,192
- -------------------------------------------------------------------------
Keppel Corp. Ltd. (Industrial
Conglomerates)(a) 380,000 2,003,329
- -------------------------------------------------------------------------
Singapore Airlines Ltd. (Airlines)(a) 201,000 1,403,570
- -------------------------------------------------------------------------
United Overseas Bank Ltd. (Diversified
Banks)(a) 228,001 1,926,689
=========================================================================
7,502,780
=========================================================================
SOUTH AFRICA-0.62%
Standard Bank Group Ltd. (Diversified Banks) 197,581 2,294,899
=========================================================================
SOUTH KOREA-1.41%
Hana Bank (Diversified Banks)(a) 108,400 2,699,815
- -------------------------------------------------------------------------
Samsung Electronics Co., Ltd. (Electronic
Equipment Manufacturers)(a) 5,760 2,502,725
=========================================================================
5,202,540
=========================================================================
SPAIN-1.60%
Grupo Ferrovial, S.A. (Construction &
Engineering)(a) 41,000 2,184,012
- -------------------------------------------------------------------------
Industria de Diseno Textil, S.A. (Apparel
Retail)(a)(b) 64,000 1,882,017
- -------------------------------------------------------------------------
Telefonica, S.A. (Integrated
Telecommunication Services)(a) 97,500 1,829,907
=========================================================================
5,895,936
=========================================================================
SWEDEN-2.26%
Assa Abloy A.B.-Class B (Building
Products)(a)(b) 225,250 3,837,071
- -------------------------------------------------------------------------
Volvo A.B.-Class B (Construction & Farm
Machinery & Heavy Trucks)(a)(b) 113,200 4,479,050
=========================================================================
8,316,121
=========================================================================
SWITZERLAND-6.13%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)(a) 95,200 3,160,995
- -------------------------------------------------------------------------
Novartis A.G. (Pharmaceuticals)(a) 34,800 1,746,792
- -------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(a) 18,810 2,153,488
- -------------------------------------------------------------------------
Swatch Group A.G. (The)-Class B (Apparel,
Accessories Accessories & Luxury Goods)(a) 21,070 3,076,169
- -------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(a)(d) 61,225 6,478,895
- -------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets)(a) 70,900 5,927,922
=========================================================================
22,544,261
=========================================================================
TAIWAN-1.14%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services)(a) 529,649 2,460,015
- -------------------------------------------------------------------------
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
TAIWAN-(CONTINUED)
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors)(b) 203,657 $ 1,729,048
=========================================================================
4,189,063
=========================================================================
THAILAND-0.01%
Siam Commercial Bank PCL (Diversified
Banks)(a) 32,800 41,066
=========================================================================
UNITED KINGDOM-15.57%
Aviva PLC (Multi-line Insurance)(a) 246,483 2,961,410
- -------------------------------------------------------------------------
Centrica PLC (Gas Utilities)(a) 386,510 1,749,003
- -------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 209,000 3,177,892
- -------------------------------------------------------------------------
GUS PLC (Catalog Retail)(a) 213,810 3,842,512
- -------------------------------------------------------------------------
Imperial Tobacco Group PLC (Tobacco)(a) 237,220 6,490,597
- -------------------------------------------------------------------------
mm02 PLC (Wireless Telecommunication
Services)(a)(d) 1,414,600 3,328,409
- -------------------------------------------------------------------------
Next PLC (Department Stores)(a) 184,050 5,817,760
- -------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(a) 218,770 6,593,021
- -------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Diversified
Banks)(a) 75,490 2,533,332
- -------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC
(Pharmaceuticals)(a) 343,300 3,605,203
- -------------------------------------------------------------------------
Tesco PLC (Food Retail)(a) 1,086,821 6,700,581
- -------------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services)(a) 2,242,260 6,095,871
- -------------------------------------------------------------------------
Warner Chilcott PLC (Pharmaceuticals) 87,800 1,448,545
- -------------------------------------------------------------------------
William Hill PLC (Casinos & Gaming)(a) 274,080 2,967,532
=========================================================================
57,311,668
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $223,383,568) 340,242,896
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT
BONDS-0.01%
INDIA-0.01%
Hindustan Lever Ltd. (Household Products),
Sec. Deb., 9.00%, (Cost $0)(g)(h) INR 187,000 25,573
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-7.23%
Liquid Assets Portfolio-Institutional
Class(i) 13,314,230 13,314,230
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(i) 13,314,230 13,314,230
=========================================================================
Total Money Market Funds (Cost
$26,628,460) 26,628,460
=========================================================================
TOTAL INVESTMENTS-99.67% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $250,012,028) 366,896,929
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-9.83%
Liquid Assets Portfolio-Institutional
Class(i)(j) 18,094,922 18,094,922
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(i)(j) 18,094,922 18,094,922
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $36,189,844) 36,189,844
=========================================================================
TOTAL INVESTMENTS-109.50% (Cost
$286,201,872)(k) 403,086,773
=========================================================================
OTHER ASSETS LESS LIABILITIES-(9.50%) (34,984,898)
=========================================================================
NET ASSETS-100.00% $368,101,875
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Deb. - Debentures
INR - Indian Rupee
Sec. - Secured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$286,946,468, which represented 71.19% of the Fund's Total Investments. See
Note 1A.
(b) All or a portion of this securities has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$10,429,162, which represented 2.83% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Non-income producing security.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
December 31, 2004 represented 0.19% of the Fund's Total Investments. See
Note 1A.
(f) Security considered to be illiquid. The market value of this security
considered illiquid at December 31, 2004 represented 0.21% of the Fund's Net
Assets.
(g) Foreign denominated security. Par value is denominated in currency
indicated.
(h) Security was acquired through a corporate action.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(j) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
(k) Companhia Vale do Rio Doce security was acquired through a Corporate action
with no cost basis and 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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$223,383,568)* $340,268,469
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $62,818,304) 62,818,304
=============================================================
Total investments (cost $286,201,872) 403,086,773
=============================================================
Foreign currencies, at market value (cost
$2,950,072) 3,007,699
- -------------------------------------------------------------
Cash 684
- -------------------------------------------------------------
Receivables for:
Fund shares sold 304,469
- -------------------------------------------------------------
Dividends and interest 420,079
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 62,523
- -------------------------------------------------------------
Other assets 190
=============================================================
Total assets 406,882,417
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 2,046,429
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 79,168
- -------------------------------------------------------------
Collateral upon return of securities loaned 36,189,844
- -------------------------------------------------------------
Accrued administrative services fees 371,343
- -------------------------------------------------------------
Accrued distribution fees-Series II 11,520
- -------------------------------------------------------------
Accrued transfer agent fees 5,112
- -------------------------------------------------------------
Accrued operating expenses 77,126
=============================================================
Total liabilities 38,780,542
=============================================================
Net assets applicable to shares outstanding $368,101,875
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $335,014,946
- -------------------------------------------------------------
Undistributed net investment income 2,592,008
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (86,475,458)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 116,970,379
=============================================================
$368,101,875
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $346,605,234
_____________________________________________________________
=============================================================
Series II $ 21,496,641
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 17,534,246
_____________________________________________________________
=============================================================
Series II 1,093,727
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 19.77
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 19.65
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $32,972,221
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$698,858) $ 6,173,053
- ------------------------------------------------------------
Dividends from affiliated money market funds
(including securities lending income of
$107,472**) 268,027
- ------------------------------------------------------------
Interest 12,299
============================================================
Total investment income 6,453,379
============================================================
EXPENSES:
Advisory fees 2,340,955
- ------------------------------------------------------------
Administrative services fees 737,999
- ------------------------------------------------------------
Custodian fees 325,273
- ------------------------------------------------------------
Distribution fees -- Series II 35,647
- ------------------------------------------------------------
Transfer agent fees 31,467
- ------------------------------------------------------------
Trustees' fees and retirement benefits 19,200
- ------------------------------------------------------------
Other 148,182
============================================================
Total expenses 3,638,723
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (2,388)
============================================================
Net expenses 3,636,335
============================================================
Net investment income 2,817,044
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 21,782,380
- ------------------------------------------------------------
Foreign currencies (160,905)
============================================================
21,621,475
============================================================
Change in net unrealized appreciation of:
Investment securities 46,174,055
- ------------------------------------------------------------
Foreign currencies 61,172
============================================================
46,235,227
============================================================
Net gain from investment securities and foreign
currencies 67,856,702
============================================================
Net increase in net assets resulting from
operations $70,673,746
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,817,044 $ 1,806,987
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 21,621,475 12,983,426
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 46,235,227 56,960,379
==========================================================================================
Net increase in net assets resulting from operations 70,673,746 71,750,792
==========================================================================================
Distributions to shareholders from net investment income:
Series I (2,025,065) (1,397,568)
- ------------------------------------------------------------------------------------------
Series II (98,282) (32,274)
==========================================================================================
Decrease in net assets resulting from distributions (2,123,347) (1,429,842)
==========================================================================================
Share transactions-net:
Series I (9,205,473) (22,955,937)
- ------------------------------------------------------------------------------------------
Series II 7,105,347 1,955,740
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,100,126) (21,000,197)
==========================================================================================
Net increase in net assets 66,450,273 49,320,753
==========================================================================================
NET ASSETS:
Beginning of year 301,651,602 252,330,849
==========================================================================================
End of year (including undistributed net investment income
of $2,592,008 and $2,059,227, respectively) $368,101,875 $301,651,602
__________________________________________________________________________________________
==========================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. INTERNATIONAL GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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.
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 contractually agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the
AIM V.I. INTERNATIONAL GROWTH FUND
Fund's Board of Trustees; (vi) expenses related to a merger or reorganization,
as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $2,156.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $230 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$737,999, of which AIM retained $82,810 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $31,467.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors contractually
has agreed to reimburse the Fund's Rule 12b-1 distribution plan fees to the
extent necessary to limit total annual fund operating expenses (excluding items
(ii) through (vii) discussed above) of Series II shares to 1.45% of average
daily net assets, through April 30, 2006. AIM Distributors did not reimburse
fees during the period under this expense limitation. Pursuant to the Plan, for
the year ended December 31, 2004, the Series II shares paid $35,647.
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, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,403,797 $ 60,140,918 $ (50,230,485) $ -- $13,314,230 $80,495 $ --
- --------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,403,797 60,140,918 (50,230,485) -- 13,314,230 80,060 --
================================================================================================================================
Subtotal $6,807,594 $120,281,836 $(100,460,970) $ -- $26,628,460 $160,555 $ --
================================================================================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $13,119,765 $ 99,857,003 $ (94,881,846) $ -- $18,094,922 $54,136 $ --
- --------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 13,119,764 99,750,677 (94,775,519) -- 18,094,922 53,336 --
================================================================================================================================
Subtotal $26,239,529 $199,607,680 $(189,657,365) $ -- $36,189,844 $107,472 $ --
================================================================================================================================
Total $33,047,123 $319,889,516 $(290,118,335) $ -- $62,818,304 $268,027 $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $0 and $183,400, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $2 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $2.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $3,328
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowing from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $32,972,221 were
on loan to brokers. The loans were secured by cash collateral of $36,189,844
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $107,472 for
securities lending transactions.
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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $2,123,347 $1,429,842
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,937,583
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 115,427,770
- ----------------------------------------------------------------------------
Temporary book/tax differences (71,802)
- ----------------------------------------------------------------------------
Capital loss carryforward (85,206,622)
- ----------------------------------------------------------------------------
Shares of beneficial interest 335,014,946
============================================================================
Total net assets $368,101,875
____________________________________________________________________________
============================================================================
</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 losses on wash sales and
the recognition of gain for tax purposes on passive foreign investment
companies. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $85,478.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $84,243,401 of capital loss carryforward in the fiscal
year ended December 31, 2005.
AIM V.I. INTERNATIONAL GROWTH FUND
The Fund utilized $21,690,313 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2005 $ 507,757
- -----------------------------------------------------------------------------
December 31, 2006 963,221
- -----------------------------------------------------------------------------
December 31, 2007 431,410
- -----------------------------------------------------------------------------
December 31, 2009 37,414,973
- -----------------------------------------------------------------------------
December 31, 2010 45,889,261
=============================================================================
Total capital loss carryforward $85,206,622
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $146,065,729 and $168,616,789, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $116,365,132
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,022,840)
==============================================================================
Net unrealized appreciation of investment securities $115,342,292
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $287,744,481.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and tax capital loss limitations, on December 31, 2004,
undistributed net investment income was decreased by $160,916, undistributed net
realized gain (loss) was decreased by $270,495 and shares of beneficial interest
increased by $431,411. This reclassification had no effect on the net assets of
the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2004 2003
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,454,168 $ 59,721,271 28,817,915 $ 368,653,132
- ------------------------------------------------------------------------------------------------------------------------
Series II 794,058 13,743,254 25,266,333 310,191,013
========================================================================================================================
Issued as reinvestment of dividends:
Series I 99,666 1,901,625 90,455 1,397,568
- ------------------------------------------------------------------------------------------------------------------------
Series II 5,179 98,282 2,098 32,274
========================================================================================================================
Reacquired:
Series I (4,143,506) (70,828,369) (30,602,695) (393,006,637)
- ------------------------------------------------------------------------------------------------------------------------
Series II (392,698) (6,736,189) (24,962,888) (308,267,547)
========================================================================================================================
(183,133) $ (2,100,126) (1,388,782) $ (21,000,197)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are seven shareholders that are each record owners of more than 5%
of the outstanding shares of the Fund and in the aggregate they own 62%
of the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by the shareholders are also owned beneficially.
AIM V.I. INTERNATIONAL GROWTH 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,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.04 $ 12.49 $ 14.91 $ 20.12 $ 29.29
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.09(a) 0.06(a) 0.08(a) 0.18
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.70 3.54 (2.40) (4.83) (7.88)
=========================================================================================================================
Total from investment operations 3.85 3.63 (2.34) (4.75) (7.70)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.12) (0.08) (0.08) (0.05) (0.06)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.41) (1.41)
=========================================================================================================================
Total distributions (0.12) (0.08) (0.08) (0.46) (1.47)
=========================================================================================================================
Net asset value, end of period $ 19.77 $ 16.04 $ 12.49 $ 14.91 $ 20.12
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 24.00% 29.06% (15.67)% (23.53)% (26.40)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $346,605 $290,680 $247,580 $347,528 $437,336
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net asset 1.14%(c) 1.10% 1.09% 1.05% 1.02%
=========================================================================================================================
Ratio of net investment income to average net assets 0.90%(c) 0.69% 0.41% 0.46% 0.83%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 48% 79% 71% 109% 88%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $302,306,029.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.97 $ 12.45 $ 14.90 $14.42
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11(a) 0.06(a) 0.03(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.66 3.51 (2.40) 0.93
====================================================================================================================
Total from investment operations 3.77 3.57 (2.37) 0.94
====================================================================================================================
Less distributions:
Dividends from net investment income (0.09) (0.05) (0.08) (0.05)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.41)
====================================================================================================================
Total distributions (0.09) (0.05) (0.08) (0.46)
====================================================================================================================
Net asset value, end of period $ 19.65 $ 15.97 $ 12.45 $14.90
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 23.63% 28.68% (15.89)% 6.63%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,497 $10,972 $ 4,751 $ 374
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 1.39%(c) 1.35% 1.31%(d) 1.30%(e)
====================================================================================================================
Ratio of net investment income to average net assets 0.65%(c) 0.44% 0.19% 0.22%(e)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(f) 48% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $14,258,903.
(d) After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and expense reimbursements was 1.34% for
the year ended December 31, 2002.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the settlements with the NYAG and COAG, AIM has agreed to reduce management fees
on certain equity and balanced AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. INTERNATIONAL GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
We have audited the accompanying statement of assets and liabilities of AIM V.I.
International Growth Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. INTERNATIONAL GROWTH FUND
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2004, the amount of income received by
the fund from sources within foreign countries and possessions of the United
States was $0.372 (representing a total of $6,883,334). The amount of taxes paid
by the fund to such countries for the fiscal year ended December 31, 2004 was
$0.0376 per share (representing a total of $694,928). 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, 2004. The per share
amount is based on shareholders of record on December 15, 2004.
<Table>
<Caption>
FOREIGN
COUNTRY GROSS INCOME % TAX PAID %
- ----------------------------------------------------------------------------------
Australia 3.08% 0.47%
- ----------------------------------------------------------------------------------
Austria 0.30% 0.47%
- ----------------------------------------------------------------------------------
Brazil 0.28% 0.31%
- ----------------------------------------------------------------------------------
Canada 2.81% 4.34%
- ----------------------------------------------------------------------------------
Denmark 0.99% 1.52%
- ----------------------------------------------------------------------------------
Finland 0.53% 0.82%
- ----------------------------------------------------------------------------------
France 12.81% 19.11%
- ----------------------------------------------------------------------------------
Germany 2.47% 3.22%
- ----------------------------------------------------------------------------------
Greece 2.72% 0.00%
- ----------------------------------------------------------------------------------
Hong Kong 3.53% 0.00%
- ----------------------------------------------------------------------------------
Hungary 0.77% 1.19%
- ----------------------------------------------------------------------------------
India 1.85% 0.00%
- ----------------------------------------------------------------------------------
Ireland 1.08% 0.00%
- ----------------------------------------------------------------------------------
Israel 0.65% 1.32%
- ----------------------------------------------------------------------------------
Italy 5.97% 9.21%
- ----------------------------------------------------------------------------------
Japan 6.58% 4.74%
- ----------------------------------------------------------------------------------
Mexico 1.18% 0.00%
- ----------------------------------------------------------------------------------
Netherlands 1.38% 2.13%
- ----------------------------------------------------------------------------------
Norway 0.99% 1.53%
- ----------------------------------------------------------------------------------
Singapore 3.23% 4.50%
- ----------------------------------------------------------------------------------
South Korea 1.71% 2.90%
- ----------------------------------------------------------------------------------
Spain 2.51% 3.34%
- ----------------------------------------------------------------------------------
Sweden 7.67% 10.85%
- ----------------------------------------------------------------------------------
Switzerland 5.35% 5.55%
- ----------------------------------------------------------------------------------
Taiwan 1.03% 4.17%
- ----------------------------------------------------------------------------------
Thailand 0.02% 0.02%
- ----------------------------------------------------------------------------------
United Kingdom 24.63% 18.29%
- ----------------------------------------------------------------------------------
Various 0.12% 0.00%
==================================================================================
Subtotal 96.24% 100.00%
==================================================================================
United States 3.76% 0.00%
==================================================================================
Total 100.00% 100.00%
__________________________________________________________________________________
==================================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. International Growth Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 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, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. LARGE CAP GROWTH FUND seeks long-term growth of capital.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. LARGE CAP GROWTH FUND
For the fiscal year ended December 31, HOW WE INVEST Next, we apply fundamental, or
2004, AIM V.I. Large Cap Growth Fund qualitative, research to try to identify
outperformed both its style-specific and We seek to invest in market-leading companies with the potential to exceed
peer group indexes. For the year, the companies that exhibit sustainable, consensus earnings estimates and that
fund lagged its broad market index. above-average earnings growth potential exhibit sustainable growth
While past performance cannot guarantee and are driven by strong company characteristics. We analyze earnings
comparable future results, we were fundamentals and favorable industry models to understand earnings drivers.
pleased to deliver positive returns to trends. We focus on companies that we Our team meets with management and
our shareholders. believe are most likely to meet or analysts to evaluate proprietary
exceed earnings expectations for the products and the quality of management.
======================================= foreseeable future. Also, we avoid "high And we analyze trends, growth rates and
FUND VS. INDEXES risk" companies, which we define as the competitive landscape. We believe
companies that are overvalued, that are stocks that pass our quantitative and
Total returns, 12/31/03-12/31/04, experiencing unsustainable growth, qualitative screens have significantly
excluding variable product issuer that are experiencing deteriorating reduced likelihoods of missing earnings
charges. If variable product issuer balance sheets, etc. estimates.
charges were included, returns would
be lower. We begin with an investable universe We consider selling a stock when it
of stocks with market capitalizations no longer meets our investment criteria,
Series I Shares 9.08% greater than $5 billion and long-term based on a negative earnings revision,
annual earnings-per-share growth of at an earnings disappointment or
Series II Shares 8.89 least 10%. We take all stocks meeting deterioration in its fundamental
those criteria and apply a quantitative business prospects. Also, we may sell a
S&P 500 Index model that ranks them on factors that we holding simply because we find a better
(Broad Market Index) 10.87 have found to be highly correlated with investment opportunity.
outperformance in the large-cap growth
Russell 1000 Growth Index universe. Those criteria include: MARKET CONDITIONS AND YOUR FUND
(Style-specific Index) 6.30
o Earnings revisions - We examine the The economy showed signs of improvement
Lipper Large-Cap Growth Fund breadth, depth and magnitude of positive during the fiscal year, as did the U.S.
Index (Peer Group Index) 7.45 earnings. stock market--particularly in the fourth
quarter of 2004. The Frank Russell
Source: Lipper, Inc. o Earnings sustainability and capital Company, which compiles the Russell
======================================= use - We examine a company's balance Market indexes, reported that for all of
sheet and profitability. 2004, mid-cap stocks outperformed
The fund outperformed its small- and large-cap stocks. Also, value
growth-oriented style-specific and peer o Valuation - We compare a stock's stocks generally outperformed growth
group indexes due to solid stock price to its cash flow and earnings stocks for the year.
selection, particularly in the consumer measures.
discretionary, health care and The fund's holdings in the consumer
industrials sectors. The fund lagged its o Risk assessment - We avoid "high discretionary and health care sectors
broad market index because, as a group, risk" companies as defined above. contributed most to fund performance.
growth stocks lagged value stocks for Our stock selection process pointed us
the fiscal year, and the S&P 500 Index to holdings in both sectors that
includes some value stocks. outperformed those of its style-
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
- -----------------------------------------------------------------------------------------------------------------------------------
By sector 1. Johnson & Johnson 3.8% 1. Systems Software 6.6%
2. Dell Inc. 3.8 2. Restaurants 5.3
1. Consumer Discretionary 24.4% 3. Gillette Co. (The) 2.9 3. Computer Hardware 4.5
2. Information Technology 24.3 4. Procter & Gamble Co. (The) 2.6 4. Communications Equipment 4.4
3. Industrials 13.7 5. Staples, Inc. 2.6 5. Consumer Finance 4.3
4. Health Care 13.4 6. Costco Wholesale Corp. 2.6 6. Aerospace & Defense 4.2
5. Consumer Staples 9.7 7. UnitedHealth Group Inc. 2.5 7. Pharmaceuticals 3.8
6. Financials 9.0 8. Symantec Corp. 2.5 8. Managed Health Care 3.3
7. Energy 3.1 9. SLM Corp. 2.2 9. Health Care Equipment 3.2
8. Materials 1.0 10. Harman International 10. Integrated Oil & Gas 3.1
Other Assets Less Liabilities 1.4 Industries Inc. 2.2
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
AIM V.I. LARGE CAP GROWTH FUND
specific index. Our returns from the quarter sales and earnings would The views and opinions expressed in
health care sector were particularly disappoint. Nonetheless, given the Management's Discussion of Fund
satisfying given that health care was company's commanding market share and Performance are those of A I M Advisors,
one of the weakest-performing sectors of strong financial position, we believed Inc. These views and opinions are
the overall market in 2004. The fund's that Intel would remain the leader in subject to change at any time based on
industrials and information technology its industry. We therefore continued to factors such as market and economic
stocks also added to the fund's one-year hold the stock at the close of the conditions. These views and opinions may
return. Only energy and telecommunication fiscal year. not be relied upon as investment advice
services, in which the fund had minimal or recommendations, or as an offer for a
investments (approximately three percent One stock that disappointed--and that particular security. The information is
of total net assets), detracted from we sold before the close of the fiscal not a complete analysis of every aspect
fund performance for the year. year--was Gap. The clothier issued of any market, country, industry,
disappointing sales reports, and while security or the fund. Statements of fact
UnitedHealth Group was the fund's top their profit margins improved during the are from sources considered reliable,
performer for the year. UnitedHealth year, their lower sales volumes hurt. but A I M Advisors, Inc. makes no
Group provides an array of health Concerned that Gap might be facing representation or warranty as to their
care-related services to individuals, difficulties and that its stock price completeness or accuracy. Although
physicians and others. We have long been could come under pressure, we sold our historical performance is no guarantee
impressed with UnitedHealth Group's holdings and took our profits. of future results, these insights may
management, especially its ability to help you understand our investment
contain costs and grow its business. The IN CLOSING management philosophy.
company reported record 2004 earnings,
but that didn't surprise us. The company At the close of the fiscal year, the GEOFFREY V. KEELING,
has demonstrated strong earnings growth fund held 75 stocks and its net assets Chartered Financial
over the years. totaled $1.2 million. Throughout the [KEELING Analyst, senior
year, we emphasized the role our PHOTO] portfolio manager,
Johnson & Johnson, the fund's largest investment process plays in portfolio is co-manager of
holding at the close of the fiscal year, construction. We analyzed several AIM V.I. Large Cap
was another stock that performed well factors for each potential purchase, Growth Fund. He joined AIM in 1995 and
for the fund. We bought J&J because we combining quantitative and fundamental assumed his present responsibilities in
liked the company's sustainable earnings analysis, to determine whether a stock 1999. Mr. Keeling received a B.B.A. in
and its dominant position in many of its was a buy candidate. We further finance from The University of Texas at
markets. While the fund was dramatically emphasized the sell decision, because we Austin.
underweight in pharmaceutical stocks, we believe that avoiding high-risk
were impressed with J&J's durable situations can limit potential loss of ROBERT L. SHOSS,
businesses. Given the company's capital. We believe this approach has senior portfolio
significant free cash flow, strong the potential to provide compelling [SHOSS manager, is co-
management and market dominance, we returns over the long term for PHOTO] manager of AIM V.I.
considered the stock to be reasonably shareholders. As always, we thank you Large Cap Growth
valued. for your continuing investment in AIM Fund. He joined AIM
V.I. Large Cap Growth Fund. in 1995 and assumed his present
Intel did not perform well for the responsibilities in 1999. Mr. Shoss
fund. The company announced in September received a B.A. from The University of
that due to weaker-than-expected chip Texas at Austin and an M.B.A. and a J.D.
demand, its third- from the University of Houston.
Assisted by the Large Cap Growth Team
PRINCIPAL RISKS OF INVESTING IN THE FUND
The fund may invest a portion of its assets in synthetic instruments, such as
warrants, futures, options, exchange traded funds and American Depositary
Receipts, the value of which may not correlate perfectly with the overall
securities market. Risks associated with synthetic instruments may include
counter party risk and sensitivity to interest rate changes and market price
fluctuations. See the prospectus for more details.
The fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
fluctuations in the value of the U.S. dollar relative to the values of other
currencies, the custody arrangements made for the fund's foreign holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies.
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. LARGE CAP GROWTH FUND
EXAMPLE You may use the information in this You may use this information to compare
table, together with the amount you the ongoing costs of investing in the
As a shareholder of the fund, you incur invested, to estimate the expenses that fund and other funds. To do so, compare
ongoing costs, including management you paid over the period. Simply divide this 5% hypothetical example with the 5%
fees; distribution and/or service fees your account value by $1,000 (for hypothetical examples that appear in the
(12b-1); and other fund expenses. This example, an $8,600 account value divided shareholder reports of the other funds.
example is intended to help you by $1,000 = 8.6), then multiply the
understand your ongoing costs (in result by the number in the table under Please note that the expenses shown
dollars) of investing in the fund and to the heading entitled "Actual Expenses in the table are meant to highlight your
compare these costs with ongoing costs Paid During Period" to estimate the ongoing costs only and do not reflect
of investing in other mutual funds. The expenses you paid on your account during any transactional costs, such as sales
example is based on an investment of this period. charges (loads) on purchase payments,
$1,000 invested at the beginning of the contingent deferred sales charges on
period and held for the entire period, HYPOTHETICAL EXAMPLE FOR redemptions, and redemption fees, if
July 1, 2004 - December 31, 2004. COMPARISON PURPOSES any. Therefore, the hypothetical
information is useful in comparing
The actual and hypothetical expenses The table below also provides ongoing costs only, and will not help
in the examples below do not represent information about hypothetical account you determine the relative total costs
the effect of any fees or other expenses values and hypothetical expenses based of owning different funds. In addition,
assessed in connection with a variable on the fund's actual expense ratio and if these transactional costs were
product; if they did, the expenses shown an assumed rate of return of 5% per year included, your costs would have been
would be higher while the ending account before expenses, which is not the fund's higher.
values shown would be lower. actual return. The hypothetical account
values and expenses may not be used to
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period.
about actual account values and actual
expenses.
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,039.30 $6.87 $1,018.40 $6.80
Series II 1,000.00 1,038.40 7.63 1,017.65 7.56
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 3.93% and 3.84% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.34% and 1.49% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. LARGE CAP GROWTH FUND
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
=======================================
AVERAGE ANNUAL TOTAL RETURNS 8/29/03-12/31/04 Index data from 8/31/03
As of 12/31/04 [MOUNTAIN CHART]
SERIES I SHARES AIM V.I. LARGE CAP GROWTH LIPPER LARGE-CAP RUSSELL 1000 S&P 500
Inception (8/29/03) 13.92% DATE FUND-SERIES I GROWTH FUND INDEX GROWTH INDEX INDEX
1 Year 9.08 8/29/03 $10000
8/03 10000 $10000 $10000 $10000
SERIES II SHARES 9/03 9840 9787 9893 9894
Inception 13.73% 10/03 10610 10381 10449 10454
1 Year 8.89 11/03 10830 10480 10558 10545
======================================= 12/03 10917 10775 10923 11098
1/04 11107 10982 11146 11302
The Series I and Series II shares invest 2/04 11117 11029 11217 11459
in the same portfolio of securities and 3/04 11177 10906 11009 11286
will have substantially similar 4/04 10916 10661 10881 11109
performance, except to the extent that 5/04 11257 10854 11084 11261
expenses borne by each class differ. 6/04 11457 11010 11222 11480
7/04 10777 10359 10588 11100
The performance data quoted represent 8/04 10676 10286 10536 11145
past performance and cannot guarantee 9/04 10987 10527 10636 11265
comparable future results; current 10/04 10958 10654 10802 11437
performance may be lower or higher. 11/04 11569 11129 11173 11900
Please contact your variable product 12/04 $11907 $11578 $11611 $12305
issuer or financial advisor for the most
recent month-end variable product Source: Lipper, Inc.
performance. Performance figures reflect ======================================================================================
fund expenses, reinvested distributions
and changes in net asset value. Had the advisor not waived fees and/or consequently, the performance of the
Investment return and principal value reimbursed expenses, performance would fund may deviate significantly from the
will fluctuate so that you may have a have been lower. performance of the indexes.
gain or loss when you sell shares.
