------------------------- OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: Nov. 30, 2005 Estimated average burden hours per response: 5.0 ------------------------- 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: 06/30/05 -------------- Item 1. Reports to Stockholders. AIM V.I. AGGRESSIVE GROWTH FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. AGGRESSIVE GROWTH FUND seeks to achieve long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. AGGRESSIVE GROWTH FUND <Table> MANAGEMENT'S DISCUSSION We also carefully scrutinize the OF FUND PERFORMANCE risk/reward of each of our holdings to ====================================================================================== ensure a continued fit. PERFORMANCE SUMMARY ========================================= We consider selling or trimming a stock when it no longer meets our FUND VS. INDEXES investment criteria, including when: Despite a market rally at the close of the reporting period, stock indexes TOTAL RETURNS, 12/31/04 6/30/05, o a company experiences decelerating or generally posted lackluster returns for EXCLUDING VARIABLE PRODUCT ISSUER disappointing earnings the half year, amid investor concerns CHARGES. IF VARIABLE PRODUCT ISSUER about higher oil prices and rising CHARGES WERE INCLUDED, RETURNS WOULD BE o a stock approaches or hits its target interest rates. These trends also muted LOWER. price the Fund's performance. Series I Shares -0.42% o the company's fundamental business The Fund fared better than the prospects deteriorate large-cap oriented S&P 500 Index as Series II Shares -0.51 mid-cap stocks generally outperformed o a more attractive opportunity large-cap stocks. The fund lagged the Standard & Poor's Composite Index presents itself Russell Midcap Growth Index because its of 500 Stocks (S&P 500 Index) health care, consumer discretionary and (Broad Market Index) -0.81 MARKET CONDITIONS AND YOUR FUND materials holdings generally underperformed those of the index. Russell Midcap Growth Index The S&P 500 Index declined at the (Style-specific Index) 1.70 beginning of the reporting period amid concerns about increasing oil prices and Lipper Mid-Cap Growth Fund Index rising interest rates. The Federal (Peer Group Index) -0.92 Reserve (the Fed) continued raising interest rates to slow economic SOURCE: LIPPER, INC. growth and curb potential inflation. The market generally rebounded in the last ========================================= two months of the period as oil prices fell in--May before rising again in June-- ====================================================================================== and many companies in the S&P 500 Index reported strong earnings. HOW WE INVEST 2. Our fundamental research includes financial statement analysis and During the reporting period, the Fund We select stocks based on analysis of meetings with company management teams was generally more defensively positioned individual companies, focusing on small- to define a company's key drivers of in response to uncertain market and mid-cap growth companies with high success and to assess its durability. The conditions. Over the reporting period, we growth potential as demonstrated by goal is to ascertain the level, quality reduced the portfolios holdings in more consistent and accelerating earnings and duration of a company's growth cyclical sectors, such as information growth. Our three-step selection process prospect, and to gain confidence in the technology and industrials, while includes quantitative, fundamental and management team. increasing it in more defensive sectors, valuation analysis: such as health care. Cyclical sectors 3. Our valuation analysis assesses the tend to be more sensitive to economic 1. Our proprietary quantitative models degree to which expected future growth is trends while defensive sectors tend to be and screening tools reduce an investment discounted in the stock price. less sensitive. While this strategy universe of thousands of companies to a provided the Fund with some more manageable list of investment A stock that successfully passes this candidates. selection process is a viable candidate for the portfolio. ========================================= ========================================= ========================================= PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Health Care Equipment 10.4% 1. Alliance Data Systems Corp. 2.5% Health Care 21.0% 2. Data Processing & Outsourced 2. Univision Communications Inc.- Services 7.9 Class A 2.2 Information Technology 18.9 3. Pharmaceuticals 4.4 3. Regal Entertainment Group- Consumer Discretionary 16.2 Class A 2.1 4. Oil & Gas Drilling 4.3 Industrials 11.1 4. ENSCO International Inc. 1.9 5. Diversified Commercial & Financials 10.1 Professional Services 4.1 5. Investors Financial Services Corp. 1.9 Energy 5.7 The Fund's holdings are subject to change, and there is no assurance that 6. Paychex, Inc. 1.8 Consumer Staples 4.3 the Fund will continue to hold any particular security. 7. Fisher Scientific International Materials 2.7 Inc. 1.7 *Excluding money market fund holdings. Utilities 0.8 8. Maxim Integrated Products, Inc. 1.7 Telecommunication Services 0.2 9. Biomet, Inc. 1.6 Money Market Funds 10. CDW Corp. 1.6 Plus Other Assets Less Liabilities 9.0 TOTAL NET ASSETS $148.7 MILLION TOTAL NUMBER OF HOLDINGS* 116 ========================================= ========================================= ========================================= </Table> 2 AIM V.I. AGGRESSIVE GROWTH FUND <Table> downside protection, it could not offset from performance during the period, JAY K. RUSHIN, Chartered the poor performance of two stocks, primarily due to patent challenges, [RUSHIN Financial Analyst and Sirva and Eyetech Pharmaceuticals, which patent expirations, drug withdrawals and PHOTO] portfolio manager, became had a greater impact on performance. We product injury litigation. In particular, lead portfolio manager of also increased our financials holdings. Eyetech Pharmaceuticals, a AIM V.I. Aggressive Growth biopharmaceutical company specializing in Fund in 2004. He began his investment The sector that had the most positive the development and commercialization of career in 1994 when he joined AIM as a impact on Fund performance was energy. therapeutics to treat eye diseases, portfolio administrator. In 1996, he Stocks in this sector, such as ENSCO negatively affected Fund performance. The left AIM to work as an associate equity International, a strong contributor to stock declined due to concerns about a analyst at another firm. He returned to portfolio performance, benefited from competitor's experimental drug which AIM as an equity analyst on AIM's rising oil prices. ENSCO, a produced positive results in late-stage small-cap funds in 1998 and was promoted leading offshore drilling contractor, trials in treating blindness in older to senior analyst in 2000. He was reported that its net income for the adults. Given the lack of visibility of promoted to portfolio manager in 2001. A first quarter of 2005 was nearly double Eyetech's earnings growth, we sold the native of Gaithersburg, MD, Mr. Rushin that for the same quarter of the previous stock. holds a B.A. in English from Florida year. State University. But the stock that detracted the most Other sectors that enhanced Fund from performance over the period was in Assisted by the Aggressive Growth Team. performance included consumer the industrials sector--Sirva, a global discretionary, as many retailers relocation services firm. The company saw benefited from solid consumer spending, its stock decline when it announced it and utilities, which benefited from an would not meet its previously issued investor preference for more defensive, earnings guidance for the fourth quarter dividend-paying stocks. of 2004. We reduced our position in this stock. Over the period, we increased our holdings in financials stocks as we found IN CLOSING them attractively valued and observed improving fundamentals in this sector. A Over the reporting period, the market for financials stock that had a positive growth stocks was particularly difficult impact on Fund performance was and this trend adversely affected the Amegy Bancorp, which provides consumer and Fund. Regardless of market conditions, we commercial banking services in the are always striving to improve Houston and Dallas areas. We bought the performance. We remain committed to our stock based on our research which bottom-up stock selection process, and we indicated that the company was well constantly review each security's positioned relative to its competitors. fundamentals and price target to ensure a It's stock rose when it was announced continued fit. We believe that our that the company would be acquired by a strategy of focusing our investments in Utah-based bank chain. companies that show sustainable, above-average earnings growth while While information technology detracted avoiding high risk stocks has the the most from Fund performance, our potential to provide shareholders with holdings in this sector fared much better consistent risk-adjusted return over a than those in the Russell Midcap Growth long-term investment horizon. We thank Index. We believe that this was because you for your investment in AIM V.I. we had considerable exposure to data Aggressive Growth Fund. processing and outsourced services--a more defensive industry within the information The views and opinions expressed in technology sector that comprised nearly Management's Discussion of Fund 8% of the portfolio's assets at the close Performance are those of AIM Advisors, of the reporting period. Indeed, one of Inc. These views and opinions are subject the Fund's holdings in this industry, to change at any time based on factors Sungard Data Systems, was one of its best such as market and economic conditions. performing stocks. We sold the stock These views and opinions may not be after a private equity group bought the relied upon as investment advice or company for a 44% premium. recommendations, or as an offer for a particular security. The information is Relative to the Russell Midcap Growth not a complete analysis of every aspect Index, health care was the of any market, country, industry, weakest-performing sector for the Fund. security or the fund. Statements of fact The Fund's holdings in biotechnology and are from sources considered reliable, but pharmaceutical stocks detracted AIM Advisors, Inc. makes no [RIGHT ARROW GRAPHIC] representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of FOR A DISCUSSION OF RISKS OF INVESTING IN future results, these insights may help YOUR FUND, INDEXES USED IN THIS REPORT you understand our investment management AND YOUR FUND'S LONG-TERM PERFORMANCE, philosophy. PLEASE TURN THE PAGE. </Table> 3 AIM V.I. AGGRESSIVE GROWTH FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== Series I and Series II shares invest Performance figures given represent the AVERAGE ANNUAL TOTAL RETURNS in the same portfolio of securities and Fund and are not intended to reflect As of 6/30/05 will have substantially similar actual variable product values. They do performance, except to the extent that not reflect sales charges, expenses and SERIES I SHARES expenses borne by each class differ. fees assessed in connection with a Inception (5/1/98) 2.41% variable product. Sales charges, 5 Years -7.22 The performance data quoted represent expenses and fees, which are determined 1 Year 5.55 past performance and cannot guarantee by the variable product issuers, will comparable future results; current vary and will lower the total return. SERIES II SHARES performance may be lower or higher. Per NASD requirements, the most recent Inception 2.16% Please contact your variable product month-end performance data at the Fund 5 Years -7.44 issuer or financial advisor for the most level, excluding variable product 1 Year 5.22 recent month-end variable product charges, is available on this AIM performance. Performance figures reflect automated information line, ======================================== Fund expenses, reinvested distributions 866-702-4402. As mentioned above, for and changes in net asset value. the most recent month-end performance Returns since the inception date of Investment return and principal value including variable product charges, Series II shares are historical. All will fluctuate so that you may have a please contact your variable product other returns are the blended returns of gain or loss when you sell shares. issuer or financial advisor. the historical performance of Series II shares since their inception and the AIM V.I. Aggressive Growth Fund, a restated historical performance of series portfolio of AIM Variable Series I shares (for periods prior to Insurance Funds, is currently offered inception of Series II shares) adjusted through insurance companies issuing to reflect the higher Rule 12b-1 fees variable products. You cannot purchase applicable to Series II shares. The shares of the Fund directly. inception date of Series I shares is May 1, 1998. The inception date of Series II shares is March 26, 2002. PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER MID-CAP GROWTH OTHER INFORMATION FUND INDEX represents an average of the Investing in small and mid-size performance of the 30 largest The returns shown in the management's companies involves risks not associated multi-capitalization growth funds discussion of Fund performance are based with investing in more established tracked by Lipper, Inc., an independent on net asset values calculated for companies, including business risk, mutual fund performance monitor. shareholder transactions. Generally significant stock price fluctuations and accepted accounting principles require illiquidity. RUSSELL MIDCAP--Registered adjustments to be made to the net assets Trademark-- GROWTH INDEX, which of the Fund at period end for financial Portfolio turnover was greater than represents the performance of the stocks reporting purposes, and as such, the net that of most funds, which may affect of domestic mid-capitalization asset value for shareholder transactions performance. companies; the Growth subset measures and the returns based on those net asset the performance of Russell Midcap values may differ from the net asset International investing presents companies with higher price/book ratios values and returns reported in the certain risks not associated with and higher forecasted growth values. Financial Highlights. Additionally, the investing solely in the United States. returns and net asset values shown These include risks relating to The Fund is not managed to track the throughout this report are at the fund fluctuations in the value of the U.S. performance of any particular index, level only and do not include variable dollar relative to the values of other including the indexes defined here, and product issuer charges. If such charges currencies, the custody arrangements consequently, the performance of the were included, the total returns would made for the fund's foreign holdings, Fund may deviate significantly from the be lower. differences in accounting, political performance of the indexes. risks and the lesser degree of public Industry classifications used in this information required to be provided by A direct investment cannot be made in report are generally according to the non-U.S. companies. The fund may invest an index. Unless otherwise indicated, Global Industry Classification Standard, up to 25% of its assets in the index results include reinvested which was developed by and is the securities of non-U.S. issuers. dividends, and they do not reflect sales exclusive property and a service mark of charges. Performance of an index of Morgan Stanley Capital International ABOUT INDEXES USED IN THIS REPORT funds reflects fund expenses; Inc. and Standard & Poor's. performance of a market index does not. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500--Registered Trademark-- INDEX) is an index of common stocks frequently used as a general measure of U.S. stock market performance. </Table> 4 AIM V.I.AGGRESSIVE GROWTH FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees, distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. the effect of any fees or other expenses PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $1,000.00 $995.80 $5.44 $1,019.34 $5.51 Series II 1,000.00 994.90 6.68 1,018.10 6.76 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. AGGRESSIVE GROWTH FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided o Fees relative to those of clients of Insurance Funds (the "Board") oversees by AIM. The Board reviewed the AIM with comparable investment the management of AIM V.I. Aggressive credentials and experience of the strategies. The Board reviewed the Growth Fund (the "Fund") and, as required officers and employees of AIM who will advisory fee rate for the Fund under the by law, determines annually whether to provide investment advisory services to Advisory Agreement. The Board noted that, approve the continuance of the Fund's the Fund. In reviewing the qualifications based on the Fund's current assets and advisory agreement with A I M Advisors, of AIM to provide investment advisory taking account of the breakpoint in the Inc. ("AIM"). Based upon the services, the Board reviewed the Fund's advisory fee schedule, this rate recommendation of the Investments qualifications of AIM's investment (i) was the same as the advisory fee Committee of the Board, which is personnel and considered such issues as rates for a mutual fund advised by AIM comprised solely of independent trustees, AIM's portfolio and product review with investment strategies comparable to at a meeting held on June 30, 2005, the process, various back office support those of the Fund; and (ii) was higher Board, including all of the independent functions provided by AIM and AIM's than the sub-advisory fee rates for four trustees, approved the continuance of the equity and fixed income trading unaffiliated mutual funds for which an advisory agreement (the "Advisory operations. Based on the review of these AIM affiliate serves as sub-advisor, Agreement") between the Fund and AIM for and other factors, the Board concluded although the total management fees paid another year, effective July 1, 2005. that the quality of services to be by such unaffiliated mutual funds were provided by AIM was appropriate and that higher than the advisory fee rate for the The Board considered the factors AIM currently is providing satisfactory Fund. The Board noted that AIM has agreed discussed below in evaluating the services in accordance with the terms of to waive advisory fees of the Fund and to fairness and reasonableness of the the Advisory Agreement. limit the Fund's total operating Advisory Agreement at the meeting on June expenses, as discussed below. Based on 30, 2005 and as part of the Board's o The performance of the Fund relative to this review, the Board concluded that the ongoing oversight of the Fund. In their comparable funds. The Board reviewed the advisory fee rate for the Fund under the deliberations, the Board and the performance of the Fund during the past Advisory Agreement was fair and independent trustees did not identify any one, three and five calendar years reasonable. particular factor that was controlling, against the performance of funds advised and each trustee attributed different by other advisors with investment o Fees relative to those of comparable weights to the various factors. strategies comparable to those of the funds with other advisors. The Board Fund. The Board noted that the Fund's reviewed the advisory fee rate for the One of the responsibilities of the performance was below the median Fund under the Advisory Agreement. The Senior Officer of the Fund, who is performance of such comparable funds for Board compared effective contractual independent of AIM and AIM's affiliates, the one and three year periods and above advisory fee rates at a common asset is to manage the process by which the such median performance for the five year level and noted that the Fund's rate was Fund's proposed management fees are period. Based on this review, the Board above the median rate of the funds negotiated to ensure that they are concluded that no changes should be made advised by other advisors with investment negotiated in a manner which is at arm's to the Fund and that it was not necessary strategies comparable to those of the length and reasonable. To that end, the to change the Fund's portfolio management Fund that the Board reviewed. The Board Senior Officer must either supervise a team at this time. noted that AIM has agreed to waive competitive bidding process or prepare an advisory fees of the Fund and to limit independent written evaluation. The o The performance of the Fund relative to the Fund's total operating expenses, as Senior Officer has recommended an indices. The Board reviewed the discussed below. Based on this review, independent written evaluation in lieu of performance of the Fund during the past the Board concluded that the advisory fee a competitive bidding process and, upon one, three and five calendar years rate for the Fund under the Advisory the direction of the Board, has prepared against the performance of the Lipper Agreement was fair and reasonable. such an independent written evaluation. Mid-Cap Growth Fund Index. The Board Such written evaluation also considered noted that the Fund's performance was o Expense limitations and fee waivers. certain of the factors discussed below. below the performance of such Index for The Board noted that AIM has In addition, as discussed below, the the one year period, comparable to such contractually agreed to waive advisory Senior Officer made certain Index for the three year period, and fees of the Fund through December 31, recommendations to the Board in above such Index for the five year 2009 to the extent necessary so that the connection with such written evaluation. period. Based on this review, the Board advisory fees payable by the Fund do not concluded that no changes should be made exceed a specified maximum advisory fee The discussion below serves as a to the Fund and that it was not necessary rate, which maximum rate includes summary of the Senior Officer's to change the Fund's portfolio management breakpoints and is based on net asset independent written evaluation and team at this time. levels. The Board considered the recommendations to the Board in contractual nature of this fee waiver and connection therewith, as well as a o Meeting with the Fund's portfolio noted that it remains in effect until discussion of the material factors and managers and investment personnel. With December 31, 2009. The Board noted that the conclusions with respect thereto that respect to the Fund, the Board is meeting AIM has contractually agreed to waive formed the basis for the Board's approval periodically with such Fund's portfolio fees and/or limit expenses of the Fund of the Advisory Agreement. After managers and/or other investment through April 30, 2006 in an amount consideration of all of the factors below personnel and believes that such necessary to limit total annual operating and based on its informed business individuals are competent and able to expenses to a specified percentage of judgment, the Board determined that the continue to carry out their average daily net assets for each class Advisory Agreement is in the best responsibilities under the Advisory of the Fund. The Board considered the interests of the Fund and its Agreement. contractual nature of this fee shareholders and that the compensation to waiver/expense limitation and noted that AIM under the Advisory Agreement is fair o Overall performance of AIM. The Board it remains in effect through April 30, and reasonable and would have been considered the overall performance of AIM 2006. The Board considered the effect obtained through arm's length in providing investment advisory and these fee waivers/expense limitations negotiations. portfolio administrative services to the would have on the Fund's estimated Fund and concluded that such performance expenses and concluded that the levels of o The nature and extent of the advisory was satisfactory. fee waivers/expense limitations for the services to be provided by AIM. The Board Fund were fair and reasonable. reviewed the services to be provided by AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> AIM V.I. AGGRESSIVE GROWTH FUND <Table> o Breakpoints and economies of scale. The the Board considered the Senior Officer's its affiliates were qualified to continue Board reviewed the structure of the written evaluation and the recommendation to provide non-investment advisory Fund's advisory fee under the Advisory made by the Senior Officer to the Board services to the Fund, including Agreement, noting that it includes one that the Board consider implementing a administrative, transfer agency and breakpoint. The Board reviewed the level process to assist them in more closely distribution services, and that AIM and of the Fund's advisory fees, and noted monitoring the performance of the AIM its affiliates currently are providing that such fees, as a percentage of the Funds. The Board concluded that it would satisfactory non-investment advisory Fund's net assets, have decreased as net be advisable to implement such a process services. assets increased because the Advisory as soon as reasonably practicable. Agreement includes a breakpoint. The o Other factors and current trends. In Board noted that AIM has contractually o Profitability of AIM and its determining whether to continue the agreed to waive advisory fees of the Fund affiliates. The Board reviewed Advisory Agreement for the Fund, the through December 31, 2009 to the extent information concerning the profitability Board considered the fact that AIM, along necessary so that the advisory fees of AIM's (and its affiliates') investment with others in the mutual fund industry, payable by the Fund do not exceed a advisory and other activities and its is subject to regulatory inquiries and specified maximum advisory fee rate, financial condition. The Board considered litigation related to a wide range of which maximum rate includes breakpoints the overall profitability of AIM, as well issues. The Board also considered the and is based on net asset levels. The as the profitability of AIM in connection governance and compliance reforms being Board concluded that the Fund's fee with managing the Fund. The Board noted undertaken by AIM and its affiliates, levels under the Advisory Agreement that AIM's operations remain profitable, including maintaining an internal therefore reflect economies of scale and although increased expenses in recent controls committee and retaining an that it was not necessary to change the years have reduced AIM's profitability. independent compliance consultant, and advisory fee breakpoints in the Fund's Based on the review of the profitability the fact that AIM has undertaken to cause advisory fee schedule. of AIM's and its affiliates investment the Fund to operate in accordance with advisory and other activities and its certain governance policies and o Investments in affiliated money market financial condition, the Board concluded practices. The Board concluded that these funds. The Board also took into account that the compensation to be paid by the actions indicated a good faith effort on the fact that uninvested cash and cash Fund to AIM under its Advisory Agreement the part of AIM to adhere to the highest collateral from securities lending was not excessive. ethical standards, and determined that arrangements (collectively, "cash the current regulatory and litigation balances") of the Fund may be invested in o Benefits of soft dollars to AIM. The environment to which AIM is subject money market funds advised by AIM Board considered the benefits realized by should not prevent the Board from pursuant to the terms of an SEC exemptive AIM as a result of brokerage transactions continuing the Advisory Agreement for the order. The Board found that the Fund may executed through "soft dollar" Fund. realize certain benefits upon investing arrangements. Under these arrangements, cash balances in AIM advised money market brokerage commissions paid by the Fund funds, including a higher net return, and/or other funds advised by AIM are increased liquidity, increased used to pay for research and execution diversification or decreased transaction services. This research is used by AIM in costs. The Board also found that the Fund making investment decisions for the Fund. will not receive reduced services if it The Board concluded that such invests its cash balances in such money arrangements were appropriate. market funds. The Board noted that, to the extent the Fund invests in affiliated o AIM's financial soundness in light of money market funds, AIM has voluntarily the Fund's needs. The Board considered agreed to waive a portion of the advisory whether AIM is financially sound and has fees it receives from the Fund the resources necessary to perform its attributable to such investment. The obligations under the Advisory Agreement, Board further determined that the and concluded that AIM has the financial proposed securities lending program and resources necessary to fulfill its related procedures with respect to the obligations under the Advisory Agreement. lending Fund is in the best interests of the lending Fund and its respective o Historical relationship between the shareholders. The Board therefore Fund and AIM. In determining whether to concluded that the investment of cash continue the Advisory Agreement for the collateral received in connection with Fund, the Board also considered the prior the securities lending program in the relationship between AIM and the Fund, as money market funds according to the well as the Board's knowledge of AIM's procedures is in the best interests of operations, and concluded that it was the lending Fund and its respective beneficial to maintain the current shareholders. relationship, in part, because of such knowledge. The Board also reviewed the o Independent written evaluation and general nature of the non-investment recommendations of the Fund's Senior advisory services currently performed by Officer. The Board noted that, upon their AIM and its affiliates, such as direction, the Senior Officer of the Fund administrative, transfer agency and had prepared an independent written distribution services, and the fees evaluation in order to assist the Board received by AIM and its affiliates for in determining the reasonableness of the performing such services. In addition to proposed management fees of the AIM reviewing such services, the trustees Funds, including the Fund. The Board also considered the organizational noted that the Senior Officer's written structure employed by AIM and its evaluation had been relied upon by the affiliates to provide those services. Board in this regard in lieu of a Based on the review of these and other competitive bidding process. In factors, the Board concluded that AIM and determining whether to continue the Advisory Agreement for the Fund, </Table> SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- COMMON STOCKS-91.01% ADVERTISING-1.34% Lamar Advertising Co.-Class A(a) 46,600 $ 1,993,082 ======================================================================= AEROSPACE & DEFENSE-1.26% Engineered Support Systems, Inc. 19,700 705,851 - ----------------------------------------------------------------------- L-3 Communications Holdings, Inc. 15,300 1,171,674 ======================================================================= 1,877,525 ======================================================================= AGRICULTURAL PRODUCTS-0.75% Corn Products International, Inc. 46,900 1,114,344 ======================================================================= AIRLINES-0.40% Southwest Airlines Co. 43,000 598,990 ======================================================================= APPAREL RETAIL-1.35% Aeropostale, Inc.(a) 27,950 939,120 - ----------------------------------------------------------------------- DSW Inc.-Class A(a) 7,100 177,145 - ----------------------------------------------------------------------- Hot Topic, Inc.(a) 46,500 889,080 ======================================================================= 2,005,345 ======================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-0.71% Fossil, Inc.(a) 46,300 1,051,010 ======================================================================= APPLICATION SOFTWARE-2.88% Amdocs Ltd. (United Kingdom)(a) 35,300 932,979 - ----------------------------------------------------------------------- BEA Systems, Inc.(a) 108,300 950,874 - ----------------------------------------------------------------------- Cognos, Inc. (Canada)(a) 22,300 761,322 - ----------------------------------------------------------------------- Hyperion Solutions Corp.(a) 18,100 728,344 - ----------------------------------------------------------------------- Mercury Interactive Corp.(a) 9,600 368,256 - ----------------------------------------------------------------------- TIBCO Software Inc.(a) 82,000 536,280 ======================================================================= 4,278,055 ======================================================================= ASSET MANAGEMENT & CUSTODY BANKS-3.64% Affiliated Managers Group, Inc.(a) 16,450 1,124,028 - ----------------------------------------------------------------------- Investors Financial Services Corp. 74,400 2,813,808 - ----------------------------------------------------------------------- Nuveen Investments-Class A 39,200 1,474,704 ======================================================================= 5,412,540 ======================================================================= BIOTECHNOLOGY-2.62% Amylin Pharmaceuticals, Inc.(a)(b) 46,800 979,524 - ----------------------------------------------------------------------- Martek Biosciences Corp.(a) 12,200 462,990 - ----------------------------------------------------------------------- MedImmune, Inc.(a) 23,700 633,264 - ----------------------------------------------------------------------- Neurocrine Biosciences, Inc.(a) 18,700 786,522 - ----------------------------------------------------------------------- QLT Inc. (Canada)(a) 98,500 1,026,370 ======================================================================= 3,888,670 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> BREWERS-0.73% Molson Coors Brewing Co.-Class B 17,400 1,078,800 ======================================================================= BROADCASTING & CABLE TV-2.88% Radio One, Inc.-Class D(a) 77,400 $ 988,398 - ----------------------------------------------------------------------- Univision Communications Inc.-Class A(a) 119,495 3,292,087 ======================================================================= 4,280,485 ======================================================================= BUILDING PRODUCTS-1.06% American Standard Cos. Inc. 26,100 1,094,112 - ----------------------------------------------------------------------- York International Corp. 12,500 475,000 ======================================================================= 1,569,112 ======================================================================= CASINOS & GAMING-0.70% International Game Technology 36,900 1,038,735 ======================================================================= COMPUTER STORAGE & PERIPHERALS-0.83% Brocade Communications Systems, Inc.(a) 122,400 474,912 - ----------------------------------------------------------------------- QLogic Corp.(a) 24,400 753,228 ======================================================================= 1,228,140 ======================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-0.60% Terex Corp.(a) 22,600 890,440 ======================================================================= CONSUMER ELECTRONICS-0.56% Harman International Industries, Inc. 10,200 829,872 ======================================================================= CONSUMER FINANCE-0.88% SLM Corp. 25,700 1,305,560 ======================================================================= DATA PROCESSING & OUTSOURCED SERVICES-7.94% Affiliated Computer Services, Inc.-Class A(a) 37,500 1,916,250 - ----------------------------------------------------------------------- Alliance Data Systems Corp.(a) 92,000 3,731,520 - ----------------------------------------------------------------------- Fiserv, Inc.(a) 18,685 802,521 - ----------------------------------------------------------------------- Hewitt Associates, Inc.-Class A(a) 18,500 490,435 - ----------------------------------------------------------------------- Iron Mountain Inc.(a) 72,400 2,245,848 - ----------------------------------------------------------------------- Paychex, Inc. 80,300 2,612,962 ======================================================================= 11,799,536 ======================================================================= DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-4.11% ARAMARK Corp.-Class B 40,000 1,056,000 - ----------------------------------------------------------------------- ChoicePoint Inc.(a) 29,100 1,165,455 - ----------------------------------------------------------------------- Cintas Corp. 39,400 1,520,840 - ----------------------------------------------------------------------- CoStar Group Inc.(a) 18,900 824,040 - ----------------------------------------------------------------------- Navigant Consulting, Inc.(a) 45,100 796,466 - ----------------------------------------------------------------------- Sirva Inc.(a) 87,900 748,029 ======================================================================= 6,110,830 ======================================================================= </Table> AIM V.I. AGGRESSIVE GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- EDUCATION SERVICES-0.65% Career Education Corp.(a) 26,300 $ 962,843 ======================================================================= ELECTRIC UTILITIES-0.84% DPL Inc. 45,700 1,254,465 ======================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-0.70% EnerSys(a) 76,600 1,044,058 ======================================================================= ELECTRONIC EQUIPMENT MANUFACTURERS-1.33% Amphenol Corp.-Class A 17,500 702,975 - ----------------------------------------------------------------------- Cogent Inc.(a) 44,700 1,276,185 ======================================================================= 1,979,160 ======================================================================= GENERAL MERCHANDISE STORES-0.75% Tuesday Morning Corp. 35,300 1,112,656 ======================================================================= HEALTH CARE EQUIPMENT-10.39% Advanced Medical Optics, Inc.(a) 45,300 1,800,675 - ----------------------------------------------------------------------- Beckman Coulter, Inc. 7,500 476,775 - ----------------------------------------------------------------------- Biomet, Inc. 69,000 2,390,160 - ----------------------------------------------------------------------- Cytyc Corp.(a) 78,900 1,740,534 - ----------------------------------------------------------------------- Fisher Scientific International Inc.(a) 39,200 2,544,080 - ----------------------------------------------------------------------- Kinetic Concepts, Inc.(a) 34,400 2,064,000 - ----------------------------------------------------------------------- Kyphon Inc.(a) 39,200 1,363,768 - ----------------------------------------------------------------------- PerkinElmer, Inc. 43,400 820,260 - ----------------------------------------------------------------------- Varian Medical Systems, Inc.(a) 28,100 1,048,973 - ----------------------------------------------------------------------- Waters Corp.(a) 32,300 1,200,591 ======================================================================= 15,449,816 ======================================================================= HEALTH CARE FACILITIES-0.98% HealthSouth Corp.(a) 98,900 553,840 - ----------------------------------------------------------------------- Triad Hospitals, Inc.(a) 16,500 901,560 ======================================================================= 1,455,400 ======================================================================= HEALTH CARE SERVICES-1.21% DaVita, Inc.(a) 19,000 864,120 - ----------------------------------------------------------------------- Omnicare, Inc. 21,900 929,217 ======================================================================= 1,793,337 ======================================================================= HEALTH CARE SUPPLIES-1.38% Cooper Cos., Inc. (The) 16,100 979,846 - ----------------------------------------------------------------------- Gen-Probe Inc.(a) 29,400 1,065,162 ======================================================================= 2,045,008 ======================================================================= HOMEFURNISHING RETAIL-1.22% Bed Bath & Beyond Inc.(a) 19,100 797,998 - ----------------------------------------------------------------------- Linens 'n Things, Inc.(a) 43,000 1,017,380 ======================================================================= 1,815,378 ======================================================================= HOUSEHOLD APPLIANCES-1.04% Blount International, Inc.(a) 92,800 1,548,832 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> INDUSTRIAL CONGLOMERATES-0.72% Textron Inc. 14,200 $ 1,077,070 ======================================================================= INDUSTRIAL GASES-0.58% Airgas, Inc. 35,000 863,450 ======================================================================= INDUSTRIAL MACHINERY-0.66% Pentair, Inc. 23,100 988,911 ======================================================================= INTEGRATED TELECOMMUNICATION SERVICES-0.24% NeuStar, Inc.-Class A(a) 8,900 227,840 - ----------------------------------------------------------------------- Valor Communications Group, Inc. 9,000 124,200 ======================================================================= 352,040 ======================================================================= INTERNET SOFTWARE & SERVICES-0.45% VeriSign, Inc.(a) 23,400 672,984 ======================================================================= IT CONSULTING & OTHER SERVICES-0.46% Perot Systems Corp.-Class A(a) 48,500 689,670 ======================================================================= METAL & GLASS CONTAINERS-1.14% Crown Holdings, Inc.(a) 53,000 754,190 - ----------------------------------------------------------------------- Owens-Illinois, Inc.(a) 37,400 936,870 ======================================================================= 1,691,060 ======================================================================= MOVIES & ENTERTAINMENT-2.08% Regal Entertainment Group-Class A 163,900 3,094,432 ======================================================================= OFFICE SERVICES & SUPPLIES-0.83% Mine Safety Appliances Co. 26,800 1,238,160 ======================================================================= OIL & GAS DRILLING-4.27% ENSCO International Inc.(b) 80,000 2,860,000 - ----------------------------------------------------------------------- Pride International, Inc.(a) 28,500 732,450 - ----------------------------------------------------------------------- Rowan Cos., Inc. 60,800 1,806,368 - ----------------------------------------------------------------------- Todco-Class A(a)(b) 36,700 942,089 ======================================================================= 6,340,907 ======================================================================= OIL & GAS EQUIPMENT & SERVICES-1.44% BJ Services Co. 12,000 629,760 - ----------------------------------------------------------------------- Key Energy Services, Inc.(a) 83,100 1,005,510 - ----------------------------------------------------------------------- Maverick Tube Corp.(a) 16,800 500,640 ======================================================================= 2,135,910 ======================================================================= PACKAGED FOODS & MEATS-0.41% TreeHouse Foods, Inc.(a) 21,300 607,263 ======================================================================= PERSONAL PRODUCTS-1.58% Avon Products, Inc. 23,600 893,260 - ----------------------------------------------------------------------- Estee Lauder Cos. Inc. (The)-Class A 37,300 1,459,549 ======================================================================= 2,352,809 ======================================================================= PHARMACEUTICALS-4.43% IVAX Corp.(a) 57,250 1,230,875 - ----------------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A 55,300 1,754,669 - ----------------------------------------------------------------------- </Table> AIM V.I. AGGRESSIVE GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- PHARMACEUTICALS-(CONTINUED) MGI Pharma, Inc.(a) 69,900 $ 1,521,024 - ----------------------------------------------------------------------- Sepracor Inc.(a) 18,400 1,104,184 - ----------------------------------------------------------------------- Valeant Pharmaceuticals International 55,400 976,702 ======================================================================= 6,587,454 ======================================================================= REGIONAL BANKS-2.76% Amegy Bancorp., Inc. 61,000 1,365,180 - ----------------------------------------------------------------------- North Fork Bancorp., Inc. 66,100 1,856,749 - ----------------------------------------------------------------------- South Financial Group, Inc. (The) 31,200 886,704 ======================================================================= 4,108,633 ======================================================================= RESTAURANTS-0.96% Outback Steakhouse, Inc. 10,300 465,972 - ----------------------------------------------------------------------- Ruby Tuesday, Inc. 37,400 968,660 ======================================================================= 1,434,632 ======================================================================= SEMICONDUCTOR EQUIPMENT-0.62% KLA-Tencor Corp. 21,200 926,440 ======================================================================= SEMICONDUCTORS-2.76% Integrated Device Technology, Inc.(a) 53,700 577,275 - ----------------------------------------------------------------------- Maxim Integrated Products, Inc. 64,600 2,468,366 - ----------------------------------------------------------------------- Micron Technology, Inc.(a) 42,800 436,988 - ----------------------------------------------------------------------- Semtech Corp.(a) 37,700 627,705 ======================================================================= 4,110,334 ======================================================================= SOFT DRINKS-0.81% Coca-Cola Enterprises Inc. 54,600 1,201,746 ======================================================================= SPECIALIZED CONSUMER SERVICES-0.92% Jackson Hewitt Tax Service Inc. 57,600 1,361,664 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> SPECIALTY CHEMICALS-1.00% Nalco Holding Co.(a) 29,200 $ 573,196 - ----------------------------------------------------------------------- Rohm and Haas Co. 19,600 908,264 ======================================================================= 1,481,460 ======================================================================= SPECIALTY STORES-1.01% PETCO Animal Supplies, Inc.(a) 51,300 1,504,116 ======================================================================= TECHNOLOGY DISTRIBUTORS-1.59% CDW Corp. 41,500 2,369,235 ======================================================================= THRIFTS & MORTGAGE FINANCE-2.77% Independence Community Bank Corp. 61,400 2,267,502 - ----------------------------------------------------------------------- New York Community Bancorp, Inc. 102,313 1,853,912 ======================================================================= 4,121,414 ======================================================================= TRADING COMPANIES & DISTRIBUTORS-0.79% WESCO International, Inc.(a) 37,200 1,167,336 ======================================================================= Total Common Stocks (Cost $129,150,654) 135,291,154 ======================================================================= MONEY MARKET FUNDS-9.75% Liquid Assets Portfolio-Institutional Class(c) 7,246,712 7,246,712 - ----------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(c) 7,246,712 7,246,712 ======================================================================= Total Money Market Funds (Cost $14,493,424) 14,493,424 ======================================================================= TOTAL INVESTMENTS-100.76% (Cost $143,644,078) 149,784,578 ======================================================================= OTHER ASSETS LESS LIABILITIES-(0.76%) (1,134,470) ======================================================================= NET ASSETS-100.00% $148,650,108 _______________________________________________________________________ ======================================================================= </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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $129,150,654) $135,291,154 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $14,493,424) 14,493,424 ============================================================= Total investments (cost $143,644,078) 149,784,578 ============================================================= Cash 878,390 - ------------------------------------------------------------- Receivables for: Investments sold 1,901,421 - ------------------------------------------------------------- Fund shares sold 22,823 - ------------------------------------------------------------- Dividends 59,109 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 29,739 - ------------------------------------------------------------- Other assets 16,003 ============================================================= Total assets 152,692,063 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 3,570,057 - ------------------------------------------------------------- Investments purchased from affiliates 123,680 - ------------------------------------------------------------- Fund shares reacquired 66,835 - ------------------------------------------------------------- Options written, at market value (premiums received $74,102) 46,395 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 34,791 - ------------------------------------------------------------- Accrued administrative services fees 171,531 - ------------------------------------------------------------- Accrued distribution fees-Series II 3,655 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 123 - ------------------------------------------------------------- Accrued transfer agent fees 927 - ------------------------------------------------------------- Accrued operating expenses 23,961 ============================================================= Total liabilities 4,041,955 ============================================================= Net assets applicable to shares outstanding $148,650,108 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $168,337,484 - ------------------------------------------------------------- Undistributed net investment income (loss) (229,985) - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and option contracts (25,625,598) - ------------------------------------------------------------- Unrealized appreciation of investment securities and option contracts 6,168,207 ============================================================= $148,650,108 _____________________________________________________________ ============================================================= NET ASSETS: Series I $142,353,513 _____________________________________________________________ ============================================================= Series II $ 6,296,595 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 12,076,950 _____________________________________________________________ ============================================================= Series II 538,310 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 11.79 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 11.70 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends $ 491,034 - ------------------------------------------------------------- Dividends from affiliated money market funds 138,535 ============================================================= Total investment income 629,569 ============================================================= EXPENSES: Advisory fees 593,828 - ------------------------------------------------------------- Administrative services fees 199,579 - ------------------------------------------------------------- Custodian fees 18,412 - ------------------------------------------------------------- Distribution fees-Series II 7,048 - ------------------------------------------------------------- Transfer agent fees 7,458 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 8,658 - ------------------------------------------------------------- Other 26,644 ============================================================= Total expenses 861,627 ============================================================= Less: Fees waived and expense offset arrangement (38,526) ============================================================= Net expenses 823,101 ============================================================= Net investment income (loss) (193,532) ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND OPTION CONTRACTS: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $671,644) 13,558,020 - ------------------------------------------------------------- Option contracts written 147,433 ============================================================= 13,705,453 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (14,582,676) - ------------------------------------------------------------- Option contracts written 52,092 ============================================================= (14,530,584) ============================================================= Net gain (loss) from investment securities and option contracts (825,131) ============================================================= Net increase (decrease) in net assets resulting from operations $ (1,018,663) _____________________________________________________________ ============================================================= </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (193,532) $ (1,036,585) - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and option contracts 13,705,453 28,554,370 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and option contracts (14,530,584) (11,078,280) ========================================================================================== Net increase (decrease) in net assets resulting from operations (1,018,663) 16,439,505 ========================================================================================== Share transactions-net: Series I (10,701,308) (6,191,332) - ------------------------------------------------------------------------------------------ Series II 1,050,923 1,886,916 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (9,650,385) (4,304,416) ========================================================================================== Net increase (decrease) in net assets (10,669,048) 12,135,089 ========================================================================================== NET ASSETS: Beginning of period 159,319,156 147,184,067 ========================================================================================== End of period (including undistributed net investment income (loss) of $(229,985) and $(36,453), respectively) $148,650,108 $159,319,156 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. AGGRESSIVE GROWTH FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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 AIM V.I. AGGRESSIVE GROWTH FUND 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 and domestic and foreign index futures. 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. G. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $150 million 0.80% - -------------------------------------------------------------------- Over $150 million 0.625% ____________________________________________________________________ ==================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $150 million 0.75% - -------------------------------------------------------------------- Next $4.85 billion 0.625% - -------------------------------------------------------------------- Next $5 billion 0.60% - -------------------------------------------------------------------- Over $10 billion 0.575% ____________________________________________________________________ ==================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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 AIM V.I. AGGRESSIVE GROWTH FUND fund operating expenses to exceed the limit stated above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $38,364. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $174,784 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $7,458. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $7,048. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - --------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ 6,960,012 $31,239,778 $(30,953,078) $ -- $ 7,246,712 $ 68,921 $ -- - --------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 6,960,012 31,239,778 (30,953,078) -- 7,246,712 69,614 -- ================================================================================================================================= Total $13,920,024 $62,479,556 $(61,906,156) $ -- $14,493,424 $138,535 $ -- _________________________________________________________________________________________________________________________________ ================================================================================================================================= </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $841,179 and sales of $2,086,321, which resulted in net realized gains of $671,644. AIM V.I. AGGRESSIVE GROWTH FUND 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 six months ended June 30, 2005, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $162. NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,260 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 six months ended June 30, 2005, 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 - ------------------------------------------------------------------------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED - ------------------------------------------------------------------------------------ Beginning of period 1,260 $ 131,528 - ------------------------------------------------------------------------------------ Written 1,788 240,715 - ------------------------------------------------------------------------------------ Closed (750) (128,653) - ------------------------------------------------------------------------------------ Expired (1,593) (169,488) ==================================================================================== End of period 705 $ 74,102 ____________________________________________________________________________________ ==================================================================================== </Table> <Table> <Caption> OPEN CALL OPTIONS WRITTEN AT PERIOD END - -------------------------------------------------------------------------------------------------------------------------------- CONTRACT STRIKE NUMBER OF PREMIUMS MARKET VALUE UNREALIZED MONTH PRICE CONTRACTS RECEIVED 06/30/05 APPRECIATION - -------------------------------------------------------------------------------------------------------------------------------- Amylin Pharmaceuticals, Inc. Aug-05 $22.5 108 $10,651 $ 9,720 $ 931 - -------------------------------------------------------------------------------------------------------------------------------- ENSCO International Inc. Sep-05 40.0 455 55,239 29,575 25,664 - -------------------------------------------------------------------------------------------------------------------------------- Todco-Class A Sep-05 30.0 142 8,212 7,100 1,112 ================================================================================================================================ Total outstanding options written 705 $74,102 $46,395 $27,707 ________________________________________________________________________________________________________________________________ ================================================================================================================================ </Table> NOTE 9--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 six months ended June 30, 2005 was $146,650,404 and $156,440,567, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $10,612,659 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (4,902,886) =============================================================================== Net unrealized appreciation of investment securities $ 5,709,773 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $144,074,805. </Table> AIM V.I. AGGRESSIVE GROWTH FUND NOTE 11--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 3,090,859 $ 35,645,569 2,271,088 $ 24,883,290 - ---------------------------------------------------------------------------------------------------------------------- Series II 190,372 2,172,091 206,842 2,213,893 ====================================================================================================================== Reacquired: Series I (4,027,144) (46,346,877) (2,891,694) (31,074,622) - ---------------------------------------------------------------------------------------------------------------------- Series II (98,260) (1,121,168) (30,232) (326,977) ====================================================================================================================== (844,173) $ (9,650,385) (443,996) $ (4,304,416) ______________________________________________________________________________________________________________________ ====================================================================================================================== </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 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 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 --------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.84 $ 10.59 $ 8.36 $ 10.81 $ 14.62 $ 14.25 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.07)(a) (0.08)(a) (0.08) (0.10)(a) (0.10)(a) - ----------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.03) 1.32 2.31 (2.37) (3.71) 0.47 ============================================================================================================================= Total from investment operations (0.05) 1.25 2.23 (2.45) (3.81) 0.37 ============================================================================================================================= Net asset value, end of period $ 11.79 $ 11.84 $ 10.59 $ 8.36 $ 10.81 $ 14.62 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(b) (0.42)% 11.80% 26.67% (22.66)% (26.06)% 2.60% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $142,354 $154,070 $ 144,341 $103,611 $ 121,889 $103,181 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets 1.10%(c)(d) 1.16% 1.15% 1.16% 1.21% 1.16%(d) _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of net investment income (loss) to average net assets (0.25)%(c) (0.68)% (0.83)% (0.87)% (0.88)% (0.59)% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate(e) 105% 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 annualized and based on average daily net assets of $144,002,387. (d) After fee waivers and/or expense reimbursements. Ratio of expense to average net assets prior to fee waivers and/or expense reimbursements were 1.15% (annualized) and 1.26% for the six months ended June 30, 2005 and year ended December 31, 2000, respectively. (e) Not annualized for periods less than one year. AIM V.I. AGGRESSIVE GROWTH FUND NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------------------------------- MARCH 26, 2002 SIX MONTHS YEAR ENDED (DATE SALES ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------ DECEMBER 31, 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.76 $10.55 $ 8.35 $ 10.70 - ----------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.03) (0.10)(a) (0.10)(a) (0.10) - ----------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.03) 1.31 2.30 (2.25) ======================================================================================================================= Total from investment operations (0.06) 1.21 2.20 (2.35) ======================================================================================================================= Net asset value, end of period $11.70 $11.76 $10.55 $ 8.35 _______________________________________________________________________________________________________________________ ======================================================================================================================= Total return(b) (0.51)% 11.47% 26.35% (21.96)% _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $6,297 $5,249 $2,843 $ 436 _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratio of expenses to average net assets 1.35%(c)(d) 1.41% 1.40% 1.32%(d)(e) _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratio of net investment income (loss) to average net assets (0.50)%(c) (0.93)% (1.08)% (1.03)%(e) _______________________________________________________________________________________________________________________ ======================================================================================================================= Portfolio turnover rate(f) 105% 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 annualized and based on average daily net assets of $5,684,908. (d) After fee waivers and/or expense reimbursements. Ratio of expense to average net assets prior to fee waivers and/or expense reimbursements were 1.40% (annualized) and 1.41% for the six months ended June 30, 2005 and year ended December 31, 2002, respectively. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 13--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are AIM V.I. AGGRESSIVE GROWTH FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code ss. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. AGGRESSIVE GROWTH FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. AGGRESSIVE GROWTH FUND AIM V.I. BASIC BALANCED FUND Semiannual Report to Shareholders o June 30, 2005 EFFECTIVE JULY 1, 2005, AIM V.I. BALANCED FUND WAS RENAMED AIM V.I. BASIC BALANCED FUND. AIM V.I. BASIC 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. BASIC BALANCED FUND <Table> MANAGEMENT'S DISCUSSION important to understand the benefits OF FUND PERFORMANCE and limitations of our process. First, =================================================================================== the goal of our investment strategy is to help preserve your capital while PERFORMANCE SUMMARY ====================================== seeking to grow it at above-market rates over the long term. Second, we Shares of AIM V.I. Basic Balanced Fund FUND VS. INDEXES have little portfolio commonality with were up modestly for the six-month popular benchmarks and most of our period ended June 30, 2005. Fund TOTAL RETURNS, 12/31/04-6/30/05, peers. (Commonality measures the returns were ahead of both the S&P 500 EXCLUDING VARIABLE PRODUCT ISSUER similarity of holdings between two Index and our peer group benchmark, CHARGES. IF VARIABLE PRODUCT ISSUER portfolios.) Third, short-term but trailed our style-specific index CHARGES WERE INCLUDED, RETURNS WOULD performance will differ from the in the period. BE LOWER. benchmarks and have little information value because our investments are We fared better than the S&P 500 Series I Shares 0.85% materially different from benchmark Index during the period as your Fund's constituents. equity and fixed-income returns Series II Shares 0.67 exceeded those of the broad market Our fixed-income investment process index. Your Fund's equity returns were Standard & Poor's Composite is accomplished through the use of driven largely by the strong returns Index of 500 Stocks (the S&P strategies involving duration we experienced in the health care and 500 Index) management, yield-curve positioning energy sectors. Our fixed-income (Broad Market Index) -0.81 and sector allocation. (Duration is portfolio returns were driven by our the measure of a debt security's overweight position in longer-maturity 60% Russell 1000 Value Index/ sensitivity to interest rate changes, bonds, which performed well. We 40% Lehman U.S. Aggregate expressed in terms of years. Longer underperformed our style-specific Bond Index duration securities are usually more index because of weak stock returns in (Style-specific Index) 2.10 sensitive to interest rate movements. the industrials and financials The yield curve traces the yields on Lipper Balanced Fund Index debt securities of the same quality (Peer Group Index) 0.50 but different maturities from the shortest to the longest available.) In SOURCE: LIPPER, INC. addition, we use strategies involving credit analysis and selection of ====================================== specific securities. By combining perspectives from both the portfolio sectors and our lower sector weights and security level, we seek to in energy and utilities, the two best- consistently add value over time while performing sectors of the market. minimizing portfolio risk. =================================================================================== While our historical investment results provide evidence of success, HOW WE INVEST we believe have empirical support: we believe the single most important indication of achieving the Fund's Our equity investment strategy is to o Companies have a measurable objective in the future resides in the seek to create wealth by maintaining a estimated intrinsic value. difference between the portfolio's long-term investment horizon and Importantly, this fair value is current market price and our estimate investing in companies that are independent of the company's stock of intrinsic value. Since we estimate selling at a significant discount to price. the intrinsic value of each holding in their estimated intrinsic value--a the portfolio, we can also estimate value that is based on the estimated o Market prices are more volatile than future cash flows generated by the intrinsic business values, partly business. The Fund's equity philosophy because we believe investors regularly is based on two elements that overreact to negative news. Since our application of this strategy is highly disciplined and relatively unique, it is ====================================== ====================================== ====================================== PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By security type 1. U.S. Mortgage-Backed 1. Cardinal Health, Inc. 2.6% Securities 10.1% 1. Stocks & Other Equity 2. Tyco International Interests 64.8% 2. U.S. Government Agency Ltd. (Bermuda) 2.4 Securities 9.6 2. Bonds & Notes 18.1 3. Halliburton Co. 2.2 3. Other Diversified 3. U.S. Mortgage-Backed Financial Services 7.8 4. Sanofi-Aventis (France) 2.2 Securities 10.1 4. Pharmaceuticals 5.0 5. WellPoint,Inc. 2.2 4. U.S. Government Agency Securities 9.6 5. Health Care Distributors 4.3 6. Citigroup Inc. 2.1 5. Asset-Backed Securities 1.3 TOTAL NET ASSETS $98.2 MILLION 7. Computer Associates International, Inc. 1.9 6. U.S. Treasury Securities 1.1 TOTAL NUMBER OF HOLDINGS 278 8. First Data Corp. 1.9 7. Other Assets Less Liabilities* -5.0 AVERAGE CREDIT QUALITY, 9. JPMorgan Chase & Co. 1.9 FIXED-INCOME HOLDINGS A *Investments purchased 10. Omnicom Group Inc. 1.8 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. BASIC BALANCED FUND <Table> the intrinsic value of the entire Aon and IMS Health. We sold May [STANLEY BRET W. STANLEY, Fund. following the announcement that the PHOTO] Chartered Financial company intends to merge with Analyst, senior The difference between market price competitor Federated Department Stores portfolio manager, is and our estimate of portfolio (not a Fund holding as of June 30, lead portfolio manager intrinsic value remained attractive by 2005). The stock had appreciated 50% of AIM V.I. Basic Balanced Fund. Mr. historical standards for a balanced from its October lows and reflected Stanley received a B.B.A. in finance portfolio of stocks and bonds. While what we believed to be fair value. from The University of Texas at Austin there is no assurance that market and an M.S. in finance from the value will ever reflect our estimate We continued to manage your Fund's University of Houston. of portfolio intrinsic value, this is fixed-income holdings with the intent the primary metric we use in assessing of keeping a defensive position [COLEMAN CANON R. COLEMAN II, and managing the portfolio. against rising interest rates. PHOTO] Chartered Financial Duration generally remained shorter Analyst, portfolio CURRENT PERIOD ANALYSIS than that of the Lehman U.S. Aggregate manager, is manager of Bond Index; a shorter duration than AIM V.I. Basic Balanced Equity market returns were modestly the benchmark suggests that the Fund Fund. Mr. Coleman earned a B.S. and an negative during the period, as had less sensitivity to changes in M.S. in accounting from the University investors were preoccupied with the interest rates. With long-term of Florida. He also has an M.B.A. from effect high energy prices and rising interest rates falling in the period, The Wharton School at the University interest rates might have on economic this defensive posture was a slight of Pennsylvania. growth. These concerns resulted in detractor to fund performance. Part of muted or negative returns in most that underperformance was offset, [FRIEDLI JAN H. FRIEDLI, Senior broad equity market sectors with the however, by being overweight PHOTO] portfolio manager, is exception of energy and utilities. longer-dated bonds and underweight manager of AIM V.I. Energy, which rallied in response to corporate bonds, one of the worse Basic Balanced Fund. Mr. the record-high oil prices, was the performing segments of the Friedli graduated cum Fund's best-performing sector, with fixed-income market. laude from Villanova University with a oil service drilling and equipment B.S. in computer science and earned an providers Transocean and Halliburton With corporate bond prices becoming M.B.A. with honors from the University among the largest contributors to Fund more attractive on the news of credit of Chicago. performance in the period. agency downgrades of both GENERAL MOTORS and FORD, we increased our [JOHNSON SCOT W. JOHNSON, Your Fund's equity results were allocation to these issuers near the PHOTO] Chartered Financial driven largely by our holdings in the end of the period, but only in issues Analyst, Senior health care sector. MCKESSON, HCA and that were short-term in maturity. portfolio manager, is WELLPOINT were all notable However, we maintained a strong manager of AIM V.I. contributors in the period. single-A rating. Basic Balanced Fund. Mr. Johnson Pharmaceutical distributor McKesson received both his bachelor's degree in rallied more than 40% in the period as IN CLOSING economics and an M.B.A. in finance the company continued to transition from Vanderbilt University. its distribution business to a Results were favorable during this fee-for-service platform, a move that period, but normal market volatility [SEINSHEIMER MATTHEW W. SEINSHEIMER, will substantially reduce its exposure affects short-term performance and PHOTO] Chartered Financial to the inherent volatility of drug limits our ability to measure success. Analyst, senior pricing. The stock was further boosted Over longer periods, we believe our portfolio manager, is by news of a settlement in the class investment discipline has the manager of AIM V.I. action suit related to HBO & Co., a potential to turn market volatility Basic Balanced Fund. He received a health care technology company that and investor overreaction into capital B.B.A. from Southern Methodist McKesson purchased more than six years appreciation. We thank you for your University and an M.B.A. from The ago. investment and for sharing our University of Texas at Austin. long-term horizon. Our largest detractors to [SIMON MICHAEL J. SIMON, performance were TYCO INTERNATIONAL, THE VIEWS AND OPINIONS EXPRESSED IN PHOTO] Chartered Financial FANNIE MAE, COMPUTER ASSOCIATES, MANAGEMENT'S DISCUSSION OF FUND Analyst, senior ILLINOIS TOOL WORKS and BANK OF NEW PERFORMANCE ARE THOSE OF A I M portfolio manager, is YORK. Fannie Mae continued to make ADVISORS, INC. THESE VIEWS AND manager of AIM V.I. progress toward restating its OPINIONS ARE SUBJECT TO CHANGE AT ANY Basic Balanced Fund. He received a historical financials and rebuilding TIME BASED ON FACTORS SUCH AS MARKET B.B.A. in finance from Texas Christian its capital base. However, recent AND ECONOMIC CONDITIONS. THESE VIEWS University and an M.B.A. from the concerns have focused on the company's AND OPINIONS MAY NOT BE RELIED UPON AS University of Chicago. regulatory structure, generating a INVESTMENT ADVICE OR RECOMMENDATIONS, steady flow of news and speculation OR AS AN OFFER FOR A PARTICULAR Assisted by the Basic Value Team and that had a much bigger impact on the SECURITY. THE INFORMATION IS NOT A Taxable Investment Grade Bond Team company's stock price than on its COMPLETE ANALYSIS OF EVERY ASPECT OF business value. We have long ANY MARKET, COUNTRY, INDUSTRY, [RIGHT ARROW GRAPHIC] considered the possible outcomes and SECURITY OR THE FUND. STATEMENTS OF continued to believe Fannie Mae is one FACT ARE FROM SOURCES CONSIDERED FOR A DISCUSSION OF RISKS OF INVESTING of the more attractive opportunities RELIABLE, BUT A I M ADVISORS, INC. IN YOUR FUND, INDEXES USED IN THIS we own. MAKES NO REPRESENTATION OR WARRANTY AS REPORT AND YOUR FUND'S LONG-TERM TO THEIR COMPLETENESS OR ACCURACY. PERFORMANCE, PLEASE TURN THE PAGE. Changes to your Fund's common stock ALTHOUGH HISTORICAL PERFORMANCE IS NO holdings during the period included GUARANTEE OF FUTURE RESULTS, THESE the purchase of UNILEVER and FREDDIE INSIGHTS MAY HELP YOU UNDERSTAND OUR MAC. We also sold our remaining shares INVESTMENT MANAGEMENT PHILOSOPHY. of May Department Stores, </Table> 3 AIM V.I. BASIC BALANCED FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ====================================== shares is January 24, 2002. Series I companies issuing variable products. AVERAGE ANNUAL TOTAL RETURNS and Series II shares invest in the You cannot purchase shares of the Fund same portfolio of securities and will directly. Performance figures given As of 6/30/05 have substantially similar represent the Fund and are not performance, except to the extent that intended to reflect actual variable SERIES I SHARES expenses borne by each class differ. product values. They do not reflect Inception (5/1/98) 2.54% sales charges, expenses and fees 5 Years -2.71 The performance data quoted assessed in connection with a variable 1 Year 4.66 represent past performance and cannot product. Sales charges, expenses and guarantee comparable future results; fees, which are determined by the SERIES II SHARES current performance may be lower or variable product issuers, will vary Inception 2.29% higher. Please contact your variable and will lower the total return. 5 Years -2.95 product issuer or financial advisor 1 Year 4.39 for the most recent month-end variable Per NASD requirements, the most product performance. Performance recent month-end performance data at ====================================== figures reflect Fund expenses, the Fund level, excluding variable reinvested distributions and changes product charges, is available on this Returns since the inception date of in net asset value. Investment return AIM automated information line, Series II shares are historical. All and principal value will fluctuate so 866-702-4402. As mentioned above, for other returns are the blended returns that you may have a gain or loss when the most recent month-end performance of the historical performance of you sell shares. including variable product charges, Series II shares since their inception please contact your variable product and the restated historical AIM V.I. Basic Balanced Fund, a issuer or financial advisor. performance of Series I shares (for series portfolio of AIM Variable periods prior to inception of Series Insurance Funds, is currently offered OTHER INFORMATION II shares) adjusted to reflect the through insurance higher Rule 12b-1 fees applicable to The returns shown in the management's Series II shares. The inception date discussion of Fund performance are of Series I shares is May 1, 1998. The ABOUT INDEXES USED IN THIS REPORT based on net asset values calculated inception date of Series II for shareholder transactions. The unmanaged Standard & Poor's Generally accepted accounting PRINCIPAL RISKS OF INVESTING IN THE Composite Index of 500 Stocks (the S&P principles require adjustments to be FUND 500--Registered Trademark-- INDEX) is made to the net assets of the Fund at an index of common stocks frequently period end for financial reporting The Fund may invest up to 25% of its used as a general measure of U.S. purposes, and as such, the net asset assets in the securities of non-U.S. stock market performance. values for shareholder transactions issuers. International investing and the returns based on those net presents certain risks not associated The unmanaged Lipper Balanced Fund asset values may differ from the net with investing solely in the United Index represents an average of the 30 asset values and returns reported in States. These include risks relating largest balanced funds tracked by the Financial Highlights. to fluctuations in the value of the Lipper, Inc., an independent mutual Additionally, the returns and net U.S. dollar relative to the values of fund performance monitor. It is asset values shown throughout this other currencies, the custody calculated daily, with adjustments for report are at the Fund level only and arrangements made for the Fund's distributions as of the ex-dividend do not include variable product issuer foreign holdings, differences in dates. charges. If such charges were accounting, political risks and the included, the total returns would be lesser degree of public information The blended index used in this lower. required to be provided by non-U.S. report is composed of 60% RUSSELL 1000 companies. --Registered Trademark-- VALUE INDEX Industry classifications used in and 40% Lehman U.S. Aggregate Bond this report are generally according to The Fund may invest a portion of Index. The unmanaged Russell 1000 the Global Industry Classification its assets in mortgage-backed Index represents the performance of Standard, which was developed by and securities, which may lose value if the stocks of large-capitalization is the exclusive property and a mortgages are prepaid in response to companies; the Value segment measures service mark of Morgan Stanley Capital falling interest rates. the performance of Russell 1000 International Inc. and Standard & companies with lower price/book ratios Poor's. U.S. Treasury securities such as and lower forecasted growth values. bills, notes and bonds offer a high The average credit quality of the degree of safety, and they guarantee The unmanaged Lehman U.S. Aggregate Fund's holdings as of the close of the the payment of principal and any Bond Index, which represents the U.S. reporting period represents the applicable interest if held to investment-grade fixed-rate bond weighted average quality rating of the maturity. Fund shares are not insured, market (including government and securities in the portfolio as and their value and yield will vary corporate securities, mortgage assigned by Nationally Recognized with market conditions. pass-through securities and Statistical Rating Organizations based asset-backed securities), is compiled on assessment of the credit quality of by Lehman Brothers, a global the individual securities. investment bank. 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. </Table> 4 AIM V.I. BASIC BALANCED FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate As a shareholder of the Fund, you invested, to estimate the expenses the actual ending account balance or incur ongoing costs, including that you paid over the period. Simply expenses you paid for the period. You management fees; distribution and/or divide your account value by $1,000 may use this information to compare service fees (12b-1); and other Fund (for example, an $8,600 account value the ongoing costs of investing in the expenses. This example is intended to divided by $1,000 = 8.6), then Fund and other funds. To do so, help you understand your ongoing costs multiply the result by the number in compare this 5% hypothetical example (in dollars) of investing in the Fund the table under the heading entitled with the 5% hypothetical examples that and to compare these costs with "Actual Expenses Paid During Period" appear in the shareholder reports of ongoing costs of investing in other to estimate the expenses you paid on the other funds. mutual funds. The example is based on your account during this period. an investment of $1,000 invested at Please note that the expenses shown the beginning of the period and held HYPOTHETICAL EXAMPLE FOR COMPARISON in the table are meant to highlight for the entire period January 1, 2005, PURPOSES your ongoing costs. Therefore, the through June 30, 2005. The actual and hypothetical information is useful in hypothetical expenses in the examples The table below also provides comparing ongoing costs, and will not below do not represent the effect of information about hypothetical account help you determine the relative total any fees or other expenses assessed in values and hypothetical expenses based costs of owning different funds. connection with a variable product; if on the Fund's actual expense ratio and they did, the expenses shown would be an assumed rate of return of 5% per higher while the ending account values year before expenses, which is not the shown would be lower. Fund's actual return. The Fund's actual cumulative total returns at net ACTUAL EXPENSES asset value after expenses for the six months ended June 30, 2005, appear in The table below provides information the table "Fund vs. Indexes" on the about actual account values and actual first page of management's discussion expenses. of Fund performance. </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 (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $1,000.00 $1,008.50 $4.93 $1,019.89 $4.96 Series II 1,000.00 1,006.70 6.17 1,018.65 6.21 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (0.99% and 1.24% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 0.91% and 1.16% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.91% and 1.16% 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 $4.53 and $5.77 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 $4.56 and $5.81 for Series I and Series II shares, respectively. ===================================================================================================================== </Table> 5 AIM V.I. BASIC BALANCED FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable providing services in accordance with o Overall performance of AIM. The Insurance Funds (the "Board") oversees the terms of the Advisory Agreement. Board considered the overall the management of AIM V.I. Basic performance of AIM in providing Balanced Fund (formerly known as "AIM o The quality of services to be investment advisory and portfolio V.I. Balanced Fund") (the "Fund") and, provided by AIM. The Board reviewed administrative services to the Fund as required by law, determines the credentials and experience of the and concluded that such performance annually whether to approve the officers and employees of AIM who will was satisfactory. continuance of the Fund's advisory provide investment advisory services agreement with A I M Advisors, Inc. to the Fund. In reviewing the o Fees relative to those of clients of ("AIM"). Based upon the recommendation qualifications of AIM to provide AIM with comparable investment of the Investments Committee of the investment advisory services, the strategies. The Board reviewed the Board, which is comprised solely of Board reviewed the qualifications of advisory fee rate for the Fund under independent trustees, at a meeting AIM's investment personnel and the Advisory Agreement. The Board held on June 30, 2005, the Board, considered such issues as AIM's noted that this rate (i) was the same including all of the independent portfolio and product review process, as the initial advisory fee rate for a trustees, approved the continuance of various back office support functions mutual fund advised by AIM with the advisory agreement (the "Advisory provided by AIM and AIM's equity and investment strategies comparable to Agreement") between the Fund and AIM fixed income trading operations. Based those of the Fund; and (ii) was lower for another year, effective July 1, on the review of these and other than the advisory fee rates for two 2005. factors, the Board concluded that the offshore funds for which an AIM quality of services to be provided by affiliate serves as advisor with The Board considered the factors AIM was appropriate and that AIM investment strategies comparable to discussed below in evaluating the currently is providing satisfactory those of the Fund. The Board noted fairness and reasonableness of the services in accordance with the terms that AIM has agreed to waive advisory Advisory Agreement at the meeting on of the Advisory Agreement. fees of the Fund and to limit the June 30, 2005 and as part of the Fund's total operating expenses, as Board's ongoing oversight of the Fund. o The performance of the Fund relative discussed below. Based on this review, In their deliberations, the Board and to comparable funds. The Board the Board concluded that the advisory the independent trustees did not reviewed the performance of the Fund fee rate for the Fund under the identify any particular factor that during the past one, three and five Advisory Agreement was fair and was controlling, and each trustee calendar years against the performance reasonable. attributed different weights to the of funds advised by other advisors various factors. with investment strategies comparable o Fees relative to those of comparable to those of the Fund. The Board noted funds with other advisors. The Board One of the responsibilities of the that the Fund's performance in such reviewed the advisory fee rate for the Senior Officer of the Fund, who is periods was below the median Fund under the Advisory Agreement. The independent of AIM and AIM's performance of such comparable funds. Board compared effective contractual affiliates, is to manage the process The Board noted that AIM has recently advisory fee rates at a common asset by which the Fund's proposed made changes to the Fund's portfolio level and noted that the Fund's rate management fees are negotiated to management team, which appear to be was above the median rate of the funds ensure that they are negotiated in a producing encouraging early results advised by other advisors with manner which is at arm's length and but need more time to be evaluated investment strategies comparable to reasonable. To that end, the Senior before a conclusion can be made that those of the Fund that the Board Officer must either supervise a the changes have addressed the Fund's reviewed. The Board noted that AIM has competitive bidding process or prepare under-performance. Based on this agreed to waive advisory fees of the an independent written evaluation. The review, the Board concluded that no Fund and to limit the Fund's total Senior Officer has recommended an changes should be made to the Fund and operating expenses, as discussed independent written evaluation in lieu that it was not necessary to change below. Based on this review, the Board of a competitive bidding process and, the Fund's portfolio management team concluded that the advisory fee rate upon the direction of the Board, has at this time. for the Fund under the Advisory prepared such an independent written Agreement was fair and reasonable. evaluation. Such written evaluation o The performance of the Fund relative also considered certain of the factors to indices. The Board reviewed the o Expense limitations and fee waivers. discussed below. In addition, as performance of the Fund during the The Board noted that AIM has discussed below, the Senior Officer past one, three and five calendar contractually agreed to waive advisory made certain recommendations to the years against the performance of the fees of the Fund through December 31, Board in connection with such written Lipper Balanced Fund Index. The Board 2009 to the extent necessary so that evaluation. noted that the Fund's performance in the advisory fees payable by the Fund such periods was below the performance do not exceed a specified maximum The discussion below serves as a of such Index. The Board noted that advisory fee rate, which maximum rate summary of the Senior Officer's AIM has recently made changes to the includes breakpoints and is based on independent written evaluation and Fund's portfolio management team, net asset levels. The Board considered recommendations to the Board in which appear to be producing the contractual nature of this fee connection therewith, as well as a encouraging early results but need waiver and noted that it remains in discussion of the material factors and more time to be evaluated before a effect until December 31, 2009. The the conclusions with respect thereto conclusion can be made that the Board also noted that AIM has that formed the basis for the Board's changes have addressed the Fund's contractually agreed to waive fees approval of the Advisory Agreement. under-performance. Based on this and/or limit expenses of the Fund After consideration of all of the review, the Board concluded that no through June 30, 2006 so that total factors below and based on its changes should be made to the Fund and annual operating expenses are limited informed business judgment, the Board that it was not necessary to change to a specified percentage of average determined that the Advisory Agreement the Fund's portfolio management team daily net assets for each class of the is in the best interests of the Fund at this time. Fund. The Board considered the and its shareholders and that the contractual nature of this fee waiver compensation to AIM under the Advisory o Meeting with the Fund's portfolio and noted that it remains in effect Agreement is fair and reasonable and managers and investment personnel. until June 30, 2006. The Board would have been obtained through arm's With respect to the Fund, the Board is considered the effect these fee length negotiations. meeting periodically with such Fund's waivers/expense limitations would have portfolio managers and/or other on the Fund's estimated expenses and o The nature and extent of the investment personnel and believes that concluded that the levels of fee advisory services to be provided by such individuals are competent and waivers/expense limitations for the AIM. The Board reviewed the services able to continue to carry out their Fund were fair and reasonable. to be provided by AIM under the responsibilities under the Advisory Advisory Agreement. Based on such Agreement. review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is (continued) </Table> 6 AIM V.I. BASIC BALANCED FUND <Table> o Breakpoints and economies of scale. o Independent written evaluation and o Historical relationship between the The Board reviewed the structure of recommendations of the Fund's Senior Fund and AIM. In determining whether the Fund's advisory fee under the Officer. The Board noted that, upon to continue the Advisory Agreement for Advisory Agreement, noting that it their direction, the Senior Officer of the Fund, the Board also considered includes one breakpoint. The Board the Fund had prepared an independent the prior relationship between AIM and reviewed the level of the Fund's written evaluation in order to assist the Fund, as well as the Board's advisory fees, and noted that such the Board in determining the knowledge of AIM's operations, and fees, as a percentage of the Fund's reasonableness of the proposed concluded that it was beneficial to net assets, would decrease as net management fees of the AIM Funds, maintain the current relationship, in assets increase because the Advisory including the Fund. The Board noted part, because of such knowledge. The Agreement includes a breakpoint. The that the Senior Officer's written Board also reviewed the general nature Board noted that, due to the Fund's evaluation had been relied upon by the of the non-investment advisory current asset levels and the way in Board in this regard in lieu of a services currently performed by AIM which the advisory fee breakpoints competitive bidding process. In and its affiliates, such as have been structured, the Fund has yet determining whether to continue the administrative, transfer agency and to benefit from the breakpoint. The Advisory Agreement for the Fund, the distribution services, and the fees Board noted that AIM has contractually Board considered the Senior Officer's received by AIM and its affiliates for agreed to waive advisory fees of the written evaluation and the performing such services. In addition Fund through December 31, 2009 to the recommendation made by the Senior to reviewing such services, the extent necessary so that the advisory Officer to the Board that the Board trustees also considered the fees payable by the Fund do not exceed consider implementing a process to organizational structure employed by a specified maximum advisory fee rate, assist them in more closely monitoring AIM and its affiliates to provide which maximum rate includes the performance of the AIM Funds. The those services. Based on the review of breakpoints and is based on net asset Board concluded that it would be these and other factors, the Board levels. The Board concluded that the advisable to implement such a process concluded that AIM and its affiliates Fund's fee levels under the Advisory as soon as reasonably practicable. were qualified to continue to provide Agreement therefore would reflect non-investment advisory services to economies of scale at higher asset o Profitability of AIM and its the Fund, including administrative, levels and that it was not necessary affiliates. The Board reviewed transfer agency and distribution to change the advisory fee breakpoints information concerning the services, and that AIM and its in the Fund's advisory fee schedule. profitability of AIM's (and its affiliates currently are providing affiliates') investment advisory and satisfactory non-investment advisory o Investments in affiliated money other activities and its financial services. market funds. The Board also took into condition. The Board considered the account the fact that uninvested cash overall profitability of AIM, as well o Other factors and current trends. In and cash collateral from securities as the profitability of AIM in determining whether to continue the lending arrangements (collectively, connection with managing the Fund. The Advisory Agreement for the Fund, the "cash balances") of the Fund may be Board noted that AIM's operations Board considered the fact that AIM, invested in money market funds advised remain profitable, although increased along with others in the mutual fund by AIM pursuant to the terms of an SEC expenses in recent years have reduced industry, is subject to regulatory exemptive order. The Board found that AIM's profitability. Based on the inquiries and litigation related to a the Fund may realize certain benefits review of the profitability of AIM's wide range of issues. The Board also upon investing cash balances in AIM and its affiliates' investment considered the governance and advised money market funds, including advisory and other activities and its compliance reforms being undertaken by a higher net return, increased financial condition, the Board AIM and its affiliates, including liquidity, increased diversification concluded that the compensation to be maintaining an internal controls or decreased transaction costs. The paid by the Fund to AIM under its committee and retaining an independent Board also found that the Fund will Advisory Agreement was not excessive. compliance consultant, and the fact not receive reduced services if it that AIM has undertaken to cause the invests its cash balances in such o Benefits of soft dollars to AIM. The Fund to operate in accordance with money market funds. The Board noted Board considered the benefits realized certain governance policies and that, to the extent the Fund invests by AIM as a result of brokerage practices. The Board concluded that in affiliated money market funds, AIM transactions executed through "soft these actions indicated a good faith has voluntarily agreed to waive a dollar" arrangements. Under these effort on the part of AIM to adhere to portion of the advisory fees it arrangements, brokerage commissions the highest ethical standards, and receives from the Fund attributable to paid by the Fund and/or other funds determined that the current regulatory such investment. The Board further advised by AIM are used to pay for and litigation environment to which determined that the proposed research and execution services. This AIM is subject should not prevent the securities lending program and related research is used by AIM in making Board from continuing the Advisory procedures with respect to the lending investment decisions for the Fund. The Agreement for the Fund. Fund is in the best interests of the Board concluded that such arrangements lending Fund and its respective were appropriate. shareholders. The Board therefore concluded that the investment of cash o AIM's financial soundness in light collateral received in connection with of the Fund's needs. The Board the securities lending program in the considered whether AIM is financially money market funds according to the sound and has the resources necessary procedures is in the best interests of to perform its obligations under the the lending Fund and its respective Advisory Agreement, and concluded that shareholders. AIM has the financial resources necessary to fulfill its obligations under the Advisory Agreement. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------------- STOCKS & OTHER EQUITY INTERESTS-64.98% ADVERTISING-2.98% Interpublic Group of Cos., Inc. (The)(a) 91,500 $ 1,114,470 - --------------------------------------------------------------------------- Omnicom Group Inc. 22,700 1,812,822 =========================================================================== 2,927,292 =========================================================================== AEROSPACE & DEFENSE-0.99% Honeywell International Inc. 26,600 974,358 =========================================================================== ALUMINUM-0.80% Alcoa Inc. 30,200 789,126 =========================================================================== APPAREL RETAIL-0.97% Gap, Inc. (The) 48,400 955,900 =========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.26% Bank of New York Co., Inc. (The) 43,100 1,240,418 =========================================================================== BUILDING PRODUCTS-1.99% American Standard Cos. Inc. 17,300 725,216 - --------------------------------------------------------------------------- Masco Corp. 38,800 1,232,288 =========================================================================== 1,957,504 =========================================================================== COMMUNICATIONS EQUIPMENT-0.34% Motorola, Inc. 18,200 332,332 =========================================================================== CONSUMER ELECTRONICS-1.85% Koninklijke (Royal) Philips Electronics N.V.-New York Shares (Netherlands) 31,400 790,966 - --------------------------------------------------------------------------- Sony Corp.