ABOUT INDEXES USED IN THIS REPORT A direct investment cannot be made
AIM V.I. Large Cap Growth Fund, a in an index. Unless otherwise indicated,
series portfolio of AIM Variable The unmanaged Lipper Large-Cap Growth index results include reinvested
Insurance Funds, is currently offered Fund Index represents an average of the dividends, and they do not reflect sales
through insurance companies issuing performance of the 30 largest charges. Performance of an index of
variable products. You cannot purchase large-capitalization growth funds funds reflects fund expenses;
shares of the fund directly. Performance tracked by Lipper, Inc., an independent performance of a market index does not.
figures given represent the fund and are mutual fund performance monitor.
not intended to reflect actual variable OTHER INFORMATION
product values. They do not reflect The unmanaged Russell
sales charges, expenses and fees 1000--Registered Trademark-- Growth The returns shown in the Management's
assessed in connection with a variable Index is a subset of the unmanaged Discussion of Fund Performance are based
product. Sales charges, expenses and Russell 1000--Registered Trademark-- on net asset values calculated for
fees, which are determined by the Index, which represents the performance shareholder transactions. Generally
variable product issuers, will vary and of the stocks of large-capitalization accepted accounting principles require
will lower the total return.* companies; the Growth subset measures adjustments to be made to the net assets
the performance of Russell 1000 of the fund at period end for financial
companies with higher price/book ratios reporting purposes, and as such, the net
and higher forecasted growth values. asset values for shareholder
transactions and the returns based on
The unmanaged Standard & Poor's those net asset values may differ from
Composite Index of 500 Stocks (the S&P the net asset values and returns
500--Registered Trademark-- Index) is an reported in the Financial Highlights.
index of common stocks frequently used
as a general measure of U.S. stock Industry classifications used in this
market performance. report are generally according to the
Global Industry Classification Standard,
The fund is not managed to track the which was developed by and is the
performance of any particular index, exclusive property and a service mark of
including the indexes defined here, and Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VILCG-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.60%
AEROSPACE & DEFENSE-4.23%
Boeing Co. (The) 260 $ 13,460
- ------------------------------------------------------------------
General Dynamics Corp. 130 13,598
- ------------------------------------------------------------------
Northrop Grumman Corp. 130 7,067
- ------------------------------------------------------------------
Rockwell Collins, Inc. 200 7,888
- ------------------------------------------------------------------
United Technologies Corp. 80 8,268
==================================================================
50,281
==================================================================
AIR FREIGHT & LOGISTICS-0.66%
FedEx Corp. 80 7,879
==================================================================
APPAREL RETAIL-0.97%
Limited Brands, Inc. 500 11,510
==================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.71%
Coach, Inc.(a) 150 8,460
==================================================================
APPLICATION SOFTWARE-1.28%
Autodesk, Inc. 400 15,180
==================================================================
BUILDING PRODUCTS-1.23%
Masco Corp. 400 14,612
==================================================================
COMMUNICATIONS EQUIPMENT-4.36%
Cisco Systems, Inc.(a) 1,030 19,879
- ------------------------------------------------------------------
Motorola, Inc. 430 7,396
- ------------------------------------------------------------------
QUALCOMM Inc. 580 24,592
==================================================================
51,867
==================================================================
COMPUTER HARDWARE-4.49%
Dell Inc.(a) 1,070 45,090
- ------------------------------------------------------------------
NCR Corp.(a) 120 8,308
==================================================================
53,398
==================================================================
COMPUTER STORAGE & PERIPHERALS-0.57%
Lexmark International, Inc.-Class A(a) 80 6,800
==================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.81%
PACCAR Inc. 120 9,658
==================================================================
CONSUMER ELECTRONICS-2.24%
Harman International Industries, Inc. 210 26,670
==================================================================
CONSUMER FINANCE-4.30%
American Express Co. 130 7,328
- ------------------------------------------------------------------
Capital One Financial Corp. 110 9,263
- ------------------------------------------------------------------
MBNA Corp. 280 7,893
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
SLM Corp. 500 $ 26,695
==================================================================
51,179
==================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.28%
Computer Sciences Corp.(a) 270 15,220
==================================================================
DEPARTMENT STORES-1.89%
J.C. Penney Co., Inc. 240 9,936
- ------------------------------------------------------------------
Nordstrom, Inc. 270 12,617
==================================================================
22,553
==================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.08%
Cooper Industries, Ltd.-Class A (Bermuda) 160 10,862
- ------------------------------------------------------------------
Rockwell Automation, Inc. 280 13,874
==================================================================
24,736
==================================================================
FOOTWEAR-2.06%
NIKE, Inc.-Class B 270 24,486
==================================================================
HEALTH CARE EQUIPMENT-3.23%
Bard (C.R.), Inc. 140 8,957
- ------------------------------------------------------------------
Becton, Dickinson & Co. 380 21,584
- ------------------------------------------------------------------
Waters Corp.(a) 170 7,954
==================================================================
38,495
==================================================================
HEALTH CARE SERVICES-1.13%
Quest Diagnostics Inc. 140 13,377
==================================================================
HEALTH CARE SUPPLIES-1.90%
Alcon, Inc. (Switzerland) 280 22,568
==================================================================
HOME IMPROVEMENT RETAIL-1.18%
Home Depot, Inc. (The) 330 14,104
==================================================================
HOTELS, RESORTS & CRUISE LINES-0.63%
Marriott International, Inc.-Class A 120 7,558
==================================================================
HOUSEHOLD APPLIANCES-1.04%
Black & Decker Corp. (The) 140 12,366
==================================================================
HOUSEHOLD PRODUCTS-2.59%
Procter & Gamble Co. (The) 560 30,845
==================================================================
HOUSEWARES & SPECIALTIES-1.04%
Fortune Brands, Inc. 160 12,349
==================================================================
HYPERMARKETS & SUPER CENTERS-2.56%
Costco Wholesale Corp. 630 30,498
==================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-1.11%
Tyco International Ltd. (Bermuda) 370 $ 13,224
==================================================================
INDUSTRIAL MACHINERY-2.56%
Danaher Corp. 160 9,186
- ------------------------------------------------------------------
Eaton Corp. 140 10,130
- ------------------------------------------------------------------
Illinois Tool Works Inc. 120 11,122
==================================================================
30,438
==================================================================
INTEGRATED OIL & GAS-3.14%
BP PLC-ADR (United Kingdom) 210 12,264
- ------------------------------------------------------------------
ChevronTexaco Corp. 230 12,077
- ------------------------------------------------------------------
ConocoPhillips 150 13,024
==================================================================
37,365
==================================================================
INTERNET RETAIL-1.66%
eBay Inc.(a) 170 19,768
==================================================================
INTERNET SOFTWARE & SERVICES-2.03%
Yahoo! Inc.(a) 640 24,115
==================================================================
INVESTMENT BANKING & BROKERAGE-0.77%
Bear Stearns Cos. Inc. (The) 90 9,208
==================================================================
IT CONSULTING & OTHER SERVICES-1.79%
Accenture Ltd.-Class A (Bermuda)(a) 790 21,330
==================================================================
MANAGED HEALTH CARE-3.29%
UnitedHealth Group Inc. 340 29,930
- ------------------------------------------------------------------
WellPoint Inc.(a) 80 9,200
==================================================================
39,130
==================================================================
MOTORCYCLE MANUFACTURERS-1.89%
Harley-Davidson, Inc. 370 22,478
==================================================================
MOVIES & ENTERTAINMENT-0.58%
Pixar(a) 80 6,849
==================================================================
OFFICE ELECTRONICS-1.56%
Xerox Corp.(a) 1,090 18,541
==================================================================
PERSONAL PRODUCTS-2.93%
Gillette Co. (The) 780 34,928
==================================================================
PHARMACEUTICALS-3.84%
Johnson & Johnson 720 45,662
==================================================================
PROPERTY & CASUALTY INSURANCE-0.83%
Allstate Corp. (The) 190 9,827
==================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
PUBLISHING-0.62%
McGraw-Hill Cos., Inc. (The) 80 $ 7,323
==================================================================
RESTAURANTS-5.26%
McDonald's Corp. 740 23,724
- ------------------------------------------------------------------
Starbucks Corp.(a) 230 14,343
- ------------------------------------------------------------------
Yum! Brands, Inc. 520 24,534
==================================================================
62,601
==================================================================
SEMICONDUCTORS-0.41%
Intel Corp. 210 4,912
==================================================================
SOFT DRINKS-1.62%
PepsiCo, Inc. 370 19,314
==================================================================
SPECIALTY STORES-2.58%
Staples, Inc. 910 30,676
==================================================================
STEEL-0.97%
Nucor Corp. 220 11,515
==================================================================
SYSTEMS SOFTWARE-6.55%
Adobe Systems Inc. 290 18,195
- ------------------------------------------------------------------
McAfee Inc.(a) 220 6,365
- ------------------------------------------------------------------
Microsoft Corp. 610 16,293
- ------------------------------------------------------------------
Oracle Corp.(a) 560 7,683
- ------------------------------------------------------------------
Symantec Corp.(a) 1,140 29,366
==================================================================
77,902
==================================================================
THRIFTS & MORTGAGE FINANCE-3.09%
Countrywide Financial Corp. 580 21,466
- ------------------------------------------------------------------
Doral Financial Corp. (Puerto Rico) 160 7,880
- ------------------------------------------------------------------
Golden West Financial Corp. 120 7,370
==================================================================
36,716
==================================================================
TRADING COMPANIES & DISTRIBUTORS-1.06%
W.W. Grainger, Inc. 190 12,658
==================================================================
Total Common Stocks & Other Equity
Interests (Cost $986,948) 1,173,129
==================================================================
TOTAL INVESTMENTS-98.60% (Cost $986,948) 1,173,129
==================================================================
OTHER ASSETS LESS LIABILITIES-1.40% 16,685
==================================================================
NET ASSETS-100.00% $1,189,814
__________________________________________________________________
==================================================================
</Table>
Investment Abbreviation:
<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, 2004
<Table>
ASSETS:
Investments, at market value (cost $986,948) $1,173,129
- ------------------------------------------------------------
Cash 18,101
- ------------------------------------------------------------
Receivables for:
Dividends 1,404
- ------------------------------------------------------------
Amount due from advisor 11,460
- ------------------------------------------------------------
Investment for trustee deferred compensation 3,928
============================================================
Total assets 1,208,022
____________________________________________________________
============================================================
LIABILITIES:
Trustee deferred compensation 3,928
- ------------------------------------------------------------
Accrued administrative services fees 716
- ------------------------------------------------------------
Accrued distribution fees -- Series II 92
- ------------------------------------------------------------
Accrued transfer agent fees 86
- ------------------------------------------------------------
Accrued operating expenses 13,386
============================================================
Total liabilities 18,208
============================================================
Net assets applicable to shares outstanding $1,189,814
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,001,198
- ------------------------------------------------------------
Undistributed net investment income (loss) (3,700)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 6,135
- ------------------------------------------------------------
Unrealized appreciation of investment securities 186,181
============================================================
$1,189,814
____________________________________________________________
============================================================
NET ASSETS:
Series I $ 595,506
____________________________________________________________
============================================================
Series II $ 594,308
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 50,199
____________________________________________________________
============================================================
Series II 50,174
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 11.86
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 11.84
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $68) $ 10,591
===========================================================
EXPENSES:
Advisory fees 8,341
- -----------------------------------------------------------
Administrative services fees 50,049
- -----------------------------------------------------------
Custodian fees 8,274
- -----------------------------------------------------------
Distribution fees -- Series II 1,389
- -----------------------------------------------------------
Transfer agent fees 76
- -----------------------------------------------------------
Trustees' fees and retirement benefits 11,258
- -----------------------------------------------------------
Reports to shareholders 9,199
- -----------------------------------------------------------
Professional fees 22,656
- -----------------------------------------------------------
Other 34
===========================================================
Total expenses 111,276
===========================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (95,986)
===========================================================
Net expenses 15,290
===========================================================
Net investment income (loss) (4,699)
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 23,921
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 79,217
- -----------------------------------------------------------
Net gain from investment securities 103,138
===========================================================
Net increase in net assets resulting from
operations $ 98,439
___________________________________________________________
===========================================================
</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 year ended December 31, 2004 and the period August 29, 2003 (date
operations commenced) to December 31, 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,699) $ (2,867)
- --------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 23,921 (12,742)
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 79,217 106,964
======================================================================================
Net increase in net assets resulting from operations 98,439 91,355
======================================================================================
Distributions to shareholders from net investment income:
Series I -- (785)
- --------------------------------------------------------------------------------------
Series II -- (520)
======================================================================================
Total distributions from net investment income -- (1,305)
======================================================================================
Distributions to shareholders from net realized gains:
Series I (1,457) --
- --------------------------------------------------------------------------------------
Series II (1,457) --
======================================================================================
Total distributions from net realized gains (2,914) --
======================================================================================
Decrease in net assets resulting from distributions (2,914) (1,305)
======================================================================================
Share transactions-net:
Series I 1,457 500,795
- --------------------------------------------------------------------------------------
Series II 1,457 500,530
======================================================================================
Net increase in net assets resulting from share
transactions 2,914 1,001,325
======================================================================================
Net increase in net assets 98,439 1,091,375
======================================================================================
NET ASSETS:
Beginning of year 1,091,375 --
======================================================================================
End of year (including undistributed net investment income
(loss) of $(3,700) and $(1,131), respectively) $1,189,814 $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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. LARGE CAP GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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 of
the Fund's average daily net assets, plus 0.625% of the Fund's average daily net
assets in excess of $2 billion. Effective January 1, 2005 through June 30, 2006,
AIM has contractually agreed to waive advisory fees to the extent necessary so
that the advisory fees payable by the Fund (based on the Fund's average daily
net assets) do not exceed the annual rate of 0.695% of the first $250 million,
plus 0.67% of the next $250 million, plus 0.645% of the next $500 million, plus
0.62% of the next $1.5 billion, plus 0.595% of the next $2.5 billion, plus 0.57%
of the next $2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of
the Fund's average daily net assets in excess of $10 billion. AIM has
contractually agreed to waive advisory fees and/or reimburse expenses to the
extent necessary to limit total annual operating expenses (excluding certain
items discussed below) of each Series to 1.30% of average daily net assets,
through April 30, 2006. In determining the advisor's obligation to waive
advisory fees and/or reimburse expenses, the following expenses are not taken
into account, and could cause the total annual fund operating expenses to exceed
the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii)
taxes; (iv) dividend expense on short sales; (v) extraordinary items (these are
expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (vi)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vii) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds. Voluntary fee waivers or reimbursements may
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $8,341 and reimbursed expenses of $86,789.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume expenses incurred by the Fund
in connection with matters related to recently settled regulatory actions and
investigations concerning market timing activity in the AIM Funds, including
legal, audit, shareholder servicing, communication and trustee expenses. These
expenses along with the related expense reimbursement, are included in the
Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$50,049 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $76.
AIM V.I. LARGE CAP GROWTH 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 insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets through April 30, 2006. Pursuant to the Plan, for the
year ended December 31, 2004, the Series II shares paid $833 after AIM
Distributors waived Plan fees of $556.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $300 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $300.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,788
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the year ended December 31, 2004
and the period August 29, 2003 (date operations commenced) through December 31,
2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $1,312 $1,305
- ------------------------------------------------------------------------------
Long-term capital gain 1,602 --
==============================================================================
Total distributions $2,914 $1,305
______________________________________________________________________________
==============================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 395
- --------------------------------------------------------------------------
Undistributed long-term gain 5,740
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 186,259
- --------------------------------------------------------------------------
Temporary book/tax differences (3,778)
- --------------------------------------------------------------------------
Shares of beneficial interest 1,001,198
==========================================================================
Total net assets $1,189,814
__________________________________________________________________________
==========================================================================
</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 return of
capital adjustments on certain investments.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation.
The Fund utilized $5,215 of capital loss carryforward in the current period
to offset net realized capital gain for federal income tax purposes. The Fund
did not have a capital loss carryforward as of December 31, 2004.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $1,141,722 and $1,129,336, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $190,448
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,189)
==============================================================================
Net unrealized appreciation of investment securities $186,259
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $986,870.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2004, undistributed net investment income (loss) was increased
by $2,130 and undistributed net realized gain was decreased by $2,130. This
reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ------------------------------------------------------------------------------------------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2004 2003
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Series I -- $ -- 50,001 $ 500,010
- ------------------------------------------------------------------------------------------------------------------
Series II -- -- 50,001 500,010
==================================================================================================================
Issued as reinvestment of dividends:
Series I 124 1,457 74 785
- ------------------------------------------------------------------------------------------------------------------
Series II 124 1,457 49 520
==================================================================================================================
248 $2,914 100,125 $1,001,325
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Currently, all shares are owned by AIM.
AIM V.I. LARGE CAP GROWTH FUND
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
-----------------------------------
AUGUST 29,
2003
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.90 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.03)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.03 0.95
=================================================================================================
Total from investment operations 0.99 0.92
=================================================================================================
Less distributions:
Dividends from net investment income -- (0.02)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.03) --
=================================================================================================
Total distributions (0.03) (0.02)
=================================================================================================
Net asset value, end of period $11.86 $10.90
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 9.08% 9.16%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 596 $ 546
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.33%(c) 1.33%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 9.88%(c) 14.54%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(a)(c) (0.73)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 104% 37%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.06) and (0.51)%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average net assets of $556,395.
(d) Annualized.
(e) 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
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.90 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.03)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.03 0.94
=================================================================================================
Total from investment operations 0.97 0.91
=================================================================================================
Less distributions:
Dividends from net investment income -- (0.01)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.03) --
=================================================================================================
Total distributions (0.03) (0.01)
=================================================================================================
Net asset value, end of period $11.84 $10.90
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 8.89% 9.11%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 594 $ 546
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.48%(c) 1.48%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 10.13%(c) 14.79%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.50)%(a)(c) (0.88)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 104% 37%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.08) and (0.66)%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $555,691.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
and ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
of the State of New Jersey. AIM and certain of these other parties also have
received more limited inquiries from the SEC, the NASD, the DOL, the Internal
Revenue Service, the United States Attorney's Office for the Southern District
of New York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. LARGE CAP GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
the related statement of operations for the year then ended, the statement of
changes in net assets and the financial highlights for the one year in the
period then ended and 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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. Large Cap Growth Fund as of December 31, 2004, the results of its
operations for the year then ended, the statement of changes in net assets, and
the financial highlights for the one year in the period then ended and 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.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. LARGE CAP GROWTH FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Large Cap Growth Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- --------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Management Group Inc. (financial
President services holding company); Director
and Vice Chairman, AMVESCAP PLC and
Chairman, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief
Executive Officer, A I M Management
Group Inc.; Director, Chairman and
President, A I M Advisors, Inc.
(registered investment advisor);
Director and Chairman, A I M Capital
Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered
broker dealer), AIM Investment
Services, Inc., (registered transfer
agent), and Fund Management Company
(registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. 2003 Director, President and Chief None
Williamson(2) -- 1951 Executive Officer, A I M Management
Trustee and Executive Vice 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), Fund Management Company
(registered broker dealer) and
INVESCO Distributors, Inc.
(registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM
and a global investment management
firm)
Formerly: Director, Chairman,
President and Chief Executive
Officer, INVESCO Funds Group, Inc.;
President and Chief Executive
Officer, INVESCO Distributors, Inc.;
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman
and Chief Executive Officer of
NationsBanc Advisors, Inc.; and
Chairman of NationsBanc Investments,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance company); and
Trustee and Chair Associates (technology consulting Captaris, Inc. (unified messaging
company) provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief
Executive Officer, AMC Cancer
Research Center; and Chairman and
Chief Executive Officer, First
Columbia Financial Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker
& McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder
Insurance Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, (registered investment company);
including the Boss Group Ltd. Annuity and Life Re (Holdings), Ltd.
(private investment and management) (insurance company)
and 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 Officer, Twenty Administaff, and Discovery Global
Trustee First Century Group, Inc. Education Fund (non-profit)
(government affairs company) and
Texana Timber LP (sustainable
forestry company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution General Chemical Group, Inc.
Trustee Services (California)
Formerly: Associate Justice of the
California Court of Appeals
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, None
Trustee YWCA of the USA
- ------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 100% is eligible for the dividends received deduction for
corporations.
The Fund distributed long-term capital gains of $1,602 for the Fund's tax year
ended December 31, 2004.
AIM V.I. LARGE CAP GROWTH FUND
AIM V.I. MID CAP CORE EQUITY FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. MID CAP CORE EQUITY FUND
seeks to provide long-term growth of capital.
Unless otherwise stated,information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
======================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
======================================================
===================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
=====================================================
</Table>
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND AIM V.I. MID CAP CORE EQUITY FUND
PERFORMANCE
This fund invests in mid-cap companies HOW WE INVEST purchase select undervalued companies
with attractive long-term growth with strong long-term prospects.
prospects--companies that are managed by Throughout the year we adhered to our
good stewards of capital whose track investment discipline. We invest in Nine of 10 sectors contributed
records and business plans suggest a growing companies with strong business positively to fund performance for the
strong likelihood of success. attributes that are experiencing some year, and eight of them produced
near-term price weakness due to double-digit returns. The fund's returns
========================================== temporary setbacks or market trends. in energy, health care, consumer
FUND VS. INDEXES From such companies we select those with discretionary and industrials provided
both consistent free cash flow profiles the most significant contribution to
Total returns, 12/31/03-12/31/04, and management teams able to direct them fund performance.
excluding variable product issuer charges. through the setback and on to achieve
If variable product issuer charges were long-term capital appreciation and lower As stated, we focus on companies with
included, returns would be lower. downside risk. We believe these strong long-term potential that are
attributes are consistent with the experiencing some near-term distress.
Series I Shares 13.82% expectations shareholders have for a This is often in contrast to prevailing
Series II Shares 13.57 core equity fund designed to complement market sentiment. For example, when oil
S&P 500 Index (Broad Market Index) 10.87 their more aggressive equity prices tapered from the historic highs
Russell Midcap Index investments. seen in October, many investors
(Style-specific Index) 20.22 indiscriminately sold energy stocks,
Lipper Mid-Cap Core Fund Index particularly oil service company stocks,
(Peer Group Index) 15.44 MARKET CONDITIONS AND YOUR FUND causing their prices to decline.
Source: Lipper, Inc. In the relatively flat market We used that opportunity to add to
========================================== environment of spring and early summer our existing positions in select oil
2004, the fund outperformed its service companies while adding new
For the fiscal year ended December benchmark market indexes, the S&P 500 positions in B. J. Services and FMC
31, 2004, the fund outperformed the Index and the Russell Midcap Index. In Technologies. Though such companies'
broad market index, the S&P 500 Index, the fourth quarter of the year, the short-term price movements are often
by almost 300 basis points (3.0%). market rewarded the stocks of many affected by oil prices, we believe that
Mid-sized companies broadly outperformed companies with weaker financial worldwide demand for oil will continue
larger companies, which are positions and less predictable earnings to cause exploration and production
well-represented in the S&P 500 Index. and cash flow profiles. Thus the market companies to increase production, which
The fund's underperformance compared to rewarded stocks that were not in the directly benefits oil service companies.
the Russell Midcap Index can be fund's portfolio because they did not
primarily attributed to an underweight meet our investment criteria. Because of Despite weakness in the fourth
position in a strong performing its greater upward movement, the fourth quarter, the energy sector was among the
financials sector and weak relative quarter virtually determined the year's best-performing sectors in both the fund
performance by the fund's holdings in market results. However, while the and its benchmarks for the year,
the information technology sector. market focused on more cyclical stocks consistent with the overall strength in
rather than stocks with more stable oil prices. Two of the fund's
profiles, we found opportunities to top-performing holdings in this sector,
Williams Co. and long-term holding Noble
Corp., also made strong contributions to
overall fund performance.
Republic Services, a long-term fund
holding in industrials, was among top
individual
</Table>
<Table>
<Caption>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. International Flavors & 1. Specialty Chemicals 6.2%
1. Information Technology 16.5% Fragrances Inc. 2.5% 2. Regional Banks 4.9
2. Energy 14.2 2. Republic Services, Inc. 2.2 3. Oil & Gas Exploration & Production 4.0
3. Consumer Discretionary 12.9 3. Mohawk Industries, Inc. 2.2 4. Pharmaceuticals 3.5
4. Materials 12.5 4. Williams Cos., Inc. (The) 2.0 5. Electronic Equipment Manufacturers 3.4
5. Financials 10.4 5. Forest Laboratories, Inc. 2.0 6. Semiconductors 3.1
6. Industrials 6.9 6. Noble Corp. (Cayman Islands) 2.0 7. Publishing 3.0
7. Consumer Staples 5.8 7. Ceridian Corp. 2.0 8. Oil & Gas Drilling 3.0
8. Health Care 5.6 8. Wisconsin Energy Corp. 1.8 9. Application Software 3.0
9. Utilities 2.9 9. Xerox Corp. 1.8 10. Electric Utilities 2.9
10. Telecommunication Services 1.1 10. Kroger Co. (The) 1.8
Money Market Funds Plus Other
Assets Less Liabilities 11.2
The fund's holdings are subject to change, and there is no assurance that the fund will
continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
<Caption>
AIM V.I. MID CAP CORE EQUITY FUND
contributors to fund performance during teams, with above-average long-term The views and opinions expressed in
the period. We initially became growth prospects relative to direct Management's Discussion of Fund
interested in Republic Services two competitors. Performance are those of A I M Advisors,
years ago because it was producing high Inc. These views and opinions are
returns on invested capital as one of The fund's underweight position in a subject to change at any time based on
only a few leading companies in an strong-performing financials sector also factors such as market and economic
industry (waste management) with high detracted from its relative performance. conditions. These views and opinions may
barriers to entry. Its valuation became For some time we have noted our not be relied upon as investment advice
increasingly attractive due to investor significant underweight in financials. or recommendations, or as an offer for a
over-emphasis on the impact that the Over the period, the financial sector particular security. The information is
economic slowdown that encompassed much appreciated on anticipation of takeover not a complete analysis of every aspect
of 2001 and 2002 would have on revenues. activity that, in general, did not of any market, country, industry,
materialize. However, we will continue security or the fund. Statements of fact
Therefore we were able to purchase an to avoid the risks inherent in investing are from sources considered reliable,
interest in Republic Services at a time in financial firms with management teams but A I M Advisors, Inc. makes no
when its market price was below what we that use significant borrowing to representation or warranty as to their
believed to be its fair value. As generate earnings. Our concerns are completeness or accuracy. Although
capital expenditures have recovered in further escalated by the fact that the historical performance is no guarantee
recent months, the strong market cost of the primary product for many of future results, these insights may
position of Republic Services has financials firms--money--rises along help you understand our investment
enabled it to generate significant with interest rates. management philosophy.
returns.
RONALD S. SLOAN,
Following strong performance in 2003, IN CLOSING Chartered Financial
information technology stocks were [SLOAN Analyst, senior
generally flat during 2004. Though the At the end of the year our PHOTO] portfolio manager, is
sector enjoyed a strong fourth quarter, company-by-company fundamental research lead manager of AIM
it was the worst-performing sector in showed that businesses were finding it V.I. Mid Cap Core Equity
the Russell Midcap Index for the year increasingly hard to squeeze out greater Fund. Mr. Sloan has 34 years of
and a significant detractor from fund efficiencies in productivity. That experience in the investment industry.
performance for the period. research, as well as relatively high He joined AIM in 1998. Mr. Sloan
commodity prices, led us to believe that attended the University of Missouri,
In particular, semiconductor holdings the economic environment did not support where he received both a B.S. in
such as Microchip Technology suffered above-average earnings growth for most business administration and an M.B.A.
from questions regarding supply and companies. Because of its emphasis on
demand issues within the industry. companies with moderate yet stable Assisted by the Mid/Large Cap Core Team
Consistent with our strategy of earnings growth and reasonable
purchasing undervalued and reasonably valuations, we believe the fund is well
priced stocks, we utilized this price suited for shareholders who are looking
weakness in semiconductor stocks as an for a core equity fund to complement
opportunity to increase our investment more aggressive investments and provide
in the area. We were able to identify downside protection if markets weaken.
several other quality companies that had That is our view of the role of a core
experienced little erosion in profit equity fund, and we were pleased that we
margins, despite a slight slowdown in could do that in 2004.
orders. We believe these companies
represent industry leaders, managed by
highly competent management
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in small and mid-size companies involves risks not associated with investing
in more established companies, including business risk, significant stock price
fluctuations and illiquidity.
The fund may invest up to 25% of its assets in the securities of non-U.S. issuers.
International investing presents certain risks not associated with investing solely in
the United States. These include risks relating to fluctuations in the value of the
U.S. dollar relative to the values of other currencies, the custody arrangements made
for the fund's foreign holdings, differences in accounting, political risks and the
lesser degree of public information required to be provided by non-U.S. companies.
======================================================================================
TOTAL NET ASSETS $530.1 MILLION
TOTAL NUMBER OF HOLDINGS* 76
====================================================================================== [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE,PLEASE TURN THE PAGE.
</Table>
3
<Table>
AIM V.I. MID CAP CORE EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES return of 5% per year before expenses,
which is not the fund's actual return.
As a shareholder of the fund, you incur The table below provides information The hypothetical account values and
ongoing costs including management fees, about actual account values and actual expenses may not be used to estimate
distribution and/or service fees (12b-1) expenses. You may use the information in your actual ending account balance or
and other fund expenses. This example is this table, together with the amount you expenses you paid for the period. You
intended to help you understand your invested, to estimate the expenses that may use this information to compare the
ongoing costs (in dollars) of investing you paid over the period. Simply divide ongoing costs of investing in the fund
in the fund and to compare these costs your account value by $1,000 (for and other funds. To do so, compare this
with ongoing costs of investing in other example, an $8,600 account value divided 5% hypothetical example with the 5%
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the hypothetical examples that appear in the
investment of $1,000 invested at the result by the number in the table under shareholder reports of the other funds.
beginning of the period and held for the the heading entitled "Actual Expenses
entire period, July 1,2004 - December Paid During Period" to estimate the Please note that the expenses shown
31, 2004. expenses you paid on your account during in the table are meant to highlight your
this period. ongoing costs only. Therefore, the
The actual and hypothetical expenses hypothetical information is useful in
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON comparing ongoing costs only, and will
the effect of any fees or other expenses PURPOSES not help you determine the relative
assessed in connection with a variable total costs of owning different funds.