-ADR (Japan) 29,800 1,026,312 =========================================================================== 1,817,278 =========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.86% Ceridian Corp.(a) 49,600 966,208 - --------------------------------------------------------------------------- First Data Corp. 46,000 1,846,440 =========================================================================== 2,812,648 =========================================================================== DIVERSIFIED BANKS-0.02% HSBC Capital Funding L.P. (United Kingdom), 4.61% Pfd. 4.61% (Acquired 11/05/03; Cost $23,313)(b)(c) 25,000 24,455 =========================================================================== DIVERSIFIED CAPITAL MARKETS-0.12% UBS Preferred Funding Trust I, 8.62% Pfd.(b) 100,000 119,755 =========================================================================== DIVERSIFIED CHEMICALS-0.41% Dow Chemical Co. (The) 9,000 400,770 =========================================================================== </Table> <Table> MARKET SHARES VALUE - --------------------------------------------------------------------------- <Caption> DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-1.63% Cendant Corp. 71,700 $ 1,603,929 =========================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.77% Waste Management, Inc. 61,400 1,740,076 =========================================================================== FOOD RETAIL-2.18% Kroger Co. (The)(a) 65,100 1,238,853 - --------------------------------------------------------------------------- Safeway Inc. 40,000 903,600 =========================================================================== 2,142,453 =========================================================================== GENERAL MERCHANDISE STORES-1.56% Target Corp. 28,100 1,528,921 =========================================================================== HEALTH CARE DISTRIBUTORS-4.30% Cardinal Health, Inc. 43,900 2,527,762 - --------------------------------------------------------------------------- McKesson Corp. 37,800 1,693,062 =========================================================================== 4,220,824 =========================================================================== HEALTH CARE EQUIPMENT-1.01% Baxter International Inc. 26,700 990,570 =========================================================================== HEALTH CARE FACILITIES-1.56% HCA Inc. 27,100 1,535,757 =========================================================================== INDUSTRIAL CONGLOMERATES-3.83% General Electric Co. 40,100 1,389,465 - --------------------------------------------------------------------------- Tyco International Ltd. (Bermuda) 81,300 2,373,960 =========================================================================== 3,763,425 =========================================================================== INDUSTRIAL MACHINERY-1.20% Illinois Tool Works Inc. 14,800 1,179,264 =========================================================================== INTEGRATED OIL & GAS-0.10% Shell Frontier Oil & Gas Inc.-Series B, 3.96% Floating Rate Pfd(b)(d) 1 100,000 =========================================================================== INVESTMENT BANKING & BROKERAGE-2.50% Merrill Lynch & Co., Inc. 20,400 1,122,204 - --------------------------------------------------------------------------- Morgan Stanley 25,500 1,337,985 =========================================================================== 2,460,189 =========================================================================== LIFE & HEALTH INSURANCE-0.11% Aegon N.V. (Netherlands), 6.38% Pfd. 4,100 103,607 =========================================================================== MANAGED HEALTH CARE-2.20% WellPoint, Inc.(a) 31,000 2,158,840 =========================================================================== MOVIES & ENTERTAINMENT-1.49% Walt Disney Co. (The) 58,100 1,462,958 =========================================================================== </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------------- MULTI-LINE INSURANCE-1.42% Hartford Financial Services Group, Inc. (The) 18,700 $ 1,398,386 =========================================================================== OIL & GAS DRILLING-1.45% Transocean Inc. (Cayman Islands)(a) 26,300 1,419,411 =========================================================================== OIL & GAS EQUIPMENT & SERVICES-3.68% Halliburton Co. 46,200 2,209,284 - --------------------------------------------------------------------------- Schlumberger Ltd. (Netherlands) 18,500 1,404,890 =========================================================================== 3,614,174 =========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-5.41% ABN AMRO XVII Custodial Receipts-Series MM17, 3.80% Floating Rate Pfd. (Acquired 05/11/05; Cost $301,781)(b)(c)(e) 3 300,000 - --------------------------------------------------------------------------- ABN AMRO XVIII Custodial Receipts-Series MM18, 2.79% Floating Rate Pfd. (Acquired 09/10/04; Cost $100,000)(c)(e)(f) 1 100,000 - --------------------------------------------------------------------------- Citigroup Inc. 45,300 2,094,219 - --------------------------------------------------------------------------- JPMorgan Chase & Co. 51,868 1,831,978 - --------------------------------------------------------------------------- Zurich RegCaPS Funding Trust III, 3.73% Floating Rate Pfd. (Acquired 06/03/04-09/28/04; Cost $488,940)(b)(c)(d) 500 495,427 - --------------------------------------------------------------------------- Zurich RegCaPS Funding Trust IV, 3.80% Floating Rate Pfd. (Acquired 01/19/05; Cost $244,120)(b)(c)(d) 250 244,173 - --------------------------------------------------------------------------- Zurich RegCaPS Funding Trust VI, 3.98% Floating Rate Pfd. (Acquired 01/19/05; Cost $242,867)(b)(c)(d) 250 242,843 =========================================================================== 5,308,640 =========================================================================== PACKAGED FOODS & MEATS-1.97% Kraft Foods Inc.-Class A 28,700 912,947 - --------------------------------------------------------------------------- Unilever N.V. (Netherlands)(g) 15,750 1,020,081 =========================================================================== 1,933,028 =========================================================================== PHARMACEUTICALS-5.00% Pfizer Inc. 54,000 1,489,320 - --------------------------------------------------------------------------- Sanofi-Aventis (France)(g) 26,361 2,158,996 - --------------------------------------------------------------------------- Wyeth 28,300 1,259,350 =========================================================================== 4,907,666 =========================================================================== PROPERTY & CASUALTY INSURANCE-1.52% ACE Ltd. (Cayman Islands) 33,200 1,489,020 =========================================================================== SYSTEMS SOFTWARE-1.92% Computer Associates International, Inc. 68,600 1,885,128 =========================================================================== THRIFTS & MORTGAGE FINANCE-2.58% Fannie Mae 28,300 1,652,720 - --------------------------------------------------------------------------- Fannie Mae-Series J, 4.72% Floating Rate Pfd(h) 2,950 146,025 - --------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - --------------------------------------------------------------------------- <Caption> THRIFTS & MORTGAGE FINANCE-(CONTINUED) Fannie Mae-Series K, 5.40% Floating Rate Pfd(h) 2,950 $ 147,205 - --------------------------------------------------------------------------- Freddie Mac 9,000 587,070 =========================================================================== 2,533,020 =========================================================================== Total Stocks & Other Equity Interests (Cost $57,141,625) 63,831,122 =========================================================================== <Caption> PRINCIPAL AMOUNT BONDS & NOTES-18.00% ADVERTISING-0.07% Interpublic Group of Cos., Inc. (The), Sr. Unsec. Notes, 7.88%, 10/15/05(b) $ 64,000 64,272 =========================================================================== AUTOMOBILE MANUFACTURERS-0.10% DaimlerChrysler N.A. Holding Corp., Unsec. Gtd. Unsub. Global Notes, 7.25%, 01/18/06(b) 100,000 101,628 =========================================================================== BROADCASTING & CABLE TV-1.86% Comcast Corp., Sr. Notes, 7.25%, 08/01/05(b) 130,000 130,333 - --------------------------------------------------------------------------- 8.30%, 05/15/06(b) 100,000 103,456 - --------------------------------------------------------------------------- Sr. Unsec. Deb., 8.88%, 09/15/05(b) 400,000 403,808 - --------------------------------------------------------------------------- 9.50%, 08/01/13(b) 140,000 147,281 - --------------------------------------------------------------------------- Sr. Unsec. Notes, 6.88%, 02/15/06(b) 250,000 254,272 - --------------------------------------------------------------------------- 8.00%, 08/01/05(b) 50,000 50,153 - --------------------------------------------------------------------------- 8.38%, 11/01/05(b) 76,000 77,460 - --------------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 10.50%, 06/15/06(b) 185,000 196,716 - --------------------------------------------------------------------------- Cox Radio, Inc., Sr. Unsec. Notes, 6.63%, 02/15/06(b) 50,000 50,795 - --------------------------------------------------------------------------- Time Warner Cos., Inc., Notes, 8.18%, 08/15/07(b) 150,000 161,356 - --------------------------------------------------------------------------- Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(b) 50,000 60,289 - --------------------------------------------------------------------------- Time Warner Entertainment Co. L.P., Sr. Unsec. Deb., 8.38%, 03/15/23(b) 150,000 191,524 =========================================================================== 1,827,443 =========================================================================== BUILDING PRODUCTS-0.10% Hanson Overseas B.V. (Netherlands), Sr. Gtd. Yankee Notes, 6.75%, 09/15/05(b) 100,000 100,525 =========================================================================== CONSUMER FINANCE-2.87% Capital One Bank, Sr. Medium Term Global Notes, 6.88%, 02/01/06(b) 200,000 203,432 - --------------------------------------------------------------------------- Capital One Capital I, Sub. Floating Rate Trust Pfd. Bonds, 4.76%, 02/01/27 (Acquired 09/16/04; Cost $229,365)(b)(c)(d) 225,000 225,754 - --------------------------------------------------------------------------- Capital One Financial Corp., Sr. Unsec. Notes, 7.25%, 05/01/06(b) 275,000 282,032 - --------------------------------------------------------------------------- Unsec. Notes, 7.13%, 08/01/08(b) 30,000 32,321 - --------------------------------------------------------------------------- </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- CONSUMER FINANCE-(CONTINUED) Ford Motor Credit Co., Global Notes, 7.60%, 08/01/05(b) $ 190,000 $ 190,317 - --------------------------------------------------------------------------- Notes, 6.50%, 02/15/06(b) 125,000 125,694 - --------------------------------------------------------------------------- Unsec. Global Notes, 6.50%, 01/25/07(b) 150,000 152,004 - --------------------------------------------------------------------------- 6.88%, 02/01/06(b) 455,000 458,836 - --------------------------------------------------------------------------- Unsec. Notes, 6.13%, 01/09/06(b) 55,000 55,251 - --------------------------------------------------------------------------- General Motors Acceptance Corp., Floating Rate Medium Term Notes, 4.15%, 05/18/06(b)(d) 120,000 119,192 - --------------------------------------------------------------------------- Global Notes, 7.50%, 07/15/05(b) 370,000(i) 370,400 - --------------------------------------------------------------------------- Sr. Unsec. Gtd. Medium Term Notes, 2.00%, 07/15/05(b) 45,000 44,986 - --------------------------------------------------------------------------- Unsec. Unsub. Global Notes, 6.75%, 01/15/06(b) 510,000(i) 514,279 - --------------------------------------------------------------------------- MBNA America Bank N.A., Sr. Medium Term Global Notes, 7.75%, 09/15/05(b) 40,000 40,305 =========================================================================== 2,814,803 =========================================================================== DIVERSIFIED BANKS-1.26% AB Spintab (Sweden), Bonds, 7.50% (Acquired 02/12/04; Cost $167,403)(b)(c)(j) 150,000 155,518 - --------------------------------------------------------------------------- American Savings Bank, Notes, 6.63%, 02/15/06 (Acquired 03/05/03; Cost $27,726)(b)(c) 25,000 25,307 - --------------------------------------------------------------------------- Banco Nacional de Comercio Exterior S.N.C. (Mexico), Notes, 3.88%, 01/21/09 (Acquired 02/25/04; Cost $44,269)(b)(c) 45,000 43,394 - --------------------------------------------------------------------------- Bangkok Bank PCL (Hong Kong), Unsec. Sub. Notes, 9.03%, 03/15/29 (Acquired 04/22/05; Cost $200,323)(b)(c) 160,000 207,714 - --------------------------------------------------------------------------- BankBoston Capital Trust IV, Gtd. Floating Rate Trust Pfd. Notes, 3.97%, 06/08/28(b)(d) 50,000 48,323 - --------------------------------------------------------------------------- Centura Capital Trust I, Gtd. Trust Pfd. Notes, 8.85%, 06/01/27 (Acquired 05/22/03; Cost $63,272)(b)(c) 50,000 55,453 - --------------------------------------------------------------------------- Corporacion Andina de Fomento (Venezuela), Unsec. Global Notes, 6.88%, 03/15/12(b) 75,000 85,592 - --------------------------------------------------------------------------- Credit Suisse First Boston, Inc., Sub. Medium Term Notes, 7.75%, 05/15/06 (Acquired 04/06/05; Cost $15,593)(b)(c) 15,000 15,459 - --------------------------------------------------------------------------- Danske Bank A/S (Denmark), First Tier Bonds, 5.91% (Acquired 06/07/04; Cost $60,000)(b)(c)(j) 60,000 64,300 - --------------------------------------------------------------------------- Lloyds Bank PLC (United Kingdom)-Series 1, Unsec. Sub. Floating Rate Euro Notes, 3.88%(b)(j)(k) 130,000 115,182 - --------------------------------------------------------------------------- National Bank of Canada (Canada), Floating Rate Euro Deb., 3.31%, 08/29/87(b)(k) 60,000 48,574 - --------------------------------------------------------------------------- National Westminster Bank PLC (United Kingdom)- Series B, Unsec. Sub. Floating Rate Euro Notes, 3.31%(b)(j)(k) 100,000 90,105 - --------------------------------------------------------------------------- NBD Bank N.A. Michigan, Unsec. Sub. Deb., 8.25%, 11/01/24(b) 50,000 70,095 - --------------------------------------------------------------------------- RBS Capital Trust III, Sub. Trust Pfd. Global Notes, 5.51%(b)(j) 60,000 62,272 - --------------------------------------------------------------------------- </Table> <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- DIVERSIFIED BANKS-(CONTINUED) Wells Fargo & Co., Sr. Unsec. Global Notes, 3.75%, 10/15/07(b) $ 150,000 $ 149,023 =========================================================================== 1,236,311 =========================================================================== DIVERSIFIED METALS & MINING-0.15% Falconbridge Ltd. (Canada), Unsec. Yankee Deb., 7.00%, 07/15/05(b) 150,000 150,105 =========================================================================== ELECTRIC UTILITIES-0.52% AmerenEnergy Generating Co.-Series C, Sr. Unsec. Global Notes, 7.75%, 11/01/05(b) 15,000 15,185 - --------------------------------------------------------------------------- Consolidated Edison Co. of New York-Series A, Unsec. Deb., 7.75%, 06/01/26(b) 45,000 47,715 - --------------------------------------------------------------------------- MidAmerican Energy Holdings Co., Sr. Unsec. Notes, 7.23%, 09/15/05(b) 345,000 347,353 - --------------------------------------------------------------------------- Yorkshire Power Finance (Cayman Islands)-Series B, Sr. Unsec. Gtd. Unsub. Global Notes, 6.50%, 02/25/08(b) 100,000 103,861 =========================================================================== 514,114 =========================================================================== FOOD RETAIL-0.20% Safeway Inc., Sr. Unsec. Notes, 2.50%, 11/01/05(b) 75,000 74,694 - --------------------------------------------------------------------------- 6.15%, 03/01/06(b) 120,000 121,588 =========================================================================== 196,282 =========================================================================== GAS UTILITIES-0.20% CenterPoint Energy Resources Corp., Unsec. Deb., 6.50%, 02/01/08(b) 20,000 20,964 - --------------------------------------------------------------------------- Columbia Energy Group-Series C, Notes, 6.80%, 11/28/05(b) 175,000 176,704 =========================================================================== 197,668 =========================================================================== GOLD-0.05% Newmont Mining Corp., Notes, 5.88%, 04/01/35(b) 50,000 51,331 =========================================================================== HOMEBUILDING-0.65% D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%, 08/15/11(b) 100,000 112,250 - --------------------------------------------------------------------------- Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%, 10/24/05(b) 125,000 126,175 - --------------------------------------------------------------------------- Ryland Group, Inc. (The), Sr. Unsec. Unsub. Notes, 8.00%, 08/15/06(b) 330,000 342,636 - --------------------------------------------------------------------------- 9.75%, 09/01/10(b) 50,000 52,868 =========================================================================== 633,929 =========================================================================== HOUSEWARES & SPECIALTIES-0.15% American Greetings Corp., Unsec. Putable Deb., 6.10%, 08/01/08(b) 140,000 144,305 =========================================================================== INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-0.18% PSEG Power LLC, Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/06(b) 175,000 178,694 =========================================================================== </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES-0.04% URC Holdings Corp., Sr. Notes, 7.88%, 06/30/06 (Acquired 10/08/03; Cost $45,291)(b)(c) $ 40,000 $ 41,348 =========================================================================== INTEGRATED OIL & GAS-0.54% Amerada Hess Corp., Unsec. Notes, 7.13%, 03/15/33(b) 80,000 95,386 - --------------------------------------------------------------------------- ConocoPhillips, Unsec. Deb., 7.13%, 03/15/28(b) 65,000 70,446 - --------------------------------------------------------------------------- Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%, 08/15/28(b) 325,000 365,219 =========================================================================== 531,051 =========================================================================== INTEGRATED TELECOMMUNICATION SERVICES-1.34% CenturyTel, Inc.-Series C, Sr. Unsec. Notes, 6.55%, 12/01/05(b) 200,000 202,108 - --------------------------------------------------------------------------- France Telecom S.A. (France), Sr. Unsec. Global Notes, 8.50%, 03/01/31(b) 40,000 56,658 - --------------------------------------------------------------------------- Southwestern Bell Telephone Co.-Series B, Medium Term Notes, 6.25%, 07/07/05(b) 50,000 50,028 - --------------------------------------------------------------------------- Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 01/30/06(b) 250,000 254,152 - --------------------------------------------------------------------------- Sprint Corp., Deb., 9.25%, 04/15/22(b) 110,000 150,429 - --------------------------------------------------------------------------- TELUS Corp. (Canada), Yankee Notes, 7.50%, 06/01/07(b) 100,000 105,627 - --------------------------------------------------------------------------- Verizon California Inc.-Series F, Unsec. Deb., 6.75%, 05/15/27(b) 60,000 65,514 - --------------------------------------------------------------------------- Verizon Communications Inc., Unsec. Deb., 8.75%, 11/01/21(b) 65,000 87,611 - --------------------------------------------------------------------------- Unsec. Gtd. Deb., 6.94%, 04/15/28(b) 100,000 116,527 - --------------------------------------------------------------------------- Verizon Florida Inc.-Series F, Sr. Unsec. Deb., 6.13%, 01/15/13(b) 85,000 91,231 - --------------------------------------------------------------------------- Verizon Maryland Inc.-Series A, Unsec. Global Notes, 6.13%, 03/01/12(b) 65,000 69,786 - --------------------------------------------------------------------------- Verizon Virginia Inc.-Series A, Unsec. Global Deb., 4.63%, 03/15/13(b) 70,000 69,236 =========================================================================== 1,318,907 =========================================================================== INVESTMENT BANKING & BROKERAGE-0.16% Goldman Sachs Capital I, Gtd. Sub. Trust Pfd. Bonds, 6.35%, 02/15/34(b) 50,000 54,678 - --------------------------------------------------------------------------- Lehman Brothers Inc., Sr. Unsec. Sub. Notes, 7.63%, 06/01/06(b) 100,000 103,156 =========================================================================== 157,834 =========================================================================== LIFE & HEALTH INSURANCE-0.24% Prudential Holdings, LLC-Series B, Bonds, 7.25%, 12/18/23 (Acquired 01/22/04; Cost $207,149)(b)(c)(l) 175,000 214,629 - --------------------------------------------------------------------------- ReliaStar Financial Corp., Unsec. Notes, 8.00%, 10/30/06(b) 20,000 21,051 =========================================================================== 235,680 =========================================================================== MOVIES & ENTERTAINMENT-0.11% Viacom Inc., Sr. Unsec. Gtd. Global Notes, 6.40%, 01/30/06(b) 110,000 111,478 =========================================================================== </Table> <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- MULTI-UTILITIES-0.20% Dominion Resources, Inc.-Series B, Sr. Unsec. Unsub. Global Notes, 7.63%, 07/15/05(b) $ 65,000 $ 65,069 - --------------------------------------------------------------------------- Sempra Energy, Sr. Unsec. Unsub. Notes, 6.95%, 12/01/05(b) 125,000 126,540 =========================================================================== 191,609 =========================================================================== MUNICIPALITIES-1.50% Chicago (City of), Illinois O'Hare International Airport; Refunding Taxable General Airport Third Lien Series 2004 E RB, 3.88%, 01/01/08(b)(l) 250,000 250,000 - --------------------------------------------------------------------------- Dallas (City of), Texas; Taxable Pension Limited Tax Series 2005 A GO, 4.61%, 02/15/14(b) 50,000 50,875 - --------------------------------------------------------------------------- 5.20%, 02/15/35(b) 100,000 105,974 - --------------------------------------------------------------------------- Detroit (City of), Michigan; Taxable Capital Improvement Limited Tax Series 2005 A-1 GO, 4.96%, 04/01/20(b)(l) 65,000 65,202 - --------------------------------------------------------------------------- Detroit (City of), Michigan; Taxable Series 2005 COP, 4.95%, 06/15/25(b)(l) 80,000 81,500 - --------------------------------------------------------------------------- Indianapolis (City of), Indiana Local Public Improvement Bond Bank; Taxable Series 2005 A RB, 4.87%, 07/15/16(b) 50,000 51,187 - --------------------------------------------------------------------------- 5.22%, 07/15/20(b) 50,000 51,512 - --------------------------------------------------------------------------- 5.28%, 01/15/22(b) 25,000 25,750 - --------------------------------------------------------------------------- Industry (City of), California Urban Development Agency (Project 3); Taxable Allocation Series 2003 RB, 6.10%, 05/01/24(b)(l) 125,000 131,562 - --------------------------------------------------------------------------- Michigan (State of) Municipal Bond Authority (City of Detroit School District); Series 2005 RB, 5.00%, 06/01/15(b)(l) 50,000 55,563 - --------------------------------------------------------------------------- New Hampshire (State of); Taxable Unlimited Tax Series 2005 B GO, 4.65%, 05/15/15(b) 100,000 102,750 - --------------------------------------------------------------------------- Oregon (State of) Community College Districts; Taxable Pension Limited Tax Series 2005 GO, 4.64%, 06/30/20(b)(l) 55,000 55,013 - --------------------------------------------------------------------------- 4.83%, 06/30/28(b)(l) 100,000 100,006 - --------------------------------------------------------------------------- Phoenix (City of), Arizona Civic Improvement Corp.; Taxable Rental Car Facility Series 2004 RB, 3.69%, 07/01/07(b)(l) 50,000 49,716 - --------------------------------------------------------------------------- 4.21%, 07/01/08(b)(l) 75,000 75,251 - --------------------------------------------------------------------------- Sacramento (County of), California; Taxable Pension Funding CARS Series 2004 C-1 RB, 6.80%, 07/10/30(b)(l)(m) 225,000 216,212 =========================================================================== 1,468,073 =========================================================================== OIL & GAS EXPLORATION & PRODUCTION-0.34% Pemex Project Funding Master Trust, Unsec. Gtd. Unsub. Global Notes, 8.63%, 02/01/22(b) 175,000 213,518 - --------------------------------------------------------------------------- </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED) Unsec. Gtd. Unsub. Notes, 5.75%, 12/15/15 (Acquired 06/27/05; Cost $124,121)(b)(c) $ 125,000 $ 124,013 =========================================================================== 337,531 =========================================================================== OIL & GAS REFINING & MARKETING-0.08% Enterprise Products Operating L.P., Sr. Notes, 4.95%, 06/01/10(b) 80,000 80,574 =========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-1.57% General Electric Capital Corp.-Series A, Medium Term Global Notes, 2.85%, 01/30/06(b) 20,000 19,901 - --------------------------------------------------------------------------- ING Capital Funding Trust III, Gtd. Trust Pfd. Global Bonds, 8.44%(b)(j) 100,000 118,448 - --------------------------------------------------------------------------- Mizuho JGB Investment LLC-Series A, Bonds, 9.87% (Acquired 06/16/04-06/14/05; Cost $243,609)(b)(c)(j) 215,000 243,524 - --------------------------------------------------------------------------- NiSource Finance Corp., Sr. Unsec. Gtd. Notes, 7.63%, 11/15/05(b) 120,000 121,529 - --------------------------------------------------------------------------- Pemex Finance Ltd. (Cayman Islands), Sr. Unsec. Global Notes, 8.02%, 05/15/07(b) 50,000 51,895 - --------------------------------------------------------------------------- Series 1999-2, Class A1, Global Bonds, 9.69%, 08/15/09(b) 310,250 341,973 - --------------------------------------------------------------------------- PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06 (Acquired 03/23/04; Cost $53,704)(b)(c) 52,981 52,806 - --------------------------------------------------------------------------- Premium Asset Trust-Series 2004-04, Sr. Notes, 4.13%, 03/12/09 (Acquired 03/04/04; Cost $199,866)(b)(c) 200,000 194,248 - --------------------------------------------------------------------------- Regional Diversified Funding (Cayman Islands), Sr. Notes, 9.25%, 03/15/30 (Acquired 09/22/04; Cost $169,578)(b)(c) 143,333 178,186 - --------------------------------------------------------------------------- Toll Road Investors Partnership II, L.P.-Series A, Bonds, 5.49%, 02/15/45 (Acquired 03/11/05-05/03/05; Cost $164,386)(c)(f)(l)(n) 1,400,000 171,063 - --------------------------------------------------------------------------- UFJ Finance Aruba AEC (Aruba), Gtd. Sub. Second Tier Euro Bonds, 8.75%(b)(j) 40,000 44,270 =========================================================================== 1,537,843 =========================================================================== PROPERTY & CASUALTY INSURANCE-0.92% Executive Risk Capital Trust-Series B, Gtd. Trust Pfd. Bonds, 8.68%, 02/01/27(b) 125,000 137,323 - --------------------------------------------------------------------------- First American Capital Trust I, Gtd. Trust Pfd. Notes, 8.50%, 04/15/12(b) 220,000 246,913 - --------------------------------------------------------------------------- Oil Casualty Insurance Ltd. (Bermuda), Unsec. Sub. Deb., 8.00%, 09/15/34 (Acquired 04/29/05-06/09/05; Cost $213,696)(b)(c) 200,000 218,474 - --------------------------------------------------------------------------- Oil Insurance Ltd. (Bermuda), Unsec. Sub. Deb., 5.15%, 08/15/33 (Acquired 03/23/04-06/09/05; Cost $300,084)(b)(c) 295,000 300,062 =========================================================================== 902,772 =========================================================================== </Table> <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- REAL ESTATE-0.23% Health Care Property Investors, Inc., Notes, 5.63%, 05/01/17(b) $ 60,000 $ 61,286 - --------------------------------------------------------------------------- Sr. Unsec. Notes, 7.07%, 06/08/15(b) 90,000 102,332 - --------------------------------------------------------------------------- Health Care REIT, Inc., Sr. Notes, 5.88%, 05/15/15(b) 65,000 66,306 =========================================================================== 229,924 =========================================================================== REAL ESTATE MANAGEMENT & DEVELOPMENT-0.05% Southern Investments UK PLC (United Kingdom), Sr. Unsec. Unsub. Yankee Notes, 6.80%, 12/01/06(b) 50,000 51,653 =========================================================================== REGIONAL BANKS-0.79% Cullen/Frost Capital Trust I, Unsec. Sub. Floating Rate Notes, 4.88%, 03/01/34(b)(d) 200,000 207,186 - --------------------------------------------------------------------------- Greater Bay Bancorp-Series B, Sr. Notes, 5.25%, 03/31/08(b) 300,000 305,685 - --------------------------------------------------------------------------- PNC Capital Trust C, Gtd. Floating Rate Trust Pfd. Bonds, 3.90%, 06/01/28(b)(d) 100,000 95,364 - --------------------------------------------------------------------------- Popular North America, Inc., Gtd. Notes, 4.70%, 06/30/09(b) 100,000 101,834 - --------------------------------------------------------------------------- TCF Financial Corp., Sub. Notes, 5.00%, 06/15/14(b) 60,000 60,494 =========================================================================== 770,563 =========================================================================== RESTAURANTS-0.04% McDonald's Corp., Unsec. Deb., 7.05%, 11/15/25(b) 40,000 41,749 =========================================================================== SOVEREIGN DEBT-0.66% Japan Bank for International Cooperation (Japan), Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05(b) 125,000 125,851 - --------------------------------------------------------------------------- Russian Federation (Russia), Unsec. Unsub. Bonds, 7.50%, 03/31/30 (Acquired 05/18/04; Cost $63,044)(b)(c)(o) 70,000 78,063 - --------------------------------------------------------------------------- 8.75%, 07/24/05 (Acquired 09/10/04-01/21/05; Cost $155,330)(b)(c) 150,000 150,420 - --------------------------------------------------------------------------- Russian Federation (Russia)-REGS, Unsec. Unsub. Euro Bonds, 8.75%, 07/24/05 (Acquired 05/14/04; Cost $105,650)(b)(c) 100,000 100,370 - --------------------------------------------------------------------------- 10.00%, 06/26/07 (Acquired 05/14/04-05/18/04; Cost $90,094)(b)(c) 80,000 88,264 - --------------------------------------------------------------------------- United Mexican States (Mexico)-Series A, Medium Term Global Notes, 6.63%, 03/03/15(b) 35,000 38,308 - --------------------------------------------------------------------------- 7.50%, 04/08/33(b) 60,000 68,706 =========================================================================== 649,982 =========================================================================== THRIFTS & MORTGAGE FINANCE-0.07% Greenpoint Capital Trust I, Gtd. Sub. Trust Pfd. Notes, 9.10%, 06/01/27(b) 60,000 66,848 =========================================================================== TOBACCO-0.25% Altria Group, Inc., Unsec. Global Notes, 7.00%, 07/15/05(b) 225,000 225,290 - --------------------------------------------------------------------------- Unsec. Notes, 6.38%, 02/01/06(b) 15,000 15,200 =========================================================================== 240,490 =========================================================================== </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS-0.18% Western Power Distribution Holdings Ltd. (United Kingdom), Unsec. Unsub. Notes, 7.38%, 12/15/28 (Acquired 01/25/05-03/03/05; Cost $171,254)(b)(c) $ 150,000 $ 172,862 =========================================================================== TRUCKING-0.11% Roadway Corp., Sr. Sec. Gtd. Global Notes, 8.25%, 12/01/08(b) 100,000 109,741 =========================================================================== WIRELESS TELECOMMUNICATION SERVICES-0.22% TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.63%, 07/15/10(b) 200,000 210,980 =========================================================================== Total Bonds & Notes (Cost $17,546,076) 17,670,902 =========================================================================== U.S. MORTGAGE-BACKED SECURITIES-10.13% FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-2.74% Pass Through Ctfs., 7.00%, 06/01/15 to 06/01/32(b) 99,663 104,939 - --------------------------------------------------------------------------- 6.00%, 04/01/16 to 11/01/33(b) 721,405 741,670 - --------------------------------------------------------------------------- 5.50%, 10/01/18(b) 262,736 269,891 - --------------------------------------------------------------------------- 7.50%, 11/01/30 to 05/01/31(b) 46,596 49,908 - --------------------------------------------------------------------------- 6.50%, 05/01/32 to 08/01/32(b) 54,509 56,531 - --------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.00%, 07/01/20(b)(p) 548,880 555,055 - --------------------------------------------------------------------------- 5.50%, 07/01/35(b)(p) 900,000 912,656 =========================================================================== 2,690,650 =========================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-6.04% Pass Through Ctfs., 6.50%, 04/01/14 to 09/01/34(b) 1,135,123 1,177,039 - --------------------------------------------------------------------------- 7.50%, 11/01/15(b) 6,546 6,934 - --------------------------------------------------------------------------- 7.00%, 02/01/16 to 09/01/32(b) 124,670 131,299 - --------------------------------------------------------------------------- 6.00%, 01/01/17 to 05/01/17(b) 124,322 128,624 - --------------------------------------------------------------------------- 5.00%, 04/01/18(b) 335,287 339,411 - --------------------------------------------------------------------------- 4.50%, 11/01/18(b) 126,558 126,113 - --------------------------------------------------------------------------- 8.00%, 08/01/21 to 12/01/23(b) 39,507 42,534 - --------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.00%, 07/01/20 to 08/01/35(b)(p) 1,016,270 1,015,235 - --------------------------------------------------------------------------- 5.50%, 07/01/20 to 08/01/35(b)(p) 2,197,542 2,237,276 - --------------------------------------------------------------------------- 6.00%, 07/01/35(b)(p) 709,650 727,613 =========================================================================== 5,932,078 =========================================================================== GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-1.35% Pass Through Ctfs., 7.50%, 06/15/23 to 10/15/31(b) 57,973 62,311 - --------------------------------------------------------------------------- 8.50%, 11/15/24(b) 135,440 149,560 - --------------------------------------------------------------------------- 8.00%, 08/15/25(b) 19,833 21,468 - --------------------------------------------------------------------------- 6.50%, 03/15/29 to 12/15/33(b) 268,630 280,922 - --------------------------------------------------------------------------- </Table> <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-(CONTINUED) 6.00%, 09/15/31 to 05/15/33(b) $ 463,330 $ 478,766 - --------------------------------------------------------------------------- 7.00%, 09/15/31 to 03/15/33(b) 33,310 35,284 - --------------------------------------------------------------------------- 5.50%, 12/15/33 to 02/15/34(b) 294,037 300,686 =========================================================================== 1,328,997 =========================================================================== Total U.S. Mortgage-Backed Securities (Cost $9,941,064) 9,951,725 =========================================================================== U.S. GOVERNMENT AGENCY SECURITIES-9.55% FEDERAL HOME LOAN BANK (FHLB)-8.47% Unsec. Disc. Notes, 2.65%, 07/01/05(q) 8,325,000 8,325,000 =========================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-1.08% Unsec. Floating Rate Global Notes, 4.29%, 02/17/09(b)(r) 350,000 347,445 - --------------------------------------------------------------------------- Unsec. Global Notes, 3.55%, 01/12/07(b) 190,000 188,867 - --------------------------------------------------------------------------- 4.20%, 03/24/08(b) 350,000 350,287 - --------------------------------------------------------------------------- 3.38%, 12/15/08(b) 175,000 171,929 =========================================================================== 1,058,528 =========================================================================== Total U.S. Government Agency Securities (Cost $9,383,309) 9,383,528 =========================================================================== ASSET-BACKED SECURITIES-1.33% AEROSPACE & DEFENSE-0.16% Systems 2001 Asset Trust LLC (Cayman Islands)-Series 2001, Class G, Pass Through Ctfs., 6.66%, 09/15/13 (Acquired 02/09/05; Cost $155,927)(b)(c)(l) 140,494 156,475 =========================================================================== MULTI-SECTOR HOLDINGS-0.10% Longport Funding Ltd. (Cayman Islands)- Series 2005-2A, Class A1J, Floating Rate Bonds, 3.69%, 02/03/40 (Acquired 03/31/05; Cost $100,000)(c)(d)(f) 100,000 100,000 =========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-0.86% Citicorp Lease-Series 1999-1, Class A2, Pass Through Ctfs., 8.04%, 12/15/19 (Acquired 06/01/00-05/20/05; Cost $180,539)(b)(c) 175,000 221,545 - --------------------------------------------------------------------------- Patrons' Legacy 2003-III-Series A, Ctfs., 5.65%, 01/17/17 (Acquired 11/04/04; Cost $512,705)(c)(f) 500,000 519,600 - --------------------------------------------------------------------------- Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 4.19% (Acquired 12/07/04; Cost $100,000)(b)(c)(j)(r) 100,000 99,360 =========================================================================== 840,505 =========================================================================== PROPERTY & CASUALTY INSURANCE-0.11% North Front Pass-Through Trust, Notes, 5.81%, 12/15/24 (Acquired 12/08/04; Cost $100,000)(b)(c) 100,000 104,062 =========================================================================== </Table> AIM V.I. BASIC BALANCED FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- REINSURANCE-0.10% Stingray Pass-Through Trust, Pass Through Ctfs., 5.90%, 01/12/15 (Acquired 01/07/05; Cost $100,000)(b)(c) $ 100,000 $ 101,903 =========================================================================== Total Asset-Backed Securities (Cost $1,248,087) 1,302,945 =========================================================================== U.S. TREASURY SECURITIES-1.06% U.S. TREASURY BONDS-0.36% 7.25%, 05/15/16(b) 145,000 185,804 - --------------------------------------------------------------------------- 7.50%, 11/15/16(b) 130,000 170,524 =========================================================================== 356,328 =========================================================================== U.S. TREASURY INFLATION-INDEXED NOTES-0.26% 0.88%, 04/15/10 256,745(s) 250,487 =========================================================================== </Table> <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - --------------------------------------------------------------------------- U.S. TREASURY STRIPS-0.44% 3.03%, 02/15/07(b)(q) $ 125,000 $ 118,340 - --------------------------------------------------------------------------- 4.76%, 02/15/23(b)(q) 400,000 185,376 - --------------------------------------------------------------------------- 4.71%, 08/15/28(b)(q) 350,000 129,938 =========================================================================== 433,654 =========================================================================== Total U.S. Treasury Securities (Cost $1,001,630) 1,040,469 =========================================================================== TOTAL INVESTMENTS-105.05% (Cost $96,261,791) 103,180,691 =========================================================================== OTHER ASSETS LESS LIABILITIES-(5.05%) (4,961,374) =========================================================================== NET ASSETS-100.00% $ 98,219,317 ___________________________________________________________________________ =========================================================================== </Table> Investment Abbreviations: <Table> ADR - American Depositary Receipt CARS - Convertible Auction Rate Securities COP - Certificates of Participation Ctfs - Certificates Deb. - Debentures Disc. - Discounted GO - General Obligation Bonds Gtd. - Guaranteed Pfd. - Preferred RB - Revenue Bonds REGS - Regulation S RegCaPS - Regulatory Capital Preferred Securities 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) 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 June 30, 2005 was $31,510,072, which represented 30.54% 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 June 30, 2005 was $5,831,074, which represented 5.94% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (d) Interest or dividend rate is redetermined quarterly. Rate shown is the rate in effect on June 30, 2005. (e) Dividend rate is redetermined annually. Rate shown is the rate in effect on June 30, 2005. (f) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities. The aggregate market value of these securities considered illiquid at June 30, 2005 was $890,663, which represented 0.91% of the Fund's Net Assets. (g) 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 June 30, 2005 was $3,179,077, which represented 3.08% of the Fund's Total Investments. See Note 1A. (h) Dividend rate is redetermined bi-annually. Rate shown is the rate in effect on June 30, 2005. (i) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 6. (j) Perpetual bond with no specified maturity date. (k) Interest rate is redetermined semi-annually. Rate shown is the rate in effect on June 30, 2005. (l) Principal and/or 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. (m) Bond issued at a discount with a zero coupon. The rate shown represents the yield at issue to the remarketing date. The Bond will be remarketed or converted to a fixed coupon rate at a specified future date. (n) Zero coupon bond issued at a discount. The interest rate shown represents the yield to maturity at issue. (o) Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (p) Security purchased on forward commitment basis. This security is subject to dollar roll transactions. See Note 1F. (q) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (r) Interest rate is redetermined monthly. Rate shown is the rate in effect on June 30, 2005. (s) Principal amount of security and interest payments are adjusted for inflation. See accompanying notes which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $96,261,791) $103,180,691 - ------------------------------------------------------------- Cash 222,944 - ------------------------------------------------------------- Receivables for: Investments sold 131,569 - ------------------------------------------------------------- Variation margin 14,168 - ------------------------------------------------------------- Dividends and interest 445,803 - ------------------------------------------------------------- Investment Matured (Note 8) 33,647 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 28,910 - ------------------------------------------------------------- Other assets 918 ============================================================= Total assets 104,058,650 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 5,656,086 - ------------------------------------------------------------- Fund shares reacquired 7,153 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 32,774 - ------------------------------------------------------------- Accrued administrative services fees 112,443 - ------------------------------------------------------------- Accrued distribution fees-Series II 3,455 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 118 - ------------------------------------------------------------- Accrued transfer agent fees 274 - ------------------------------------------------------------- Accrued operating expenses 27,030 ============================================================= Total liabilities 5,839,333 ============================================================= Net assets applicable to shares outstanding $ 98,219,317 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $111,450,977 - ------------------------------------------------------------- Undistributed net investment income 2,089,968 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies and futures contracts (22,281,891) - ------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 6,960,263 ============================================================= $ 98,219,317 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 92,668,196 _____________________________________________________________ ============================================================= Series II $ 5,551,121 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 8,680,395 _____________________________________________________________ ============================================================= Series II 523,753 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 10.68 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 10.60 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Interest $ 756,283 - ------------------------------------------------------------- Dividends (net of foreign withholding tax of $14,381) 522,370 ============================================================= Total investment income 1,278,653 ============================================================= EXPENSES: Advisory fees 374,800 - ------------------------------------------------------------- Administrative services fees 128,930 - ------------------------------------------------------------- Custodian fees 12,321 - ------------------------------------------------------------- Distribution fees -- Series II 6,922 - ------------------------------------------------------------- Transfer agent fees 4,078 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 7,982 - ------------------------------------------------------------- Other 33,566 ============================================================= Total expenses 568,599 ============================================================= Less: Fees waived and expense offset arrangement (65,168) ============================================================= Net expenses 503,431 ============================================================= Net investment income 775,222 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities 1,139,976 - ------------------------------------------------------------- Foreign currencies (10,349) - ------------------------------------------------------------- Futures contracts 85,364 ============================================================= 1,214,991 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (1,235,047) - ------------------------------------------------------------- Foreign currencies (139) - ------------------------------------------------------------- Futures contracts 13,967 ============================================================= (1,221,219) ============================================================= Net gain (loss) from investment securities, foreign currencies and futures contracts (6,228) ============================================================= Net increase in net assets resulting from operations $ 768,994 _____________________________________________________________ ============================================================= </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 775,222 $ 1,269,394 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies and futures contracts 1,214,991 2,712,101 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies and futures contracts (1,221,219) 3,340,549 ========================================================================================== Net increase in net assets resulting from operations 768,994 7,322,044 ========================================================================================== Distributions to shareholders from net investment income: Series I -- (1,389,511) - ------------------------------------------------------------------------------------------ Series II -- (73,687) ========================================================================================== Decrease in net assets resulting from distributions -- (1,463,198) ========================================================================================== Share transactions-net: Series I (7,132,877) (4,169,694) - ------------------------------------------------------------------------------------------ Series II (128,130) 1,224,095 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (7,261,007) (2,945,599) ========================================================================================== Net increase (decrease) in net assets (6,492,013) 2,913,247 ========================================================================================== NET ASSETS: Beginning of period 104,711,330 101,798,083 ========================================================================================== End of period (including undistributed net investment income of $2,089,968 and $1,314,746, respectively) $ 98,219,317 $104,711,330 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Basic Balanced Fund, formerly 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 including estimates and assumptions related to taxation. 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 AIM V.I. BASIC BALANCED FUND 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 and domestic and foreign index futures. 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 purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. The difference between the selling price and the future purchase price is generally amortized to income between the date of the sell and the future purchase date. During the period between the sale and purchase, 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. Dollar roll transactions are considered borrowings under the 1940 Act. At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the purchase 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 purchase 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 purchase 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. AIM V.I. BASIC BALANCED FUND 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 received or made depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. J. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - --------------------------------------------------------------------- First $150 million 0.75% - --------------------------------------------------------------------- Over $150 million 0.50% _____________________________________________________________________ ===================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $150 million 0.62% - ---------------------------------------------------------------------- Next $4.85 billion 0.50% - ---------------------------------------------------------------------- Next $5 billion 0.475% - ---------------------------------------------------------------------- Over $10 billion 0.45% ______________________________________________________________________ ====================================================================== </Table> Effective July 1, 2005, 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 Series I shares to 0.91% and Series II shares to 1.16% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, AIM and/or the distributor had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding items (i) through (vi) discussed below) of Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Neither AIM or the distributor waived fees and/or reimbursed expenses during the period under this expense limitation. For the six months ended June 30, 2005, AIM waived fees of $64,965. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $104,135 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $4,078. AIM V.I. BASIC BALANCED FUND The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $6,922. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $203. NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,167 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 six months ended June 30, 2005, 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 June 30, 2005, $600,000 principal amount of corporate 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 - -------------------------------------------------------------------------------------------------------------------- U.S. Treasury 5 Year Notes 16 Sep-05/Long $1,742,250 $ 5,584 - -------------------------------------------------------------------------------------------------------------------- U.S. Treasury 10 Year Notes 20 Sep-05/Long 2,269,375 11,228 - -------------------------------------------------------------------------------------------------------------------- U.S. Treasury 30 Year Bonds 12 Sep-05/Long 1,425,000 24,690 ==================================================================================================================== $5,436,625 $41,502 ____________________________________________________________________________________________________________________ ==================================================================================================================== </Table> AIM V.I. BASIC BALANCED FUND NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 six months ended June 30, 2005 was $18,776,920 and $27,503,379, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. 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 $ 8,517,886 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (2,070,153) =============================================================================== Net unrealized appreciation of investment securities $ 6,447,733 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $96,732,958. </Table> NOTE 9--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 6,795,223 $ 70,888,411 819,573 $ 8,359,573 - ---------------------------------------------------------------------------------------------------------------------- Series II 225,293 2,338,242 184,634 1,876,616 ====================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 132,334 1,389,511 - ---------------------------------------------------------------------------------------------------------------------- Series II -- -- 7,058 73,686 ====================================================================================================================== Reacquired: Series I (7,470,878) (78,021,288) (1,367,292) (13,918,778) - ---------------------------------------------------------------------------------------------------------------------- Series II (237,534) (2,466,372) (70,995) (726,207) ====================================================================================================================== (687,896) $ (7,261,007) (294,688) $ (2,945,599) ______________________________________________________________________________________________________________________ ====================================================================================================================== </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 92% 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. BASIC BALANCED 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 ------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.59 $ 9.99 $ 8.75 $ 10.84 $ 12.46 $ 13.04 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.10 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) (0.01) 0.62 1.29 (2.02) (1.70) (0.93) ================================================================================================================================= Total from investment operations 0.09 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 $ 10.68 $ 10.59 $ 9.99 $ 8.75 $ 10.84 $ 12.46 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 0.85% 7.52% 16.36% (17.02)% (11.43)% (4.28)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $92,668 $99,070 $97,665 $82,866 $105,395 $85,693 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.99%(d)(e) 1.12% 1.11% 1.17% 1.12% 1.10% ================================================================================================================================= Ratio of net investment income to average net assets 1.57%(d) 1.24% 1.47% 1.90% 2.37%(b) 2.80% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 20% 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) 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 annualized and based on average daily net assets of $95,191,887. (e) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.12% (annualized). (f) Not Annualized for periods less than one year. AIM V.I. BASIC BALANCED FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ----------------------------------------------------- JANUARY 24, 2002 SIX MONTHS YEAR ENDED (DATE SALES ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ---------------- DECEMBER 31, 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $10.53 $ 9.95 $ 8.73 $ 10.70 - ------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.07 0.10(a) 0.12(a) 0.14(a) - ------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.00 0.62 1.29 (1.86) =================================================================================================================== Total from investment operations 0.07 0.72 1.41 (1.72) =================================================================================================================== Less dividends from net investment income -- (0.14) (0.19) (0.25) =================================================================================================================== Net asset value, end of period $10.60 $10.53 $ 9.95 $ 8.73 ___________________________________________________________________________________________________________________ =================================================================================================================== Total return(b) 0.67% 7.24% 16.15% (16.12)% ___________________________________________________________________________________________________________________ =================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $5,551 $5,642 $4,133 $ 733 ___________________________________________________________________________________________________________________ =================================================================================================================== Ratio of expenses to average net assets 1.24%(c)(d) 1.37% 1.36% 1.42%(e) =================================================================================================================== Ratio of net investment income to average net assets 1.32%(c) 0.99% 1.22% 1.65%(e) ___________________________________________________________________________________________________________________ =================================================================================================================== Portfolio turnover rate(f) 20% 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 annualized and based on average daily net assets of $5,583,088. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.37% (annualized). (e) Annualized. (f) Not annualized for periods less than one year. NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused it to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be AIM V.I. BASIC BALANCED FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. BASIC BALANCED FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. BASIC BALANCED FUND AIM V.I. BASIC VALUE FUND Semiannual Report to Shareholders o June 30,2005 AIM V.I. BASIC VALUE FUND seeks to provide long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,2005,AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330,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 1-800-410-4246 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 SEC Web site,sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30,2005,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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. BASIC VALUE FUND <Table> MANAGEMENT'S DISCUSSION strategy is to help preserve your capital OF FUND PERFORMANCE while seeking to grow it at above-market rates over the long term. Second, we have ====================================================================================== little portfolio commonality with popular benchmarks and most of our peers. PERFORMANCE SUMMARY ========================================= (Commonality measures the similarity of holdings between two portfolios.) Third, Shares of AIM V.I. Basic Value were FUND VS. INDEXES short-term performance will differ from essentially unchanged for the six-month the benchmarks and have little period ended June 30, 2005. Fund returns TOTAL RETURNS,12/31/04-6/30/05,EXCLUDING information value because our investments were ahead of the S&P 500 Index, but VARIABLE PRODUCT ISSUER CHARGES. IF are materially different from benchmark trailed our value benchmark, the Russell VARIABLE PRODUCT ISSUER CHARGES WERE constituents. 1000 Value Index, as well as our value INCLUDED, RETURNS WOULD BE LOWER. peers. While our historical investment Series I Shares -0.17% results provide evidence of success, we We fared better than the S&P 500 Index believe the single most important largely due to the strong returns we Series II Shares -0.26 indication of achieving the Fund's experienced in the health care sector. objective in the future resides in the Fund returns were also boosted by our Standard & Poor's Composite Index difference between the portfolio's higher weight in the sector. The Fund of 500 Stocks (S&P 500 Index) current market price and our estimate of underperformed the Russell 1000 Value (Broad market index) -0.81 intrinsic value. Since we estimate the Index as returns in industrials and intrinsic value of each holding in the financials were below those of the Russell 1000 Value Index (Style- portfolio, we can also estimate the benchmark. Our lower sector weights in specific Index) 1.76 intrinsic value of the entire Fund. The energy and utilities, which were the two difference between market price and best-performing sectors in the market, Lipper Large-Cap Value Fund Index estimated intrinsic value is about also contributed to underperformance. (Peer Group Index) 0.49 average for your Fund for the past several years, but we believe this value SOURCE: LIPPER,INC. content remained significantly greater than that of the broader market. While ========================================= there is no assurance that market value will ever reflect our estimate of ====================================================================================== portfolio intrinsic value, this is the primary metric we use in assessing and HOW WE INVEST o Companies have a measurable estimated managing the portfolio. intrinsic value. Importantly, this fair Our investment strategy is to create value is independent of the company's MARKET CONDITIONS AND YOUR FUND wealth by maintaining a long-term stock price. investment horizon and investing in Equity market returns were modestly companies that are selling at a o Market prices are more volatile than negative during the period, as investors significant discount to their estimated intrinsic business values, partly because were preoccupied with the impact that intrinsic value--a value that is based on we believe investors regularly overreact high energy prices and rising interest the estimated future cash flows generated to negative news. Since our application rates might have on continued by the business. The Fund's philosophy is of this strategy is highly disciplined based on two elements that we believe and relatively unique, it is important to have empirical support: understand the benefits and limitations of our process. First, the goal of our investment ========================================= ========================================= ========================================= PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Pharmaceuticals 7.9% 1. Cardinal Health, Inc. 4.1% Health Care 22.7% 2. Health Care Distributors 7.1 2. Tyco International Ltd. (Bermuda) 3.8 Financials 21.1 3. Other Diversified Financial Services 5.5 3. Sanofi-Aventis (France) 3.5 Industrials 15.0 4. Thrifts & Mortgage Finance 5.2 4. UnitedHealth Group Inc. 3.5 Consumer Discretionary 13.9 5. Data Processing & Outsourced 5. Computer Associates Information Technology 10.1 Services 4.5 International,Inc. 3.4 Energy 7.3 TOTAL NET ASSETS $843.0 MILLION 6. McKesson Corp. 3.0 Consumer Staples 5.4 TOTAL NUMBER OF HOLDINGS* 47 7. Halliburton Co. 3.0 Money Market Funds Plus Other 8. Fannie Mae 3.0 Assets Less Liabilities 4.5 9. JPMorgan Chase & Co. 2.9 10. First Data Corp. 2.9 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. BASIC VALUE FUND <Table> economic growth. These concerns generating a steady flow of news and BRET W. STANLEY, Chartered translated directly into muted or speculation that had a much bigger impact [STANLEY Financial Analyst, senior negative returns in most broad equity on the company's stock price than on its PHOTO] portfolio manager, is lead market sectors with the exception of business value. We have long considered portfolio manager of AIM energy and utilities. Energy, which the many possible outcomes and continued V.I. Basic Value Fund and rallied in response to the record-high to believe that Fannie Mae is one of the the head of AIM's Value Investment oil prices, was the Fund's more attractive opportunities we own. Management Unit. Prior to joining AIM in best-performing sector, with oil service 1998, Mr. Stanley managed growth and drilling and equipment providers We did make some changes to the income, equity income and value TRANSOCEAN and HALLIBURTON among the portfolio throughout the first half of portfolios. He began his investment largest contributors to Fund performance the year. We purchased Unilever early in career in 1988. Mr. Stanley received a in the period. the period, and recently initiated B.B.A. in finance from The University of positions in two other stocks, one in the Texas at Austin and an M.S. in finance Equity market returns consumer staples sector and the other in from the University of Houston. were modestly negative information technology. We also sold our during the period, remaining shares of STARWOOD HOTELS & R. CANON COLEMAN II, as investors were RESORTS and IMS HEALTH. We initially [COLEMAN Chartered Financial preoccupied with the purchased Starwood just weeks after the PHOTO] Analyst, portfolio impact that high energy 9/11 tragedy negatively impacted travel manager, is manager of AIM prices and rising patterns, causing the stock to sell at a V.I. Basic Value Fund. He interest rates might significant discount to the intrinsic joined AMVESCAP in 1999 in its corporate have on continued value of the company. With the stock associate rotation program, working economic growth. having returned more than 200% since that with fund managers throughout AMVESCAP time, we sold the shares as we believed before joining AIM in 2000. He previously Fund returns were driven largely by current prices fully reflected our worked as a CPA. Mr. Coleman earned a our holdings in the health care sector. estimate of the company's intrinsic B.S. and an M.S. in accounting from the MCKESSON, HCA and UNITEDHEALTH GROUP were value. University of Florida. He also has an all notable contributors in the period. M.B.A. from The Wharton School at the Pharmaceutical distributor McKesson IN CLOSING University of Pennsylvania. rallied more than 40% in the period as the company continued to transition its Results were slightly negative during MATTHEW W. SEINSHEIMER, distribution business to a this period, but normal market volatility [SEINSHEIMER Chartered Financial fee-for-service platform, a move that affects short-term performance and limits PHOTO] Analyst, senior will substantially reduce its exposure to our ability to measure success. Over portfolio manager, is the inherent volatility of drug pricing. longer periods, though, we have manager of AIM V.I. Basic The stock was further boosted by news of demonstrated the potential to turn market Value Fund. He began his investment a settlement in the class action suit volatility and investor overreaction into career in 1992 as a fixed-income trader. related to HBO & CO., a health care capital appreciation. We thank you for He later served as a portfolio manager on technology company that McKesson your investment and for sharing our both fixed income and equity portfolios. purchased more than six years ago. We long-term horizon. Mr. Seinsheimer joined AIM in 1998. He continued to own McKesson at the close of received a B.B.A. from Southern Methodist the period because we estimated its THE VIEWS AND OPINIONS EXPRESSED IN University and an M.B.A. from The intrinsic value left room for further MANAGEMENT'S DISCUSSION OF FUND University of Texas at Austin. stock appreciation. PERFORMANCE ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT MICHAEL J. SIMON, Our largest detractors to performance TO CHANGE AT ANY TIME BASED ON FACTORS [SIMON Chartered Financial were TYCO INTERNATIONAL, FANNIE MAE, SUCH AS MARKET AND ECONOMIC CONDITIONS. PHOTO] Analyst, senior portfolio COMPUTER ASSOCIATES, WATERS and BANK OF THESE VIEWS AND OPINIONS MAY NOT BE manager, is manager of AIM NEW YORK. Fannie Mae continued to make RELIED UPON AS INVESTMENT ADVICE OR V.I. Basic Value Fund. He progress toward restating its historical RECOMMENDATIONS, OR AS AN OFFER FOR A joined AIM in 2001. Mr. Simon, who began financials and rebuilding its capital PARTICULAR SECURITY. THE INFORMATION IS his investment career in 1989, received a base. However, recent concerns have NOT A COMPLETE ANALYSIS OF EVERY ASPECT B.B.A. in finance from Texas Christian focused on the company's regulatory OF ANY MARKET, COUNTRY, INDUSTRY, University and an M.B.A. from the structure, SECURITY OR THE FUND. STATEMENTS OF FACT University of Chicago. Mr. Simon has ARE FROM SOURCES CONSIDERED RELIABLE, BUT served as Occasional Faculty in the A I M ADVISORS, INC. MAKES NO Finance and Decision Sciences Department REPRESENTATION OR WARRANTY AS TO THEIR of Texas Christian University's M.J. COMPLETENESS OR ACCURACY. ALTHOUGH Neeley School of Business. HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP Assisted by the Basic Value Team YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. [RIGHT ARROW GRAPHIC] FOR A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. BASIC VALUE FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ========================================= AVERAGE ANNUAL TOTAL RETURNS fluctuate so that you may have a gain or will vary and will lower the total loss when you sell shares. return. Per NASD requirements, the most As of 6/30/05 recent month-end performance data at the Series I and Series II shares invest Fund level, excluding variable product SERIES I SHARES in the same portfolio of securities and charges, is available on this AIM Inception (9/10/01) 4.54% will have substantially similar automated information line, 866-702-4402. 