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's actual expense ratio and
an assumed rate of
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,052.60 $5.37 $1,019.91 $5.28
Series II 1,000.00 1,051.60 6.65 1,018.65 6.55
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 5.26% and 5.16% for Series I and II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.04% and 1.29% for Series I and II shares, respectively) multiplied
by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
AIM V.I. MID CAP CORE EQUITY FUND
=======================================================================================
YOUR FUND'S LONG-TERM PERFORMANCE RESULTS OF A $10,000 INVESTMENT
Past performance cannot guarantee 9/10/01-12/31/04 Index data from 8/31/01
comparable future results.
[MOUNTAIN CHART]
=======================================
AVERAGE ANNUAL TOTAL RETURNS Date AIM V.I. Mid Cap AIM V.I. Mid Cap Russell Lipper
Core Equity Core Equity S&P 500 Midcap Mid-Cap
As of 12/31/04 Fund-Series I Fund-Series II Index Index Core Fund Index
8/31/01 $10000 $10000 $10000 $10000 $10000
SERIES I SHARES 9/01 9560 9560 9193 8794 8722
Inception (9/10/01) 10.30% 10/01 9920 9920 9368 9142 9158
1 Year 13.82 11/01 10361 10361 10086 9908 9850
12/01 10738 10722 10175 10306 10295
SERIES II SHARES 01/02 10728 10722 10026 10245 10177
Inception (9/10/01) 10.08% 02/02 10849 10833 9833 10136 10001
1 Year 13.57 03/02 11300 11284 10203 10744 10675
======================================= 04/02 11150 11133 9585 10536 10499
05/02 11220 11204 9514 10417 10286
The Series I and Series II shares invest 06/02 10529 10512 8837 9718 9542
in the same portfolio of securities and 07/02 9577 9561 8148 8770 8575
will have substantially similar 08/02 9797 9771 8201 8818 8673
performance, except to the extent that 09/02 9015 8991 7311 8004 7980
expenses borne by each class differ. 10/02 9356 9341 7954 8409 8355
11/02 9957 9932 8421 8993 8923
The performance data quoted represent 12/02 9547 9521 7927 8638 8506
past performance and cannot guarantee 01/03 9316 9291 7720 8464 8338
comparable future results; current 02/03 9166 9141 7604 8351 8162
performance may be lower or higher. 03/03 9136 9100 7677 8434 8183
Please contact your variable product 04/03 9687 9661 8309 9046 8800
issuer or financial advisor for the most 05/03 10509 10471 8747 9874 9539
recent month-end variable product 06/03 10639 10592 8858 9974 9707
performance. Performance figures reflect 07/03 10950 10902 9015 10303 10007
fund expenses, reinvested distributions 08/03 11350 11302 9190 10750 10450
and changes in net asset value. 09/03 11080 11032 9093 10616 10275
Investment return and principal value 10/03 11561 11513 9607 11426 11029
will fluctuate so that you may have a 11/03 11761 11703 9691 11747 11330
gain or loss when you sell shares. 12/03 12152 12096 10199 12099 11618
1/04 12394 12329 10387 12450 11932
AIM V.I. Mid Cap Core Equity Fund, a 2/04 12616 12551 10531 12718 12159
series portfolio of AIM Variable 3/04 12575 12510 10372 12721 12130
Insurance Funds, is currently offered 4/04 12646 12580 10209 12254 11748
through insurance companies issuing 5/04 12796 12731 10349 12558 11933
variable products. You cannot purchase 6/04 13139 13064 10550 12905 12258
shares of the fund directly. Performance 7/04 12606 12529 10201 12341 11634
figures given represent the fund and are 8/04 12555 12469 10242 12394 11590
not intended to reflect actual variable 9/04 12788 12701 10353 12797 11997
product values. They do not reflect 10/04 12990 12903 10511 13150 12194
sales charges, expenses and fees 11/04 13523 13427 10936 13951 12920
assessed in connection with a variable 12/04 $13831 $13738 $11308 $14545 $13411
product. Sales charges, expenses and
fees, which are determined by the Source: Lipper, Inc.
variable product issuers, will vary and =======================================================================================
will lower the total return.*
and they do not reflect sales charges.
ABOUT INDEXES USED IN THIS REPORT Performance of an index of funds
reflects fund expenses; performance of a
The unmanaged Standard & Poor's market index does not.
Composite Index of 500 Stocks (the S&P
500--Registered Trademark-- Index) is OTHER INFORMATION
an index of common stocks frequently
used as a general measure of U.S. stock The returns shown in the Management's
market performance. Discussion of Fund Performance are based
on net asset values calculated for
The unmanaged Russell Midcap shareholder transactions. Generally
- --Registered Trademark-- Index accepted accounting principles require
represents the performance of the stocks adjustments to be made to the net assets
of domestic mid-capitalization of the fund at period end for financial
companies. reporting purposes, and as such, the net
asset values for shareholder
The unmanaged Lipper Mid-Cap Core transactions and the returns based on
Fund Index represents an average of the those net asset values may differ from
performance of the 30 largest the net asset values and returns
mid-capitalization core funds tracked by reported in the Financial Highlights.
Lipper, Inc., an independent mutual fund
performance monitor. Industry classifications used in this
report are generally according to the
The fund is not managed to track the Global Industry Classification Standard,
performance of any particular index, which was developed by and is the
including the indexes defined here, and exclusive property and a service mark of
consequently, the performance of the Morgan Stanley Capital International
fund may deviate significantly from the Inc. and Standard & Poor's.
performance of the index.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends,
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
VIMCCE-AR-1
5
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-88.77%
ADVERTISING-1.24%
Valassis Communications, Inc.(a) 188,000 $ 6,581,880
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.43%
V. F. Corp. 137,000 7,587,060
========================================================================
APPLICATION SOFTWARE-2.98%
Fair Issac Corp. 140,500 5,153,540
- ------------------------------------------------------------------------
Intuit Inc.(a) 121,500 5,347,215
- ------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 199,700 5,294,047
========================================================================
15,794,802
========================================================================
BREWERS-1.25%
Heineken N.V. (Netherlands)(b) 199,211 6,614,031
========================================================================
COMPUTER HARDWARE-1.87%
Diebold, Inc. 130,600 7,278,338
- ------------------------------------------------------------------------
Intergraph Corp.(a) 98,300 2,647,219
========================================================================
9,925,557
========================================================================
CONSUMER FINANCE-0.60%
MoneyGram International, Inc. 150,700 3,185,798
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.96%
Ceridian Corp.(a) 568,450 10,391,266
========================================================================
DISTRIBUTORS-1.20%
Genuine Parts Co. 144,700 6,375,482
========================================================================
DIVERSIFIED BANKS-0.74%
Comerica Inc. 64,450 3,932,739
========================================================================
DIVERSIFIED CHEMICALS-1.00%
Engelhard Corp. 172,900 5,302,843
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.05%
Rentokil Initial PLC (United Kingdom)(b) 1,966,600 5,558,799
========================================================================
ELECTRIC UTILITIES-2.92%
FPL Group, Inc. 78,850 5,894,037
- ------------------------------------------------------------------------
Wisconsin Energy Corp. 283,800 9,566,898
========================================================================
15,460,935
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.42%
Agilent Technologies, Inc.(a) 243,500 5,868,350
- ------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 143,300 5,264,842
- ------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 136,000 6,978,160
========================================================================
18,111,352
========================================================================
ENVIRONMENTAL SERVICES-2.21%
Republic Services, Inc. 349,700 11,728,938
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-1.41%
Scotts Co. (The)-Class A(a) 101,700 $ 7,476,984
========================================================================
FOOD RETAIL-1.75%
Kroger Co. (The)(a) 529,600 9,289,184
========================================================================
GENERAL MERCHANDISE STORES-0.79%
Family Dollar Stores, Inc. 133,700 4,175,451
========================================================================
HEALTH CARE SERVICES-2.11%
IMS Health Inc. 226,600 5,259,386
- ------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 142,300 5,919,680
========================================================================
11,179,066
========================================================================
HOME FURNISHINGS-2.20%
Mohawk Industries, Inc.(a) 127,650 11,648,062
========================================================================
INDUSTRIAL MACHINERY-2.64%
Dover Corp. 168,900 7,083,666
- ------------------------------------------------------------------------
ITT Industries, Inc. 81,900 6,916,455
========================================================================
14,000,121
========================================================================
INTEGRATED OIL & GAS-2.32%
Amerada Hess Corp. 88,975 7,329,761
- ------------------------------------------------------------------------
Murphy Oil Corp. 61,525 4,949,686
========================================================================
12,279,447
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.06%
CenturyTel, Inc. 158,700 5,629,089
========================================================================
LEISURE PRODUCTS-1.41%
Mattel, Inc. 382,850 7,461,747
========================================================================
METAL & GLASS CONTAINERS-2.52%
Ball Corp. 135,600 5,963,688
- ------------------------------------------------------------------------
Pactiv Corp.(a) 291,500 7,372,035
========================================================================
13,335,723
========================================================================
OFFICE ELECTRONICS-1.80%
Xerox Corp.(a) 561,000 9,542,610
========================================================================
OFFICE SERVICES & SUPPLIES-1.00%
Herman Miller, Inc. 3,800 104,994
- ------------------------------------------------------------------------
Pitney Bowes Inc. 112,400 5,201,872
========================================================================
5,306,866
========================================================================
OIL & GAS DRILLING-2.99%
Nabors Industries, Ltd. (Bermuda)(a) 101,900 5,226,451
- ------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 213,400 10,614,516
========================================================================
15,840,967
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.84%
BJ Services Co. 109,700 5,105,438
- ------------------------------------------------------------------------
FMC Technologies, Inc.(a) 160,950 5,182,590
- ------------------------------------------------------------------------
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
Smith International, Inc.(a) 87,300 $ 4,749,993
========================================================================
15,038,021
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-4.00%
Apache Corp. 103,800 5,249,166
- ------------------------------------------------------------------------
Newfield Exploration Co.(a) 84,300 4,977,915
- ------------------------------------------------------------------------
Pioneer Natural Resources Co. 153,900 5,401,890
- ------------------------------------------------------------------------
Plains Exploration & Production Co.(a) 214,900 5,587,400
========================================================================
21,216,371
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.02%
Williams Cos., Inc. (The) 659,000 10,735,110
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.03%
Principal Financial Group, Inc. 3,800 155,572
========================================================================
PACKAGED FOODS & MEATS-2.84%
Campbell Soup Co. 244,600 7,311,094
- ------------------------------------------------------------------------
Tate & Lyle PLC (United Kingdom)(b) 856,900 7,751,719
========================================================================
15,062,813
========================================================================
PAPER PRODUCTS-1.39%
Georgia-Pacific Corp. 196,100 7,349,828
========================================================================
PHARMACEUTICALS-3.52%
Forest Laboratories, Inc.(a) 238,800 10,712,568
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 266,900 7,969,634
========================================================================
18,682,202
========================================================================
PROPERTY & CASUALTY INSURANCE-1.44%
ACE Ltd. (Cayman Islands) 178,700 7,639,425
========================================================================
PUBLISHING-3.01%
Belo Corp.-Class A 210,200 5,515,648
- ------------------------------------------------------------------------
Knight-Ridder, Inc. 71,480 4,784,871
- ------------------------------------------------------------------------
Lee Enterprises, Inc. 4,800 221,184
- ------------------------------------------------------------------------
New York Times Co. (The)-Class A 132,850 5,420,280
========================================================================
15,941,983
========================================================================
REGIONAL BANKS-4.93%
City National Corp. 59,750 4,221,338
- ------------------------------------------------------------------------
Compass Bancshares, Inc. 86,100 4,190,487
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
REGIONAL BANKS-(CONTINUED)
Hibernia Corp.-Class A 154,500 $ 4,559,295
- ------------------------------------------------------------------------
Hudson United Bancorp 91,300 3,595,394
- ------------------------------------------------------------------------
Marshall & Ilsley Corp. 96,900 4,282,980
- ------------------------------------------------------------------------
TCF Financial Corp. 164,100 5,274,174
========================================================================
26,123,668
========================================================================
REINSURANCE-1.02%
RenaissanceRe Holdings Ltd. (Bermuda) 104,200 5,426,736
========================================================================
RESTAURANTS-1.61%
Outback Steakhouse, Inc. 116,000 5,310,480
- ------------------------------------------------------------------------
Wendy's International, Inc. 81,600 3,203,616
========================================================================
8,514,096
========================================================================
SEMICONDUCTORS-3.07%
Microchip Technology Inc. 181,450 4,837,457
- ------------------------------------------------------------------------
National Semiconductor Corp. 345,100 6,194,545
- ------------------------------------------------------------------------
Xilinx, Inc. 176,900 5,245,085
========================================================================
16,277,087
========================================================================
SPECIALTY CHEMICALS-6.17%
International Flavors & Fragrances Inc. 311,800 13,357,512
- ------------------------------------------------------------------------
Rohm & Haas Co. 119,400 5,281,062
- ------------------------------------------------------------------------
Sigma-Aldrich Corp. 119,400 7,218,924
- ------------------------------------------------------------------------
Valspar Corp. (The) 136,950 6,848,870
========================================================================
32,706,368
========================================================================
SYSTEMS SOFTWARE-1.42%
Computer Associates International, Inc. 243,200 7,553,792
========================================================================
THRIFTS & MORTGAGE FINANCE-1.59%
New York Community Bancorp, Inc. 229,000 4,710,530
- ------------------------------------------------------------------------
Webster Financial Corp. 73,000 3,696,720
========================================================================
8,407,250
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $406,993,594) 470,547,121
========================================================================
MONEY MARKET FUNDS-11.29%
Liquid Assets Portfolio-Institutional
Class(c) 29,925,367 29,925,367
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 29,925,367 29,925,367
========================================================================
Total Money Market Funds (Cost
$59,850,734) 59,850,734
========================================================================
TOTAL INVESTMENTS-100.06% (Cost $466,844,328) 530,397,855
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.06%) (296,832)
========================================================================
NET ASSETS-100.00% $530,101,023
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign securities is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$19,924,549, which represented 3.76% of the Fund's Total Investments. See
Note 1A.
(c) 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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$406,993,594) $470,547,121
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $59,850,734) 59,850,734
=============================================================
Total investments (cost $466,844,328) 530,397,855
=============================================================
Receivables for:
Investments sold 648,404
- -------------------------------------------------------------
Fund shares sold 111,552
- -------------------------------------------------------------
Dividends 599,942
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 19,030
=============================================================
Total assets 531,776,783
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,021,421
- -------------------------------------------------------------
Amount due custodian 15,529
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 25,897
- -------------------------------------------------------------
Accrued administrative services fees 556,350
- -------------------------------------------------------------
Accrued distribution fees--Series II 17,162
- -------------------------------------------------------------
Accrued transfer agent fees 4,126
- -------------------------------------------------------------
Accrued operating expenses 35,275
=============================================================
Total liabilities 1,675,760
=============================================================
Net assets applicable to shares outstanding $530,101,023
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $457,315,045
- -------------------------------------------------------------
Undistributed net investment income 263,985
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 8,968,103
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 63,553,890
=============================================================
$530,101,023
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $496,606,099
_____________________________________________________________
=============================================================
Series II $ 33,494,924
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 37,873,215
_____________________________________________________________
=============================================================
Series II 2,569,325
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.11
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.04
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$48,798) $ 4,360,509
- ------------------------------------------------------------
Dividends from affiliated money market funds 794,231
============================================================
Total investment income 5,154,740
============================================================
EXPENSES:
Advisory fees 2,917,207
- ------------------------------------------------------------
Administrative services fees 1,088,325
- ------------------------------------------------------------
Custodian fees 53,295
- ------------------------------------------------------------
Distribution fees -- Series II 38,171
- ------------------------------------------------------------
Transfer agent fees 18,383
- ------------------------------------------------------------
Trustees' fees and retirement benefits 21,146
- ------------------------------------------------------------
Other 75,412
============================================================
Total expenses 4,211,939
============================================================
Less: Fees waived and expenses reimbursed (12,901)
============================================================
Net expenses 4,199,038
============================================================
Net investment income 955,702
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 31,839,329
- ------------------------------------------------------------
Foreign currencies 19,874
============================================================
31,859,203
============================================================
Change in net unrealized appreciation of:
Investment securities 22,026,986
- ------------------------------------------------------------
Foreign currencies 11
============================================================
22,026,997
============================================================
Net gain from investment securities and foreign
currencies 53,886,200
============================================================
Net increase in net assets resulting from
operations $54,841,902
____________________________________________________________
============================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 955,702 $ 18,241
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 31,859,203 3,119,954
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 22,026,997 41,836,612
==========================================================================================
Net increase in net assets resulting from operations 54,841,902 44,974,807
==========================================================================================
Distributions to shareholders from net investment income:
Series I (718,225) --
- ------------------------------------------------------------------------------------------
Series II (6,789) --
==========================================================================================
Total distributions from net investment income (725,014) --
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (21,198,394) (1,650,955)
- ------------------------------------------------------------------------------------------
Series II (1,381,970) (26,270)
==========================================================================================
Total distributions from net realized gains (22,580,364) (1,677,225)
==========================================================================================
Decrease in net assets resulting from distributions (23,305,378) (1,677,225)
==========================================================================================
Share transactions-net:
Series I 173,142,571 182,089,750
- ------------------------------------------------------------------------------------------
Series II 27,385,946 3,163,852
==========================================================================================
Net increase in net assets resulting from share
transactions 200,528,517 185,253,602
==========================================================================================
Net increase in net assets 232,065,041 228,551,184
==========================================================================================
NET ASSETS:
Beginning of year 298,035,982 69,484,798
==========================================================================================
End of year (including undistributed net investment income
of $263,985 and $13,423, respectively) $530,101,023 $298,035,982
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. MID CAP CORE EQUITY FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
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 next $500
million of the Fund's average daily net assets, plus 0.675% of the next $500
million of the Fund's average daily net assets, plus 0.65% of the Fund's average
daily net assets in excess of $1.5 billion. AIM has contractually agreed to
waive advisory fees and/or reimburse expenses to the extent necessary to limit
total annual operating expenses (excluding certain items discussed below) of
each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds. Voluntary fee waivers or reimbursements may be modified or
AIM V.I. MID CAP CORE EQUITY FUND
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors. For the year ended December 31, 2004, AIM waived
fees of $12,691.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $210 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$1,088,325, of which AIM retained $102,546 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $18,383.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit Total Annual Fund Operating Expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $38,171.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $31,340,710 $100,023,336 $(101,438,679) $ -- $29,925,367 $400,315 $ --
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 31,340,710 100,023,336 (101,438,679) -- 29,925,367 393,916 --
============================================================================================================================
Total $62,681,420 $200,046,672 $(202,877,358) $ -- $59,850,734 $794,231 $ --
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $3,155,849 and $3,090,909,
respectively.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $3,464
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $12,675,049 $1,677,225
- ---------------------------------------------------------------------------------------
Long-term capital gain 10,630,329 --
=======================================================================================
Total distributions $23,305,378 $1,677,225
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 1,962,664
- --------------------------------------------------------------------------
Undistributed long-term gain 7,700,820
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 63,140,869
- --------------------------------------------------------------------------
Temporary book/tax differences (18,376)
- --------------------------------------------------------------------------
Shares of beneficial interest 457,315,046
==========================================================================
Total net assets $530,101,023
__________________________________________________________________________
==========================================================================
</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 losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $363.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 3, 2004.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $357,611,582 and $191,058,047, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $65,174,910
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,034,404)
===============================================================================
Net unrealized appreciation of investment securities $63,140,506
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $467,257,349.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses on December 31, 2004, undistributed net
investment income was increased by $19,874 and undistributed net realized gain
(loss) was decreased by $19,874. Further, as a result of tax deferrals acquired
in the reorganization of Phoenix AIM Mid Cap Equity Fund unto the Fund,
undistributed net realized gain (loss) was decreased by $20,440 and shares of
beneficial interest increased by $20,440. These reclassifications had no effect
on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 12,423,728 $157,026,231 18,564,670 $196,407,917
- ----------------------------------------------------------------------------------------------------------------------
Series II 2,804,689 35,484,099 365,523 4,040,389
======================================================================================================================
Issued as reinvestment of dividends:
Series I 1,688,491 21,916,619 -- --
- ----------------------------------------------------------------------------------------------------------------------
Series II 107,656 1,388,760 -- --
======================================================================================================================
Issued in connection with acquisitions:(b)
Series I 1,345,483 18,110,202 -- --
======================================================================================================================
Reacquired:
Series I (1,883,158) (23,910,481) (1,431,786) (14,318,167)
- ----------------------------------------------------------------------------------------------------------------------
Series II (748,758) (9,486,913) (87,420) (876,537)
======================================================================================================================
15,738,131 $200,528,517 17,410,987 $185,253,602
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 79% of the outstanding shares of the
Fund. The Fund and the Fund's principal underwriter or advisor, are parties
to participation agreements with these entities whereby these entities sell
units of Interest in separate accounts funding variable products that are
invested in the Fund. The Fund, AIM and/or AIM affiliates may make payments
to this entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no knowledge as
to whether all or any portion of the shares owned of record by this
shareholder is also owned beneficially.
(b) As of the opening of business on December 6, 2004, the Fund acquired all of
the net assets of Phoenix-AIM Mid Cap Equity Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on September 14, 2004
and Phoenix-AIM Mid Cap Equity Fund shareholders on May 11, 2004. The
acquisition was accomplished by a tax-free exchange of 1,345,483 shares of
the Fund for 1,441,644 shares of Phoenix-AIM Mid Cap Equity Fund outstanding
as of the close of business on December 3, 2004 Phoenix-AIM Mid Cap Equity
Fund's net assets at that date of $18,110,202 including $2,490,250 of
unrealized appreciation, were combined with those of the Fund. The aggregate
net assets of the Fund immediately before the acquisition were $490,802,188.
AIM V.I. MID CAP CORE EQUITY 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
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.06 $ 9.53 $ 10.72 $10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) 0.00(a) (0.02)(a) 0.00
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.63 2.60 (1.17) 0.74
======================================================================================================================
Total from investment operations 1.66 2.60 (1.19) 0.74
======================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- (0.02)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.59) (0.07) -- --
======================================================================================================================
Net asset value, end of period $ 13.11 $ 12.06 $ 9.53 $10.72
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 13.82% 27.31% (11.10)% 7.37%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $496,606 $293,162 $68,271 $9,500
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.04%(c) 1.07% 1.30% 1.27%(d)(e)
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.25%(c) 0.01% (0.22)% (0.08)%(d)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 55% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c)Ratios are based on average daily net assets of $387,105,179.
(d)Annualized.
(e)After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or reimbursements was 5.16%.
(f)Not annualized for periods less than one year.
<Table>
<Caption>
SERIES II
-----------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------- DECEMBER 31,
2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.01 $9.51 $ 10.71 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) (0.03)(a) (0.04)(a) (0.01)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.62 2.60 (1.16) 0.73
===================================================================================================================
Total from investment operations 1.62 2.57 (1.20) 0.72
===================================================================================================================
Less distributions:
Dividends from net investment income (0.00) -- -- (0.01)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.59) (0.07) -- --
===================================================================================================================
Net asset value, end of period $ 13.04 $12.01 $ 9.51 $10.71
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 13.57% 27.05% (11.20)% 7.22%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,495 $4,874 $ 1,214 $ 536
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets 1.29%(c) 1.32% 1.45%(d) 1.44%(d)(e)
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.00)%(c) (0.24)% (0.37)% (0.25)%(e)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(f) 55% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c)Ratios are based on average daily net assets of $15,268,262.
(d)After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or reimbursements was 1.55% and
5.44% (annualized), for the year ended December 31, 2002 and September
10, 2001 (Date operations commenced) to December 31, 2001, respectively.
(e)Annualized.
(f)Not annualized for periods less than one year.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid on and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. MID CAP CORE EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Mid Cap Core Equity Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2004, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the three years in the period
then ended 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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. Mid Cap Core Equity Fund as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three 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.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. MID CAP CORE EQUITY FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Mid Cap Core Equity Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 27.18% 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, 2004
ANNUAL REPORT TO SHAREHOLDERS
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.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form NQ. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following email address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the dropdown
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
===================================================
=================================================== [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The year 2004 ended on a positive note for All in all, it ended up a good year for three objectives: safety of principal,
both the economy and for shareholders of American investors, and there were a liquidity and the highest possible yield
AIM V.I. Money Market Fund. number of solid economic numbers to report consistent with safety of principal.
as of the end of the year. Although a money market fund seeks to
In response to evidence of a solid and maintain the value of your investment at
expanding economy, beginning in June 2004, o U.S. gross domestic product (GDP) rose $1.00 per share, it is possible to lose
the U.S. Federal Reserve (the Fed) raised each quarter during 2004. And respondents money investing in the fund.
its federal funds target rate. Five rate to the BusinessWeek magazine survey
rises took that overnight rate from a foresaw 2005 GDP growth at 3.5%, above the Thank you for your continued
decades-low 1.00%, where it stood at the post-World War II average of 3.4%. participation in AIM V.I. Money Market
beginning of 2004, to 2.25% by the close Fund.
of the fiscal year. o The Institute for Supply Management's
manufacturing and nonmanufacturing The views and opinions expressed here are
This helped boost yields on short-term indexes--based on surveys of purchasing those of A I M Advisors, Inc. These views
securities such as money market funds. At managers in industries that together cover and opinions are subject to change at any
the close of 2003, the seven-day SEC yield more than 70% of the U.S. economy--both time based on factors such as market and
on Series I shares of the fund had stood continued to rise during December and economic conditions. These views and
at 0.46%; at the close of 2004, the remained in very strong territory. opinions may not be relied upon as
seven-day SEC yield on Series I shares investment advice or recommendations, or
stood at 1.52%. For Series II shares, the o Thomson First Call, which tracks as an offer for a particular security.
seven-day SEC yield as of December 31, corporate earnings and other information Statements of fact are from sources
2004, was 1.27%, up from 0.21% a year for clients in financial service considered reliable, but A I M Advisors,
earlier. industries, estimated S&P 500 Index Inc. makes no representation or warranty
earnings to be up 10.6% in 2005. as to their completeness or accuracy.
MARKET CONDITIONS Although historical performance is no
In fact, given the strength of the guarantee of future results, these
After nine months of slow growth, equity economy and of business, many anticipate insights may help you understand our
markets rallied late in the year to the Fed will continue to raise rates investment management philosophy.
produce solid results for 2004. The S&P during 2005. Should this happen, it would
500 Index was up almost 11% for the year give a further boost to yields for The unmanaged Standard & Poor's Composite
as a whole, but that includes the 9.23% investors in money market funds such as Index of 500 Stocks (the S&P
total return for the fourth quarter alone. AIM V.I. Money Market Fund. 500--Registered Trademark-- Index) is an
For bonds, the turning point came earlier. index of common stocks frequently used as
Almost all of the 4.34% return produced by YOUR FUND a general measure of U.S. stock market
the Lehman U.S. Aggregate Bond Index came performance.
during the second half of the year. Regardless of Fed policy or economic
conditions, your fund continues to focus The unmanaged Lehman U.S. Aggregate Bond
on Index, which represents the U.S.
investment-grade fixed-rate bond market
(including government and corporate
securities, mortgage pass-through
securities and assetbacked securities), is
compiled by Lehman Brothers, a global
investment bank.
Team managed by A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
========================================== The performance data quoted represent past fund and are not intended to reflect
PORTFOLIO COMPOSITION BY MATURITY performance and cannot guarantee actual variable product values. They do
- ------------------------------------------ comparable future results; current not reflect sales charges, expenses and
Maturity Distribution of Fund Holdings performance may be lower or higher. Please fees assessed in connection with a
In days, as of 12/31/04 see your variable product issuer or variable product. Sales charges, expenses
financial advisor for the most recent and fees, which are determined by the
1-7 51.9% month-end variable product performance. variable product issuers, will vary and
8-30 30.1 Performance figures reflect fund expenses, will lower the total return. Per NASD
31-90 12.8 reinvested distributions and changes in requirements, the most recent month-end
91-120 5.0 net asset value. Investment return and performance data at the fund level,
121+ 0.0 principal value will fluctuate so that you excluding variable product charges, is
OTHER ASSETS LESS LIABILTIES 0.2 may have a gain or loss when you sell available on this AIM automated
shares. information line, 866-702-4402. As
The maturity of each holding is determined mentioned above, for the most recent
in accordance with the provisions of Rule AIM V.I. Money Market Fund, a series month-end performance including variable
2a-7 under the Investment Company Act of portfolio of AIM Variable Insurance Funds, product charges, please contact your
1940. is currently offered through insurance variable product issuer or financial
========================================== companies issuing variable products. You consultant.
cannot purchase shares of the fund
directly. Performance figures given
represent the
</Table>
2
AIM V.I. MONEY MARKET FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES hypothetical expenses based on the fund's
actual expense ratio and an assumed rate
As a shareholder of the fund, you incur The table below provides information about of return of 5% per year before expenses,
ongoing costs including management fees, actual account values and actual expenses. which is not the Fund's actual return. The
distribution and/or service fees (12b-1) You may use the information in this table, hypothetical account values and expenses
and other fund expenses. This example is together with the amount you invested, to may not be used to estimate your actual
intended to help you understand your estimate the expenses that you paid over ending account balance or expenses you
ongoing costs (in dollars) of investing in the period. Simply divide your account paid for the period. You may use this
the fund and to compare these costs with value by $1,000 (for example, an $8,600 information to compare the ongoing costs
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), of investing in the fund and other funds.
funds. The example is based on an then multiply the result by the number in To do so, compare this 5% hypothetical
investment of $1,000 invested at the the table under the heading entitled example with the 5% hypothetical examples
beginning of the period and held for the "Actual Expenses Paid During Period" to that appear in the shareholder reports of
entire period July 1, 2004 - December 31, estimate the expenses you paid on your the other funds.
2004. account during this period.
Please note that the expenses shown in
The actual and hypothetical expenses in HYPOTHETICAL EXAMPLE FOR the table are meant to highlight your
the examples below do not represent the COMPARISON PURPOSES ongoing costs only. Therefore, the
effect of any fees or other expenses hypothetical information is useful in
assessed in connection with a variable The table below also provides information comparing ongoing costs only, and will not
product; if they did, the expenses shown about hypothetical account values and help you determine the relative total
would be higher while the ending account costs of owning different funds.
values shown would be lower.
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,005.00 $3.83 $1,021.32 $3.86
Series II 1,000.00 1,003.70 5.09 1,020.06 5.13
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 0.50% and 0.37% for Series I and II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.76% and 1.01% for Series I and II shares, respectively) multiplied
by the average account value over the period, multiplied by 184/366 (to reflect the onehalf year period).
====================================================================================================================================
</Table>
VIMKT-AR-1
3
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ------------------------------------------------------------------------------
COMMERCIAL PAPER-39.81%(A)
ASSET-BACKED SECURITIES- COMMERCIAL LOANS/
LEASES-7.02%
Atlantis One Funding Corp. (Rabobank -ABS
Program Sponsor) (Acquired 10/07/04; Cost
$2,067,153) 2.03%(b) 02/02/05 $2,081 $ 2,077,480
- ------------------------------------------------------------------------------
(Acquired 09/22/04; Cost $634,747) 2.03%(b) 03/14/05 641 638,470
- ------------------------------------------------------------------------------
Fountain Square Commercial Funding Corp.
(Fifth Third Bank-ABS Program Sponsor)
(Acquired 10/04/04; Cost $1,492,391)
1.99%(b) 01/04/05 1,500 1,499,917
- ------------------------------------------------------------------------------
4,215,867
==============================================================================
ASSET-BACKED SECURITIES- CONSUMER
RECEIVABLES-2.48%
Thunder Bay Funding, LLC (Royal Bank of
Canada-ABS Program Sponsor) (Acquired
12/27/04; Cost $1,492,826) 2.38%(b) 01/18/05 1,495 1,493,517
==============================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-15.83%
Blue Spice LLC (Deutsche Bank A.G.-ABS
Program Sponsor) (Acquired 10/04/04; Cost
$1,989,829) 1.99%(b) 01/04/05 2,000 1,999,889
- ------------------------------------------------------------------------------
Concord Minutemen Capital Co., LLC- Series A
(Liberty Hampshire Co.-ABS Program Sponsor)
(Acquired 11/24/04; Cost $2,985,750)
2.25%(b) 02/08/05 3,000 2,990,319
- ------------------------------------------------------------------------------
Govco, Inc. (Citibank N.A.-ABS Program
Sponsor) (Acquired 10/21/04; Cost
$1,989,522) 2.05%(b) 01/21/05 2,000 1,997,950
- ------------------------------------------------------------------------------
Triple-A One Funding Corp. (MBIA Insurance
Corp.-Program Sponsor) (Acquired 12/27/04;
Cost $2,520,329) 2.38%(b) 01/18/05 2,524 2,521,497
==============================================================================
9,509,655
==============================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-5.21%
Edison Asset Securitization, LLC (GE Capital
Corp.-ABS Program Sponsor) (Acquired
10/06/04; Cost $1,986,712) 2.01%(b) 02/02/05 2,000 1,996,650
- ------------------------------------------------------------------------------
Falcon Asset Securitization Corp. (JPMorgan
Chase Bank-ABS Program Sponsor) (Acquired
12/27/04; Cost $1,130,828) 2.38%(b) 01/25/05 1,133 1,131,352
==============================================================================
3,128,002
==============================================================================
</Table>
<Table>
PAR
MATURITY (000) VALUE
- ------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-4.28%
Eureka Securitization, Inc. (Citicorp North
America, Inc.-ABS Program Sponsor)
(Acquired 12/14/04; Cost $2,569,767)
2.35%(b) 01/26/05 $2,577 $ 2,573,131
==============================================================================
DIVERSIFIED BANKS-4.99%
UBS Finance Delaware LLC 2.37% 01/24/05 3,000 2,995,853
==============================================================================
Total Commercial Paper (Cost $23,916,025) 23,916,025
==============================================================================
VARIABLE RATE DEMAND NOTES-18.66%(C)
INSURED-7.41%(D)
Michigan (State of) Western Michigan
University; Taxable Series 2002 B RB
2.42%(e) 11/15/32 2,920 2,920,000
- ------------------------------------------------------------------------------
Omaha (City of), Nebraska;
Special Tax Redevelopment Taxable
Series 2002 B RB,
2.52%(e) 02/01/13 1,530 1,530,000
==============================================================================
4,450,000
==============================================================================
LETTER OF CREDIT-11.25%(F)
Albuquerque (City of), New Mexico
(Ktech Corp. Project); Taxable Series 2002
IDR (LOC-Wells Fargo Bank N.A.),
2.52%(e) 11/01/22 1,600 1,600,000
- ------------------------------------------------------------------------------
Corp. Finance Managers Inc., Floating Rate
Notes (LOC-Wells Fargo Bank N.A.) 2.52%(e) 02/02/43 1,825 1,825,000
- ------------------------------------------------------------------------------
Dome Corp.; Floating Rate Notes (LOC-Wachovia
Bank N.A.) (Acquired 12/20/02; Cost
$665,000) 2.44%(b)(e) 08/31/16 665 665,000
- ------------------------------------------------------------------------------
Folk Financial Services Inc.-Series A,
Floating Rate Loan Program Notes
(LOC-National City Bank)
2.55%(e) 10/15/27 85 85,000
- ------------------------------------------------------------------------------
Moon (City of), Pennsylvania Industrial
Development Authority (One Thorn Run
Project); Taxable Series 1995 IDR
(LOC-National City Bank),
2.51%(e) 11/01/15 1,385 1,385,000
- ------------------------------------------------------------------------------
Roman Catholic Diocese of Charlotte; Series
2002 Floating Rate Bonds (LOC-Wachovia Bank
N.A.)
2.42%(e) 05/01/14 1,200 1,200,000
==============================================================================
6,760,000
==============================================================================
Total Variable Rate Demand Notes (Cost
$11,210,000) 11,210,000
==============================================================================
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-6.03%
FULLY BACKED-1.66%
Racers Trust-Series 2004-6-MM, Floating Rate
Notes (Acquired 04/13/04; Cost $1,000,000)
2.41%(b)(g) 05/20/05 $1,000 $ 1,000,000
==============================================================================
STRUCTURED-4.37%
Holmes Financing (No. 8) PLC
(United Kingdom)-Series 8, Class 1A,
Floating Rate Bonds
2.35%(g) 04/15/05 1,000 1,000,000
- ------------------------------------------------------------------------------
Residential Mortgage Securities (United
Kingdom)-Series 17A, Class A-1, Floating
Rate Bonds (Acquired 02/10/04; Cost
$1,626,140)
2.40%(b)(g) 02/14/05 1,626 1,626,140
==============================================================================
2,626,140
==============================================================================
Total Asset-Backed Securities (Cost
$3,626,140) 3,626,140
==============================================================================
CERTIFICATES OF DEPOSIT-4.99%
Fortis Bank S.A./N.V. (Netherlands)
1.25% 01/10/05 1,000 1,000,000
- ------------------------------------------------------------------------------
Northern Rock PLC (United Kingdom)
2.25% 04/04/05 2,000 2,000,000
==============================================================================
Total Certificates of Deposit (Cost
$3,000,000) 3,000,000
==============================================================================
FUNDING AGREEMENTS-3.33%
New York Life Insurance Co.(Acquired
04/07/04; Cost $2,000,000)
2.36%(b)(g)(h) 04/06/05 2,000 2,000,000
==============================================================================
MASTER NOTE AGREEMENTS-3.33%
Merrill Lynch Mortgage Capital, Inc.(Acquired
08/23/04; Cost $2,000,000)
2.45%(b)(i)(j) 02/23/05 2,000 2,000,000
==============================================================================
</Table>
<Table>
PAR
MATURITY (000) VALUE
- ------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT AGENCY SECURITIES-1.66%
FEDERAL HOME LOAN BANK(FHLB)-1.66%
Unsec. Bonds, (Cost $1,000,000)
1.35% 04/29/05 $1,000 $ 1,000,000
==============================================================================
MEDIUM-TERM NOTES-1.17%
MetLife Global Funding, Floating Rate Global
MTN (Acquired 11/10/04; Cost $700,503)
2.46%(b)(g) 12/28/05 700 700,503
==============================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $47,452,668) 47,452,668
==============================================================================
REPURCHASE AGREEMENTS-20.86%
Bank of America Securities LLC
2.27%(k) 01/03/05 2,000 2,000,000
- ------------------------------------------------------------------------------
Barclays Capital Inc.-New York Branch (United
Kingdom)
2.27%(l) 01/03/05 2,000 2,000,000
- ------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.-New York
Branch (United Kingdom)
2.28%(m) 01/03/05 2,000 2,000,000
- ------------------------------------------------------------------------------
Morgan Stanley & Co. Inc.
2.20%(n) 01/03/05 4,532 4,532,059
- ------------------------------------------------------------------------------
Wachovia Securities, Inc.
2.27%(o) 01/03/05 2,000 2,000,000
==============================================================================
Total Repurchase Agreements (Cost
$12,532,059) 12,532,059
==============================================================================
TOTAL INVESTMENTS-99.84% (Cost
$59,984,727)(p) 59,984,727
==============================================================================
OTHER ASSETS LESS LIABILITIES-0.16% 98,648
==============================================================================
NET ASSETS-100.00% $60,083,375
______________________________________________________________________________
==============================================================================
</Table>
Investment Abbreviations:
<Table>
ABS - Asset Backed Security
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
MTN - Medium Term Notes
RB - Revenue Bonds
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security may be traded on a discount basis. Unless otherwise indicated, 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 December 31, 2004 was
$28,911,815, which represented 48.12% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(c) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp.
(e) Interest rate is redetermined weekly. Rate shown is the rate in effect on
December 31, 2004.
(f) Principal and interest payments are fully enhanced by a letter from the bank
listed or a predecessor bank, branch or subsidiary.
(g) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
(h) Security considered to be illiquid. The market value of this security is
considered illiquid at December 31, 2004 represented 3.33% of the Fund's Net
Assets.
(i) 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
(j) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice based on the timing
of the demand. The interest rate on master notes is redetermined daily. Rate
shown is the rate in effect on December 31, 2004.
AIM V.I. MONEY MARKET FUND
(k) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $250,047,292. Collateralized by $250,293,646 U.S. Government
obligation, 5.50% due 04/01/34 with an aggregate market value at 12/31/04 of
$255,000,001. The amount to be received upon repurchase by the Fund is
$2,000,378.
(l) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $250,047,292. Collateralized by $251,692,482 U.S. Government
obligations, 4.00% to 7.50% due 01/01/08 to 01/01/35 with an aggregate
market value at 12/31/04 of $255,000,000. The amount to be received upon
repurchase by the Fund is $2,000,378.
(m) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $250,047,500. Collateralized by $273,583,000 U.S. Government
obligations, 0% to 9.38% due 01/15/05 to 11/15/30 with an aggregate market
value at 12/31/04 of $255,000,054. The amount to be received upon repurchase
by the Fund is $2,000,380.
(n) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $500,091,667. Collateralized by $478,940,000 U.S. Government
obligations, 3.50% to 6.38% due 10/19/07 to 04/01/36 with an aggregate
market value at 12/31/04 of $516,644,298. The amount to be received upon
repurchase by the Fund is $4,532,890.
(o) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $250,047,292. Collateralized by $251,257,431 U.S. Government
obligations, 3.50% to 5.50% due 01/01/19 to 01/01/35 with an aggregate
market value at 12/31/04 of $255,000,001. The amount to be received upon
repurchase by the Fund is $2,000,378.
(p) 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, 2004
<Table>
ASSETS:
Investments, excluding repurchase agreements,
at value (cost $47,452,668) $47,452,668
- ------------------------------------------------------------
Repurchase agreements (cost $12,532,059) 12,532,059
============================================================
Total investments (cost $59,984,727) 59,984,727
============================================================
Receivables for:
Fund shares sold 161,156
- ------------------------------------------------------------
Interest 62,187
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 53,697
============================================================
Total assets 60,261,767
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 26,200
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 58,546
- ------------------------------------------------------------
Accrued administrative services fees 74,758
- ------------------------------------------------------------
Accrued distribution fees -- Series II 4,282
- ------------------------------------------------------------
Accrued transfer agent fees 124
- ------------------------------------------------------------
Accrued operating expenses 14,482
============================================================
Total liabilities 178,392
============================================================
Net assets applicable to shares outstanding $60,083,375
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $60,077,031
- ------------------------------------------------------------
Undistributed net investment income 6,344
============================================================
$60,083,375
____________________________________________________________
============================================================
NET ASSETS:
Series I $54,007,723
____________________________________________________________
============================================================
Series II $ 6,075,652
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 54,005,821
____________________________________________________________
============================================================
Series II 6,076,128
____________________________________________________________
============================================================
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, 2004
<Table>
INVESTMENT INCOME:
Interest $993,846
===========================================================
EXPENSES:
Advisory fees 279,009
- -----------------------------------------------------------
Administrative services fees 177,043
- -----------------------------------------------------------
Custodian fees 3,900
- -----------------------------------------------------------
Distribution fees -- Series II 8,981
- -----------------------------------------------------------
Transfer agent fees 4,851
- -----------------------------------------------------------
Trustees' fees and retirement benefits 13,036
- -----------------------------------------------------------
Professional fees 29,537
- -----------------------------------------------------------
Other 16,536
===========================================================
Total expenses 532,893
===========================================================
Less: Expenses reimbursed (112)
- -----------------------------------------------------------
Net expenses 532,781
===========================================================
Net investment income 461,065
===========================================================
Net increase in net assets resulting from
operations $461,065
___________________________________________________________
===========================================================
</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, 2004 and 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 461,065 $ 625,624
============================================================================================
Distributions to shareholders from net investment income:
Series I (436,246) (610,648)
- --------------------------------------------------------------------------------------------
Series II (24,819) (14,976)
============================================================================================
Decrease in net assets resulting from distributions (461,065) (625,624)
============================================================================================
Share transactions-net:
Series I (23,498,214) (42,030,863)
- --------------------------------------------------------------------------------------------
Series II 3,693,695 (5,448,303)
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (19,804,519) (47,479,166)
============================================================================================
Net increase (decrease) in net assets (19,804,519) (47,479,166)
============================================================================================
Net assets:
Beginning of year 79,887,894 127,367,060
============================================================================================
End of year (including undistributed net investment income
of $6,344 and $0, respectively) $ 60,083,375 $ 79,887,894
____________________________________________________________________________________________
============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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. Each
company listed in the Schedule of Investments is organized in the United States
of America unless other wise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- The Fund's securities are valued on the basis of
amortized cost which approximates market value as permitted by Rule 2a-7
under 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. 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.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized gain (loss) from
investment securities
AIM V.I. MONEY MARKET FUND
reported in the Statement of Operations and the Statement of Changes in Net
Assets and the realized net gains (losses) on securities per share in the
Financial Highlights. Transaction costs are included in the calculation of
the Fund's net asset value and, accordingly, they reduce the Fund's total
returns. These transaction costs are not considered operating expenses and
are not reflected in net investment income reported in the Statement of
Operations and Statement of Changes in Net Assets, or the net investment
income per share and ratios of expenses and net investment income reported
in the Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates 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.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly to separate accounts of participating insurance companies.
Distributions from net realized gain, if any, are generally paid annually
and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the SEC,
are through participation with other mutual funds, private accounts and
certain non-registered investment companies managed by the investment
advisor or its affiliates ("Joint repurchase agreements"). If the seller of
a repurchase agreement fails to repurchase the security in accordance with
the terms of the agreement, the Fund might incur expenses in enforcing its
rights, and could experience losses, including a decline in the value of
the underlying security and loss of income.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to 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 contractually agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $112 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement the year ended December 31, 2004, AIM was paid
$177,043, 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") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $4,851.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to
AIM V.I. MONEY MARKET FUND
the extent necessary to limit total annual fund operating Expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $8,981.
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. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,786
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
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. The Fund did not borrow or
lend under the facility during the year ended December 31, 2004.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with The Bank of New York, the custodian bank.
To compensate the custodian bank for such overdrafts, the overdrawn Fund may
either (i) leave funds in the account so the custodian can be compensated by
earning the additional interest; or (ii) compensate by paying the custodian
bank. In either case, the custodian bank will be compensated at an amount equal
to the Federal Funds rate plus 100 basis points.
NOTE 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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------
Ordinary income $461,065 $625,624
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------
Undistributed ordinary income $ 61,533
- -------------------------------------------------------------------------
Temporary book/tax differences (55,189)
- -------------------------------------------------------------------------
Shares of beneficial interest 60,077,031
=========================================================================
Total net assets $60,083,375
_________________________________________________________________________
=========================================================================
</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 trustee deferral of compensation and
retirement plan expenses.
NOTE 6--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distributions and
non-deductible expenses on December 31, 2004, undistributed net investment
income was increased by $6,344, undistributed net realized gain (loss) was
decreased by $1,426 and shares of beneficial interest decreased by $4,918. This
reclassification had no effect on the net assets of the Fund.
AIM V.I. MONEY MARKET FUND
NOTE 7--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 30,161,445 $ 30,161,445 123,982,671 $ 123,982,671
- --------------------------------------------------------------------------------------------------------------------------
Series II 13,875,916 13,875,916 81,320,924 81,320,924
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 436,232 436,232 610,648 610,648
- --------------------------------------------------------------------------------------------------------------------------
Series II 24,822 24,822 14,976 14,976
==========================================================================================================================
Reacquired:
Series I (54,095,891) (54,095,891) (166,624,182) (166,624,182)
- --------------------------------------------------------------------------------------------------------------------------
Series II (10,207,043) (10,207,043) (86,784,203) (86,784,203)
==========================================================================================================================
(19,804,519) $(19,804,519) (47,479,166) $ (47,479,166)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 89% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with these
entities whereby these entities sell units if interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM and
or AIM affiliates may make payments to these entities, which are considered
to be related, for providing services to the Fund, AIM and or AIM affiliates
including but not limited to services such as, securities brokerage, third
party record keeping, account servicing and administrative services. The
Trust has no knowledge as to whether all or any portion of the shares owned
of record are also owned beneficially.
NOTE 8--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,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
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 0.01 0.04 0.06
======================================================================================================================
Less distributions from net investment income (0.01) (0.01) (0.01) (0.04) (0.06)
======================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(a) 0.69% 0.58% 1.19% 3.61% 5.83%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,008 $77,505 $119,536 $128,277 $73,864
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 0.75%(b) 0.66% 0.67% 0.64% 0.71%
======================================================================================================================
Ratio of net investment income to average net assets 0.67%(b) 0.59% 1.18% 3.36% 5.66%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) 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
assessed in connection with a variable product, which if included would
reduce total returns.
(b) Ratios are based on average daily net assets of $66,159,841.
AIM V.I. MONEY MARKET FUND
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------------
DECEMBER 16, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00 0.003 0.01 0.00
==================================================================================================================
Less distributions from net investment income (0.00) (0.003) (0.01) (0.00)
==================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $1.00
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(a) 0.44% 0.33% 0.93% 0.05%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 6,076 $ 2,382 $7,831 $ 997
==================================================================================================================
Ratio of expenses to average net assets 1.00%(b) 0.91% 0.92% 0.89%(c)
==================================================================================================================
Ratio of net investment income to average net assets 0.42%(b) 0.34% 0.93% 3.11%(c)
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) 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
assessed in connection with a variable product, which if included would
reduce total returns.
(b) Ratios are based on average daily net assets of $3,592,467.
(c) Annualized.
NOTE 9--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
AIM V.I. MONEY MARKET FUND
NOTE 9--LEGAL PROCEEDINGS (CONTINUED)
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
AIM V.I. MONEY MARKET FUND
NOTE 9--LEGAL PROCEEDINGS (CONTINUED)
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. MONEY MARKET FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. MONEY MARKET FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Money Market Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- -----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- --------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- --------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment The Bank of New York
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
919 Third Avenue Houston, TX 77210-4739
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, 2004, 0.00% is eligible for the dividends received deduction for
corporations.
AIM V.I. MONEY MARKET FUND
AIM V.I. PREMIER EQUITY FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
AIM V.I. PREMIER EQUITY FUND seeks to provide long-term
growth of capital. Income is a secondary objective.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
======================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
======================================================
====================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
======================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. PREMIER EQUITY FUND
Since the fund's last annual report, the core, value and growth. Each investment or equity valuations.
fund's management and investment team manages its discipline
approach have changed. Though it has independently. These highly experienced MARKET CONDITIONS AND YOUR FUND
only been seven months since these AIM teams were put together for this
changes were implemented, we believe the fund to ensure complete coverage of the For the first 10 months of 2004, the
long-term result will be consistent, spectrum of large-cap opportunities and domestic equity broad market was
competitive performance in a variety of to offer a large-cap core fund designed relatively flat, as evidenced by the S&P
market environments. to capture the upside of the market 500 Index's year-to-date return on
while offering better capital October 31, 2004, of just over 3%.
======================================= preservation in more difficult times. Though gross domestic product (GDP)
FUND VS. INDEXES growth had been steady and corporate
The core team identifies growing earnings had been strong, rising oil
TOTAL RETURNS, 12/31/03-12/31/04, companies whose stock prices may be prices, geopolitical events and the
EXCLUDING VARIABLE PRODUCT ISSUER experiencing some near-term distress. By uncertainty surrounding the U.S.
CHARGES. IF VARIABLE PRODUCT ISSUER applying rigorous fundamental research presidential election had dampened the
CHARGES WERE INCLUDED, RETURNS WOULD that focuses on cash flow analysis, the effects of generally good economic news
BE LOWER. team identifies companies with during the period. With the election
management teams that are capable of results determined and oil prices
Series I Shares 5.77% weathering any near-term challenges declining, the market rally during the
while successfully generating improving last two months of 2004 provided impetus
Series II Shares 5.49 levels of free cash flow. for the return of the S&P 500 Index to
increase to 10.87% for the year.
S&P 500 Index (Broad Market The value team capitalizes on the
and Style-specific Index) 10.87 fact that stock prices are more volatile As stated, our purpose in managing
than business values, primarily because this fund is to capture the upside of
Lipper Large-Cap Core Fund investors overreact to news. The team the market while offering better capital
Index (Peer Group Index) 8.29 seeks to invest when a significant preservation in more difficult times.
difference exists between stock's market Our strategy for accomplishing this
Source: Lipper, Inc. price and our estimate of the company's purpose is to provide carefully selected
======================================= intrinsic value. We believe that a exposure to the entire spectrum of
diversified portfolio of stocks large-cap opportunities by employing
For the year ended December 31, purchased during intervals of marked three distinct investment disciplines.
2004, the fund's underperformance can disparity between market price and During the period, the growth discipline
generally be attributed to weak estimated intrinsic value can result in outperformed the core and value
performance in the fund's holdings in a strong long-term performance. disciplines, which produced more muted
the financials, information technology returns. Conversely, we expect that
and consumer discretionary sectors The growth team, through there will be future periods wherein the
relative to its peer group and the S&P quantitative and rigorous fundamental value and core disciplines buffer any
500 Index. analysis, identifies companies weakness in the growth discipline.
generating sustainable, above-average
HOW WE INVEST earnings growth and cash flow growth The fund's holdings in energy and
that is not fully reflected in investor industrials were the top contributors to
As described in our semiannual report to expectations fund performance. Specifically, in the
shareholders, on April 20, 2004, changes industrials sector, Tyco and Masco
were made to the management of the fund provided excellent returns for the year.
which initiated a multi-team approach. These companies made specific
As a result, the fund is now managed by improvements in the execution of their
three distinct teams, each representing businesses, which our
one of the three investment disciplines:
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- -----------------------------------------------------------------------------------------------------------------------------------
By Sector 1. Tyco International Ltd. 1. Pharmaceuticals 8.9%
(Bermuda) 3.0% 2. Industrial Conglomerates 4.7
1. Information Technology 16.6% 2. Waste Management, Inc. 1.8 3. Systems Software 4.6
2. Health Care 15.7 3. Computer Associates 4. Packaged Foods & Meats 3.8
3. Industrials 14.8 International, Inc. 1.7 5. Integrated Oil & Gas 3.8
4. Financials 13.3 4. General Mills, Inc. 1.5 6. Oil & Gas Equipment
5. Consumer Discretionary 11.8 5. Kroger Co. (The) 1.5 & Services 2.8
6. Consumer Staples 9.9 6. General Electric Co. 1.5 7. Property & Casualty Insurance 2.6
7. Energy 8.2 7. Microsoft Corp. 1.4 8. Semiconductors 2.5
8. Materials 1.9 8. Citigroup Inc. 1.4 9. Investment Banking
9. Utilities 1.0 9. Masco Corp. 1.4 & Brokerage 2.3
10. Telecommunication Services 0.5 10. Morgan Stanley 1.4 10. Other Diversified Financial
Money Market Funds Plus Other Services 2.1
Assets Less Liabilities 6.3
TOTAL NET ASSETS $1.7 BILLION
TOTAL NUMBER OF HOLDINGS* 144
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
AIM V.I. PREMIER EQUITY FUND
research had identified through our consumer spending. However, despite A I M Advisors, Inc. These views and
in-depth review of their management strong individual performances from opinions are subject to change at any
practices. As a result, both companies diverse names across the fund's three time based on factors such as market and
significantly outperformed the disciplines, including Nike, Starwood economic conditions. These views and
industrials sector of the index. Hotels & Resorts, and eBay, consumer opinions may not be relied upon as
discretionary stocks in the fund's investment advice or recommendations, or
Oil prices increased throughout the portfolio generally underperformed their as an offer for a particular security.
first three quarters of the year, index counterparts. In particular, The information is not a complete
reaching an all-time high of $55 a select media stocks detracted, analysis of every aspect of any market,
barrel in October. Most areas of the coinciding with reports of generally country, industry, security or the fund.
energy sector produced strong returns lower-than-expected advertising revenues Statements of fact are from sources
for the year, including exploration and across the industry. These holdings considered reliable, but A I M Advisors,
production companies, drillers, and oil included broadcasting stock Viacom, Inc. makes no representation or warranty
services companies. Energy was the which the fund no longer owns, as to their completeness or accuracy.
best-performing sector in the S&P 500 advertising stock Interpublic and Although historical performance is no
Index, and, as a group, the fund's publishers Gannett, New York Times and guarantee of future results, these
holdings in the sector broadly Tribune Co. At the close of the period, insights may help you understand our
participated in the upswing. we remained committed to our investments investment management philosophy.
in the latter four companies, as we
The fund's holdings in financials, believe they are guided by strong RONALD S. SLOAN,
information technology and consumer management teams with track records of Chartered Financial
discretionary detracted from its growing free cash flow and allocating it [SLOAN Analyst, senior
performance relative to the index. In to the benefit of shareholders PHOTO] portfolio manager, is
general, we believe that it is incumbent irrespective of the advertising lead manager of AIM
upon a core fund to avoid clear market environment. V.I. Premier Equity
risks. At this time we believe the Fund. Mr. Sloan has 34 years of
financials sector is highly susceptible IN CLOSING experience in the investment industry.
to risk associated with rising interest He joined AIM in 1998. Mr. Sloan
rates, a trend that we expect to At the end of the period, the fund attended the University of Missouri,
continue. Therefore, the fund's overall continued to have exposure to most broad where he received both a B.S. in
exposure to the sector during the year market sectors, and we believe it was business administration and an M.B.A.
was smaller than that of the index, and appropriately positioned to offer
its holdings included more companies shareholders the performance profile LANNY H. SACHNOWITZ,
that have less interest-rate they expect in a core fund. senior portfolio
sensitivity, such as investment services Specifically, the fund was relatively [SACHNOWITZ manager, is a manager
giant Merrill Lynch and property and balanced in its exposure to more PHOTO] of AIM V.I. Premier
casualty insurer Ace Ltd. defensive holdings and its exposure to Equity Fund. Mr.
more economically sensitive holdings. Sachnowitz joined AIM
Information technology stocks were This results from our multi-team in 1987. He received a B.S. in finance
generally flat during the period. Though approach that is intended to offer both from the University of Southern
the sector enjoyed a strong fourth a wider variety of investment California, and he received his M.B.A
quarter, it was the second opportunities and the potential for from the University of Houston.
worst-performing sector in the index for lower volatility relative to market
the year, and the fund's holdings in benchmarks such as the S&P 500 Index. BRET W. STANLEY,
this area languished as well. Chartered Financial
The views and opinions expressed in [STANLEY Analyst, senior
The consumer discretionary sector Management's Discussion of Fund PHOTO] portfolio manager, is
produced relatively strong performance Performance are those of a manager of AIM V.I.
in the S&P 500 in 2004, in line with Premier Equity Fund.
generally strong growth in Mr. Stanley has 16 years of experience
in the investment industry. He joined
PRINCIPAL RISKS OF INVESTING IN THE FUND AIM in 1998. Mr. Stanley attended the
University of Texas, where he received
The fund may invest up to 25% of its assets in the securities of non-U.S. issuers. his B.B.A. in finance, and the
International investing presents certain risks not associated with investing solely in University of Houston, where he earned
the United States. These include risks relating to fluctuations in the value of the his M.S. in finance.
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 Assisted by the Mid/Large Cap Core Team,
lesser degree of public information required to be provided by non-U.S. companies. Large Cap Growth Team and Basic Value
Team
The fund's investments in different, independently managed investment disciplines
may result in increased transaction costs and/or adverse tax consequences resulting [RIGHT ARROW GRAPHIC]
from transactions in the same security at or at about the same time.
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE, PLEASE TURN THE PAGE.
</Table>
3
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. PREMIER EQUITY FUND
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before
As a shareholder of the fund, you incur The table below provides information expenses, which is not the fund's actual
ongoing costs, including management about actual account values and actual return. The hypothetical account values
fees; distribution and/or service fees expenses. You may use the information in and expenses may not be used to estimate
(12b-1); and other fund expenses. This this table, together with the amount you your actual ending account balance or
example is intended to help you invested, to estimate the expenses that expenses you paid for the period. You
understand your ongoing costs (in you paid over the period. Simply divide may use this information to compare the
dollars) of investing in the fund and to your account value by $1,000 (for ongoing costs of investing in the fund
compare these costs with ongoing costs example, an $8,600 account value divided and other funds. To do so, compare this
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the 5% hypothetical example with the 5%
example is based on an investment of result by the number in the table under hypothetical examples that appear in the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses shareholder reports of the other funds.
period and held for the entire period, Paid During Period" to estimate the
July 1, 2004-December 31, 2004. expenses you paid on your account during Please note that the expenses shown
this period. in the table are meant to highlight
The actual and hypothetical expenses your ongoing costs. Therefore, the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
the effect of any fees or other expenses COMPARISON PURPOSES comparing ongoing costs, and will not
assessed in connection with a variable help you determine the relative total
product; if they did, the expenses shown The table below also provides costs of owning different funds.