1 Year 5.35 performance, except to the extent that As mentioned above, for the most recent expenses borne by each class differ. month-end performance including variable SERIES II SHARES product charges, please contact your Inception (9/10/01) 4.31 AIM V.I. Basic Value Fund, a series variable product issuer or financial 1 Year 5.11 portfolio of AIM Variable Insurance advisor. Funds, is currently offered through ========================================= insurance companies issuing variable products. You cannot purchase shares of The performance data quoted represent the Fund directly. Performance figures past performance and cannot guarantee given represent the Fund and are not comparable future results; current intended to reflect actual variable performance may be lower or higher. product values. They do not reflect sales Please contact your variable product charges, expenses and fees assessed in issuer or financial advisor for the most connection with a variable product. Sales recent month-end variable product charges, expenses and fees, which are performance. Performance figures reflect determined by the variable product Fund expenses, reinvested distributions issuers, and changes in net asset value. Investment return and principal value will PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER LARGE-CAP VALUE OTHER INFORMATION FUND INDEX represents an average of the Investing in small and mid-size companies performance of the 30 largest The returns shown in the management's involves risks not associated with large-capitalization value funds tracked discussion of Fund performance are based investing in more established companies, by Lipper, Inc., an independent mutual on net asset values calculated for including business risk, significant fund performance monitor. shareholder transactions. Generally stock price fluctuations and illiquidity. accepted accounting principles require The unmanaged Russell adjustments to be made to the net assets The Fund may invest up to 25% of its 1000--Registered Trademark-- Value Index of the Fund at period end for financial assets in the securities of non-U.S. is a subset of the unmanaged Russell reporting purposes, and as such, the net issuers. International investing presents 1000--Registered Trademark-- Index, asset values for shareholder transactions certain risks not associated with which represents the performance of the and the returns based on those net asset investing solely in the United States. stocks of large-capitalization values may differ from the net asset These include risks relating to companies; the Value subset measures the values and returns reported in the fluctuations in the value of the U.S. performance of Russell 1000 companies Financial Highlights. Additionally, the dollar relative to the values of other with lower price/book ratios and lower returns and net asset values shown currencies, the custody arrangements made forecasted growth values. throughout this report are at the Fund for the Fund's foreign holdings, level only and do not include variable differences in accounting, political The Fund is not managed to track the product issuer charges. If such charges risks and the lesser degree of public performance of any particular index, were included, the total returns would be information required to be provided by including the indexes defined here, and lower. non-U.S. companies. consequently, the performance of the Fund may deviate significantly from the Industry classifications used in this performance of the indexes. report are generally according to the ABOUT INDEXES USED IN THIS REPORT Global Industry Classification Standard, A direct investment cannot be made in which was developed by and is the The unmanaged Standard & Poor's an index. Unless otherwise indicated, exclusive property and a service mark of Composite Index of 500 Stocks (the S&P index results include reinvested Morgan Stanley Capital International Inc. 500--Registered Trademark-- INDEX) is an dividends, and they do not reflect sales and Standard & Poor's. index of common stocks frequently used charges. Performance of an index of funds as a general measure of U.S. stock reflects fund expenses; performance of a market performance. market index does not. </Table> 4 AIM V.I. BASIC VALUE FUND <Table> CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE You may use the information in this Indexes" on the first page of table, together with the amount you management's discussion of Fund As a shareholder of the Fund, you incur invested, to estimate the expenses that performance. ongoing costs, including management fees; you paid over the period. Simply divide distribution and/or service fees (12b-1); your account value by $1,000 (for The hypothetical account values and and other Fund expenses. This example is example, an $8,600 account value divided expenses may not be used to estimate the intended to help you understand your by $1,000 = 8.6), then multiply the actual ending account balance or expenses ongoing costs (in dollars) of investing result by the number in the table under you paid for the period. You may use this in the Fund and to compare these costs the heading entitled "Actual Expenses information to compare the ongoing costs with ongoing costs of investing in other Paid During Period" to estimate the of investing in the Fund and other funds. mutual funds. The example is based on an expenses you paid on your account during To do so, compare this 5% hypothetical investment of $1,000 invested at the this period. example with the 5% hypothetical examples beginning of the period and held for the that appear in the shareholder reports of entire period January 1, 2005, through the other funds. June 30, 2005. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES Please note that the expenses shown in The actual and hypothetical expenses the table are meant to highlight your in the examples below do not represent The table below also provides information ongoing costs. Therefore, the the effect of any fees or other expenses about hypothetical account values and hypothetical information is useful in assessed in connection with a variable hypothetical expenses based on the Fund's comparing ongoing costs, and will not product; if they did, the expenses shown actual expense ratio and an assumed rate help you determine the relative total would be higher while the ending account of return of 5% per year before expenses, costs of owning different funds. values shown would be lower. which is not the Fund's actual return. The Fund's actual cumulative total ACTUAL EXPENSES returns at net asset value after expenses for the six months ended June 30, 2005, The table below provides information appear in the table "Fund vs. about actual account values and actual expenses. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 998.30 $ 4.76 $ 1,020.03 $ 4.81 Series II 1,000.00 997.40 5.99 1,018.79 6.06 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (0.96% and 1.21% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. BASIC VALUE FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided ate serves as advisor with investment Insurance Funds (the "Board") oversees by AIM. The Board reviewed the strategies comparable to those of the the management of AIM V.I. Basic Value credentials and experience of the Fund; (iii) was higher than the Fund (the "Fund") and, as required by officers and employees of AIM who will sub-advisory fee rates for an law, determines annually whether to provide investment advisory services to unaffiliated mutual fund for which AIM approve the continuance of the Fund's the Fund. In reviewing the qualifications serves as sub-advisor, although the total advisory agreement with A I M Advisors, of AIM to provide investment advisory management fees paid by such unaffiliated Inc. ("AIM"). Based upon the services, the Board reviewed the mutual fund was higher than the advisory recommendation of the Investments qualifications of AIM's investment fee rate for the Fund; and (iv) was Committee of the Board, which is personnel and considered such issues as higher than the advisory fee rates for comprised solely of independent trustees, AIM's portfolio and product review twenty separately managed wrap accounts at a meeting held on June 30, 2005, the process, various back office support managed by an AIM affiliate, and lower Board, including all of the independent functions provided by AIM and AIM's than the advisory fee rates for two trustees, approved the continuance of the equity and fixed income trading separately managed wrap accounts managed advisory agreement (the "Advisory operations. Based on the review of these by an AIM affiliate with investment Agreement") between the Fund and AIM for and other factors, the Board concluded strategies comparable to those of the another year, effective July 1, 2005. that the quality of services to be Fund. The Board noted that AIM has agreed provided by AIM was appropriate and that to waive advisory fees of the Fund and to The Board considered the factors AIM currently is providing satisfactory limit the Fund's total operating discussed below in evaluating the services in accordance with the terms of expenses, as discussed below. Based on fairness and reasonableness of the the Advisory Agreement. this review, the Board concluded that the Advisory Agreement at the meeting on June advisory fee rate for the Fund under the 30, 2005 and as part of the Board's o The performance of the Fund relative to Advisory Agreement was fair and ongoing oversight of the Fund. In their comparable funds. The Board reviewed the reasonable. deliberations, the Board and the performance of the Fund during the past independent trustees did not identify any one and three calendar years against the o Fees relative to those of comparable particular factor that was controlling, performance of funds advised by other funds with other advisors. The Board and each trustee attributed different advisors with investment strategies reviewed the advisory fee rate for the weights to the various factors. comparable to those of the Fund. The Fund under the Advisory Agreement. The Board noted that the Fund's performance Board compared effective contractual One of the responsibilities of the in such periods was above the median advisory fee rates at a common asset Senior Officer of the Fund, who is performance of such comparable funds. level and noted that the Fund's rate was independent of AIM and AIM's affiliates, Based on this review, the Board concluded above the median rate of the funds is to manage the process by which the that no changes should be made to the advised by other advisors with investment Fund's proposed management fees are Fund and that it was not necessary to strategies comparable to those of the negotiated to ensure that they are change the Fund's portfolio management Fund that the Board reviewed. The Board negotiated in a manner which is at arm's team at this time. noted that AIM has agreed to waive length and reasonable. To that end, the advisory fees of the Fund and to limit Senior Officer must either supervise a o The performance of the Fund relative to the Fund's total operating expenses, as competitive bidding process or prepare an indices. The Board reviewed the discussed below. Based on this review, independent written evaluation. The performance of the Fund during the past the Board concluded that the advisory fee Senior Officer has recommended an one and three calendar years against the rate for the Fund under the Advisory independent written evaluation in lieu of performance of the Lipper Large-Cap Value Agreement was fair and reasonable. a competitive bidding process and, upon Fund Index. The Board noted that the the direction of the Board, has prepared Fund's performance in such periods was o Expense limitations and fee waivers. such an independent written evaluation. comparable to the performance of such The Board noted that AIM has Such written evaluation also considered Index. Based on this review, the Board contractually agreed to waive advisory certain of the factors discussed below. concluded that no changes should be made fees of the Fund through December 31, In addition, as discussed below, the to the Fund and that it was not necessary 2009 to the extent necessary so that the Senior Officer made certain to change the Fund's portfolio management advisory fees payable by the Fund do not recommendations to the Board in team at this time. exceed a specified maximum advisory fee connection with such written evaluation. rate, which maximum rate includes o Meeting with the Fund's portfolio breakpoints and is based on net asset The discussion below serves as a managers and investment personnel. With levels. The Board considered the summary of the Senior Officer's respect to the Fund, the Board is meeting contractual nature of this fee waiver and independent written evaluation and periodically with such Fund's portfolio noted that it remains in effect until recommendations to the Board in managers and/or other investment December 31, 2009. The Board also noted connection therewith, as well as a personnel and believes that such that AIM has contractually agreed to discussion of the material factors and individuals are competent and able to waive fees and/or limit expenses of the the conclusions with respect thereto that continue to carry out their Fund through April 30, 2006 so that total formed the basis for the Board's approval responsibilities under the Advisory annual operating expenses are limited to of the Advisory Agreement. After Agreement. a specified percentage of average daily consideration of all of the factors below net assets for each class of the Fund. and based on its informed business o Overall performance of AIM. The Board The Board considered the contractual judgment, the Board determined that the considered the overall performance of AIM nature of this fee waiver and noted that Advisory Agreement is in the best in providing investment advisory and it remains in effect until April 30, interests of the Fund and its portfolio administrative services to the 2006. The Board considered the effect shareholders and that the compensation to Fund and concluded that such performance these fee waivers/expense limitations AIM under the Advisory Agreement is fair was satisfactory. would have on the Fund's estimated and reasonable and would have been expenses and concluded that the levels of obtained through arm's length o Fees relative to those of clients of fee waivers/expense limitations for the negotiations. AIM with comparable investment Fund were fair and reasonable. strategies. The Board reviewed the o The nature and extent of the advisory advisory fee rate for the Fund under the services to be provided by AIM. The Board Advisory Agreement. The Board noted that reviewed the services to be provided by this rate (i) was the same as the AIM under the Advisory Agreement. Based advisory fee rates for one mutual fund on such review, the Board concluded that advised by AIM with investment strategies the range of services to be provided by comparable to those of the Fund; (ii) was AIM under the Advisory Agreement was lower than the advisory fee rates for an appropriate and that AIM currently is offshore fund for which an AIM affili- providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 6 AIM V.I. BASIC VALUE FUND <Table> o Breakpoints and economies of scale. The o Independent written evaluation and o Historical relationship between the Board reviewed the structure of the recommendations of the Fund's Senior Fund and AIM. In determining whether to Fund's advisory fee under the Advisory Officer. The Board noted that, upon their continue the Advisory Agreement for the Agreement, noting that it includes three direction, the Senior Officer of the Fund Fund, the Board also considered the prior breakpoints. The Board reviewed the level had prepared an independent written relationship between AIM and the Fund, as of the Fund's advisory fees, and noted evaluation in order to assist the Board well as the Board's knowledge of AIM's that such fees, as a percentage of the in determining the reasonableness of the operations, and concluded that it was Fund's net assets, have decreased as net proposed management fees of the AIM beneficial to maintain the current assets increased because the Advisory Funds, including the Fund. The Board relationship, in part, because of such Agreement includes breakpoints. The Board noted that the Senior Officer's written knowledge. The Board also reviewed the noted that, due to the Fund's current evaluation had been relied upon by the general nature of the non-investment asset levels and the way in which the Board in this regard in lieu of a advisory services currently performed by advisory fee breakpoints have been competitive bidding process. In AIM and its affiliates, such as structured, the Fund has yet to fully determining whether to continue the administrative, transfer agency and benefit from the breakpoints. The Board Advisory Agreement for the Fund, the distribution services, and the fees noted that AIM has contractually agreed Board considered the Senior Officer's received by AIM and its affiliates for to waive advisory fees of the Fund written evaluation and the recommendation performing such services. In addition to through December 31, 2009 to the extent made by the Senior Officer to the Board reviewing such services, the trustees necessary so that the advisory fees that the Board consider implementing a also considered the organizational payable by the Fund do not exceed a process to assist them in more closely structure employed by AIM and its specified maximum advisory fee rate, monitoring the performance of the AIM affiliates to provide those services. which maximum rate includes breakpoints Funds. The Board concluded that it would Based on the review of these and other and is based on net asset levels. The be advisable to implement such a process factors, the Board concluded that AIM and Board concluded that the Fund's fee as soon as reasonably practicable. its affiliates were qualified to continue levels under the Advisory Agreement to provide non-investment advisory therefore reflect economies of scale and o Profitability of AIM and its services to the Fund, including that it was not necessary to change the affiliates. The Board reviewed administrative, transfer agency and advisory fee breakpoints in the Fund's information concerning the profitability distribution services, and that AIM and advisory fee schedule. of AIM's (and its affiliates') investment its affiliates currently are providing advisory and other activities and its satisfactory non-investment advisory o Investments in affiliated money market financial condition. The Board considered services. funds. The Board also took into account the overall profitability of AIM, as well the fact that uninvested cash and cash as the profitability of AIM in connection o Other factors and current trends. In collateral from securities lending with managing the Fund. The Board noted determining whether to continue the arrangements (collectively, "cash that AIM's operations remain profitable, Advisory Agreement for the Fund, the balances") of the Fund may be invested in although increased expenses in recent Board considered the fact that AIM, along money market funds advised by AIM years have reduced AIM's profitability. with others in the mutual fund industry, pursuant to the terms of an SEC exemptive Based on the review of the profitability is subject to regulatory inquiries and order. The Board found that the Fund may of AIM's and its affiliates' investment litigation related to a wide range of realize certain benefits upon investing advisory and other activities and its issues. The Board also considered the cash balances in AIM advised money market financial condition, the Board concluded governance and compliance reforms being funds, including a higher net return, that the compensation to be paid by the undertaken by AIM and its affiliates, increased liquidity, increased Fund to AIM under its Advisory Agreement including maintaining an internal diversification or decreased transaction was not excessive. controls committee and retaining an costs. The Board also found that the Fund independent compliance consultant, and will not receive reduced services if it o Benefits of soft dollars to AIM. The the fact that AIM has undertaken to cause invests its cash balances in such money Board considered the benefits realized by the Fund to operate in accordance with market funds. The Board noted that, to AIM as a result of brokerage transactions certain governance policies and the extent the Fund invests in affiliated executed through "soft dollar" practices. The Board concluded that these money market funds, AIM has voluntarily arrangements. Under these arrangements, actions indicated a good faith effort on agreed to waive a portion of the advisory brokerage commissions paid by the Fund the part of AIM to adhere to the highest fees it receives from the Fund and/or other funds advised by AIM are ethical standards, and determined that attributable to such investment. The used to pay for research and execution the current regulatory and litigation Board further determined that the services. This research is used by AIM in environment to which AIM is subject proposed securities lending program and making investment decisions for the Fund. should not prevent the Board from related procedures with respect to the The Board concluded that such continuing the Advisory Agreement for the lending Fund is in the best interests of arrangements were appropriate. Fund. the lending Fund and its respective shareholders. The Board therefore o AIM's financial soundness in light of concluded that the investment of cash the Fund's needs. The Board considered collateral received in connection with whether AIM is financially sound and has the securities lending program in the the resources necessary to perform its money market funds according to the obligations under the Advisory Agreement, procedures is in the best interests of and concluded that AIM has the financial the lending Fund and its respective resources necessary to fulfill its shareholders. obligations under the Advisory Agreement. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-95.54% ADVERTISING-4.49% Interpublic Group of Cos., Inc. (The)(a) 1,482,600 $ 18,058,068 - ------------------------------------------------------------------------ Omnicom Group Inc. 248,300 19,829,238 ======================================================================== 37,887,306 ======================================================================== AEROSPACE & DEFENSE-1.16% Honeywell International Inc. 266,700 9,769,221 ======================================================================== APPAREL RETAIL-1.78% Gap, Inc. (The) 758,450 14,979,387 ======================================================================== ASSET MANAGEMENT & CUSTODY BANKS-2.15% Bank of New York Co., Inc. (The) 630,150 18,135,717 ======================================================================== BREWERS-0.78% Molson Coors Brewing Co.-Class B 106,200 6,584,400 ======================================================================== BUILDING PRODUCTS-4.01% American Standard Cos. Inc. 454,150 19,037,968 - ------------------------------------------------------------------------ Masco Corp. 465,400 14,781,104 ======================================================================== 33,819,072 ======================================================================== COMMUNICATIONS EQUIPMENT-0.51% Motorola, Inc. 234,250 4,277,405 ======================================================================== COMPUTER STORAGE & PERIPHERALS-0.74% Lexmark International, Inc.-Class A(a) 96,400 6,249,612 ======================================================================== CONSUMER ELECTRONICS-1.20% Koninklijke (Royal) Philips Electronics N.V.-New York Shares (Netherlands) 401,850 10,122,601 ======================================================================== DATA PROCESSING & OUTSOURCED SERVICES-4.53% Ceridian Corp.(a) 705,250 13,738,270 - ------------------------------------------------------------------------ First Data Corp. 608,850 24,439,239 ======================================================================== 38,177,509 ======================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-2.34% Cendant Corp. 880,450 19,695,666 ======================================================================== ENVIRONMENTAL & FACILITIES SERVICES-2.63% Waste Management, Inc. 781,550 22,149,127 ======================================================================== FOOD RETAIL-3.09% Kroger Co. (The)(a) 871,500 16,584,645 - ------------------------------------------------------------------------ </Table> <Table> MARKET SHARES VALUE - ------------------------------------------------------------------------ <Caption> FOOD RETAIL-(CONTINUED) Safeway Inc. 418,750 $ 9,459,562 ======================================================================== 26,044,207 ======================================================================== GENERAL MERCHANDISE STORES-1.92% Target Corp. 298,100 16,219,621 ======================================================================== HEALTH CARE DISTRIBUTORS-7.06% Cardinal Health, Inc. 594,600 34,237,068 - ------------------------------------------------------------------------ McKesson Corp. 564,150 25,268,278 ======================================================================== 59,505,346 ======================================================================== HEALTH CARE EQUIPMENT-1.86% Waters Corp.(a) 421,500 15,667,155 ======================================================================== HEALTH CARE FACILITIES-2.38% HCA Inc. 353,000 20,004,510 ======================================================================== INDUSTRIAL CONGLOMERATES-3.77% Tyco International Ltd. (Bermuda) 1,089,750 31,820,700 ======================================================================== INDUSTRIAL MACHINERY-1.03% Parker Hannifin Corp. 139,950 8,678,300 ======================================================================== INVESTMENT BANKING & BROKERAGE-4.08% Merrill Lynch & Co., Inc. 297,750 16,379,228 - ------------------------------------------------------------------------ Morgan Stanley 342,850 17,989,340 ======================================================================== 34,368,568 ======================================================================== LEISURE PRODUCTS-0.41% Mattel, Inc. 187,000 3,422,100 ======================================================================== MANAGED HEALTH CARE-3.50% UnitedHealth Group Inc. 565,700 29,495,598 ======================================================================== MOVIES & ENTERTAINMENT-2.15% Walt Disney Co. (The) 721,050 18,156,039 ======================================================================== MULTI-LINE INSURANCE-1.96% Genworth Financial Inc.-Class A 545,100 16,478,373 ======================================================================== OIL & GAS DRILLING-2.80% ENSCO International Inc. 137,700 4,922,775 - ------------------------------------------------------------------------ Transocean Inc. (Cayman Islands)(a) 346,850 18,719,495 ======================================================================== 23,642,270 ======================================================================== OIL & GAS EQUIPMENT & SERVICES-4.49% Halliburton Co. 528,100 25,253,742 - ------------------------------------------------------------------------ Weatherford International Ltd. (Bermuda)(a) 217,550 12,613,549 ======================================================================== 37,867,291 ======================================================================== </Table> AIM V.I. BASIC VALUE FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ OTHER DIVERSIFIED FINANCIAL SERVICES-5.49% Citigroup Inc. 469,750 $ 21,716,543 - ------------------------------------------------------------------------ JPMorgan Chase & Co. 696,490 24,600,027 ======================================================================== 46,316,570 ======================================================================== PACKAGED FOODS & MEATS-1.50% Unilever N.V. (Netherlands)(b) 195,500 12,661,958 ======================================================================== PHARMACEUTICALS-7.94% Pfizer Inc. 742,400 20,475,392 - ------------------------------------------------------------------------ Sanofi-Aventis (France)(b) 361,928 29,642,321 - ------------------------------------------------------------------------ Wyeth 378,500 16,843,250 ======================================================================== 66,960,963 ======================================================================== PROPERTY & CASUALTY INSURANCE-2.20% ACE Ltd. (Cayman Islands) 413,450 18,543,233 ======================================================================== SEMICONDUCTOR EQUIPMENT-0.97% Novellus Systems, Inc.(a) 329,200 8,134,532 ======================================================================== SPECIALIZED CONSUMER SERVICES-1.98% H&R Block, Inc. 286,650 16,726,028 ======================================================================== </Table> <Table> MARKET SHARES VALUE - ------------------------------------------------------------------------ <Caption> SYSTEMS SOFTWARE-3.40% Computer Associates International, Inc. 1,042,776 $ 28,655,484 ======================================================================== THRIFTS & MORTGAGE FINANCE-5.24% Fannie Mae 430,850 25,161,640 - ------------------------------------------------------------------------ MGIC Investment Corp. 151,450 9,877,569 - ------------------------------------------------------------------------ Radian Group Inc. 193,250 9,125,265 ======================================================================== 44,164,474 ======================================================================== Total Common Stocks & Other Equity Interests (Cost $657,880,228) 805,380,343 ======================================================================== MONEY MARKET FUNDS-4.97% Liquid Assets Portfolio-Institutional Class(c) 20,924,740 20,924,740 - ------------------------------------------------------------------------ STIC Prime Portfolio-Institutional Class(c) 20,924,740 20,924,740 ======================================================================== Total Money Market Funds (Cost $41,849,480) 41,849,480 ======================================================================== TOTAL INVESTMENTS-100.51% (Cost $699,729,708) 847,229,823 ======================================================================== OTHER ASSETS LESS LIABILITIES-(0.51%) (4,274,566) ======================================================================== NET ASSETS-100.00% $842,955,257 ________________________________________________________________________ ======================================================================== </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 June 30, 2005 was $42,304,279, which represented 4.99% 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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $657,880,228) $805,380,343 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $41,849,480) 41,849,480 ============================================================= Total investments (cost $699,729,708) 847,229,823 ============================================================= Receivables for: Investments sold 1,517,981 - ------------------------------------------------------------- Fund shares sold 232,247 - ------------------------------------------------------------- Dividends 592,896 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 22,063 - ------------------------------------------------------------- Other assets 4,438 ============================================================= Total assets 849,599,448 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 5,139,402 - ------------------------------------------------------------- Fund shares reacquired 397,350 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 41,553 - ------------------------------------------------------------- Accrued administrative services fees 830,850 - ------------------------------------------------------------- Accrued distribution fees -- Series II 216,229 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 186 - ------------------------------------------------------------- Accrued operating expenses 18,621 ============================================================= Total liabilities 6,644,191 ============================================================= Net assets applicable to shares outstanding $842,955,257 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $670,250,830 - ------------------------------------------------------------- Undistributed net investment income 1,739,777 - ------------------------------------------------------------- Undistributed net realized gain from investment securities and foreign currencies 23,466,266 - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 147,498,384 ============================================================= $842,955,257 _____________________________________________________________ ============================================================= NET ASSETS: Series I $489,461,719 _____________________________________________________________ ============================================================= Series II $353,493,538 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 41,400,817 _____________________________________________________________ ============================================================= Series II 30,141,272 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 11.82 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 11.73 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $178,903) $ 5,485,836 - ------------------------------------------------------------- Dividends from affiliated money market funds 280,795 ============================================================= Total investment income 5,766,631 ============================================================= EXPENSES: Advisory fees 2,960,081 - ------------------------------------------------------------- Administrative services fees 1,117,922 - ------------------------------------------------------------- Custodian fees 35,032 - ------------------------------------------------------------- Distribution fees -- Series II 432,871 - ------------------------------------------------------------- Transfer agent fees 13,241 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 17,826 - ------------------------------------------------------------- Other 48,206 ============================================================= Total expenses 4,625,179 ============================================================= Less: Fees waived (199,287) ============================================================= Net expenses 4,425,892 ============================================================= Net investment income 1,340,739 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities 15,258,195 - ------------------------------------------------------------- Foreign currencies (92,327) ============================================================= 15,165,868 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (18,054,929) - ------------------------------------------------------------- Foreign currencies (323) ============================================================= (18,055,252) ============================================================= Net gain (loss) from investment securities and foreign currencies (2,889,384) ============================================================= Net increase (decrease) in net assets resulting from operations $ (1,548,645) _____________________________________________________________ ============================================================= </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 1,340,739 $ 463,473 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and foreign currencies 15,165,868 16,587,227 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (18,055,252) 61,496,532 ========================================================================================== Net increase (decrease) in net assets resulting from operations (1,548,645) 78,547,232 ========================================================================================== Share transactions-net: Series I (6,654,831) 141,562,360 - ------------------------------------------------------------------------------------------ Series II 716,642 67,072,182 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (5,938,189) 208,634,542 ========================================================================================== Net increase (decrease) in net assets (7,486,834) 287,181,774 ========================================================================================== NET ASSETS: Beginning of period 850,442,091 563,260,317 ========================================================================================== End of period (including undistributed net investment income of $1,739,777 and $399,038, respectively) $842,955,257 $850,442,091 __________________________________________________________________________________________ ========================================================================================== </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 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, including estimates and assumptions related to taxation. 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 AIM V.I. BASIC VALUE 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 and domestic and foreign index futures. 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. AIM V.I. BASIC VALUE FUND 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $500 million 0.725% - -------------------------------------------------------------------- Next $500 million 0.70% - -------------------------------------------------------------------- Next $500 million 0.675% - -------------------------------------------------------------------- Over $1.5 billion 0.65% ____________________________________________________________________ ==================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $250 million 0.695% - -------------------------------------------------------------------- Next $250 million 0.67% - -------------------------------------------------------------------- Next $500 million 0.645% - -------------------------------------------------------------------- Next $1.5 billion 0.62% - -------------------------------------------------------------------- Next $2.5 billion 0.595% - -------------------------------------------------------------------- Next $2.5 billion 0.57% - -------------------------------------------------------------------- Next $2.5 billion 0.545% - -------------------------------------------------------------------- Over $10 billion 0.52% ____________________________________________________________________ ==================================================================== </Table> AIM has also 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $199,287. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expense. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund 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. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such AIM V.I. BASIC VALUE FUND agreement, for the six months ended June 30, 2005, AIM was paid $100,182 for accounting and fund administrative services and reimbursed $1,017,740 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $13,241. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $432,871. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $11,460,610 $37,659,192 $(28,195,062) $ -- $20,924,740 $139,641 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class 11,460,610 37,659,192 (28,195,062) -- 20,924,740 141,154 -- ================================================================================================================================== Total $22,921,220 $75,318,384 $(56,390,124) $ -- $41,849,480 $280,795 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </Table> NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $3,521 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. BASIC VALUE FUND During the six months ended June 30, 2005, 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 six months ended June 30, 2005 was $42,484,422 and $64,748,685, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $163,110,224 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (16,810,269) ============================================================================== Net unrealized appreciation of investment securities $146,299,955 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $700,929,868. </Table> NOTE 8--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 5,363,176 $ 62,356,890 13,734,851 $149,824,539 - ---------------------------------------------------------------------------------------------------------------------- Series II 3,437,847 39,794,366 11,573,153 125,795,937 ====================================================================================================================== Issued in connection with acquisitions:(b) Series I -- -- 2,495,812 27,079,556 ====================================================================================================================== Reacquired: Series I (5,934,001) (69,011,721) (3,284,585) (35,341,735) - ---------------------------------------------------------------------------------------------------------------------- Series II (3,372,098) (39,077,724) (5,416,314) (58,723,755) ====================================================================================================================== (505,076) $ (5,938,189) 19,102,917 $208,634,542 ______________________________________________________________________________________________________________________ ====================================================================================================================== </Table> (a) There are six entities that are each record owners of more than 5% of the outstanding shares of the Fund and in aggregate they own 77% 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, distribution, 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 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 9--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 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.84 $ 10.66 $ 7.98 $ 10.25 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.02 0.02 0.00 0.02(a) 0.01 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.04) 1.16 2.68 (2.29) 0.25 ================================================================================================================================= Total from investment operations (0.02) 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 $ 11.82 $ 11.84 $ 10.66 $ 7.98 $ 10.25 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (0.17)% 11.07% 33.63% (22.15)% 2.63% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $489,462 $496,837 $309,384 $97,916 $19,638 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.96%(c) 1.02% 1.04% 1.16% 1.27%(d) - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.01%(c) 1.02% 1.04% 1.16% 2.61%(d) ================================================================================================================================= Ratio of net investment income to average net assets 0.43%(c) 0.17% 0.01% 0.18% 0.28%(d) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 5% 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 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 $485,722,730. (d) Annualized. (e) Not annualized for periods less than one year. AIM V.I. BASIC VALUE FUND NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II -------------------------------------------------------------------------- SEPTEMBER 10, 2001 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, -------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.76 $ 10.61 $ 7.96 $ 10.25 $10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.01 (0.01) (0.02) (0.01)(a) 0.00 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.04) 1.16 2.67 (2.28) 0.26 ================================================================================================================================= Total from investment operations (0.03) 1.15 2.65 (2.29) 0.26 ================================================================================================================================= Less dividends from net investment income -- -- (0.00) (0.00) (0.01) ================================================================================================================================= Net asset value, end of period $ 11.73 $ 11.76 $ 10.61 $ 7.96 $10.25 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (0.26)% 10.84% 33.29% (22.34)% 2.58% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $353,494 $353,605 $253,877 $104,597 $ 513 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.21%(c) 1.27% 1.29% 1.41% 1.44%(d) - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.26%(c) 1.27% 1.29% 1.41% 2.88%(d) ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.18%(c) (0.08)% (0.24)% (0.07)% 0.12%(d) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 5% 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 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 $349,166,413. (d) Annualized. (e) Not annualized for periods less than one year. NOTE 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be AIM V.I. BASIC VALUE FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. BASIC VALUE FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis COUNSEL TO THE FUND Prema Mathai-Davis Robert G. Alley Foley & Lardner LLP Vice President 3000 K N.W., Suite 500 Lewis F. Pennock Washington, D.C. 20007-5111 Ruth H. Quigley J. Philip Ferguson COUNSEL TO THE INDEPENDENT TRUSTEES Vice President Kramer, Levin, Naftalis & Frankel LLP Larry Soll 1177 Avenue of the Americas Mark D. Greenberg New York, NY 10036-2714 Mark H. Williamson Vice President DISTRIBUTOR A I M Distributors, Inc. William R. Keithler 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 Karen Dunn Kelley Vice President </Table> AIM V.I. BASIC VALUE FUND AIM V.I. BLUE CHIP FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. BLUE CHIP FUND seeks to provide long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. BLUE CHIP FUND <Table> MANAGEMENT'S DISCUSSION We follow a "conservative growth" OF FUND PERFORMANCE strategy, investing in market leaders ====================================================================================== that have attractive growth and value characteristics: PERFORMANCE SUMMARY ========================================= o growth--we seek companies with the For the six months ended June 30, 2005, potential for sustainable, long-term AIM V.I. Blue Chip Fund delivered negative FUND VS. INDEXES earnings, revenue and cash flow growth returns, lagging the S&P 500 Index in a difficult market--one that was TOTAL RETURNS,12/31/04-6/30/05,EXCLUDING o value--we seek companies whose stocks particularly difficult for large-cap VARIABLE PRODUCT ISSUER CHARGES. IF are trading at attractive valuations growth stocks, such as the type in which VARIABLE PRODUCT ISSUER CHARGES WERE relative to their potential growth rates the Fund invests. The Fund underperformed INCLUDED, RETURNS WOULD BE LOWER. its style-specific index, which also We construct the portfolio using a produced negative returns. Series I Shares -2.77% bottom-up strategy, focusing on stocks rather than industries or sectors. While The Fund's underperformance relative Series II Shares -2.79 there are no formal sector guidelines or to its style-specific index was due constraints, internal controls and largely to weak stock selection in the Standard & Poor's Composite Index proprietary software help us monitor risk industrials sector. The Fund was of 500 Stocks (S&P 500 Index) levels and sector concentration. overweight in that sector compared to its (Broad Market Index) -0.81 index, and the Fund's industrials Our sell process seeks to identify holdings, as a group, fared worse than Russell 1000 Growth Index deterioration in the underlying reasons those of its index. Also, the Fund's (Style-specific Index) -1.72 that a stock was initially purchased. information technology holdings Conditions that may cause us to reduce Lipper Large-Cap Growth Fund Index or sell a position include: (Peer Group Index) -1.28 o deterioration in business prospects SOURCE: LIPPER,INC. o worsening competitive position ========================================= o slowing earnings growth generally underperformed those held by its style-specific index. o extended valuation o more attractive investment ====================================================================================== opportunities HOW WE INVEST and cash flow growth that is not yet MARKET CONDITIONS AND YOUR FUND reflected in investor expectations or We believe growth investors succeed when equity valuations. The market rally that began in late 2004 the market underestimates the pace, faded during the early months of 2005. persistence and implications of positive Quantitative analysis focuses on the During the first half of 2005, the market change--such as new products, level, growth rate and sustainability of lost ground and then gained ground, breakthrough technologies or an upgraded earnings, revenue and cash flow, ranking finally closing not far from where it management team. We believe such changes investment candidates on absolute and began. The market's indecision was the often lead to higher growth rates, cash relative attractiveness. Fundamental result of record-high energy prices and flow and profit margins. Our investment analysis seeks to define a company's key rising short-term interest rates, among process combines quantitative and drivers of success and to assess their other factors. In contrast with the stock fundamental analysis to uncover companies durability. We review financial market, U.S. gross domestic product, the exhibiting long-term, sustainable statements and earnings reports, the broadest measure of the nation's overall earnings company's structure, business model and economic activity, expanded strongly management team, the competitive throughout the first half of 2005. environment and market opportunities. ========================================= ========================================= ========================================= PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Pharmaceuticals 7.1% 1. Exxon Mobil Corp. 3.9% 1. Information Technology 21.7% 2. Systems Software 5.2 2. Johnson & Johnson 3.1 2. Health Care 18.7 3. Industrial Conglomerates 4.5 3. General Electric Co. 2.9 3. Financials 15.0 4. Semiconductors 4.4 4. Citigroup Inc. 2.6 4. Consumer Discretionary 10.6 5. Integrated Oil & Gas 3.9 5. Microsoft Corp. 2.5 5. Industrials 10.5 6. Health Care Equipment 3.9 6. Dell Inc. 2.2 6. Energy 8.2 7. Other Diversified Financial 7. UnitedHealth Group Inc. 2.1 7. Consumer Staples 7.0 Services 3.8 8. Cisco Systems, Inc. 2.0 8. Materials 2.1 8. Communications Equipment 3.5 9. Wal-Mart Stores, Inc. 2.0 9. Utilities 1.8 9. Managed Health Care 3.3 10. Procter & Gamble Co. (The) 1.9 10. Telecommunication Services 1.5 10. Investment Banking & Brokerage 3.2 TOTAL NET ASSETS $123.0 MILLION Money Market Funds and Treasuries Plus Other Assets TOTAL NUMBER OF HOLDINGS* 90 Less Liabilities 2.9 The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. *Excluding U.S. Treasury securities and money market fund holdings. ========================================= ========================================= ========================================= </Table> 2 AIM V.I. BLUE CHIP FUND <Table> For the reporting period, returns of the sector. The sector's poor performance IN CLOSING indexes representing small- and large-cap was due in part to the fact that stocks were similar, returning less than companies generally remained hesitant to Large-cap growth stocks seemed well 1%. Mid-cap stocks performed commit to major information technology positioned at the close of the reporting significantly better, returning more than improvements until economic and industry period. In our view, several factors 4% for the period. Value stocks trends became clearer. We were encouraged favored such stocks, including reasonable consistently outperformed growth stocks that during the final month of the valuations, a moderately strong economy across all capitalization levels for the reporting period, many information and significant cash reserves on many six months ended June 30, 2005. The Fund technology stocks rallied somewhat. companies' balance sheets. We thank you invests the bulk of its assets in stocks for your continued investment in AIM V.I. of large-cap growth companies, and that Holdings that contributed to Fund Blue Chip Fund. strategy had a negative effect on performance included EXXONMOBIL and performance for the reporting period. UNITEDHEALTH GROUP. The views and opinions expressed in management's discussion of Fund Throughout the reporting period, we o The world's largest publicly traded performance are those of A I M Advisors, were invested in all 10 sectors of the energy company, ExxonMobil has benefited Inc. These views and opinions are subject economy. Keep in mind that depending on from strong, sustained oil and gas to change at any time based on factors market conditions, the Fund's bottom-up prices. The company's operating earnings such as market and economic conditions. research may result in a lack of exposure have grown significantly in recent These views and opinions may not be to one or more sectors of the economy. quarters due to strong pricing and relied upon as investment advice or Because sector performance is among the margins. We believe energy prices may recommendations, or as an offer for a factors that affect the Fund's short-term remain strong for some time to come, particular security. The information is performance, it can be helpful to recount prompting us to continue to hold not a complete analysis of every aspect some generalizations about sector ExxonMobil. of any market, country, industry, performance during the reporting period. security or the Fund. Statements of fact o Health benefit provider UnitedHealth are from sources considered reliable, but Relative to its style-specific index, Group has reported strong and consistent A I M Advisors, Inc. makes no the Fund was significantly overweight in earnings growth in recent years by representation or warranty as to their the energy sector for the reporting raising premiums, adding new members completeness or accuracy. Although period, and that helped performance. We (largely by acquiring competitors) and historical performance is no guarantee of were overweight in the energy equipment holding down costs. Because we believe future results, these insights may help and services segment of the sector, which management can continue such trends, we you understand our investment management includes manufacturers of equipment, continued to hold the stock. Stocks that philosophy. including drilling rigs, drilling hindered Fund performance included EBAY contractors and providers of supplies and and WAL-MART. services to companies involved in the MONIKA H. DEGAN, Chartered drilling, evaluation and completion of o EBAY is the largest online market for [DEGAN Financial Analyst, senior oil and gas wells. We added to the Fund's the sale of goods and services by PHOTO] portfolio manager, is the energy holdings in recent months as we consumers and small businesses. Investors lead manager of AIM V.I. saw evidence that the sector may be reacted negatively to the company's Blue Chip Fund. Ms. Degan experiencing a period of sustained year-over-year U.S. earnings growth joined AIM in 1995 and was promoted to growth. figures, announced in January, which her current position in 1997. She caused the stock to decline for much of received a B.B.A. in finance and an While the Fund was underweight health the reporting period. We believe M.B.A. in finance and international care stocks relative to its benchmark investors overreacted to short-term business, both from the University of indexes, such stocks contributed to Fund trends and consider eBay's long-term Houston. Monika Degan is no longer a performance for the reporting period. In prospects to be positive. We believe eBay manager of the Fund. a generally weak market, investors is an exceptionally well managed company favored health care stocks, many of which that dominates its market, and we Monika Degan is no longer paid dividends and were viewed as trading continued to hold the stock at the close a manager of the Fund. at low valuations relative to the market of the reporting period. as a whole. Health care services and equipment stocks were the top performers o WAL-MART remains the world's largest KIRK L. ANDERSON, port- within the sector, while biotechnology retailer, but its stock price has [ANDERSON folio manager, is a stocks declined significantly during the suffered as competitors, most notably PHOTO] portfolio manager of AIM period. Pharmaceutical stocks did well in Target (not a Fund holding), have V.I. Blue Chip Fund. Mr. the second quarter. At the close of the successfully attracted shoppers with low Anderson joined AIM in reporting period, the Fund remained prices and more enticing shopping 1994 in the fund services area. He underweight the sector relative to its environments--and as Wal-Mart's labor moved to portfolio administration in benchmark indexes. practices and corporate citizenship have 1995, became an analyst in 1997, and was come under scrutiny. Nonetheless, named a portfolio manager in 2003. Mr. Information technology holdings had a Wal-Mart remains the undisputed market Anderson earned a B.A. in political generally negative effect on Fund leader in the highly competitive retail science from Texas A&M University and an performance for the reporting period. The industry, and we continued to hold the M.S. in finance from the University of percentage of Fund assets invested in the stock at the close of the reporting Houston. sector declined as a result of market period. movements, but this decline was partially Assisted by the Large Cap Growth Team offset by additional purchases in Effective July 1, 2005, after the close of the reporting period, Kirk L. Anderson was named lead portfolio manager of AIM V.I. Blue Chip Fund. [RIGHT ARROW GRAPHIC] FOR A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. BLUE CHIP FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ========================================= AVERAGE ANNUAL TOTAL RETURNS December 29, 1999. The inception date of rently offered through insurance Series II shares is March 13, 2002. The companies issuing variable products. You As of 6/30/05 Series I and Series II shares invest in cannot purchase shares of the Fund the same portfolio of securities and will directly. Performance figures given SERIES I SHARES have substantially similar performance, represent the Fund and are not intended Inception (12/29/99) -7.05% except to the extent that expenses borne to reflect actual variable product 5 Years -8.55 by each class differ. values. They do not reflect sales 1 Year 1.01 charges, expenses and fees assessed in The performance data quoted represent connection with a variable product. Sales SERIES II SHARES past performance and cannot guarantee charges, expenses and fees, which are Inception -7.28% comparable future results; current determined by the variable product 5 Years -8.79 performance may be lower or higher. issuers, will vary and will lower the 1 Year 0.76 Please contact your variable product total return. issuer or financial advisor for the most ========================================= recent month-end variable product Per NASD requirements, the most recent performance. Performance figures reflect month-end performance data at the Fund Returns since the inception date of Fund expenses, reinvested distributions level, excluding variable product Series II shares are historical. All and changes in net asset value. charges, is available on this AIM other returns are the blended returns of Investment return and principal value automated information line, 866-702-4402. the historical performance of Series II will fluctuate so that you may have a As mentioned above, for the most recent shares since their inception and the gain or loss when you sell shares. month-end performance including variable restated historical performance of Series product charges, please contact your I shares (for periods prior to inception AIM V.I. Blue Chip Fund, a series variable product issuer or financial of the Series II shares) adjusted to portfolio of AIM Variable Insurance advisor. reflect the higher Rule 12b-1 fees Funds, is cur- applicable to Series II shares. The inception date of Series I shares is PRINCIPAL RISKS OF INVESTING IN THE FUND Trademark-- INDEX, which represents the OTHER INFORMATION performance of the stocks of The Fund may invest up to 25% of its large-capitalization companies; the The returns shown in management's assets in the securities of non-U.S. Growth subset measures the performance of discussion of Fund performance are based issuers. International investing presents Russell 1000 companies with higher on net asset values calculated for certain risks not associated with price/book ratios and higher forecasted shareholder transactions. Generally investing solely in the United States. growth values. accepted accounting principles require These include risks relating to adjustments to be made to the net assets fluctuations in the value of the U.S. The unmanaged Standard & Poor's of the Fund at period end for financial dollar relative to the values of other Composite Index of 500 Stocks (the S&P reporting purposes, and as such, the net currencies, the custody arrangements made 500--Registered Trademark-- INDEX) is an asset values for shareholder transactions for the Fund's foreign holdings, differ- index of common stocks frequently used as and the returns based on those net asset ences in accounting, political risks and a general measure of U.S. stock market values may differ from the net asset the lesser degree of public information performance. values and returns reported in the required to be provided by non-U.S. Financial Highlights. Additionally, the companies. The Fund is not managed to track the returns and net asset values shown performance of any particular index, throughout this report are at the Fund ABOUT INDEXES USED IN THIS REPORT including the indexes defined here, and level only and do not include variable consequently, the performance of the Fund product issuer charges. If such charges The unmanaged Lipper LARGE-CAP GROWTH may deviate significantly from the were included, the total returns would be FUND INDEX represents an average of the performance of the indexes. lower. performance of the 30 largest large-capitalization growth funds tracked A direct investment cannot be made in Industry classifications used in this by Lipper, Inc., an independent mutual an index. Unless otherwise indicated, report are generally according to the fund performance monitor. index results include reinvested Global Industry Classification Standard, dividends, and they do not reflect sales which was developed by and is the The unmanaged RUSSELL charges. Performance of an index of funds exclusive property and a service mark of 1000--Registered Trademark-- GROWTH reflects fund expenses; performance of a Morgan Stanley Capital International Inc. INDEX is a subset of the unmanaged market index does not. and Standard & Poor's. RUSSELL 1000--Registered </Table> 4 AIM V.I. BLUE CHIP FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate the As a shareholder of the Fund, you incur invested, to estimate the expenses that actual ending account balance or expenses ongoing costs, including management fees; you paid over the period. Simply divide you paid for the period. You may use this distribution and/or service fees (12b-1); your account value by $1,000 (for information to compare the ongoing costs and other Fund expenses. This example is example, an $8,600 account value divided of investing in the Fund and other funds. intended to help you understand your by $1,000 = 8.6), then multiply the To do so, compare this 5% hypothetical ongoing costs (in dollars) of investing result by the number in the table under example with the 5% hypothetical examples in the Fund and to compare these costs the heading entitled "Actual Expenses that appear in the shareholder reports of with ongoing costs of investing in other Paid During Period" to estimate the the other funds. mutual funds. The example is based on an expenses you paid on your account during investment of $1,000 invested at the this period. Please note that the expenses shown in beginning of the period and held for the the table are meant to highlight your entire period January 1, 2005, through HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the June 30, 2005. PURPOSES hypothetical information is useful in comparing ongoing costs, and will not The actual and hypothetical expenses The table below also provides information help you determine the relative total in the examples below do not represent about hypothetical account values and costs of owning different funds. the effect of any fees or other expenses hypothetical expenses based on the Fund's assessed in connection with a variable actual expense ratio and an assumed rate product; if they did, the expenses shown of return of 5% per year before expenses, would be higher while the ending account which is not the Fund's actual return. values shown would be lower. The Fund's actual cumulative total returns at net asset value after expenses ACTUAL EXPENSES for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on The table below provides information the first page of management's discussion about actual account values and actual of Fund performance. 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 (1/1/05) (6/30/05)(1) PERIOD(2)(3) (6/30/05) PERIOD(2)(4) Series I $ 1,000.00 $ 972.30 $ 5.18 $ 1,019.54 $ 5.31 Series II 1,000.00 972.10 6.41 1,018.30 6.56 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (1.06% and 1.31% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 1.01% and 1.26% for Series I and Series II shares, respectively. 