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the fund's
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,045.30 $4.68 $1,020.56 $4.62
Series II 1,000.00 1,044.60 5.96 1,019.30 5.89
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1,
2004, to December 31, 2004, was 4.53% and 4.46% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (0.91% and 1.16% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. PREMIER EQUITY FUND
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note
that the chart uses a logarithmic scale 5/5/93-12/31/04 Index data from 4/30/93
along the vertical axis (the value
scale). This means that each scale [MOUNTAIN CHART]
increment always represents the same
percent change in price; in a linear
chart each scale increment always DATE AIM V.I. PREMIER EQUITY LIPPER LARGE-CAP S&P 500
represents the same absolute change in FUND-SERIES I CORE FUND INDEX INDEX
price. In this example, the scale 4/30/93 $10000 $10000 $10000
increment between $5,000 and $10,000 is 6/93 10690 10313 10297
the same as that between $10,000 and 9/93 11230 10653 10562
$20,000. In a linear chart, the latter 12/93 11482 10891 10807
scale increment would be twice as large. 3/94 11804 10523 10398
The benefit of using a logarithmic scale 6/94 11313 10426 10441
is that it better illustrates 9/94 12043 10889 10950
performance during the early years 12/94 11946 10774 10949
before reinvested distributions and 3/95 13127 11623 12013
compounding create the potential for the 6/95 14805 12584 13159
original investment to grow to very 9/95 16522 13521 14204
large numbers. Had the chart used a 12/95 16278 14195 15058
linear scale along its vertical axis, 3/96 16387 14926 15866
you would not be able to see as clearly 6/96 17196 15467 16577
the movements in the value of the fund 9/96 17448 15959 17090
and the indexes during the fund's early 12/96 18722 17012 18513
years. We use a logarithmic scale in 3/97 18508 17153 19011
financial reports of funds that have 6/97 21711 20035 22326
more than five years of performance 9/97 23521 21573 23998
history. 12/97 23157 21983 24687
3/98 25979 24950 28129
======================================= 6/98 27426 25949 29063
AVERAGE ANNUAL TOTAL RETURNS 9/98 24136 22975 26178
12/98 30661 27904 31748
As of 12/31/04 3/99 33360 29114 33329
6/99 35089 30725 35674
SERIES I SHARES 9/99 33832 28719 33452
Inception (5/5/93) 9.04% 12/99 39835 33304 38425
10 Years 8.67 3/00 43389 34724 39305
5 Years -7.19 6/00 39724 33933 38261
1 Year 5.77 9/00 37229 33807 37891
12/00 34002 30850 34928
SERIES II SHARES 3/01 30154 27005 30790
10 Years 8.40% 6/01 31969 28445 32590
5 Years -7.41 9/01 26989 24380 27809
1 Year 5.49 12/01 29728 26890 30780
======================================= 3/02 28708 26908 30865
6/02 23425 23567 26732
Returns since the inception date of 9/02 19441 19859 22116
Series II shares are historical. All 12/02 20734 21180 23980
other returns are the blended returns of 3/03 20455 20522 23225
the historical performance of the fund's 6/03 22897 23331 26798
Series II shares since their inception 9/03 23497 23844 27507
and the restated historical performance 12/03 25934 26434 30854
of the fund's Series I shares (for 3/04 26103 26699 31376
periods prior to inception of the Series 6/04 26244 27026 31916
II shares) adjusted to reflect the 9/04 25283 26385 31319
higher Rule 12b-1 fees applicable to the 12/04 $27423 $28625 $34209
Series II shares. The inception date of
the fund's Series II shares is 9/19/01. Source: Lipper, Inc.
The Series I and Series II shares invest ======================================================================================
in the same portfolio of securities and
will have substantially similar comparable future results; current The fund is not managed to track the
performance, except to the extent that performance may be lower or higher. performance of any particular index,
expenses borne by each class differ. Please contact your variable product including the indexes defined here, and
issuer or financial advisor for the most consequently, the performance of the
The performance data quoted represent recent month-end variable product fund may deviate significantly from the
past performance and cannot guarantee performance. Performance figures reflect performance of the indexes.
fund expenses, reinvested distributions
and changes in net asset value. A direct investment cannot be made in
Investment return and principal value an index. Unless otherwise indicated,
will fluctuate so that you may have a index results include reinvested
gain or loss when you sell shares. dividends, and they do not reflect sales
charges. Performance of an index of
AIM V.I. Premier Equity Fund, a series funds reflects fund expenses;
portfolio of AIM Variable Insurance performance of a market index does not.
Funds, is currently offered through
insurance companies issuing variable OTHER INFORMATION
products. You cannot purchase shares of
the fund directly. Performance figures The returns shown in the Management's
given represent the fund and are not Discussion of Fund Performance are based
intended to reflect actual variable on net asset values calculated for
product values. They do not reflect shareholder transactions. Generally
sales charges, expenses and fees accepted accounting principles require
assessed in connection with a variable adjustments to be made to the net assets
product. Sales charges, expenses and of the fund at period end for financial
fees, which are determined by the reporting purposes, and as such, the net
variable product issuers, will vary and asset values for shareholder
will lower the total return.* transactions and the returns based on
those net asset values may differ from
ABOUT INDEXES USED IN THIS REPORT the net asset values and returns
reported in the Financial Highlights.
The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P Industry classifications used in this
500--Registered Trademark-- Index) is report are generally according to the
an index of common stocks frequently Global Industry Classification Standard,
used as a general measure of U.S. stock which was developed by and is the
market performance. exclusive property and a service mark of
Morgan Stanley Capital International
The unmanaged Lipper Large-Cap Core Inc. and Standard & Poor's.
Fund Index represents an average of the
performance of the 30 largest
large-capitalization core equity funds
tracked by Lipper, Inc., an independent
mutual fund performance monitor.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIPEQ-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-93.74%
ADVERTISING-1.02%
Interpublic Group of Cos., Inc. (The)(a) 362,000 $ 4,850,800
- --------------------------------------------------------------------------
Omnicom Group Inc. 148,300 12,504,656
==========================================================================
17,355,456
==========================================================================
AEROSPACE & DEFENSE-1.52%
Boeing Co. (The) 85,000 4,400,450
- --------------------------------------------------------------------------
General Dynamics Corp. 42,000 4,393,200
- --------------------------------------------------------------------------
Honeywell International Inc. 183,400 6,494,194
- --------------------------------------------------------------------------
Northrop Grumman Corp. 196,200 10,665,432
==========================================================================
25,953,276
==========================================================================
ALUMINUM-0.31%
Alcoa Inc. 170,300 5,350,826
==========================================================================
APPAREL RETAIL-0.94%
Gap, Inc. (The) 371,000 7,835,520
- --------------------------------------------------------------------------
Limited Brands 360,000 8,287,200
==========================================================================
16,122,720
==========================================================================
APPLICATION SOFTWARE-0.71%
Amdocs Ltd. (United Kingdom)(a) 295,000 7,743,750
- --------------------------------------------------------------------------
Intuit Inc.(a) 100,000 4,401,000
==========================================================================
12,144,750
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.58%
Bank of New York Co., Inc. (The) 296,100 9,895,662
==========================================================================
BIOTECHNOLOGY-0.51%
Genentech, Inc.(a) 80,000 4,355,200
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 125,000 4,373,750
==========================================================================
8,728,950
==========================================================================
BREWERS-0.73%
Heineken N.V. (Netherlands)(b) 377,481 12,532,798
==========================================================================
BUILDING PRODUCTS-1.39%
Masco Corp. 648,900 23,704,317
==========================================================================
COMMUNICATIONS EQUIPMENT-2.11%
Cisco Systems, Inc.(a) 460,000 8,878,000
- --------------------------------------------------------------------------
Motorola, Inc. 380,000 6,536,000
- --------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 535,500 8,391,285
- --------------------------------------------------------------------------
QUALCOMM Inc. 219,000 9,285,600
- --------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 35,000 2,884,700
==========================================================================
35,975,585
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
COMPUTER & ELECTRONICS RETAIL-0.26%
Best Buy Co., Inc. 75,000 $ 4,456,500
==========================================================================
COMPUTER HARDWARE-1.46%
Dell Inc.(a) 322,000 13,569,080
- --------------------------------------------------------------------------
International Business Machines Corp. 115,900 11,425,422
==========================================================================
24,994,502
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.27%
Lexmark International, Inc.-Class A(a) 55,000 4,675,000
==========================================================================
CONSUMER ELECTRONICS-0.50%
Sony Corp.-ADR (Japan)(c) 221,000 8,610,160
==========================================================================
CONSUMER FINANCE-1.02%
American Express Co. 80,000 4,509,600
- --------------------------------------------------------------------------
Capital One Financial Corp. 36,000 3,031,560
- --------------------------------------------------------------------------
MBNA Corp. 170,000 4,792,300
- --------------------------------------------------------------------------
SLM Corp. 95,000 5,072,050
==========================================================================
17,405,510
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.33%
First Data Corp. 532,800 22,665,312
==========================================================================
DEPARTMENT STORES-1.16%
J.C. Penney Co., Inc. 120,000 4,968,000
- --------------------------------------------------------------------------
Kohl's Corp.(a) 303,100 14,903,427
==========================================================================
19,871,427
==========================================================================
DIVERSIFIED BANKS-1.23%
Bank of America Corp. 273,100 12,832,969
- --------------------------------------------------------------------------
Wachovia Corp. 155,500 8,179,300
==========================================================================
21,012,269
==========================================================================
DIVERSIFIED CHEMICALS-0.95%
Dow Chemical Co. (The) 328,700 16,273,937
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.29%
Cendant Corp. 945,300 22,101,114
==========================================================================
ELECTRIC UTILITIES-0.49%
FPL Group, Inc. 112,200 8,386,950
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.03%
Emerson Electric Co. 119,100 8,348,910
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 185,000 9,166,750
==========================================================================
17,515,660
==========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-1.78%
Waste Management, Inc. 1,017,900 $ 30,475,926
==========================================================================
FOOD RETAIL-1.86%
Kroger Co. (The)(a) 1,437,600 25,215,504
- --------------------------------------------------------------------------
Safeway Inc.(a) 336,000 6,632,640
==========================================================================
31,848,144
==========================================================================
FOOTWEAR-0.76%
NIKE, Inc.-Class B 143,000 12,968,670
==========================================================================
GENERAL MERCHANDISE STORES-1.30%
Target Corp. 427,600 22,205,268
==========================================================================
HEALTH CARE DISTRIBUTORS-1.56%
Cardinal Health, Inc. 305,800 17,782,270
- --------------------------------------------------------------------------
McKesson Corp. 284,000 8,934,640
==========================================================================
26,716,910
==========================================================================
HEALTH CARE EQUIPMENT-1.44%
Baxter International Inc. 225,000 7,771,500
- --------------------------------------------------------------------------
Becton, Dickinson & Co. 173,000 9,826,400
- --------------------------------------------------------------------------
Waters Corp.(a) 148,000 6,924,920
==========================================================================
24,522,820
==========================================================================
HEALTH CARE FACILITIES-0.50%
HCA, Inc. 214,000 8,551,440
==========================================================================
HEALTH CARE SERVICES-0.45%
IMS Health Inc. 80,300 1,863,763
- --------------------------------------------------------------------------
Quest Diagnostics Inc. 60,000 5,733,000
==========================================================================
7,596,763
==========================================================================
HEALTH CARE SUPPLIES-0.45%
Alcon, Inc. (Switzerland) 95,000 7,657,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.32%
Starwood Hotels & Resorts Worldwide, Inc. 92,800 5,419,520
==========================================================================
HOUSEHOLD PRODUCTS-1.18%
Kimberly-Clark Corp. 143,800 9,463,478
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 193,000 10,630,440
==========================================================================
20,093,918
==========================================================================
HOUSEWARES & SPECIALTIES-0.27%
Fortune Brands, Inc. 60,000 4,630,800
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.39%
Costco Wholesale Corp. 136,000 6,583,760
==========================================================================
INDUSTRIAL CONGLOMERATES-4.71%
General Electric Co. 680,000 24,820,000
- --------------------------------------------------------------------------
Textron Inc. 60,000 4,428,000
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-(CONTINUED)
Tyco International Ltd. (Bermuda) 1,432,400 $ 51,193,976
==========================================================================
80,441,976
==========================================================================
INDUSTRIAL MACHINERY-2.01%
Danaher Corp. 166,000 9,530,060
- --------------------------------------------------------------------------
Dover Corp. 267,700 11,227,338
- --------------------------------------------------------------------------
Eaton Corp. 81,000 5,861,160
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 83,400 7,729,512
==========================================================================
34,348,070
==========================================================================
INTEGRATED OIL & GAS-3.75%
Amerada Hess Corp. 142,750 11,759,745
- --------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 345,800 20,194,720
- --------------------------------------------------------------------------
ChevronTexaco Corp. 156,000 8,191,560
- --------------------------------------------------------------------------
Exxon Mobil Corp. 307,300 15,752,198
- --------------------------------------------------------------------------
Murphy Oil Corp. 100,700 8,101,315
==========================================================================
63,999,538
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.49%
ALLTEL Corp. 142,200 8,355,672
==========================================================================
INTERNET RETAIL-0.93%
eBay Inc.(a) 66,000 7,674,480
- --------------------------------------------------------------------------
IAC/InterActiveCorp(a) 299,800 8,280,476
==========================================================================
15,954,956
==========================================================================
INTERNET SOFTWARE & SERVICES-0.61%
Yahoo! Inc.(a) 275,000 10,362,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-2.33%
Goldman Sachs Group, Inc. (The) 75,000 7,803,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 150,400 8,989,408
- --------------------------------------------------------------------------
Morgan Stanley 414,900 23,035,248
==========================================================================
39,827,656
==========================================================================
IT CONSULTING & OTHER SERVICES-1.20%
Accenture Ltd.-Class A (Bermuda)(a) 759,300 20,501,100
==========================================================================
LIFE & HEALTH INSURANCE-0.53%
Prudential Financial, Inc. 165,700 9,106,872
==========================================================================
MANAGED HEALTH CARE-1.87%
Aetna Inc. 62,000 7,734,500
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 125,000 11,003,750
- --------------------------------------------------------------------------
WellPoint Inc.(a) 114,100 13,121,500
==========================================================================
31,859,750
==========================================================================
MOTORCYCLE MANUFACTURERS-0.39%
Harley-Davidson, Inc. 110,000 6,682,500
==========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-0.72%
Walt Disney Co. (The) 440,000 $ 12,232,000
==========================================================================
MULTI-LINE INSURANCE-0.40%
Hartford Financial Services Group, Inc. (The) 98,000 6,792,380
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.46%
Dominion Resources, Inc. 115,500 7,823,970
==========================================================================
OFFICE ELECTRONICS-1.29%
Xerox Corp.(a) 1,299,500 22,104,495
==========================================================================
OIL & GAS DRILLING-1.66%
GlobalSanteFe Corp. (Cayman Islands) 285,000 9,436,350
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 163,200 8,370,528
- --------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 248,000 10,512,720
==========================================================================
28,319,598
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.82%
Baker Hughes Inc. 268,000 11,435,560
- --------------------------------------------------------------------------
BJ Services Co. 175,000 8,144,500
- --------------------------------------------------------------------------
Halliburton Co. 299,100 11,736,684
- --------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 136,300 9,125,285
- --------------------------------------------------------------------------
Smith International, Inc.(a) 140,500 7,644,605
==========================================================================
48,086,634
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.14%
Citigroup Inc. 492,800 23,743,104
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 327,500 12,775,775
==========================================================================
36,518,879
==========================================================================
PACKAGED FOODS & MEATS-3.81%
Campbell Soup Co. 399,000 11,926,110
- --------------------------------------------------------------------------
General Mills, Inc. 526,800 26,187,228
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 525,000 18,695,250
- --------------------------------------------------------------------------
Sara Lee Corp. 342,500 8,267,950
==========================================================================
65,076,538
==========================================================================
PAPER PRODUCTS-0.67%
Georgia-Pacific Corp. 302,300 11,330,204
- --------------------------------------------------------------------------
Neenah Paper, Inc.(a) 4,357 142,038
==========================================================================
11,472,242
==========================================================================
PERSONAL PRODUCTS-1.07%
Estee Lauder Cos. Inc. (The)-Class A 140,000 6,407,800
- --------------------------------------------------------------------------
Gillette Co. (The) 266,000 11,911,480
==========================================================================
18,319,280
==========================================================================
PHARMACEUTICALS-8.91%
Bristol-Myers Squibb Co. 458,200 $ 11,739,084
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
PHARMACEUTICALS - (CONTINUED)
Forest Laboratories, Inc.(a) 370,000 16,598,200
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 400,700 18,989,173
- --------------------------------------------------------------------------
Johnson & Johnson 361,900 22,951,698
- --------------------------------------------------------------------------
Merck & Co. Inc. 657,400 21,128,836
- --------------------------------------------------------------------------
Pfizer Inc. 367,700 9,887,453
- --------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 214,000 17,074,989
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 430,600 12,857,716
- --------------------------------------------------------------------------
Wyeth 491,900 20,950,021
==========================================================================
152,177,170
==========================================================================
PROPERTY & CASUALTY INSURANCE-2.64%
ACE Ltd. (Cayman Islands) 534,200 22,837,050
- --------------------------------------------------------------------------
Allstate Corp. (The) 100,000 5,172,000
- --------------------------------------------------------------------------
Chubb Corp. (The) 111,000 8,535,900
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 232,100 8,603,947
==========================================================================
45,148,897
==========================================================================
PUBLISHING-1.69%
Gannett Co., Inc. 126,100 10,302,370
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A(c) 198,000 8,078,400
- --------------------------------------------------------------------------
Tribune Co. 249,400 10,509,716
==========================================================================
28,890,486
==========================================================================
RAILROADS-1.10%
Norfolk Southern Corp. 238,800 8,642,172
- --------------------------------------------------------------------------
Union Pacific Corp. 150,800 10,141,300
==========================================================================
18,783,472
==========================================================================
REGIONAL BANKS-0.92%
BB&T Corp. 198,800 8,359,540
- --------------------------------------------------------------------------
SunTrust Banks, Inc. 98,400 7,269,792
==========================================================================
15,629,332
==========================================================================
RESTAURANTS-1.24%
McDonald's Corp. 310,000 9,938,600
- --------------------------------------------------------------------------
Yum! Brands, Inc. 237,000 11,181,660
==========================================================================
21,120,260
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.44%
Applied Materials, Inc.(a) 440,000 7,524,000
==========================================================================
SEMICONDUCTORS-2.52%
Analog Devices, Inc. 433,600 16,008,512
- --------------------------------------------------------------------------
Intel Corp. 456,700 10,682,213
- --------------------------------------------------------------------------
National Semiconductor Corp. 491,400 8,820,630
- --------------------------------------------------------------------------
Xilinx, Inc. 256,400 7,602,260
==========================================================================
43,113,615
==========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SOFT DRINKS-0.87%
Coca-Cola Co. (The) 200,000 $ 8,326,000
- --------------------------------------------------------------------------
PepsiCo, Inc. 125,000 6,525,000
==========================================================================
14,851,000
==========================================================================
SPECIALTY STORES-0.31%
Staples, Inc. 159,000 5,359,890
==========================================================================
SYSTEMS SOFTWARE-4.62%
Adobe Systems Inc. 85,000 5,332,900
- --------------------------------------------------------------------------
Computer Associates International, Inc. 908,200 28,208,692
- --------------------------------------------------------------------------
Microsoft Corp. 921,100 24,602,581
- --------------------------------------------------------------------------
Oracle Corp.(a) 610,000 8,369,200
- --------------------------------------------------------------------------
Symantec Corp.(a) 484,000 12,467,840
==========================================================================
78,981,213
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.55%
Countrywide Financial Corp. 90,000 3,330,900
- --------------------------------------------------------------------------
Fannie Mae 203,300 14,476,993
- --------------------------------------------------------------------------
Washington Mutual, Inc. 203,400 8,599,752
==========================================================================
26,407,645
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,382,543,499) 1,601,176,706
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-6.78%
Liquid Assets Portfolio-Institutional
Class(d) 57,924,372 $ 57,924,372
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 57,924,371 57,924,371
==========================================================================
Total Money Market Funds (Cost
$115,848,743) 115,848,743
==========================================================================
TOTAL INVESTMENTS-100.52% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,498,392,242) 1,717,025,449
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.30%
STIC Prime Portfolio-Institutional
Class(d)(e) 5,027,000 5,027,000
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $5,027,000) 5,027,000
==========================================================================
TOTAL INVESTMENTS-100.82% (Cost
$1,503,419,242) 1,722,052,449
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.82%) (14,011,687)
==========================================================================
NET ASSETS-100.00% $1,708,040,762
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$29,607,787, which represented 1.72% of the Fund's Total Investments. See
Note 1A.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,382,543,499)* $1,601,176,706
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $120,875,743) 120,875,743
=============================================================
Total investments (cost $1,503,419,242) 1,722,052,449
=============================================================
Foreign currencies, at market value (cost
$345) 365
- -------------------------------------------------------------
Receivables for:
Investments sold 5,997,325
- -------------------------------------------------------------
Fund shares sold 694,814
- -------------------------------------------------------------
Dividends 2,812,551
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 110,864
- -------------------------------------------------------------
Other assets 191
=============================================================
Total assets 1,731,668,559
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 14,843,198
- -------------------------------------------------------------
Fund shares reacquired 1,087,560
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 188,611
- -------------------------------------------------------------
Collateral upon return of securities loaned 5,027,000
- -------------------------------------------------------------
Accrued administrative services fees 2,319,442
- -------------------------------------------------------------
Accrued distribution fees -- Series II 15,875
- -------------------------------------------------------------
Accrued transfer agent fees 10,611
- -------------------------------------------------------------
Accrued operating expenses 135,500
=============================================================
Total liabilities 23,627,797
=============================================================
Net assets applicable to shares outstanding $1,708,040,762
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,229,184,145
- -------------------------------------------------------------
Undistributed net investment income 12,769,243
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (752,545,855)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 218,633,229
=============================================================
$1,708,040,762
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,681,292,019
_____________________________________________________________
=============================================================
Series II $ 26,748,743
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 78,917,706
_____________________________________________________________
=============================================================
Series II 1,262,857
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 21.30
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 21.18
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $4,889,224
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$175,136) $ 26,974,894
- -------------------------------------------------------------
Dividends from affiliated money market funds
(including securities lending income of
$83,306**) 1,224,043
- -------------------------------------------------------------
Interest 21,434
=============================================================
Total investment income 28,220,371
=============================================================
EXPENSES:
Advisory fees 10,204,135
- -------------------------------------------------------------
Administrative services fees 4,223,899
- -------------------------------------------------------------
Custodian fees 188,754
- -------------------------------------------------------------
Distribution fees -- Series II 59,999
- -------------------------------------------------------------
Transfer agent fees 66,757
- -------------------------------------------------------------
Trustees' fees and retirement benefits 54,171
- -------------------------------------------------------------
Other 469,382
=============================================================
Total expenses 15,267,097
=============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (85,795)
=============================================================
Net expenses 15,181,302
=============================================================
Net investment income 13,039,069
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 87,319,368
- -------------------------------------------------------------
Foreign currencies (115,053)
- -------------------------------------------------------------
Futures contracts 2,739,868
=============================================================
89,944,183
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (9,043,912)
- -------------------------------------------------------------
Foreign currencies (3,295)
- -------------------------------------------------------------
Futures contracts (2,074,881)
=============================================================
(11,122,088)
=============================================================
Net gain from investment securities, foreign
currencies and futures contracts 78,822,095
=============================================================
Net increase in net assets resulting from
operations $ 91,861,164
_____________________________________________________________
=============================================================
</Table>
** Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,039,069 $ 7,662,550
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, future
contracts and option contracts 89,944,183 (102,417,712)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (11,122,088) 456,837,228
==============================================================================================
Net increase in net assets resulting from operations 91,861,164 362,082,066
==============================================================================================
Distributions to shareholders from net investment income:
Series I (7,604,614) (4,839,593)
- ----------------------------------------------------------------------------------------------
Series II (82,296) (46,580)
==============================================================================================
Decrease in net assets resulting from distributions (7,686,910) (4,886,173)
==============================================================================================
Share transactions-net:
Series I (150,562,508) (124,161,266)
- ----------------------------------------------------------------------------------------------
Series II 3,053,911 7,981,573
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (147,508,597) (116,179,693)
==============================================================================================
Net increase (decrease) in net assets (63,334,343) 241,016,200
==============================================================================================
NET ASSETS:
Beginning of year 1,771,375,105 1,530,358,905
==============================================================================================
End of year (including undistributed net investment income
of $12,769,243 and $7,532,137, respectively) $1,708,040,762 $1,771,375,105
______________________________________________________________________________________________
==============================================================================================
</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, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
AIM V.I. PREMIER EQUITY FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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.
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.
AIM V.I. PREMIER EQUITY 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 0.65% 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 advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.30% of average daily net assets, through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. Further, AIM has voluntarily agreed to waive advisory fees
of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds (excluding investments made in affiliated money market funds
with cash collateral from securities loaned by the Fund). Voluntary fee waivers
or reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $20,025.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $65,767 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$4,223,899, of which AIM retained $378,381 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $66,757.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. AIM Distributors did not
reimburse fees during the period under this expense limitation. Pursuant to the
Plan, for the year ended December 31, 2004, the Series II shares paid $59,999.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. PREMIER EQUITY FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $33,851,833 $ 300,282,812 $ (276,210,273) $ -- $ 57,924,372 $ 573,442 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 33,851,833 300,282,812 (276,210,274) -- 57,924,371 567,295 --
====================================================================================================================================
Subtotal $67,703,666 $ 600,565,624 $ (552,420,547) $ -- $115,848,743 $1,140,737 $ --
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 43,116,875 $ 363,468,475 $ (406,585,350) $ -- $ -- $ 54,676 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 124,822,863 (119,795,863) -- 5,027,000 28,630 --
====================================================================================================================================
Subtotal $ 43,116,875 $ 488,291,338 $ (526,381,213) $ -- $ 5,027,000 $ 83,306 $ --
====================================================================================================================================
Total $110,820,541 $1,088,856,962 $(1,078,801,760) $ -- $120,875,743 $1,224,043 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $44,797,933 and $28,498,586,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $3 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of $3.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $6,499
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. PREMIER EQUITY FUND
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $4,889,224 were
on loan to brokers. The loans were secured by cash collateral of $5,027,000
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $83,306 for securities
lending transactions.
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, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $7,686,910 $4,886,173
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 12,928,562
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 207,875,181
- ----------------------------------------------------------------------------
Temporary book/tax differences (160,880)
- ----------------------------------------------------------------------------
Capital loss carryforward (741,353,006)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (433,240)
- ----------------------------------------------------------------------------
Shares of beneficial interest 2,229,184,145
============================================================================
Total net assets $1,708,040,762
____________________________________________________________________________
============================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $22.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses and the deferral of post-October currency losses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $78,199,764 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2009 $171,937,212
- ---------------------------------------------------------------------------
December 31, 2010 412,231,328
- ---------------------------------------------------------------------------
December 31, 2011 157,184,466
===========================================================================
Total capital loss carryforward $741,353,006
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $1,481,236,803 and $1,656,499,488, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $235,224,800
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (27,349,641)
==============================================================================
Net unrealized appreciation of investment securities $207,875,159
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,514,177,290.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and return of capital distributions, on December 31, 2004,
undistributed net investment income (loss) was decreased by $115,053 and
undistributed net realized gain (loss) was increased by $115,053. This
reclassification had no effect on the net assets of the Fund.
AIM V.I. PREMIER EQUITY FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 11,417,183 $ 230,676,416 8,856,249 $ 156,752,191
- --------------------------------------------------------------------------------------------------------------------------
Series II 399,900 8,036,658 760,541 13,412,567
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 316,128 6,667,145 210,955 4,128,344
- --------------------------------------------------------------------------------------------------------------------------
Series II 3,924 82,294 2,392 46,580
==========================================================================================================================
Reacquired:
Series I (19,262,043) (387,906,069) (16,320,429) (285,041,801)
- --------------------------------------------------------------------------------------------------------------------------
Series II (254,102) (5,065,041) (319,790) (5,477,574)
==========================================================================================================================
7,379,010 $(147,508,597) (6,810,082) $(116,179,693)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate the own 47% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
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,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.23 $ 16.22 $ 23.35 $ 27.30 $ 33.50
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17(a) 0.09(b) 0.05(b) 0.06(b) 0.04(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.00 3.98 (7.11) (3.50) (4.94)
=================================================================================================================================
Total from investment operations 1.17 4.07 (7.06) (3.44) (4.90)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.06) (0.07) (0.03) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.48) (1.26)
=================================================================================================================================
Total distributions (0.10) (0.06) (0.07) (0.51) (1.30)
=================================================================================================================================
Net asset value, end of period $ 21.30 $ 20.23 $ 16.22 $ 23.35 $ 27.30
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.77% 25.08% (30.26)% (12.53)% (14.68)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,681,292 $1,748,961 $1,519,525 $2,558,120 $2,746,161
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.90%(d)(e) 0.85% 0.85% 0.85% 0.84%
=================================================================================================================================
Ratio of net investment income to average net assets 0.78%(a)(d) 0.48% 0.24% 0.24% 0.12%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 92% 50% 46% 40% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of Net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of Net investment to average net assets
excluding the special dividend are $0.14 and 0.62%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $1,655,856,363.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.91%.
AIM V.I. PREMIER EQUITY FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
--------------------------------------- DECEMBER 31,
2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.14 $ 16.17 $ 23.34 $21.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(a) 0.04(b) (0.00)(b) (0.00)(b)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.02 3.97 (7.10) 2.85
===============================================================================================================================
Total from investment operations 1.11 4.01 (7.10) 2.85
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.04) (0.07) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.48)
===============================================================================================================================
Total distributions (0.07) (0.04) (0.07) (0.51)
===============================================================================================================================
Net asset value, end of period $ 21.18 $ 20.14 $ 16.17 $23.34
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 5.49% 24.83% (30.44)% 13.66%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,749 $22,414 $10,834 $ 687
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.15%(d)(e) 1.10% 1.10% 1.10%(f)
===============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.53%(a)(d) 0.23% (0.01)% (0.01)%(f)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(g) 92% 50% 46% 40%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Net investment income per share and the ratio of Net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of Net investment to average net assets
excluding the special dividend are $0.06 and 0.37%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $23,999,432.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.16%.
(f) Annualized.
(g) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by
AIM V.I. PREMIER EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per year
for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities
AIM V.I. PREMIER EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
of the State of New Jersey. AIM and certain of these other parties also have
received more limited inquiries from the SEC, the NASD, the DOL, the Internal
Revenue Service, the United States Attorney's Office for the Southern District
of New York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. PREMIER EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. PREMIER EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Premier Equity Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2004,
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 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. Premier Equity Fund as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. PREMIER EQUITY FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Premier Equity Fund, an investment
portfolio of AIM Variable Insurance Funds, a Delaware statutory trust, was held
on April 2, 2004. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr........................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 100% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 0.07% was derived from U.S. Treasury
Obligations.
AIM V.I. PREMIER EQUITY FUND
AIM V.I. REAL ESTATE FUND
December 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
EFFECTIVE APRIL 30, 2004, INVESCO VIF-REAL ESTATE OPPORTUNITY
FUND WAS RENAMED AIM V.I. REAL ESTATE FUND.
AIM V.I. REAL ESTATE FUND seeks to
achieve high total returns.
Unless otherwise stated, information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY
A CURRENTLY EFFECTIVE FUND PROSPECTUS AND
VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE
COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
BEFORE INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark-- --Registered Trademark--
===================================================
</Table>
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. REAL ESTATE FUND
For the fifth consecutive year, real HOW WE INVEST downdraft. As the market started to
estate investment trusts or REITs have recover in mid-May, we once again became
outperformed the broad market. In a year Our goal is to create a portfolio that more aggressive with the portfolio and
where equity securities in general moved will perform at or above REIT index were closer to fully invested again.
higher, REITs were one of the best levels with a comparable level of risk.
performing asset classes. To accomplish this goal, we use a In the second half of the year,
fundamentals-driven investment process earnings growth expectations and an
======================================= to identify REITs with high quality increasing level of consolidations,
FUND VS. INDEXES underlying properties, strong management particularly in the retail mall sector,
teams and attractive relative drove REIT prices higher. Following a
Total returns, 12/31/03-12/31/04, valuations. In order to control risk, slight downturn in the first few days of
excluding variable product issuer the portfolio is diversified by both November, REITs continued to outdistance
charges. If variable product issuer property type and geographic location. the broad market in the last half of the
charges were included, returns would year.
be lower. MARKET CONDITIONS AND YOUR FUND
Despite the stellar year for REITs,
Series I Shares 36.58% On the heels of a powerful real estate we remain sensitive to REIT valuation
market in 2003, REITs continued to rally levels. As mentioned earlier, we
Series II Shares 36.40 in the first quarter of 2004. Investor generally have a small position in
interest was high as the asset class foreign REITs. While a minor part of the
S&P 500 Index witnessed significant inflows in the portfolio, they play a role in
(Broad Market Index) 10.87 first three months of the year. Given diversification and managing risk.
the environment, the fund also had an Selected foreign property-related stocks
Morgan Stanley REIT Index excellent first quarter. Cognizant of are currently offering attractive
(Style-specific Index) 31.49 increasing valuations, however, we valuations as several are trading below
continue to maintain a slightly net asset value--in the U.S., REITs are
Lipper Real Estate defensive posture by holding modestly trading at a premium to underlying
Fund Index (Peer Group Index) 32.13 higher-than-normal cash positions and property values. Foreign exchange rates
preferred stocks. The fund is also are also a factor, as we do not hedge
Source: Lipper, Inc. holding a small portion in foreign currencies. During the fiscal year, the
======================================= investments that are considered more euro hit an all-time high against the
attractively valued than some U.S. U.S. dollar, while the pound, yen and
We are pleased to report that the companies. Canadian and Australian dollars also
fund outperformed all of its benchmark appreciated significantly. Foreign
indexes for the fiscal year. As This defensive posture paid off in currency appreciation, therefore, added
illustrated in the table above, REITs the second quarter as higher than to fund performance.
outperformed the broad market in 2004, expected job increases and premature
hence the fund's higher return than that fears of interest rate hikes All property types contributed to the
of the S&P 500 Index. Favorable sector precipitated a market-wide REIT fund's performance for the year, but
and stock selection helped the fund sell-off. Our defensive positioning retail REITs, led by regional malls and
achieve higher returns compared with its helped us weather the shopping centers, made the largest
REIT-oriented benchmarks. contribution. A specific contributor
reflective of our investment discipline
Moreover, as compelling as the is the largest mall operator in the
one-year returns are, our focus remains U.S., Simon Property Group. Simon owns
on picking stocks which we believe will and manages
outperform REIT-oriented benchmarks
over several years.
</Table>
<Table>
<Caption>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
- -----------------------------------------------------------------------------------------------------------------------------------
By property type 1. General Growth Properties, Inc. 6.3%
2. Simon Property Group, Inc. 6.0
1. Retail 25.8% 3. ProLogis 5.7
2. Office Properties 15.2 4. Vornado Realty Trust 4.5
3. Apartments 14.2 5. Boston Properties, Inc. 4.3
4. Industrial Properties 10.4 6. CenterPoint Properties Trust 3.6
5. Lodging-Resorts 10.0 7. Macerich Co. (The) 3.3
6. Diversified 8.2 8. SL Green Realty Corp. 3.2
7. Specialty Properties 3.2 9. Essex Property Trust, Inc. 2.8
8. Real Estate Management & Development 1.9 10. Hilton Hotels Corp. 2.7
9. Self Storage Facilities 1.6
10. Healthcare 0.8
11. Industrial/Office Mixed 0.7 The fund's holdings are subject to change, and there is no assurance
Money Market Funds Plus Other Assets that the fund will continue to hold any particular security.
Less Liabilities 8.0
TOTAL NET ASSETS $79.4 MILLION
*Excluding money market fund holdings.
TOTAL NUMBER OF HOLDINGS* 76
===================================================================================================================================
</Table>
2
<Table>
AIM V.I. REAL ESTATE FUND
approximately 300 regional malls across In the office sector, we continued to JOE V. RODRIGUEZ
the U.S. and is expanding into Asia and favor companies with properties in JR., Director of
Europe. Simon is led by a talented Midtown Manhattan, inside the beltway of [RODRIGUEZ Securities
management team that has produced Washington, D.C. and in Southern PHOTO] Management, INVESCO
consistent revenue and earnings streams, California. Healthcare, however, is Real Estate, is lead
and the company also has a reasonable often a lagging sector. It was the worst manager of AIM V.I.
valuation versus sector peers. performing major property category for Real Estate Fund and the head of real
the year and therefore our underweight estate securities for INVESCO. In
Industrial REITs such as fund holding position proved beneficial. addition to portfolio management, he
ProLogis also performed well. In a oversees all phases of the unit
fractionalized industry, ProLogis is IN CLOSING including securities research and
emerging as a warehouse and distribution administration. Mr. Rodriguez, who
leader in key U.S., European and Asian Largely ignored during the tech boom of joined INVESCO in 1990, has served on
markets. In addition, ProLogis continues the late 1990s, REITs have now the editorial boards of the National
to have sector-leading growth prospects outperformed the broad market for five Association of Real Estate Investment
and is led by a highly successful straight years. At the close of 2004, Trusts and Institutional Real Estate
management team. industry valuations began to catch up Securities Newsletter. A contributing
with REITs' rapid price appreciation. As author for the book Real Estate
Given the strong performance of the such, we are still mindful of valuations Investment Trusts: Structure, Analysis
fund, detractors for the year were which remain at a premium to their and Strategy, Mr. Rodriguez has served
isolated to a few individual holdings. underlying property values. We are as adjunct professor of economics at the
CBL & Associates proved a slight drag on pleased to report another year of strong University of Texas at Dallas. He is a
performance as guidance was lowered absolute and relative fund performance member of the National Association of
after an earnings miss was reported and to provide shareholders with Business Economists, The American Real
early in 2004. Late in 2003, CBL double-digit returns. Estate Society and The Institute of
announced a joint venture with Galileo Certified Financial Planners. Mr.
Shopping America in the fourth quarter The views and opinions expressed in Rodriguez holds a B.B.A. in economics
of 2003. The earnings miss stemmed from Management's Discussion of Fund and finance and an M.B.A. in finance
a miscalculation of how dilutive the Performance are those of A I M Advisors, from Baylor University.
Galileo transaction would be to Inc. These views and opinions are
earnings. Over the remainder of 2004, subject to change at any time based on MARK D. BLACKBURN,
however, CBL was able to replace the factors such as market and economic Chartered Financial
income lost in the Galileo transaction conditions. These views and opinions may [BLACKBURN Analyst, Director of
through additional acquisitions. not be relied upon as investment advice PHOTO] Security Research,
or recommendations, or as an offer for a INVESCO Real Estate,
During the year, we remained well particular security. The information is is manager of AIM
diversified both by property type and not a complete analysis of every aspect V.I. Real Estate Fund. He serves as a
geographic location. Although there were of any market, country, industry, member of the U.S. Real Estate
no major changes to the portfolio during security or the fund. Statements of fact Securities Portfolio Management and
the year, we increased exposure to are from sources considered reliable, Research team. Prior to joining INVESCO
lodging and office REITs, while but A I M Advisors, Inc. makes no in 1998, he was an associate director of
decreasing exposure to healthcare REITs. representation or warranty as to their the research department at a brokerage
The lodging sector has staged a comeback completeness or accuracy. Although firm. He has approximately 17 years of
with increased corporate travel and historical performance is no guarantee experience in institutional investing
leisure spending. Hotels are now seeing of future results, these insights may and risk management. Mr. Blackburn
their first meaningful growth in average help you understand our investment received a B.S. in accounting from
daily rates since 2001. management philosophy. Louisiana State University and an M.B.A.
from Southern Methodist University. He
See important fund and index is a Certified Public Accountant and a
disclosures inside front cover. member of the National Association of
Real Estate Investment Trusts.
PRINCIPAL RISKS OF INVESTING IN THE FUND
JAMES W. TROWBRIDGE,
Investing in a single-sector or single-region mutual fund involves greater risk and portfolio manager,
potential reward than investing in a more diversified fund. [TROWBRIDGE INVESCO Real Estate,
PHOTO] is manager of AIM
International investing presents certain risks not associated with investing solely V.I. Real Estate
in the United States. These include risks relating to fluctuations in the value of Fund. He is a member
the U.S. dollar relative to the values of other currencies, the custody arrangements of the U.S. Real Estate Securities
made for the fund's foreign holdings, differences in accounting, political risks and Portfolio Management and Research team.
the lesser degree of public information required to be provided by non-U.S. Mr. Trowbridge, who joined INVESCO in
companies. The fund may invest up to 25% of its assets in the securities of non-U.S. 1989, is responsible for integrating his
issuers. knowledge into INVESCO's publicly traded
real estate securities investments. He
The fund invests substantial assets in REITs which present risks not associated specializes in analyzing markets and
with investing in stocks. property level supply-and-demand
relationships and evaluating REIT
REITs tend to be small- to medium-sized companies. REIT shares, like other smaller company strategic direction and
company shares, may be more volatile than and perform differently from larger-company management. Prior to joining INVESCO,
shares. There may be less trading in a smaller company's shares, which means that buy Mr. Trowbridge spent five years as a
and sell transactions in those shares could have a larger impact on the share's senior real estate officer. He holds a
prices than in the case with larger-company shares. B.S. in finance from Indiana University
and is a member of the National
Association of Real Estate Investment
Trusts.
Assisted by the Real Estate Team
[RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE,PLEASE TURN THE PAGE.
</Table>
3
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. REAL ESTATE FUND
EXAMPLE ACTUAL EXPENSES hypothetical expenses based on the
fund's actual expense ratio and an
As a shareholder of the fund, you incur The table below provides information assumed rate of return of 5% per year
ongoing costs including management fees, about actual account values and actual before expenses, which is not the fund's
distribution and/or service fees (12b-1) expenses. You may use the information in actual return. The hypothetical account
and other fund expenses. This example is this table, together with the amount you values and expenses may not be used to
intended to help you understand your invested, to estimate the expenses that estimate your actual ending account
ongoing costs (in dollars) of investing you paid over the period. Simply divide balance or expenses you paid for the
in the fund and to compare these costs your account value by $1,000 (for period. You may use this information to
with ongoing costs of investing in other example, an $8,600 account value divided compare the ongoing costs of investing
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the in the fund and other funds. To do so,
investment of $1,000 invested at the result by the number in the table under compare this 5% hypothetical example
beginning of the period and held for the the heading entitled "Actual Expenses with the 5% hypothetical examples that
entire period, July 1, 2004-December 31, Paid During Period" to estimate the appear in the shareholder reports of the
2004. expenses you paid on your account during other funds.
this period.
The actual and hypothetical expenses Please note that the expenses shown
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR in the table are meant to highlight your
the effect of any fees or other expenses COMPARISON PURPOSES ongoing costs only. Therefore, the
assessed in connection with a variable hypothetical information is useful in
product; if they did, the expenses shown The table below also provides comparing ongoing costs only, and will
would be higher while the ending account information about hypothetical account not help you determine the relative
values shown would be lower. values and total costs of owning different funds.
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2)(3) (12/31/04) PERIOD(2)(4)
Series I $1,000.00 $1,271.00 $7.42 $1,018.60 $6.60
Series II 1,000.00 1,270.30 8.27 1,017.85 7.35
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 27.10% and 27.03% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.30% and 1.45% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Effective on
January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated as
if this agreement had been in effect throughout the entire most recent fiscal half year are 1.21% and 1.45% for Series I and Series
II shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent fiscal
half year are $6.91 and $8.27 for Series I and Series II shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year are $6.14 and $7.35 for Series I and Series II, respectively.
====================================================================================================================================
</Table>
4
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. REAL ESTATE FUND
Past performance cannot guarantee ======================================================================================
comparable future results.
RESULTS OF A $10,000 INVESTMENT
In evaluating this chart, please note 3/31/98-12/31/04
that the chart uses a logarithmic scale
along the vertical axis (the value
scale). This means that each scale [MOUNTAIN CHART]
increment always represents the same
percent change in price; in a linear
chart each scale increment always AIM V.I. REAL ESTATE S&P 500 MORGAN STANLEY LIPPER REAL ESTATE
represents the same absolute change in DATE FUND-SERIES I INDEX REIT INDEX FUND INDEX
price. In this example, the scale 3/31/98 $10000 $10000 $10000 $10000
increment between $5,000 and $10,000 is 6/98 9500 10332 9462 9462
the same as that between $10,000 and 9/98 8180 9307 8315 8315
$20,000. In a linear chart, the latter 12/98 8412 11287 8294 8294
scale increment would be twice as large. 3/99 7972 11849 7898 7898
The benefit of using a logarithmic scale 6/99 8974 12682 8845 8845
is that it better illustrates 9/99 8228 11892 8026 8026
performance during the early years 12/99 8441 13661 8001 8001
before reinvested distributions and 3/00 9029 13973 8132 8132
compounding create the potential for the 6/00 9764 13602 9004 9004
original investment to grow to very 9/00 10587 13470 9705 9705
large numbers. Had the chart used a 12/00 10859 12417 10046 10046
linear scale along its vertical axis, 3/01 10077 10946 9909 9909
you would not be able to see as clearly 6/01 10891 11586 10917 10917
the movements in the value of the fund 9/01 10163 9886 10528 10528
and the indexes in the early years 12/01 10775 10943 11062 11062
depicted. We use a logarithmic scale in 3/02 11619 10973 11980 11980
financial reports of funds that have 6/02 12256 9504 12516 12516
more than five years of performance 9/02 11380 7863 11404 11404
history. 12/02 11463 8525 11464 11464
3/03 11582 8257 11598 11598
======================================= 6/03 13221 9527 13120 13120
AVERAGE ANNUAL TOTAL RETURNS 9/03 14413 9779 14312 14312
12/03 15913 10969 15730 15730
As of 12/31/04 3/04 17889 11155 17558 17558
6/04 17101 11347 16644 16644
SERIES I SHARES 9/04 18554 11134 17976 17976
Inception (3/31/98) 12.18% 12/04 $21732 $12162 $20783 $20783
5 Years 20.82
1 Year 36.58 Source: Lipper, Inc.
======================================================================================
SERIES II SHARES
Inception 11.92% The performance data quoted represent ABOUT INDEXES USED IN THIS REPORT
5 Years 20.55 past performance and cannot guarantee
1 Year 36.40 comparable future results; current The unmanaged Standard & Poor's
======================================= performance may be lower or higher. Composite Index of 500 Stocks (the S&P
Please contact your variable product 500--Registered Trademark-- Index) is an
Returns since the inception date of issuer or financial advisor for the most index of common stocks frequently used
Series II shares are historical. All recent month-end variable product as a general measure of U.S. stock
other returns are the blended returns of performance. Performance figures reflect market performance.
the historical performance of the fund's fund expenses, reinvested distributions
Series II shares since their inception and changes in net asset value. The unmanaged Lipper Real Estate Fund
and the restated historical performance Investment return and principal value Index represents an average of the
of the fund's Series I shares (for will fluctuate so that you may have a performance of the 30 largest real
periods prior to inception of the Series gain or loss when you sell shares. estate funds tracked by Lipper, Inc., an
II shares) adjusted to reflect the independent mutual fund performance
higher Rule 12b-1 fees applicable to AIM V.I. Real Estate Fund, a series monitor.
the Series II shares. The inception date portfolio of AIM Variable Insurance
of the fund's Series I shares is Funds, is currently offered through The Morgan Stanley REIT Index is a
3/31/98. The inception date of the insurance companies issuing variable total-return index composed of the most
fund's Series II shares is 4/30/04. The products. You cannot purchase shares of actively traded real estate investment
Series I and Series II shares invest in the fund directly. Performance figures trusts and is designed to be a measure
the same portfolio of securities and given represent the fund and are not of real estate equity performance. The
will have substantially similar intended to reflect actual variable index was developed with a base value of
performance, except to the extent that product values. They do not reflect 200 as of December 31, 1994.
expenses borne by each class differ. sales charges, expenses and fees
assessed in connection with a variable The fund is not managed to track the
product. Sales charges, expenses and performance of any particular index,
fees, which are determined by the including the indexes defined here, and
variable product issuers, will vary and consequently, the performance of the
will lower the total return.* fund may deviate significantly from the
performance of the indexes.
Had the advisor not waived fees
and/or reimbursed expenses, performance A direct investment cannot be made
would have been lower. in an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index of
funds reflects fund expenses;
performance of a market index does not.
OTHER INFORMATION
The returns shown in the Management's
Discussion of Fund Performance are based
on net asset values calculated for
shareholder transactions. Generally
accepted accounting principles require
adjustments to be made to the net assets
of the fund at period end for financial
reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
</Table>
*Per NASD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5 VIREA-AR-1
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-91.92%
APARTMENTS-14.24%
American Campus Communities, Inc. 16,200 $ 364,338
- ----------------------------------------------------------------------
Archstone-Smith Trust 56,000 2,144,800
- ----------------------------------------------------------------------
AvalonBay Communities, Inc. 17,800 1,340,340
- ----------------------------------------------------------------------
BRE Properties, Inc.-Class A 22,900 923,099
- ----------------------------------------------------------------------
Canadian Apartment Properties Real Estate
Investment Trust (Canada) 28,100 352,580
- ----------------------------------------------------------------------
Equity Residential 51,100 1,848,798
- ----------------------------------------------------------------------
Essex Property Trust, Inc. 26,900 2,254,220
- ----------------------------------------------------------------------
GMH Communities Trust 9,400 132,540
- ----------------------------------------------------------------------
United Dominion Realty Trust, Inc. 78,500 1,946,800
======================================================================
11,307,515
======================================================================
DIVERSIFIED-8.16%
British Land Co. PLC (United Kingdom)(a) 11,800 202,464
- ----------------------------------------------------------------------
Capital & Regional PLC (United Kingdom)(a) 13,600 181,028
- ----------------------------------------------------------------------
Cousins Properties Inc.-Series B, 7.50%
Pfd.(b) 11,600 292,900
- ----------------------------------------------------------------------
Gecina S.A. (France)(a) 800 79,237
- ----------------------------------------------------------------------
Hammerson PLC (United Kingdom) 12,900 214,931
- ----------------------------------------------------------------------
Hang Lung Properties Ltd. (Hong Kong)(a) 135,000 208,667
- ----------------------------------------------------------------------
Hongkong Land Holdings Ltd. (Bermuda)(a) 68,000 179,808
- ----------------------------------------------------------------------
Klepierre (France)(a) 3,200 282,657
- ----------------------------------------------------------------------
Land Securities Group PLC (United Kingdom)(a) 10,700 286,770
- ----------------------------------------------------------------------
Mitsubishi Estate Co., Ltd. (Japan)(a) 13,000 152,787
- ----------------------------------------------------------------------
Mitsui Fudosan Co., Ltd. (Japan)(a) 17,000 207,120
- ----------------------------------------------------------------------
Sino Land Co. Ltd. (Hong Kong)(a) 60,594 59,658
- ----------------------------------------------------------------------
Stockland (Australia)(a) 41,400 194,207
- ----------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Hong Kong)(a) 18,000 180,148
- ----------------------------------------------------------------------
Unibail (France)(a) 1,300 204,381
- ----------------------------------------------------------------------
Vornado Realty Trust 46,600 3,547,658
======================================================================
6,474,421
======================================================================
HEALTHCARE-0.81%
Health Care REIT, Inc. 1,200 45,780
- ----------------------------------------------------------------------
Ventas, Inc. 21,800 597,538
======================================================================
643,318
======================================================================
INDUSTRIAL PROPERTIES-10.39%
Brixton PLC (United Kingdom) 38,200 257,040
- ----------------------------------------------------------------------
Catellus Development Corp. 20,447 625,678
- ----------------------------------------------------------------------
CenterPoint Properties Trust 59,100 2,830,299
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
INDUSTRIAL PROPERTIES-(CONTINUED)
ProLogis 104,714 $ 4,537,258
======================================================================
8,250,275
======================================================================
INDUSTRIAL/OFFICE MIXED-0.66%
Duke Realty Corp. 15,400 525,756
======================================================================
LODGING-RESORTS-9.99%
Equity Inns Inc. 28,900 339,286
- ----------------------------------------------------------------------
Fairmont Hotels & Resorts Inc. (Canada) 26,800 928,352
- ----------------------------------------------------------------------
Hilton Hotels Corp. 95,800 2,178,492
- ----------------------------------------------------------------------
Host Marriott Corp. 116,800 2,020,640
- ----------------------------------------------------------------------
LaSalle Hotel Properties 19,500 620,685
- ----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 31,600 1,845,440
======================================================================
7,932,895
======================================================================
OFFICE PROPERTIES-15.15%
Alexandria Real Estate Equities, Inc. 16,000 1,190,720
- ----------------------------------------------------------------------
Alexandria Real Estate Equities, Inc.-Series
C, 8.38% Pfd. 1,800 47,646
- ----------------------------------------------------------------------
Arden Realty, Inc. 16,300 614,836
- ----------------------------------------------------------------------
Boston Properties, Inc. 52,200 3,375,774
- ----------------------------------------------------------------------
Brandywine Realty Trust 22,000 646,580
- ----------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 15,000 561,000
- ----------------------------------------------------------------------
CarrAmerica Realty Corp. 14,800 488,400
- ----------------------------------------------------------------------
Derwent Valley Holdings PLC (United
Kingdom)(a) 9,500 204,680
- ----------------------------------------------------------------------
Kilroy Realty Corp. 17,400 743,850
- ----------------------------------------------------------------------
Mack-Cali Realty Corp. 31,700 1,459,151
- ----------------------------------------------------------------------
SL Green Realty Corp. 42,400 2,567,320
- ----------------------------------------------------------------------
Sophia (France)(a) 2,100 125,861
======================================================================
12,025,818
======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.93%
St. Joe Co. (The) 17,400 1,117,080
- ----------------------------------------------------------------------
Trammell Crow Co.(c) 22,900 414,719
======================================================================
1,531,799
======================================================================
REGIONAL MALLS-19.40%
Borealis Retail Real Estate Investment Trust
(Canada) 7,400 82,383
- ----------------------------------------------------------------------
CapitaMall Trust (Singapore) 73,300 79,044
- ----------------------------------------------------------------------
CBL & Associates Properties, Inc.-Series D,
7.38% Pfd.(b) 7,800 197,437
- ----------------------------------------------------------------------
CFS Gandel Retail Trust (Australia)(a) 284,800 357,091
- ----------------------------------------------------------------------
General Growth Properties, Inc. 138,900 5,022,624
- ----------------------------------------------------------------------
Liberty International PLC (United Kingdom)(a) 20,100 373,441
- ----------------------------------------------------------------------
</Table>
AIM V.I. REAL ESTATE FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
REGIONAL MALLS-(CONTINUED)
Macerich Co. (The) 41,400 $ 2,599,920
- ----------------------------------------------------------------------
Mills Corp. (The) 22,200 1,415,472
- ----------------------------------------------------------------------
Simon Property Group, Inc. 73,400 4,746,778
- ----------------------------------------------------------------------
Taubman Centers, Inc.-Series G, 8.00% Pfd. 4,100 106,395
- ----------------------------------------------------------------------
Westfield Group (Australia)(c) 32,800 421,638
======================================================================
15,402,223
======================================================================
SELF STORAGE FACILITIES-1.64%
Extra Space Storage Inc. 15,500 206,615
- ----------------------------------------------------------------------
Public Storage, Inc. 10,900 607,675
- ----------------------------------------------------------------------
Shurgard Storage Centers, Inc.-Class A 11,100 488,511
======================================================================
1,302,801
======================================================================
SHOPPING CENTERS-6.35%
Developers Diversified Realty Corp. 46,800 2,076,516
- ----------------------------------------------------------------------
Federal Realty Investment Trust 9,800 506,170
- ----------------------------------------------------------------------
Inland Real Estate Corp. 5,300 84,535
- ----------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 11,500 721,050
- ----------------------------------------------------------------------
Regency Centers Corp. 18,800 1,041,520
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
SHOPPING CENTERS-(CONTINUED)
Urstadt Biddle Properties-Class A 36,000 $ 613,800
======================================================================
5,043,591
======================================================================
SPECIALTY PROPERTIES-3.20%
American Financial Realty Trust 45,400 734,572
- ----------------------------------------------------------------------
Entertainment Properties Trust 11,600 516,780
- ----------------------------------------------------------------------
Plum Creek Timber Co., Inc. 27,200 1,045,568
- ----------------------------------------------------------------------
Spirit Finance Corp.(c) 19,500 246,675
======================================================================
2,543,595
======================================================================
Total Real Estate Investment Trusts,
Common Stocks & Other Equity Interests
(Cost $56,249,885) 72,984,007
======================================================================
MONEY MARKET FUNDS-8.46%
Premier Portfolio (Cost $6,720,218)(d)(e) 6,720,218 6,720,218
======================================================================
TOTAL INVESTMENTS-100.38% (Cost $62,970,103) 79,704,225
======================================================================
OTHER ASSETS LESS LIABILITIES-(0.38%) (299,542)
======================================================================
NET ASSETS-100.00% $79,404,683
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
Pfd. - Preferred
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$3,480,005, which represented 4.37% of the Fund's Total Investments. See
Note 1A.
(b) Security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $490,337, which represented 0.62% of the Fund's Total
Investments. See Note 1A.
(c) Non-income producing security.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Effective October 15, 2004, INVESCO Treasurer's Money Market Reserve Fund
was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. REAL ESTATE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $56,249,885) $72,984,007
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $6,720,218) 6,720,218
============================================================
Total investments (cost $62,970,103) 79,704,225
============================================================
Foreign currencies, at market value (cost
$68,741) 67,535
- ------------------------------------------------------------
Receivables for:
Investments sold 212,509
- ------------------------------------------------------------
Fund shares sold 19,882
- ------------------------------------------------------------
Dividends 287,604
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 4,935
============================================================
Total assets 80,296,690
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 538,250
- ------------------------------------------------------------
Fund shares reacquired 247,419
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 5,265
- ------------------------------------------------------------
Accrued administrative services fees 59,097
- ------------------------------------------------------------
Accrued distribution fees -- Series II 5
- ------------------------------------------------------------
Accrued transfer agent fees 1,826
- ------------------------------------------------------------
Accrued operating expenses 40,145
============================================================
Total liabilities 892,007
============================================================
Net assets applicable to shares outstanding $79,404,683
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $59,200,102
- ------------------------------------------------------------
Undistributed net investment income 902,500
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 2,567,654
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 16,734,427
============================================================
$79,404,683
____________________________________________________________
============================================================
NET ASSETS:
Series I $79,390,663
____________________________________________________________
============================================================
Series II $ 14,020
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,149,600
____________________________________________________________
============================================================
Series II 733.4
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 19.13
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 19.12
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$10,975) $ 1,455,760
- ------------------------------------------------------------
Dividends from affiliated money market funds 42,723
============================================================
Total investment income 1,498,483
============================================================
EXPENSES:
Advisory fees 413,031
- ------------------------------------------------------------
Administrative services fees 130,388
- ------------------------------------------------------------
Custodian fees 24,164
- ------------------------------------------------------------
Distribution fees -- Series II 20
- ------------------------------------------------------------
Transfer agent fees 8,945
- ------------------------------------------------------------
Trustees' fees and retirement benefits 10,198
- ------------------------------------------------------------
Professional fees 38,100
- ------------------------------------------------------------
Other 27,693
============================================================
Total expenses 652,539
============================================================
Less: Fees waived and expense offset
arrangement (50,290)
============================================================
Net expenses 602,249
============================================================
Net investment income 896,234
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 2,630,910
- ------------------------------------------------------------
Foreign currencies (13,264)
============================================================
2,617,646
============================================================
Change in net unrealized appreciation of:
Investment securities 12,603,296
- ------------------------------------------------------------
Foreign currencies 272
============================================================
12,603,568
============================================================
Net gain from investment securities and foreign
currencies 15,221,214
============================================================
Net increase in net assets resulting from
operations $16,117,448
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. REAL ESTATE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 896,234 $ 540,013
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 2,617,646 1,641,153
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 12,603,568 3,983,965
========================================================================================
Net increase in net assets resulting from operations 16,117,448 6,165,131
========================================================================================
Distributions to shareholders from net investment income:
Series I (553,411) (384,782)
- ----------------------------------------------------------------------------------------
Series II (100) --
========================================================================================
Total distributions from net investment income (553,511) (384,782)
========================================================================================
Distributions to shareholders from net realized gains:
Series I (1,213,446) --
- ----------------------------------------------------------------------------------------
Series II (218) --
========================================================================================
Total distributions from net realized gains (1,213,664) --
========================================================================================
Decrease in net assets resulting from distributions (1,767,175) (384,782)
========================================================================================
Share transactions-net:
Series I 38,957,318 7,437,426
- ----------------------------------------------------------------------------------------
Series II 10,318 --
========================================================================================
Net increase in net assets resulting from share
transactions 38,967,636 7,437,426
========================================================================================
Net increase in net assets 53,317,909 13,217,775
========================================================================================
NET ASSETS:
Beginning of year 26,086,774 12,868,999
========================================================================================
End of year (including undistributed net investment income
of $902,500 and $528,809, respectively) $79,404,683 $26,086,774
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Real Estate Fund, formerly INVESCO VIF-Real Estate Opportunity Fund,
(the "Fund") is a series portfolio of AIM Variable Insurance Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twenty-eight separate
portfolios. The Fund currently offers two classes of shares, Series I and Series
II, both of which are offered to insurance company separate accounts funding
variable annuity contracts and variable life insurance policies ("variable
product"). Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. Current Securities
and Exchange Commission ("SEC") guidance, however, requires participating
insurance companies offering separate accounts to vote shares proportionally in
accordance with the instructions of the contract owners whose investments are
funded by shares of each portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. On April 30, 2004, the
Fund was restructured from a separate series of INVESCO Variable Investment
Funds, Inc. to a new series portfolio of the Trust.
The Fund's investment objective is to achieve a high total return. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts
AIM V.I. REAL ESTATE FUND
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,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
The Fund recharacterizes distributions received from REIT investments
based on information provided by the REIT into the following categories:
ordinary income, long-term and short-term capital gains, and return of
capital. If information is not available timely from the REIT, the
recharacterization will be based on available information which may include
the previous year's allocation. If new or additional information becomes
available from the REIT at a later date, a recharacterization will be made
in the following year. The Fund records as dividend income the amount
recharacterized as ordinary income and as realized gain the amount
recharacterized as capital gain in the Statement of Operations, and the
amount recharacterized as return of capital in the Statement of Changes in
Net Assets. These recharacterizations are reflected in the accompanying
financial statements.
AIM V.I. REAL ESTATE FUND
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the
Securities and Exchange Commission, are through participation with other
mutual funds, private accounts and certain non-registered investment
companies managed by the investment advisor or its affiliates ("Joint
repurchase agreements"). If the seller of a repurchase agreement fails to
repurchase the security in accordance with the terms of the agreement, the
Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying security and
loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's
average daily net assets. For the period May 1, 2004 through December 31, 2004,
the Fund paid advisory fees to AIM of $315,141. Prior to May 1, 2004, the Trust
had an investment advisory agreement with INVESCO Funds Group, Inc. ("IFG"). For
the period January 1, 2004 through April 30, 2004, the Fund paid advisory fees
under similar terms to IFG of $97,890. AIM has entered into a sub-advisory
agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays
INVESCO 40% of the fee paid by the Fund to AIM. Effective January 1, 2005
through June 30, 2006, AIM has contractually agreed to waive advisory fees to
the extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.75% of the
first $250 million, plus 0.74% of the next $250 million, plus 0.73% of the next
$500 million, plus 0.72% of the next $1.5 billion, plus 0.71% of the next $2.5
billion, plus 0.70% of the next $2.5 billion, plus 0.69% of the next $2.5
billion, plus 0.68% of the Fund's average daily net assets in excess of $10
billion.
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.35% of average daily net assets. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the total annual
fund operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan
fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales;
(v) extraordinary items (these are expenses that are not anticipated to arise
from the Fund's day-to-day operations), or items designated as such by the
Fund's Board of Trustees; (vi) expenses related to a merger or reorganization,
as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
AIM V.I. REAL ESTATE FUND
investments by the Fund in such affiliated money market funds. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. For
the period May 1, 2004 through December 31, 2004, AIM waived fees of $38,795.
For the period January 1, 2004 through April 30, 2004, IFG waived fees of
$11,381.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31, 2004,
AIM was paid $98,259, of which AIM retained $33,469 for services provided by
AIM. Prior to May 1, 2004, the Fund had an administrative services agreement
with IFG. For the period January 1, 2004 through April 30, 2004, under similar
terms, IFG was paid $32,129, of which IFG retained $4,938 for services provided
by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $8,945.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. Pursuant to the Plan, for the
period April 30, 2004 (date sales commenced) through December 31, 2004, the
Series II shares paid $12 after AIM Distributors waived Plan fees of $8.
Certain officers and trustees of the Trust are also officers and directors
of AIM, AISI, INVESCO and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio $1,799,987 $37,566,927 $(32,646,696) $ -- $6,720,218 $42,723 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $106 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $106.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,877
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
AIM V.I. REAL ESTATE FUND
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $1,581,743 $384,782
- ------------------------------------------------------------------------------------
Long-term capital gain 185,432 --
====================================================================================
Total distributions $1,767,175 $384,782
____________________________________________________________________________________
====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------
Undistributed ordinary income $ 2,066,999
- -------------------------------------------------------------------------
Undistributed long-term gain 1,545,746
- -------------------------------------------------------------------------
Unrealized appreciation-investments 16,594,867
- -------------------------------------------------------------------------
Temporary book/tax differences (3,031)
- -------------------------------------------------------------------------
Shares of beneficial interest 59,200,102
=========================================================================
Total net assets $79,404,683
_________________________________________________________________________
=========================================================================
</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 losses on
wash sales and market to market of certain passive foreign investment
securities. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $305.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $48,804,207 and $14,743,875, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $16,601,848
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (7,286)
===============================================================================
Net unrealized appreciation of investment securities $16,594,562
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $63,109,663.
</Table>
AIM V.I. REAL ESTATE FUND
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and passive foreign investment companies, on December 31, 2004,
undistributed net investment income (loss) was increased by $30,968 and
undistributed net realized gain (loss) was decreased by $30,968. This
reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2004 2003
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,115,355 $ 50,705,698 1,026,217 $12,642,163
- -------------------------------------------------------------------------------------------------------------------
Series II(b) 716 10,000 -- --
===================================================================================================================
Issued as reinvestment of dividends:
Series I 94,788 1,766,857 27,387 384,782
- -------------------------------------------------------------------------------------------------------------------
Series II(b) 17 318 -- --
===================================================================================================================
Reacquired:
Series I (879,455) (13,515,237) (460,976) (5,589,519)
===================================================================================================================
2,331,421 $ 38,967,636 592,628 $ 7,437,426
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 75% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
(b) Series II shares commenced sales on April 30, 2004.
NOTE 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,
----------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.34 $ 10.49 $ 9.97 $10.15 $ 7.91
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.20 0.14 0.20 0.15
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.92 3.87 0.50 (0.28) 2.11
==================================================================================================================
Total from investment operations 5.24 4.07 0.64 (0.08) 2.26
==================================================================================================================
Less distributions:
Dividends from net investment income (0.14) (0.22) (0.12) (0.10) (0.02)
- ------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.31) -- -- -- --
==================================================================================================================
Total distributions (0.45) (0.22) (0.12) (0.10) (0.02)
==================================================================================================================
Net asset value, end of period $ 19.13 $ 14.34 $ 10.49 $ 9.97 $10.15
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 36.58% 38.82% 6.37% (0.76)% 28.63%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $79,391 $26,087 $12,869 $4,723 $2,456
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.31%(c) 1.35% 1.36% 1.38% 1.73%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.42%(c) 1.62% 1.89% 2.70% 5.28%
==================================================================================================================
Ratio of net investment income to average net assets 1.96%(c) 3.02% 4.53% 4.35% 3.96%
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 34% 126% 191% 163% 168%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $45,884,338.
AIM V.I. REAL ESTATE FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- ----------------------------------------------------------------------------
Net asset value, beginning of period $13.96
- ----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20(a)
- ----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 5.41
============================================================================
Total from investment operations 5.61
============================================================================
Less distributions:
Dividends from net investment income (0.14)
- ----------------------------------------------------------------------------
Distributions from net realized gains (0.31)
============================================================================
Total distributions (0.45)
============================================================================
Net asset value, end of period $19.12
____________________________________________________________________________
============================================================================
Total return(b) 40.23%
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 14
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%(c)
- ----------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.66%(c)
============================================================================
Ratio of net investment income to average net assets 1.82%(c)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(d) 34%
____________________________________________________________________________
============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $11,824.
(d) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and
AIM V.I. REAL ESTATE FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
acceptable to the staff of the SEC. Under the settlements with the NYAG and
COAG, AIM has agreed to reduce management fees on certain equity and balanced
AIM Funds by $15 million per year for the next five years, based upon effective
fee rates and assets under management as of July 1, 2004, and not to increase
certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant to be appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement amounts may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of
AIM V.I. REAL ESTATE FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) making allegations that are similar in many respects to those in the
settled regulatory actions brought by the SEC, the NYAG and the COAG concerning
market timing activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of
contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
AIM V.I. REAL ESTATE FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. REAL ESTATE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Real Estate Fund, formerly
known as INVESCO VIF - Real Estate Opportunity Fund, (one of the funds
constituting AIM Variable Insurance Funds, formerly known as INVESCO Variable
Investment Funds, Inc., hereafter referred to as the "Fund") at December 31,
2004, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 11, 2005
Houston, Texas
AIM V.I. REAL ESTATE FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Real Estate Opportunity Fund
(now known as AIM V.I. Real Estate Fund) ("Fund"), an investment portfolio of
INVESCO Variable Investment Funds, Inc., (now known as AIM Variable Insurance
Funds), a Delaware statutory trust, ("Trust"), was held on April 2, 2004. The
meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
(5A) To approve changing the investment objectives of INVESCO VIF-Real Estate
Opportunity Fund.
(5B) To approve making new investment objective non-fundamental for INVESCO
VIF-Real Estate Opportunity Fund.
(6) To approve changing the fundamental investment restrictions of INVESCO
VIF-Real Estate Opportunity Fund:
(a) Issuer diversification
(b) Borrowing money and issuing senior securities
(c) Underwriting securities
(d) Industry concentration
(e) Purchasing or selling real estate
(f) Purchasing or selling commodities
(g) Making loans
(h) Investing the fund's assets in an open-end fund.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ----------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 93,545,754 4,458,528
Frank S. Bayley.............................. 93,653,161 4,351,121
James T. Bunch............................... 93,688,828 4,315,454
Bruce L. Crockett............................ 93,737,421 4,266,861
Albert R. Dowden............................. 93,716,317 4,287,965
Edward K. Dunn, Jr........................... 93,623,043 4,381,239
Jack M. Fields............................... 93,746,928 4,257,354
Carl Frischling.............................. 93,654,819 4,349,463
Robert H. Graham............................. 93,716,756 4,287,526
Gerald J. Lewis.............................. 93,594,018 4,410,264
Prema Mathai-Davis........................... 93,482,582 4,521,700
Lewis F. Pennock............................. 93,664,049 4,340,233
Ruth H. Quigley.............................. 93,518,516 4,485,766
Louis S. Sklar............................... 93,623,163 4,381,119
Larry Soll, Ph.D. ........................... 93,521,612 4,482,670
Mark H. Williamson........................... 93,642,072 4,362,210
</Table>
AIM V.I. REAL ESTATE FUND
<Table>
<Caption>
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------
(2) Approval of a new Investment Advisory
Agreement with A I M Advisor, Inc. .......... 1,674,384 35,039 132,619
(3) Approval of a new Sub-Advisory Agreement
between A I M Advisors, Inc. and INVESCO
Institutional (N.A.), Inc. .................. 1,681,829 25,483 134,730
(4)* Approval of an Agreement and Plan of
Reorganization to redomesticate each series
portfolio of Company as a new series
portfolio of AIM Variable Insurance Funds, an
existing Delaware statutory trust............ 88,123,016 3,299,467 6,581,799
(5A) Approval of changing the investment
objectives of INVESCO VIF-Real Estate
Opportunity Fund............................. 1,648,735 73,109 120,198
(5B) Approval of making new investment objective
non-fundamental for INVESCO VIF-Real Estate
Opportunity Fund............................. 1,658,108 71,402 112,532
(6) Approval of changing the fundamental
investment restrictions of INVESCO VIF-Real
Estate Opportunity Fund:
(a) Issuer diversification................... 1,564,484 56,725 220,833
(b) Borrowing money and issuing senior
securities................................... 1,532,074 89,135 220,833
(c) Underwriting securities.................. 1,497,249 123,960 220,833
(d) Industry concentration................... 1,559,726 61,483 220,833
(e) Purchasing or selling real estate........ 1,558,882 62,327 220,833
(f) Purchasing or selling commodities........ 1,533,919 87,290 220,833
(g) Making loans............................. 1,485,182 136,027 220,833
(h) Investing the fund's assets in an
open-end fund................................ 1,556,296 64,913 220,833
</Table>
* Proposal required approval by a combined vote of all the portfolios of INVESCO
Variable Investment Funds, Inc.
AIM V.I. REAL ESTATE FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. REAL ESTATE FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- --------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- --------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers INVESCO Institutional
Suite 100 11 Greenway Plaza Inc. LLP (N.A.), Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street INVESCO Realty Advisors
Houston, TX 77046-1173 Suite 100 Suite 2900 Division
Houston, TX 77046-1173 Houston, Texas Three Galleria Tower,
77002-5678 Suite 500
13155 Noel Road
Dallas, TX 75240
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $185,432 for the
Fund's tax year ended December 31, 2004.
AIM V.I. REAL ESTATE FUND
AIM V.I. SMALL CAP EQUITY FUND
Annual Report to Shareholders o December 31, 2004
AIM V.I. SMALL CAP EQUITY FUND
seeks to provide long-term growth of capital.
Unless otherwise stated,information presented in this report is as of 12/31/04
and is based on total net assets.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
<Table>
===================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A
CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE
PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES.
INVESTORS SHOULD READ EACH CAREFULLY BEFORE
INVESTING.
===================================================
=================================================== YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE -- Registered Trademark -- -- Registered Trademark --
===================================================
</Table>
<Table>
AIM V.I. SMALL CAP EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE fundamental, valuation and technical
analysis to identify attractively valued
Stocks, as measured by most domestic underweight in financials in comparison small-cap companies with visible and
market indexes, rallied in the fourth to the index and its holdings in this long-term growth opportunities, as
quarter of 2004, enabling the fund to sector generally lagged those of the demonstrated by consistent and
record positive returns for the year. benchmark. accelerating earnings growth.
======================================== Because our primary investments are We seek to deliver the risk and
FUND VS. INDEXES generally the stocks of fundamentally return characteristics of the small-cap
sound companies, we may be at a core asset class. We employ a
Total returns, 12/31/03-12/31/04, disadvantage during periods when lower disciplined portfolio construction
excluding variable product issuer quality stocks lead market returns. process that aligns the fund with the
charges. If variable product issuer However, as history has demonstrated, we benchmark that we believe represents the
charges were included, returns would be believe adhering to our strategy of small-cap-core asset class--the S&P
lower. investing in companies that exhibit Small Cap 600 Index. We endeavor to
sustainable growth positions the fund to diversify the fund in line with the
Series I Shares 9.41% potentially take advantage of continued sector diversification of that
economic recovery and perform well over benchmark, so we stay fully diversified
Series II Shares 9.23 an entire economic cycle. As such, we in all those sectors and have a maximum
believe our combination of disciplined deviation from that sector weight of
S&P 500 Index portfolio construction and fundamentally plus or minus 350 basis points (3.5%).
(Broad Market Index) 10.87 based stock selection can potentially
lead to attractive absolute returns over
Russell 2000 Index a long-term investment horizon with We consider selling a stock for any
(Style-specific Index) 18.33 below-market volatility. Having recently of the following reasons:
taken over management of the fund, we
Lipper Small-Cap Core Fund Index encourage shareholders to avoid placing
(Peer Group Index) 18.37 emphasis on short-term relative o A change in industry or company
performance and instead measure the fundamentals indicates problems
SOURCE: LIPPER, INC. success of our investment process over
======================================== the long term. o The price target has been exceeded
In selecting stocks for the fund, our HOW WE INVEST o The technical profile deteriorates
focus is on companies with sound
fundamentals and strong earnings-growth On September 1, 2004, changes were made MARKET CONDITIONS AND YOUR FUND
potential. We observed that many of the to the fund's portfolio management team
stocks that led the fourth-quarter rally with the objective of solidifying the After assuming management of the fund,
represented smaller, riskier, fund's positioning as a core product. We we restructured the portfolio,
unprofitable companies that did not meet seek to produce consistent and transitioning to stocks in which we had
our investment criteria. We believe that attractive risk-adjusted returns for the most confidence in their long-term
this is the main reason the fund lagged long-term investors by adhering to our outlook. We increased the fund's
its indexes. The quarter was reminiscent disciplined investment process of using weighting most significantly in the
of the market environment of 2003 when information technology sector, where we
high quality and relatively larger found software stocks attractively
market cap stocks underperformed priced after a sell-off earlier in the
smaller, riskier stocks. Additionally, year. We believe software companies
the fund underperformed the Russell 2000 could benefit from increased corporate
Index primarily because it was spending.
Within the financials sector, we
increased the fund's holdings in banks,
specifically those that could benefit
from increased demand for
</Table>
<Table>
<Caption>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. MICROS Systems, Inc. 1.5% 1. Application Software 6.4
1. Information Technology 19.7% 2. Jackson Hewitt Tax Service Inc. 1.5 2. Apparel Retail 6.1
2. Industrials 19.7 3. Overnite Corp. 1.4 3. Regional Banks 5.4
3. Consumer Discretionary 15.9 4. Commercial Metals Co. 1.4 4. Oil & Gas Exploration &
4. Financials 13.8 5. Landstar System Inc. 1.3 Production 3.5
5. Health Care 12.1 6. Compass Minerals 5. Technology Distributors 3.2
6. Materials 8.3 International Inc. 1.3 6. Industrial Machinery 3.1
7. Energy 4.9 7. Cache, Inc. 1.3 7. Trucking 2.7
8. Utilities 1.8 8. Quiksilver, Inc. 1.3 8. Health Care Facilities 2.7
9. Consumer Staples 1.2 9. Chicago Bridge & Iron Co. 9. Diversified Commercial Services 2.4
Money Market Funds Plus N.V.-New York Shares (Netherlands)1.3 10.Housewares & Specialties 2.4
Other Assets Less Liabilities 2.6 10.Kindred Healthcare, Inc. 1.2
The fund's holdings are subject to change, and there is no assurance that the fund
will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
AIM V.I. SMALL CAP EQUITY FUND
commercial and industrial loans. more optimistic about the company's THE VIEWS AND OPINIONS EXPRESSED IN
Simultaneously, we reduced the fund's prospects because of its rapidly growing MANAGEMENT'S DISCUSSION OF FUND
exposure to mortgage-related securities Las Vegas, Nevada, market. Southwestern PERFORMANCE ARE THOSE OF A I M ADVISORS,
because of rising interest rates and to Energy Company, which operates in INC. THESE VIEWS AND OPINIONS ARE
insurance stocks due to concerns about Arkansas, Louisiana, New Mexico, SUBJECT TO CHANGE AT ANY TIME BASED ON
the current pricing cycle in this Oklahoma and Texas, reported record FACTORS SUCH AS MARKET AND ECONOMIC
industry. second-quarter earnings, citing growing CONDITIONS. THESE VIEWS AND OPINIONS MAY
production volume and high oil prices as NOT BE RELIED UPON AS INVESTMENT ADVICE
In industrials, we increased the the key contributing factors. We sold OR RECOMMENDATIONS, OR AS AN OFFER FOR A
fund's holdings in capital goods the stock, taking profits as the stock PARTICULAR SECURITY. THE INFORMATION IS
companies, which could benefit from exceeded our valuation target. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
increasing global demand. In consumer OF ANY MARKET, COUNTRY, INDUSTRY,
discretionary, we increased the fund's Detracting from fund performance were SECURITY OR THE FUND. STATEMENTS OF FACT
exposure to hotels and gaming, primarily DDI a manufacturer of printed circuit ARE FROM SOURCES CONSIDERED RELIABLE,
as a result of our stock-selection boards, and Primus Telecommunications, BUT A I M ADVISORS, INC. MAKES NO
process, focusing on individual which caters primarily to international REPRESENTATION OR WARRANTY AS TO THEIR
companies. One of the stocks we added in long-distance callers. DDI's stock price COMPLETENESS OR ACCURACY. ALTHOUGH
this industry was the hotel chain La was adversely affected when the company HISTORICAL PERFORMANCE IS NO GUARANTEE
Quinta, which could potentially benefit announced disappointing earnings in the OF FUTURE RESULTS, THESE INSIGHTS MAY
from an ability to increase room rates first quarter of 2004. Primus' stock HELP YOU UNDERSTAND OUR INVESTMENT
because of increased travel. We also declined as the company's earnings MANAGEMENT PHILOSOPHY.
reduced the fund's cash position, reflected increasing competition.
redirecting these assets into stocks. Neither stock was in the portfolio at
the close of the reporting period. JULIET ELLIS, Chartered
These changes, combined with an [ELLIS Financial Analyst and
upswing in the market, helped the fund PHOTO] senior portfolio
post double-digit returns for the fourth IN CLOSING manager, is lead
quarter. Major market indexes, after portfolio manager of
struggling for much of the year, rallied We remain committed to our bottom-up AIM V.I. Small Cap
after oil prices peaked in October and investment process of identifying the Equity Fund. Ms. Ellis joined AIM in
the presidential election cycle drew to attractively valued stocks of small-cap 2004. She previously served as Senior
a close. companies with visible and long-term Portfolio Manager of two small-cap funds
growth opportunities while striving to for another company and was responsible
For the entire year, sectors that avoid high-risk stocks. We believe our for the management of more than $2
contributed the most to fund performance disciplined investment strategy has the billion in assets. Ms. Ellis began her
were industrials, materials and health potential to provide shareholders with investment career in 1981 as a financial
care. Detracting from performance were reliable, long-term, risk-adjusted consultant. She is a Cum Laude and Phi
information technology, even though performance consistent with a small-cap Beta Kappa graduate of Indiana
stocks in this sector rallied in the core-stock fund. As always, we thank you University with a B.A. in economics and
fourth quarter, and telecommunication for your continuing investment in AIM political science.
services. V.I. Small Cap Equity Fund.
Stocks that contributed positively to JUAN HARTSFIELD,
fund performance included Sierra Health [HARTSFIELD Chartered Financial
Services, a managed care health PHOTO] Analyst and Portfolio
provider, and Southwestern Energy, an Manager, is portfolio
oil and gas exploration company. The manager of AIM V.I.
stock price of Sierra Health Services Small Cap Equity Fund.
appreciated as investors were Prior to joining AIM in 2004, he began
his investment career in 2000 as an
equity analyst and most recently served
as a portfolio manager. Mr. Hartsfield
earned a B.S. in petroleum engineering
from the University of Texas and his
PRINCIPAL RISKS OF INVESTING IN THE FUND M.B.A. from the University of Michigan.
Investing in small and mid-size companies involves risks not associated with Assisted by the Small Cap Core/Growth
investing in more established companies, including business risk, significant stock Team
price fluctuations and illiquidity.
International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be provided
by non-U.S. companies. The fund may invest up to 25% of its assets in the securities
of non-U.S. issuers.
The fund may invest a portion of its assets in synthetic instruments, such as
warrants, futures, options, exchange traded funds and American Depositary Receipts,
the value of which may not correlate perfectly with the overall securities market.
Risks associated with synthetic instruments may include counter party risk and
sensitivity to interest rate changes and market price fluctuations. See the
prospectus for more details.
====================================================================================
TOTAL NET ASSETS $26.6 MILLION
TOTAL NUMBER OF HOLDINGS* 116
==================================================================================== [RIGHT ARROW GRAPHIC]
FOR FURTHER INFORMATION ON YOUR FUND,
ITS EXPENSES AND ITS LONG-TERM
PERFORMANCE,PLEASE TURN THE PAGE.
</Table>
3
<Table>
AIM V.I. SMALL CAP EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE actual account values and actual account balance or expenses you paid for
expenses. You may use the information in the period. You may use this information
As a shareholder of the fund, you incur this table, together with the amount you to compare the ongoing costs of
ongoing costs including management fees, invested, to estimate the expenses that investing in the fund and other funds.
distribution and/or service fees (12b-1) you paid over the period. Simply divide To do so, compare this 5% hypothetical
and other Fund expenses. This example is your account value by $1,000 (for example with the 5% hypothetical
intended to help you understand your example, an $8,600 account value divided examples that appear in the shareholder
ongoing costs (in dollars) of investing by $1,000 = 8.6), then multiply the reports of the other funds.
in the fund and to compare these costs result by the number in the table under
with ongoing costs of investing in other the heading entitled "Actual Expenses Please note that the expenses shown
mutual funds. The example is based on an Paid During Period" to estimate the in the table are meant to highlight your
investment of $1,000 invested at the expenses you paid on your account during ongoing costs only. Therefore, the
beginning of the period and held for the this period. hypothetical information is useful in
entire period, July 1, 2004-December comparing ongoing costs only, and will
31, 2004. HYPOTHETICAL EXAMPLE FOR not help you determine the relative
COMPARISON PURPOSES total costs of owning different funds.
The actual and hypothetical expenses
in the examples below do not represent The table below also provides
the effect of any fees or other expenses information about hypothetical account
assessed in connection with a variable values and hypothetical expenses based
product; if they did, the expenses shown on the fund's actual expense ratio and
would be higher while the ending account an assumed rate of return of 5% per year
values shown would be lower. before expenses, which is not the fund's
actual return. The hypothetical account
ACTUAL EXPENSES values and expenses may not be used to
estimate your actual ending
The table below provides information
about
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Series I $1,000.00 $1,035.80 $6.65 $1,018.60 $6.60
Series II 1,000.00 1,035.00 7.42 1,017.85 7.35
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2004 to December 31, 2004
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004 to
December 31, 2004 was 3.58% and 3.50% for Series I and Series II shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.30% and 1.45% for Series I and Series II shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
4
AIM V.I. SMALL CAP EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
========================================================================================
RESULTS OF A $10,000 INVESTMENT
======================================== 8/29/03-12/31/04 Index data from 8/31/03
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04 [MOUNTAIN CHART]
SERIES I SHARES
Inception (8/29/03) 17.87%
1 Year 9.41 AIM V.I. SMALL AIM V.I. SMALL
CAP EQUITY CAP EQUITY LIPPER SMALL
SERIES II SHARES FUND-SERIES FUND-SERIES RUSSELL 2000 S&P 500 CAP CORE
Inception (8/29/03) 17.69% DATE I SHARES II SHARES INDEX INDEX FUND INDEX
1 YEAR 9.23
======================================== 8/29/2003 $10000 $10000
8/03 10000 10000 $10000 $10000 $10000
The Series I and Series II shares invest 9/03 9830 9830 9815 9894 9783
in the same portfolio of securities and 10/03 10650 10650 10640 10454 10552
will have substantially similar 11/03 10990 10990 11017 10545 10932
performance, except to the extent that 12/03 11393 11387 11241 11098 11236
expenses borne by each class differ. 1/04 11713 11707 11729 11302 11592
2/04 11964 11958 11834 11459 11793
The performance data quoted represent 3/04 12074 12068 11945 11286 11921
past performance and cannot guarantee 4/04 11563 11548 11336 11109 11512
comparable future results; current 5/04 11694 11678 11516 11261 11612
performance may be lower or higher. 6/04 12034 12018 12001 11480 12107
Please consult the product issuer or 7/04 11183 11167 11193 11100 11469
your financial advisor for the most 8/04 10732 10717 11135 11145 11369
recent month-end performance. 9/04 11163 11137 11658 11265 11934
Performance figures reflect fund 10/04 11433 11418 11888 11437 12130
expenses, reinvested distributions and 11/04 12224 12208 12919 11900 13088
changes in net asset value. Investment 12/04 $12465 $12439 $13301 $12305 $13299
return and principal value will Source: Lipper, Inc.
fluctuate so that you may have a gain or ========================================================================================
loss when you sell shares.
Past performance cannot guarantee OTHER INFORMATION
AIM V.I. Small Cap Equity Fund, a comparable future results.
series portfolio of AIM Variable The returns shown in the Management's
Insurance Funds, is currently offered ABOUT INDEXES USED IN THIS REPORT Discussion of Fund Performance are based
through insurance companies issuing on net asset values calculated for
variable products. You cannot purchase The unmanaged Standard & Poor's shareholder transactions. Generally
shares of the fund directly. Performance Composite Index of 500 Stocks (the S&P accepted accounting principles require
figures given represent the fund and are 500--Registered Trademark-- Index) is adjustments to be made to the net assets
not intended to reflect actual variable an index of common stocks frequently of the fund at period end for financial
product values. They do not reflect used as a general measure of U.S. stock reporting purposes, and as such, the net
sales charges, expenses and fees market performance. asset value for shareholder transactions
assessed in connection with a variable and the returns based on those net asset
product. Sales charges, expenses and The unmanaged Standard & Poor's Small values may differ from the net asset
fees, which are determined by the Cap 600 Index (the S&P 600 Index) is values and returns reported in the
variable product issuers, will vary and representative of small cap domestic Financial Highlights. Additionally, the
will lower the total return.* stocks. returns and net asset values shown
throughout this report are at the fund
Had the advisor not waived fees The unmanaged Lipper Small-Cap Core level only and do not include variable
and/or reimbursed expenses, performance Fund Index represents an average of the product issuer charges. If such charges
would have been lower. performance of the 30 largest were included, the total returns would
small-capitalization core funds tracked be lower.
by Lipper, Inc., an independent mutual
fund performance monitor. Industry classifications used in this
report are generally according to the
The unmanaged Russell 2000--Registered Global Industry Classification Standard,
Trademark-- Index represents the performance which was developed by and is the
of the stocks of domestic exclusive property and a service mark of
small-capitalization companies. Morgan Stanley Capital International
Inc. and Standard & Poor's.
The fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
consequently, the performance of the
fund may deviate significantly from the
performance of the indexes.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index of
funds reflects fund expenses;
performance of a market index does not.
*Per NASD requirements, the most recent month-end performance data at the fund level, excluding variable product charges, is
available on this AIM automated information line, 866-702-4402. As mentioned above, for the most recent month-end performance
including variable product charges, please contact your variable product issuer or financial consultant.
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.34%
ADVERTISING-1.21%
R.H. Donnelley Corp.(a) 5,450 $ 321,822
====================================================================
AEROSPACE & DEFENSE-2.03%
Alliant Techsystems Inc.(a) 4,200 274,596
- --------------------------------------------------------------------
Curtiss-Wright Corp. 4,600 264,086
====================================================================
538,682
====================================================================
AIR FREIGHT & LOGISTICS-2.15%
EGL, Inc.(a) 8,400 251,076
- --------------------------------------------------------------------
UTI Worldwide, Inc. (United Kingdom) 4,700 319,694
====================================================================
570,770
====================================================================
ALUMINUM-0.49%
Century Aluminum Co.(a) 5,000 131,300
====================================================================
APPAREL RETAIL-6.14%
Aeropostale, Inc.(a) 8,400 247,212
- --------------------------------------------------------------------
Cache, Inc.(a) 19,200 345,984
- --------------------------------------------------------------------
Finish Line, Inc. (The)-Class A 8,400 153,720
- --------------------------------------------------------------------
Genesco Inc.(a) 9,800 305,172
- --------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 8,700 278,052
- --------------------------------------------------------------------
Stage Stores, Inc.(a) 7,250 301,020
====================================================================
1,631,160
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.28%
Quiksilver, Inc.(a) 11,400 339,606
====================================================================
APPLICATION SOFTWARE-6.45%
Altiris, Inc.(a) 4,100 145,263
- --------------------------------------------------------------------
ANSYS, Inc.(a) 5,400 173,124
- --------------------------------------------------------------------
Hyperion Solutions Corp.(a) 6,700 312,354
- --------------------------------------------------------------------
Kronos Inc.(a) 2,800 143,164
- --------------------------------------------------------------------
MICROS Systems, Inc.(a) 5,200 405,912
- --------------------------------------------------------------------
RSA Security Inc.(a) 12,800 256,768
- --------------------------------------------------------------------
SERENA Software, Inc.(a) 7,100 153,644
- --------------------------------------------------------------------
Verint Systems Inc.(a) 3,400 123,522
====================================================================
1,713,751
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.12%
Affiliated Managers Group, Inc.(a) 4,400 298,056
====================================================================
BIOTECHNOLOGY-2.15%
DOV Pharmaceutical, Inc.(a) 6,600 119,130
- --------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 4,000 197,200
- --------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
BIOTECHNOLOGY-(CONTINUED)
Serologicals Corp.(a) 11,500 $ 254,380
====================================================================
570,710
====================================================================
BUILDING PRODUCTS-0.55%
NCI Building Systems, Inc.(a) 3,900 146,250
====================================================================
COMMERCIAL PRINTING-0.52%
Banta Corp. 3,100 138,756
====================================================================
COMMUNICATIONS EQUIPMENT-0.89%
CommScope, Inc.(a) 12,500 236,250
====================================================================
COMPUTER HARDWARE-1.57%
Intergraph Corp.(a) 4,800 129,264
- --------------------------------------------------------------------
Stratasys, Inc.(a) 8,600 288,616
====================================================================
417,880
====================================================================
COMPUTER STORAGE & PERIPHERALS-0.83%
Synaptics Inc.(a) 7,200 220,176
====================================================================
CONSTRUCTION & ENGINEERING-1.26%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 8,400 336,000
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.16%
Wabash National Corp.(a) 10,100 271,993
- --------------------------------------------------------------------
Wabtec Corp. 14,200 302,744
====================================================================
574,737
====================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.40%
Jackson Hewitt Tax Service Inc. 15,600 393,900
- --------------------------------------------------------------------
NCO Group, Inc.(a) 9,400 242,990
====================================================================
636,890
====================================================================
DIVERSIFIED METALS & MINING-1.32%
Compass Minerals International, Inc. 14,500 351,335
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.00%
Paxar Corp.(a) 12,000 266,040
====================================================================
ENVIRONMENTAL SERVICES-1.08%
Waste Connections, Inc.(a) 8,400 287,700
====================================================================
GAS UTILITIES-0.47%
New Jersey Resources Corp. 2,900 125,686
====================================================================
HEALTH CARE EQUIPMENT-1.57%
Adeza Biomedical Corp.(a) 2,700 47,385
- --------------------------------------------------------------------
Datascope Corp. 2,900 115,101
- --------------------------------------------------------------------
Invacare Corp. 5,500 254,430
====================================================================
416,916
====================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
HEALTH CARE FACILITIES-2.71%
Genesis HealthCare Corp.(a) 4,000 $ 140,120
- --------------------------------------------------------------------
Kindred Healthcare, Inc.(a) 11,000 329,450
- --------------------------------------------------------------------
VCA Antech, Inc.(a) 12,800 250,880
====================================================================
720,450
====================================================================
HEALTH CARE SERVICES-0.57%
Apria Healthcare Group Inc.(a) 4,600 151,570
====================================================================
HEALTH CARE SUPPLIES-2.04%
Haemonetics Corp.(a) 6,800 246,228
- --------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 8,400 297,192
====================================================================
543,420
====================================================================
HOTELS, RESORTS & CRUISE LINES-2.22%
Kerzner International Ltd. (Bahamas)(a) 5,100 306,255
- --------------------------------------------------------------------
La Quinta Corp.(a) 31,300 284,517
====================================================================
590,772
====================================================================
HOUSEWARES & SPECIALTIES-2.37%
Jarden Corp.(a) 7,400 321,456
- --------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 9,300 308,574
====================================================================
630,030
====================================================================
INDUSTRIAL GASES-0.93%
Airgas, Inc. 9,300 246,543
====================================================================
INDUSTRIAL MACHINERY-3.10%
Kaydon Corp. 8,200 270,764
- --------------------------------------------------------------------
Kennametal Inc. 5,950 296,131
- --------------------------------------------------------------------
Manitowoc Co., Inc. (The) 6,800 256,020
====================================================================
822,915
====================================================================
INSURANCE BROKERS-1.49%
Hilb Rogal & Hobbs Co. 5,500 199,320
- --------------------------------------------------------------------
U.S.I. Holdings Corp.(a) 17,100 197,847
====================================================================
397,167
====================================================================
INTERNET SOFTWARE & SERVICES-1.13%
Digital River, Inc.(a) 4,100 170,601
- --------------------------------------------------------------------
Digitas Inc.(a) 13,600 129,880
====================================================================
300,481
====================================================================
INVESTMENT BANKING & BROKERAGE-0.07%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $20,000)(a)(b)(c)(d) 200 20,000
====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.05%
iShares Nasdaq Biotechnology Index Fund(a) 3,700 278,980
====================================================================
IT CONSULTING & OTHER SERVICES-0.64%
CACI International Inc.-Class A(a) 2,500 170,325
====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
MANAGED HEALTH CARE-1.30%
AMERIGROUP Corp.(a) 2,400 $ 181,584
- --------------------------------------------------------------------
Sierra Health Services, Inc.(a) 3,000 165,330
====================================================================
346,914
====================================================================
METAL & GLASS CONTAINERS-1.09%
AptarGroup, Inc. 5,500 290,290
====================================================================
MULTI-LINE INSURANCE-0.05%
Quanta Capital Holdings Ltd.
(Bermuda)(Acquired 11/21/03 - 12/05/03,
cost $15,306)(a)(b)(c) 1,500 13,830
====================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.28%
Avista Corp. 6,900 121,923
- --------------------------------------------------------------------
Energen Corp. 3,700 218,115
====================================================================
340,038
====================================================================
OFFICE SERVICES & SUPPLIES-0.61%
Brady Corp.-Class A 2,600 162,682
====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.80%
FMC Technologies, Inc.(a) 6,600 212,520
====================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.54%
Comstock Resources, Inc.(a) 7,700 169,785
- --------------------------------------------------------------------
Penn Virginia Corp. 7,100 288,047
- --------------------------------------------------------------------
Plains Exploration & Production Co.(a) 9,500 247,000
- --------------------------------------------------------------------
Warren Resources Inc.(a) 25,900 235,690
====================================================================
940,522
====================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.57%
Golar LNG Ltd. (Bermuda)(a)(e) 10,499 152,469
====================================================================
PACKAGED FOODS & MEATS-1.15%
Flowers Foods, Inc. 9,700 306,326
====================================================================
PAPER PRODUCTS-1.06%
Wausau-Mosinee Paper Corp. 15,800 282,188
====================================================================
PHARMACEUTICALS-0.71%
Medicines Co. (The)(a) 6,600 190,080
====================================================================
PROPERTY & CASUALTY INSURANCE-1.17%
Philadelphia Consolidated Holding Corp.(a) 4,700 310,858
====================================================================
REAL ESTATE-1.72%
Alexandria Real Estate Equities, Inc. 2,000 148,840
- --------------------------------------------------------------------
Amli Residential Properties Trust 4,000 128,000
- --------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-07/14/04; Cost $183,895)(c)(d) 10,400 179,400
====================================================================
456,240
====================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.22%
Jones Lang LaSalle Inc.(a) 8,650 323,597
====================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
REGIONAL BANKS-5.39%
Alabama National BanCorp. 4,100 $ 264,450
- --------------------------------------------------------------------
Bank of the Ozarks, Inc. 2,800 95,284
- --------------------------------------------------------------------
Boston Private Financial Holdings, Inc. 4,900 138,033
- --------------------------------------------------------------------
Cathay General Bancorp 7,100 266,250
- --------------------------------------------------------------------
CVB Financial Corp. 5,600 148,736
- --------------------------------------------------------------------
Hancock Holding Co. 3,900 130,494
- --------------------------------------------------------------------
Hudson United Bancorp 3,400 133,892
- --------------------------------------------------------------------
MB Financial, Inc. 3,100 130,665
- --------------------------------------------------------------------
Wintrust Financial Corp. 2,200 125,312
====================================================================
1,433,116
====================================================================
RESTAURANTS-2.16%
Lone Star Steakhouse & Saloon, Inc. 5,200 145,600
- --------------------------------------------------------------------
Papa John's International, Inc.(a) 4,200 144,648
- --------------------------------------------------------------------
Steak n Shake Co. (The)(a) 14,100 283,128
====================================================================
573,376
====================================================================
SEMICONDUCTOR EQUIPMENT-2.11%
ATMI, Inc.(a) 9,700 218,541
- --------------------------------------------------------------------
Cymer, Inc.(a) 4,600 135,884
- --------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 5,600 206,360
====================================================================
560,785
====================================================================
SEMICONDUCTORS-1.89%
DSP Group, Inc.(a) 10,200 227,766
- --------------------------------------------------------------------
Semtech Corp.(a) 6,800 148,716
- --------------------------------------------------------------------
Silicon Laboratories Inc.(a) 3,600 127,116
====================================================================
503,598
====================================================================
SPECIALTY CHEMICALS-2.08%
Albemarle Corp. 7,500 290,325
- --------------------------------------------------------------------
Minerals Technologies Inc. 3,950 263,465
====================================================================
553,790
====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
STEEL-1.37%
Commercial Metals Co. 7,200 $ 364,032
====================================================================
TECHNOLOGY DISTRIBUTORS-3.23%
Anixter International Inc. 7,100 255,529
- --------------------------------------------------------------------
Global Imaging Systems, Inc.(a) 8,100 319,950
- --------------------------------------------------------------------
ScanSource, Inc.(a) 4,550 282,828
====================================================================
858,307
====================================================================
THRIFTS & MORTGAGE FINANCE-1.56%
Corus Bankshares, Inc. 2,800 134,428
- --------------------------------------------------------------------
Harbor Florida Bancshares, Inc. 4,000 138,440
- --------------------------------------------------------------------
Sterling Financial Corp.(a) 3,600 141,336
====================================================================
414,204
====================================================================
TIRES & RUBBER-0.51%
Bandag, Inc. 2,700 134,487
====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.09%
Watsco, Inc. 8,200 288,804
====================================================================
TRUCKING-2.72%
Landstar System, Inc.(a) 4,850 357,154
- --------------------------------------------------------------------
Overnite Corp. 9,800 364,952
====================================================================
722,106
====================================================================
Total Common Stocks & Other Equity
Interests (Cost $22,871,095) 25,878,285
====================================================================
MONEY MARKET FUNDS-2.59%
Liquid Assets Portfolio-Institutional
Class(f) 344,833 344,833
- --------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 344,833 344,833
====================================================================
Total Money Market Funds (Cost $689,666) 689,666
====================================================================
TOTAL INVESTMENTS-99.93% (Cost $23,560,761) 26,567,951
====================================================================
OTHER ASSETS LESS LIABILITIES-0.07% 18,213
====================================================================
NET ASSETS-100.00% $26,586,164
____________________________________________________________________
====================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at December 31, 2004 was $33,830, which represented 0.13% of the
Fund's Total Investments. See Note 1A.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$213,230, which represented 0.80% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The market value of this security
considered illiquid at December 31, 2004 represented 0.75% of the Fund's Net
Assets.
(e) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 0.57% of the
Fund's Total Investments. See Note 1A.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
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, 2004
<Table>
ASSETS:
Investments, at market value (cost
$22,871,095) $25,878,285
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $689,666) 689,666
===========================================================
Total investments (cost $23,560,761) 26,567,951
===========================================================
Receivables for:
Fund shares sold 58,632
- -----------------------------------------------------------
Dividends 16,840
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 4,242
===========================================================
Total assets 26,647,665
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 2,219
- -----------------------------------------------------------
Fund shares reacquired 8,824
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 4,242
- -----------------------------------------------------------
Accrued administration fees 23,397
- -----------------------------------------------------------
Accrued distribution fees -- Series II 101
- -----------------------------------------------------------
Accrued transfer agent fees 349
- -----------------------------------------------------------
Accrued operating expenses 22,369
===========================================================
Total liabilities 61,501
===========================================================
Net assets applicable to shares outstanding $26,586,164
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $24,802,969
- -----------------------------------------------------------
Undistributed net investment income (loss) (3,910)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (1,220,085)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 3,007,190
===========================================================
$26,586,164
___________________________________________________________
===========================================================
NET ASSETS:
Series I $25,964,065
___________________________________________________________
===========================================================
Series II $ 622,099
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 2,085,580
___________________________________________________________
===========================================================
Series II 50,048
___________________________________________________________
===========================================================
Series I:
Net asset value per share $ 12.45
___________________________________________________________
===========================================================
Series II:
Net asset value per share $ 12.43
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$214) $ 93,125
- -----------------------------------------------------------
Dividends from affiliated money market funds 9,236
- -----------------------------------------------------------
Interest 6,416
===========================================================
Total investment income 108,777
===========================================================
EXPENSES:
Advisory fees 124,241
- -----------------------------------------------------------
Administrative services fees 84,182
- -----------------------------------------------------------
Custodian fees 29,715
- -----------------------------------------------------------
Distribution fees -- Series II 1,452
- -----------------------------------------------------------
Transfer agent fees 2,161
- -----------------------------------------------------------
Trustees' fees and retirement benefits 11,384
- -----------------------------------------------------------
Professional fees 28,172
- -----------------------------------------------------------
Other 13,923
===========================================================
Total expenses 295,230
===========================================================
Less: Fees waived (104,137)
===========================================================
Net expenses 191,093
===========================================================
Net investment income (loss) (82,316)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,296,660)
- -----------------------------------------------------------
Foreign currencies (41)
- -----------------------------------------------------------
Futures contracts 79,942
===========================================================
(1,216,759)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 2,814,389
- -----------------------------------------------------------
Foreign currencies (10)
===========================================================
2,814,379
===========================================================
Net gain from investment securities, foreign
currencies and futures contracts 1,597,620
===========================================================
Net increase in net assets resulting from
operations $ 1,515,304
___________________________________________________________
===========================================================
</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 years ended December 31, 2004 and for the period August 29, 2003 (date
operations commenced) to December 31, 2003
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (82,316) $ (2,280)
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts (1,216,759) (2,185)
- ---------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 2,814,379 192,811
=======================================================================================
Net increase in net assets resulting from operations 1,515,304 188,346
=======================================================================================
Distributions to shareholders from net investment income:
Series I (972) (767)
- ---------------------------------------------------------------------------------------
Series II (25) (45)
=======================================================================================
Total distributions from net investment income (997) (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 (997) (2,032)
=======================================================================================
Share transactions-net:
Series I 22,271,440 2,113,568
- ---------------------------------------------------------------------------------------
Series II 125 500,410
=======================================================================================
Net increase in net assets resulting from share
transactions 22,271,565 2,613,978
=======================================================================================
Net increase in net assets 23,785,872 2,800,292
_______________________________________________________________________________________
=======================================================================================
NET ASSETS:
Beginning of year 2,800,292 --
=======================================================================================
End of year (including undistributed net investment income
(loss) of $(3,910) and $(342), respectively) $26,586,164 $2,800,292
_______________________________________________________________________________________
=======================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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-eight separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life insurance
policies ("variable products"). Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts
AIM V.I. SMALL CAP EQUITY FUND
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to variable products annually and recorded on
ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
AIM V.I. SMALL CAP EQUITY FUND
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
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.
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. Effective January 1, 2005 through June 30, 2006, AIM
has contractually agreed to waive advisory fees to the extent necessary so that
the advisory fees payable by the Fund (based on the Fund's average daily net
assets) do not exceed the annual rate of 0.745% of the first $250 million, plus
0.73% of the next $250 million, plus 0.715% of the next $500 million, plus 0.70%
of the next $1.5 billion, plus 0.685% of the next $2.5 billion, plus 0.67% of
the next $2.5 billion, plus 0.655% of the next $2.5 billion, plus 0.64% of the
Fund's average daily net assets in excess of $10 billion. AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of each Series to 1.30% of average daily net assets, through April 30,
2006. In determining the advisor's obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into account, and could
cause the total annual fund operating expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense on short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended December 31, 2004, AIM waived fees of $103,556.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the year ended December 31, 2004, AIM was paid
$84,182, of which AIM retained $50,000 for services provided by AIM.
AIM V.I. SMALL CAP EQUITY FUND
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $2,161.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to 0.25%
of the average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has
contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees
to the extent necessary to limit total annual fund operating expenses (excluding
items (ii) through (vii) discussed above) of Series II shares to 1.45% of
average daily net assets, through April 30, 2006. Pursuant to the Plan, for the
year ended December 31, 2004, the Series II shares paid $871 after AIM
Distributors reimbursed Plan fees of $581.
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. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME
- ----------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ -- $6,628,359 $ (6,283,526) $ -- $344,833 $4,609
- ----------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class -- 6,628,359 (6,283,526) -- 344,833 4,627
======================================================================================================================
Total $ -- $13,256,718 $(12,567,052) $ -- $689,666 $9,236
______________________________________________________________________________________________________________________
======================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- --------------------------
Liquid Assets Portfolio-
Institutional Class $ --
- --------------------------
STIC Prime Portfolio-
Institutional Class --
==========================
Total $ --
__________________________
==========================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $8,220 and $1,378,569,
respectively.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,810
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
AIM V.I. SMALL CAP EQUITY FUND
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the year ended December 31, 2004
and the period August 29, 2003 (date operations commenced) through December 31,
2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------
Distributions paid from ordinary income $997 $2,032
____________________________________________________________________________
============================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------
Unrealized appreciation -- investments $ 2,968,789
- -------------------------------------------------------------------------
Temporary book/tax differences (3,778)
- -------------------------------------------------------------------------
Capital loss carryforward (1,181,683)
- -------------------------------------------------------------------------
Post-October currency loss deferral (133)
- -------------------------------------------------------------------------
Shares of beneficial interest 24,802,969
=========================================================================
Total net assets $26,586,164
_________________________________________________________________________
=========================================================================
</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 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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2012 $1,181,683
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $43,407,530 and $21,612,619, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $3,075,512
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (106,723)
==============================================================================
Net unrealized appreciation of investment securities $2,968,789
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $23,599,162.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating loss and
foreign currency transactions, on December 31, 2004, undistributed net
investment income was increased by $79,745, undistributed net realized gain
(loss) increased by $41 and shares of beneficial interest decreased by $79,786.
This reclassification had no effect on the net assets of the Fund.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ---------------------------------------------------------------------------------------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,694,847 $31,500,234 199,409 $2,150,468
- ---------------------------------------------------------------------------------------------------------------
Series II 8 100 50,001 500,010
===============================================================================================================
Issued as reinvestment of dividends:
Series I 79 972 148 1,633
- ---------------------------------------------------------------------------------------------------------------
Series II 2 25 37 400
===============================================================================================================
Reacquired:
Series I (805,404) (9,229,766) (3,499) (38,533)
===============================================================================================================
1,889,532 $22,271,565 246,096 $2,613,978
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 97% of the outstanding shares of
the Fund. The Fund and the Fund's principal underwriter or advisor, are
parties to participation agreements with these entities whereby these
entities sell units of interest in separate accounts funding variable
products that are invested in the Fund. The Fund, AIM and/or AIM
affiliates may make payments to this entity, which are considered to be
related to the Fund, for providing services to the Fund, AIM and/or AIM
affiliates including but not limited to services such as securities
brokerage, third party record keeping, account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by this shareholder is also
owned beneficially.
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
-----------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.38 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.01)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.13 1.41
=================================================================================================
Total from investment operations 1.07 1.40
=================================================================================================
Less distributions:
Dividends from net investment income (0.00) (0.01)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.01)
=================================================================================================
Total distributions (0.00) (0.02)
=================================================================================================
Net asset value, end of period $ 12.45 $11.38
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 9.41% 13.94%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $25,964 $2,231
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%(c) 1.32%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.01%(c) 12.86%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.56)%(c) (0.44)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 156% 26%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $14,035,715.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.38 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.02)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.13 1.41
=================================================================================================
Total from investment operations 1.05 1.39
=================================================================================================
Less distributions:
Dividends from net investment income (0.00) (0.00)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.01)
=================================================================================================
Total distributions (0.00) (0.01)
=================================================================================================
Net asset value, end of period $12.43 $11.38
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 9.23% 13.88%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 622 $ 569
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%(c) 1.47%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.26%(c) 13.11%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.71)%(c) (0.59)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 156% 26%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total Returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $580,925.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
the settlements with the NYAG and COAG, AIM has agreed to reduce management fees
on certain equity and balanced AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. SMALL CAP EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
Houston, Texas
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, 2004,
the related statement of operations for the year then ended, the statement of
changes in net assets and the financial highlights for the one year in the
period then ended and 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004 by correspondence with the custodian
and brokers. When brokers did not reply to our confirmation request, we
performed alternative audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Small Cap Equity Fund as of December 31, 2004, the results of its
operations for the year then ended, the statement of changes in net assets, and
the financial highlights for the one year in the period then ended and 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.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 2005
AIM V.I. SMALL CAP EQUITY FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Small Cap Equity Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust, was held on April 2, 2004. The meeting was held for the following
purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 485,251,764 20,583,220
Frank S. Bayley.............................. 485,193,740 20,641,244
James T. Bunch............................... 485,846,832 19,988,152
Bruce L. Crockett............................ 485,356,560 20,478,424
Albert R. Dowden............................. 485,381,238 20,453,746
Edward K. Dunn, Jr. ......................... 484,642,618 21,192,366
Jack M. Fields............................... 485,417,523 20,417,461
Carl Frischling.............................. 484,781,819 21,053,165
Robert H. Graham............................. 485,247,575 20,587,409
Gerald J. Lewis.............................. 484,388,317 21,446,667
Prema Mathai-Davis........................... 484,212,736 21,622,248
Lewis F. Pennock............................. 485,257,174 20,577,810
Ruth H. Quigley.............................. 483,391,857 22,443,127
Louis S. Sklar............................... 484,592,297 21,242,687
Larry Soll, Ph.D. ........................... 484,654,198 21,180,786
Mark H. Williamson........................... 484,890,948 20,944,036
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Variable Insurance Funds.
AIM V.I. SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE 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, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY 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(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Tait, Weller & Baker
Suite 100 11 Greenway Plaza Inc. 1818 Market Street
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza Suite 2400
Houston, TX 77046-1173 Suite 100 Philadelphia, PA
Houston, TX 77046-1173 19103-3659
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Foley & Lardner LLP AIM Investment State Street Bank and
3000 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
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, 2004, 30.61% 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, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered
by the report. The Registrant did not grant any waivers, including
implicit waivers, from any provisions of the Code to the PEO or PFO
during the period covered by this report. .
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
The Audit Committee financial expert is Prema Mathai-Davis. Dr.
Mathai-Davis is "independent" within the meaning of that term as used
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
During some or all of the Registrant's last two fiscal years,
PricewaterhouseCoopers, LLP ("PWC") served as principal accountant for
the following series portfolios of the Registrant: AIM V.I. Real
Estate Fund AIM V.I. Core Stock Fund, AIM V.I. Dynamics Fund, AIM V.I.
Financial Services Fund, AIM V.I. Health Sciences Fund, AIM V.I.
Leisure Fund, AIM V.I. Small Company Growth Fund, AIM V.I. Technology
Fund, AIM V.I. Total Return Fund and AIM V.I. Utilities Fund.
During some or all of the Registrant's last two fiscal years, Tait,
Weller & Baker ("TWB") served as principal accountant for the following
series portfolios of the Registrant: AIM V.I. Aggressive Growth Fund,
AIM V.I. Balanced Fund, AIM V.I. Basic Value Fund, AIM V.I. Blue Chip
Fund, AIM V.I. Capital Appreciation Fund, AIM V.I. Capital Development
Fund, AIM V.I. Core Equity Fund, AIM V.I. Dent Demographic Trends Fund,
AIM V.I. Diversified Income Fund, AIM V.I. Government Securities Fund,
AIM V.I. Growth Fund, AIM V.I. High Yield Fund, AIM V.I. International
Growth Fund, AIM V.I. Large Cap Growth Fund, AIM V.I. Mid Cap Core
Equity Fund, AIM V.I. Money Market Fund, AIM V.I. Premier Equity Fund
and AIM V.I. Small Cap Equity Fund.
The amounts set forth below show, among other things, fees billed by
PWC and TWB to the Registrant in respect of such series portfolios, and
certain affiliated entities of the Registrant.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Non-Audit Services Non-Audit Services
Provided for fiscal Provided for fiscal
Fees Billed for year end 2004 Fees Billed for year end 2003
Services Rendered to Pursuant to Waiver Services Rendered to Pursuant to Waiver
the Registrant for of Pre-Approval the Registrant for of Pre-Approval
fiscal year end 2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
-------------------- -------------------- -------------------- --------------------
Audit Fees $248,732 N/A $240,566 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 29,580 0% $ 37,700 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $278,312 0% $278,266 0%
</Table>
PWC billed the Registrant aggregate non-audit fees of $29,580 for the fiscal
year ended 2004, and $37,700 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant to PWC during a fiscal year; and (iii) such
services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(3) Tax fees for the fiscal year end December 31, 2004 includes fees billed
for reviewing tax returns. Tax fees for fiscal year end December 31,
2003 includes fees billed for reviewing tax returns.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed A I M Advisors, Inc. ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
-- --
Total Fees(4) $0 0% $0 0%
</Table>
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees paid
by the Registrant, AIM and AIM Affiliates to PWC during a fiscal year; and
(iii) such services are promptly approved by the Registrant's Audit
Committee prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the fees billed for non-audit
services shown in this column only represents fees for pre-approved
non-audit services rendered after May 6, 2003, to AIM and AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(4) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2004, and $0 for the fiscal
year ended 2003, for non-audit services rendered to AIM and AIM
Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining PWC's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with PWC maintaining independence with
respect to the Registrant.
FEES BILLED BY TWB RELATED TO THE REGISTRANT
TWB billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2004 Pursuant to Fees Billed for year end 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year end Pre-Approval the Registrant for of Pre-Approval
2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
------------------- ------------------- -------------------- -------------------
Audit Fees $241,300 N/A $233,000 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 41,400 0% $ 40,000 0%
All Other Fees $ 0 0% $ 0 0%
Total Fees 0% 0%
-------- --------
$282,700 $273,000
TWB billed the Registrant aggregate non-audit fees of $41,400 for the fiscal
year ended 2004, and $40,000 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees paid
by the Registrant to TWB during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(3) Tax fees for the fiscal year end December 31, 2004 includes fees billed
for reviewing tax returns. Tax fees for fiscal year end December 31, 2003
includes fees billed for reviewing tax returns.
FEES BILLED BY TWB RELATED TO AIM AND AIM AFFILIATES
TWB billed A I M Advisors, Inc ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
----- -----
Total Fees(4) $ 0 0% $ 0 0%
</Table>
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees paid
by the Registrant, AIM and AIM Affiliates to TWB during a fiscal year; and
(iii) such services are promptly approved by the Registrant's Audit
Committee prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the fees billed for non-audit
services shown in this column only represents fees for pre-approved
non-audit services rendered after May 6, 2003, to AIM and AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(4) Including the fees for services not required to be pre-approved by the
registrant's audit committee, TWB billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2004, and $0 for the fiscal
year ended 2003, for non-audit services rendered to AIM and AIM
Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining TWB's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with TWB maintaining independence with
respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees and such other information as the Audit Committee may
request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation Appraisal or
valuation services, fairness opinions, or contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines by
regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included
as part of the reports to stockholders filed under Item 1 of
this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 16, 2004, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the
effectiveness of the Registrant's disclosure controls and
procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based
on that evaluation, the Registrant's officers, including the
PEO and PFO, concluded that, as of December 16, 2004, the
Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required
to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods
specified by the rules and forms of the Securities and
Exchange Commission; and (2) that material information
relating to the Registrant is made known to the PEO and PFO as
appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal
control over financial reporting (as defined in Rule 30a-3(d)
under the Act) that occurred during the second fiscal quarter
of the period covered by the report that have materially
affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ ROBERT H. GRAHAM
-----------------------------------
Robert H. Graham
Principal Executive Officer
Date: February 25, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-----------------------------------
Robert H. Graham
Principal Executive Officer
Date: February 25, 2005
By: /s/ SIDNEY M. DILGREN
-----------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: February 25, 2005
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.