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 change discussed above had been in effect throughout the entire most recent fiscal half year are $4.94 and $6.16 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 $5.06 and $6.31 for Series I and Series II shares, respectively. ================================================================================================================== </Table> 5 AIM V.I. BLUE CHIP FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Overall performance of AIM. The Board Insurance Funds (the "Board") oversees by AIM. The Board reviewed the considered the overall performance of AIM the management of AIM V.I. Blue Chip Fund credentials and experience of the in providing investment advisory and (the "Fund") and, as required by law, officers and employees of AIM who will portfolio administrative services to the determines annually whether to approve provide investment advisory services to Fund and concluded that such performance the continuance of the Fund's advisory the Fund. In reviewing the qualifications was satisfactory. agreement with A I M Advisors, Inc. of AIM to provide investment advisory ("AIM"). Based upon the recommendation of services, the Board reviewed the o Fees relative to those of clients of the Investments Committee of the Board, qualifications of AIM's investment AIM with comparable investment which is comprised solely of independent personnel and considered such issues as strategies. The Board reviewed the trustees, at a meeting held on June 30, AIM's portfolio and product review advisory fee rate for the Fund under the 2005, the Board, including all of the process, various back office support Advisory Agreement. The Board noted that independent trustees, approved the functions provided by AIM and AIM's this rate (i) was the same as the continuance of the advisory agreement equity and fixed income trading advisory fee rates for a mutual fund (the "Advisory Agreement") between the operations. Based on the review of these advised by AIM with investment strategies Fund and AIM for another year, effective and other factors, the Board concluded comparable to those of the Fund; and (ii) July 1, 2005. that the quality of services to be was higher than the sub-advisory fee provided by AIM was appropriate and that rates for three unaffiliated mutual funds The Board considered the factors AIM currently is providing satisfactory for which an AIM affiliate serves as discussed below in evaluating the services in accordance with the terms of sub-advisor, although the total fairness and reasonableness of the the Advisory Agreement. management fees paid by such unaffiliated Advisory Agreement at the meeting on June mutual funds were higher than the 30, 2005 and as part of the Board's o The performance of the Fund relative to advisory fee rate for the Fund. The Board ongoing oversight of the Fund. In their comparable funds. The Board reviewed the noted that AIM has agreed to waive deliberations, the Board and the performance of the Fund during the past advisory fees of the Fund and to limit independent trustees did not identify any one and three calendar years against the the Fund's total operating expenses, as particular factor that was controlling, performance of funds advised by other discussed below. Based on this review, and each trustee attributed different advisors with investment strategies the Board concluded that the advisory fee weights to the various factors. comparable to those of the Fund. The rate for the Fund under the Advisory Board noted that the Fund's performance Agreement was fair and reasonable. One of the responsibilities of the in such periods was below the median Senior Officer of the Fund, who is performance of such comparable funds. The o Fees relative to those of comparable independent of AIM and AIM's affiliates, Board noted that, effective July 1, 2005, funds with other advisors. The Board is to manage the process by which the AIM will change the Fund's portfolio reviewed the advisory fee rate for the Fund's proposed management fees are management team, which change will need Fund under the Advisory Agreement. The negotiated to ensure that they are time to be evaluated before a conclusion Board compared effective contractual negotiated in a manner which is at arm's can be made that the change has addressed advisory fee rates at a common asset length and reasonable. To that end, the the Fund's under-performance. Based on level and noted that the Fund's rate was Senior Officer must either supervise a this review, the Board concluded that no above the median rate of the funds competitive bidding process or prepare an changes should be made to the Fund and advised by other advisors with investment independent written evaluation. The that it was not necessary to further strategies comparable to those of the Senior Officer has recommended an change the Fund's portfolio management Fund that the Board reviewed. The Board independent written evaluation in lieu of team at this time. noted that AIM has agreed to waive a competitive bidding process and, upon advisory fees of the Fund and to limit the direction of the Board, has prepared o The performance of the Fund relative to the Fund's total operating expenses, as such an independent written evaluation. indices. The Board reviewed the discussed below. Based on this review, Such written evaluation also considered performance of the Fund during the past the Board concluded that the advisory fee certain of the factors discussed below. one and three calendar years against the rate for the Fund under the Advisory In addition, as discussed below, the performance of the LIPPER LARGE-CAP CORE Agreement was fair and reasonable. Senior Officer made certain INDEX. The Board noted that the Fund's recommendations to the Board in performance in such periods was below the o Expense limitations and fee waivers. connection with such written evaluation. performance of such Index. The Board The Board noted that AIM has noted that, effective July 1, 2005, AIM contractually agreed to waive advisory The discussion below serves as a will change the Fund's portfolio fees of the Fund through December 31, summary of the Senior Officer's management team, which change will need 2009 to the extent necessary so that the independent written evaluation and time to be evaluated before a conclusion advisory fees payable by the Fund do not recommendations to the Board in can be made that the change has addressed exceed a specified maximum advisory fee connection therewith, as well as a the Fund's under-performance. Based on rate, which maximum rate includes discussion of the material factors and this review, the Board concluded that no breakpoints and is based on net asset the conclusions with respect thereto that changes should be made to the Fund and levels. The Board considered the formed the basis for the Board's approval that it was not necessary to further contractual nature of this fee waiver and of the Advisory Agreement. After change the Fund's portfolio management noted that it remains in effect until consideration of all of the factors below team at this time. December 31, 2009. The Board noted that and based on its informed business AIM has contractually agreed to waive judgment, the Board determined that the o Meeting with the Fund's portfolio fees and/or limit expenses of the Fund Advisory Agreement is in the best managers and investment personnel. With through June 30, 2006 in an amount interests of the Fund and its respect to the Fund, the Board is meeting necessary to limit total annual operating shareholders and that the compensation to periodically with such Fund's portfolio expenses to a specified percentage of AIM under the Advisory Agreement is fair managers and/or other investment average daily net assets for each class and reasonable and would have been personnel and believes that such of the Fund. The Board considered the obtained through arm's length individuals are competent and able to contractual nature of this fee negotiations. continue to carry out their waiver/expense limitation and noted that responsibilities under the Advisory it remains in effect until June 30, 2006. o The nature and extent of the advisory Agreement. The Board considered the effect these services to be provided by AIM. The Board reviewed the services to be provided by AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 6 AIM V.I. BLUE CHIP FUND <Table> fee waivers/expense limitations would Funds, including the Fund. The Board o Historical relationship between the have on the Fund's estimated expenses and noted that the Senior Officer's written Fund and AIM. In determining whether to concluded that the levels of fee evaluation had been relied upon by the continue the Advisory Agreement for the waivers/expense limitations for the Fund Board in this regard in lieu of a Fund, the Board also considered the prior were fair and reasonable. competitive bidding process. In relationship between AIM and the Fund, as determining whether to continue the well as the Board's knowledge of AIM's o Breakpoints and economies of scale. The Advisory Agreement for the Fund, the operations, and concluded that it was Board reviewed the structure of the Board considered the Senior Officer's beneficial to maintain the current Fund's advisory fee under the Advisory written evaluation and the recommendation relationship, in part, because of such Agreement, noting that it includes one made by the Senior Officer to the Board knowledge. The Board also reviewed the breakpoint. The Board reviewed the level that the Board consider implementing a general nature of the non-investment of the Fund's advisory fees, and noted process to assist them in more closely advisory services currently performed by that such fees, as a percentage of the monitoring the performance of the AIM AIM and its affiliates, such as Fund's net assets, would decrease as net Funds. The Board concluded that it would administrative, transfer agency and assets increase because the Advisory be advisable to implement such a process distribution services, and the fees Agreement includes a breakpoint. The as soon as reasonably practicable. The received by AIM and its affiliates for Board noted that, due to the Fund's Board noted that, effective July 1, 2005, performing such services. In addition to current asset levels and the way in which AIM will change the Fund's portfolio reviewing such services, the trustees the advisory fee breakpoints have been management team, which change will need also considered the organizational structured, the Fund has yet to benefit time to be evaluated before a conclusion structure employed by AIM and its from the breakpoint. The Board noted that can be made that the change has addressed affiliates to provide those services. AIM has contractually agreed to waive the Fund's under-performance. The Board Based on the review of these and other advisory fees of the Fund through also considered the Senior Officer's factors, the Board concluded that AIM and December 31, 2009 to the extent necessary recommendation that the Board consider an its affiliates were qualified to continue so that the advisory fees payable by the additional advisory fee waiver for the to provide non-investment advisory Fund do not exceed a specified maximum Fund due to the Fund's under-performance. services to the Fund, including advisory fee rate, which maximum rate The Board concluded that such a fee administrative, transfer agency and includes breakpoints and is based on net waiver was not appropriate for the Fund distribution services, and that AIM and asset levels. The Board concluded that at this time and that, rather than its affiliates currently are providing the Fund's fee levels under the Advisory requesting such a fee waiver from AIM, satisfactory non-investment advisory Agreement therefore would reflect the Board should closely monitor the services. economies of scale at higher asset levels Fund's performance under the new and that it was not necessary to change portfolio management team. o Other factors and current trends. In the advisory fee breakpoints in the determining whether to continue the Fund's advisory fee schedule. o Profitability of AIM and its Advisory Agreement for the Fund, the affiliates. The Board reviewed Board considered the fact that AIM, along o Investments in affiliated money market information concerning the profitability with others in the mutual fund industry, funds. The Board also took into account of AIM's (and its affiliates') investment is subject to regulatory inquiries and the fact that uninvested cash and cash advisory and other activities and its litigation related to a wide range of collateral from securities lending financial condition. The Board considered issues. The Board also considered the arrangements (collectively, "cash the overall profitability of AIM, as well governance and compliance reforms being balances") of the Fund may be invested in as the profitability of AIM in connection undertaken by AIM and its affiliates, money market funds advised by AIM with managing the Fund. The Board noted including maintaining an internal pursuant to the terms of an SEC exemptive that AIM's operations remain profitable, controls committee and retaining an order. The Board found that the Fund may although increased expenses in recent independent compliance consultant, and realize certain benefits upon investing years have reduced AIM's profitability. the fact that AIM has undertaken to cause cash balances in AIM advised money market Based on the review of the profitability the Fund to operate in accordance with funds, including a higher net return, of AIM's and its affiliates' investment certain governance policies and increased liquidity, increased advisory and other activities and its practices. The Board concluded that these diversification or decreased transaction financial condition, the Board concluded actions indicated a good faith effort on costs. The Board also found that the Fund that the compensation to be paid by the the part of AIM to adhere to the highest will not receive reduced services if it Fund to AIM under its Advisory Agreement ethical standards, and determined that invests its cash balances in such money was not excessive. the current regulatory and litigation market funds. The Board noted that, to environment to which AIM is subject the extent the Fund invests in affiliated o Benefits of soft dollars to AIM. The should not prevent the Board from money market funds, AIM has voluntarily Board considered the benefits realized by continuing the Advisory Agreement for the agreed to waive a portion of the advisory AIM as a result of brokerage transactions Fund. fees it receives from the Fund executed through "soft dollar" attributable to such investment. The arrangements. Under these arrangements, Board further determined that the brokerage commissions paid by the Fund proposed securities lending program and and/or other funds advised by AIM are related procedures with respect to the used to pay for research and execution lending Fund is in the best interests of services. This research is used by AIM in the lending Fund and its respective making investment decisions for the Fund. shareholders. The Board therefore The Board concluded that such concluded that the investment of cash arrangements were appropriate. collateral received in connection with the securities lending program in the o AIM's financial soundness in light of money market funds according to the the Fund's needs. The Board considered procedures is in the best interests of whether AIM is financially sound and has the lending Fund and its respective the resources necessary to perform its shareholders. obligations under the Advisory Agreement, and concluded that AIM has the financial o Independent written evaluation and resources necessary to fulfill its recommendations of the Fund's Senior obligations under the Advisory Agreement. Officer. The Board noted that, upon their direction, the Senior Officer of the Fund had prepared an independent written evaluation in order to assist the Board in determining the reasonableness of the proposed management fees of the AIM </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-97.09% AEROSPACE & DEFENSE-1.96% Lockheed Martin Corp. 13,900 $ 901,693 - ------------------------------------------------------------------------ United Technologies Corp. 29,300 1,504,555 ======================================================================== 2,406,248 ======================================================================== AIR FREIGHT & LOGISTICS-0.71% FedEx Corp. 10,800 874,908 ======================================================================== ALUMINUM-0.36% Alcoa Inc. 17,000 444,210 ======================================================================== APPLICATION SOFTWARE-1.08% Amdocs Ltd. (United Kingdom)(a) 50,200 1,326,786 ======================================================================== ASSET MANAGEMENT & CUSTODY BANKS-0.75% Franklin Resources, Inc. 11,900 916,062 ======================================================================== BIOTECHNOLOGY-2.03% Amgen Inc.(a) 25,800 1,559,868 - ------------------------------------------------------------------------ Genentech, Inc.(a) 11,700 939,276 ======================================================================== 2,499,144 ======================================================================== COMMUNICATIONS EQUIPMENT-3.51% Cisco Systems, Inc.(a) 125,700 2,402,127 - ------------------------------------------------------------------------ QUALCOMM Inc. 58,000 1,914,580 ======================================================================== 4,316,707 ======================================================================== COMPUTER & ELECTRONICS RETAIL-0.86% Best Buy Co., Inc. 15,500 1,062,525 ======================================================================== COMPUTER HARDWARE-2.16% Dell Inc.(a) 67,300 2,659,023 ======================================================================== COMPUTER STORAGE & PERIPHERALS-1.52% EMC Corp.(a) 136,500 1,871,415 ======================================================================== CONSUMER FINANCE-2.41% American Express Co. 31,700 1,687,391 - ------------------------------------------------------------------------ SLM Corp. 25,200 1,280,160 ======================================================================== 2,967,551 ======================================================================== DATA PROCESSING & OUTSOURCED SERVICES-0.74% Automatic Data Processing, Inc. 21,800 914,946 ======================================================================== </Table> <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ DEPARTMENT STORES-2.14% J.C. Penney Co., Inc. 21,700 $ 1,140,986 - ------------------------------------------------------------------------ Nordstrom, Inc. 21,900 1,488,543 ======================================================================== 2,629,529 ======================================================================== DIVERSIFIED BANKS-2.34% Bank of America Corp. 40,700 1,856,327 - ------------------------------------------------------------------------ Wells Fargo & Co. 16,600 1,022,228 ======================================================================== 2,878,555 ======================================================================== DIVERSIFIED CHEMICALS-0.90% Dow Chemical Co. (The) 24,900 1,108,797 ======================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.76% Cendant Corp. 42,000 939,540 ======================================================================== DRUG RETAIL-0.51% CVS Corp. 21,700 630,819 ======================================================================== ELECTRIC UTILITIES-1.03% FPL Group, Inc. 30,000 1,261,800 ======================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-0.44% Cooper Industries, Ltd.-Class A (Bermuda) 8,400 536,760 ======================================================================== FOOTWEAR-1.25% NIKE, Inc.-Class B 17,700 1,532,820 ======================================================================== HEALTH CARE EQUIPMENT-3.92% Bard (C.R.), Inc. 9,300 618,543 - ------------------------------------------------------------------------ Becton, Dickinson & Co. 11,700 613,899 - ------------------------------------------------------------------------ Medtronic, Inc. 25,900 1,341,361 - ------------------------------------------------------------------------ Varian Medical Systems, Inc.(a) 18,500 690,605 - ------------------------------------------------------------------------ Waters Corp.(a) 19,900 739,683 - ------------------------------------------------------------------------ Zimmer Holdings, Inc.(a) 10,800 822,636 ======================================================================== 4,826,727 ======================================================================== HEALTH CARE FACILITIES-0.77% HCA Inc. 16,800 952,056 ======================================================================== HEALTH CARE SERVICES-0.77% Express Scripts, Inc.(a) 19,000 949,620 ======================================================================== HEALTH CARE SUPPLIES-0.75% Alcon, Inc. (Switzerland) 8,400 918,540 ======================================================================== HOME IMPROVEMENT RETAIL-1.79% Home Depot, Inc. (The) 56,700 2,205,630 ======================================================================== </Table> AIM V.I. BLUE CHIP FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ HOMEFURNISHING RETAIL-0.61% Bed Bath & Beyond Inc.(a) 18,000 $ 752,040 ======================================================================== HOTELS, RESORTS & CRUISE LINES-0.67% Carnival Corp. (Panama)(b) 15,000 818,250 ======================================================================== HOUSEHOLD PRODUCTS-2.50% Clorox Co. (The) 12,300 685,356 - ------------------------------------------------------------------------ Procter & Gamble Co. (The) 45,200 2,384,300 ======================================================================== 3,069,656 ======================================================================== HOUSEWARES & SPECIALTIES-0.95% Fortune Brands, Inc. 13,200 1,172,160 ======================================================================== HYPERMARKETS & SUPER CENTERS-1.95% Wal-Mart Stores, Inc. 49,800 2,400,360 ======================================================================== INDUSTRIAL CONGLOMERATES-4.46% General Electric Co. 102,600 3,555,090 - ------------------------------------------------------------------------ Tyco International Ltd. (Bermuda) 66,000 1,927,200 ======================================================================== 5,482,290 ======================================================================== INDUSTRIAL GASES-0.54% Air Products & Chemicals, Inc. 11,100 669,330 ======================================================================== INDUSTRIAL MACHINERY-1.00% Danaher Corp. 23,600 1,235,224 ======================================================================== INTEGRATED OIL & GAS-3.93% Exxon Mobil Corp. 84,000 4,827,480 ======================================================================== INTEGRATED TELECOMMUNICATION SERVICES-0.74% SBC Communications Inc. 38,500 914,375 ======================================================================== INTERNET RETAIL-0.27% eBay Inc.(a) 10,200 336,702 ======================================================================== INTERNET SOFTWARE & SERVICES-1.60% VeriSign, Inc.(a) 31,100 894,436 - ------------------------------------------------------------------------ Yahoo! Inc.(a) 30,800 1,067,220 ======================================================================== 1,961,656 ======================================================================== INVESTMENT BANKING & BROKERAGE-3.22% Goldman Sachs Group, Inc. (The) 21,500 2,193,430 - ------------------------------------------------------------------------ Merrill Lynch & Co., Inc. 32,000 1,760,320 ======================================================================== 3,953,750 ======================================================================== IT CONSULTING & OTHER SERVICES-0.74% Accenture Ltd.-Class A (Bermuda)(a) 40,000 906,800 ======================================================================== MANAGED HEALTH CARE-3.34% UnitedHealth Group Inc. 50,400 2,627,856 - ------------------------------------------------------------------------ WellPoint, Inc.(a) 21,200 1,476,368 ======================================================================== 4,104,224 ======================================================================== </Table> <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ MOVIES & ENTERTAINMENT-0.95% Walt Disney Co. (The) 46,500 $ 1,170,870 ======================================================================== MULTI-LINE INSURANCE-1.40% Genworth Financial Inc.-Class A 32,900 994,567 - ------------------------------------------------------------------------ Hartford Financial Services Group, Inc. (The) 9,700 725,366 ======================================================================== 1,719,933 ======================================================================== MULTI-UTILITIES-0.82% Dominion Resources, Inc. 13,700 1,005,443 ======================================================================== OIL & GAS DRILLING-1.36% ENSCO International Inc. 22,500 804,375 - ------------------------------------------------------------------------ GlobalSantaFe Corp. (Cayman Islands) 21,400 873,120 ======================================================================== 1,677,495 ======================================================================== OIL & GAS EQUIPMENT & SERVICES-2.11% BJ Services Co.(c) 20,400 1,070,592 - ------------------------------------------------------------------------ Schlumberger Ltd. (Netherlands) 20,000 1,518,800 ======================================================================== 2,589,392 ======================================================================== OIL & GAS REFINING & MARKETING-0.81% Valero Energy Corp. 12,600 996,786 ======================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-3.79% Citigroup Inc. 68,600 3,171,378 - ------------------------------------------------------------------------ JPMorgan Chase & Co. 42,100 1,486,972 ======================================================================== 4,658,350 ======================================================================== PERSONAL PRODUCTS-1.22% Gillette Co. (The) 29,600 1,498,648 ======================================================================== PHARMACEUTICALS-7.08% Allergan, Inc. 10,500 895,020 - ------------------------------------------------------------------------ Johnson & Johnson 59,200 3,848,000 - ------------------------------------------------------------------------ Pfizer Inc. 76,000 2,096,080 - ------------------------------------------------------------------------ Roche Holding A.G. (Switzerland)(d) 5,000 630,787 - ------------------------------------------------------------------------ Wyeth 27,700 1,232,650 ======================================================================== 8,702,537 ======================================================================== PROPERTY & CASUALTY INSURANCE-1.10% Allstate Corp. (The) 22,700 1,356,325 ======================================================================== RAILROADS-1.12% Burlington Northern Santa Fe Corp. 11,900 560,252 - ------------------------------------------------------------------------ Canadian National Railway Co. (Canada) 14,100 812,865 ======================================================================== 1,373,117 ======================================================================== RESTAURANTS-0.66% Starbucks Corp.(a) 15,700 811,062 ======================================================================== </Table> AIM V.I. BLUE CHIP FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ SEMICONDUCTOR EQUIPMENT-0.76% KLA-Tencor Corp. 21,300 $ 930,810 ======================================================================== SEMICONDUCTORS-4.39% Analog Devices, Inc. 25,100 936,481 - ------------------------------------------------------------------------ Intel Corp. 80,900 2,108,254 - ------------------------------------------------------------------------ Linear Technology Corp. 24,100 884,229 - ------------------------------------------------------------------------ Microchip Technology Inc. 16,200 479,844 - ------------------------------------------------------------------------ Xilinx, Inc. 38,600 984,300 ======================================================================== 5,393,108 ======================================================================== SOFT DRINKS-0.78% PepsiCo, Inc. 17,800 959,954 ======================================================================== SPECIALTY STORES-0.49% Staples, Inc. 28,350 604,422 ======================================================================== STEEL-0.33% United States Steel Corp. 11,900 409,003 ======================================================================== SYSTEMS SOFTWARE-5.21% Microsoft Corp. 125,100 3,107,484 - ------------------------------------------------------------------------ Oracle Corp.(a) 173,800 2,294,160 - ------------------------------------------------------------------------ </Table> <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ SYSTEMS SOFTWARE-(CONTINUED) Symantec Corp.(a) 46,500 $ 1,010,910 ======================================================================== 6,412,554 ======================================================================== WIRELESS TELECOMMUNICATION SERVICES-0.73% Vodafone Group PLC-ADR (United Kingdom) 37,100 902,272 ======================================================================== Total Common Stocks & Other Equity Interests (Cost $105,026,703) 119,407,096 ======================================================================== <Caption> PRINCIPAL AMOUNT U.S. TREASURY BILLS-0.20% 2.96%, 09/15/05 (Cost $248,438)(e)(f) $250,000(g) 248,405 ======================================================================== <Caption> SHARES MONEY MARKET FUNDS-1.96% Liquid Assets Portfolio-Institutional Class(h) 1,204,799 1,204,799 - ------------------------------------------------------------------------ STIC Prime Portfolio-Institutional Class(h) 1,204,799 1,204,799 ======================================================================== Total Money Market Funds (Cost $2,409,598) 2,409,598 ======================================================================== TOTAL INVESTMENTS-99.25% (Cost $107,684,739) 122,065,099 ======================================================================== OTHER ASSETS LESS LIABILITIES-0.75% 923,231 ======================================================================== NET ASSETS-100.00% $122,988,330 ________________________________________________________________________ ======================================================================== </Table> Investment Abbreviations: <Table> ADR - American Depositary Receipt </Table> Notes to Schedule of Investments: (a) Non-income producing security. (b) Each unit represents one common share and one trust share. (c) A portion of this security is subject to call options written. See Note 1H and Note 7. (d) 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 June 30, 2005 represented 0.52% of the Fund's Total Investments. See Note 1A. (e) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (f) 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 June 30, 2005 represented 0.20% of the Fund's Total Investments. See Note 1A. (g) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 8. (h) 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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $105,275,141) $119,655,501 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $2,409,598) 2,409,598 ============================================================= Total investments (cost $107,684,739) 122,065,099 ============================================================= Receivables for: Investments sold 990,935 - ------------------------------------------------------------- Fund shares sold 23,439 - ------------------------------------------------------------- Dividends 101,591 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 21,155 ============================================================= Total assets 123,202,219 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Fund shares reacquired 5,890 - ------------------------------------------------------------- Options written, at market value (premiums received $7,839) 3,015 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 24,895 - ------------------------------------------------------------- Variation margin 11,100 - ------------------------------------------------------------- Accrued administrative services fees 149,819 - ------------------------------------------------------------- Accrued distribution fees-Series II 861 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 121 - ------------------------------------------------------------- Accrued transfer agent fees 20 - ------------------------------------------------------------- Accrued operating expenses 18,168 ============================================================= Total liabilities 213,889 ============================================================= Net assets applicable to shares outstanding $122,988,330 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $133,190,972 - ------------------------------------------------------------- Undistributed net investment income 936,048 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, futures contracts and option contracts (25,500,010) - ------------------------------------------------------------- Unrealized appreciation of investment securities, futures contracts and option contracts 14,361,320 ============================================================= $122,988,330 _____________________________________________________________ ============================================================= NET ASSETS: Series I $121,622,443 _____________________________________________________________ ============================================================= Series II $ 1,365,887 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 18,211,737 _____________________________________________________________ ============================================================= Series II 206,143 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 6.68 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 6.63 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $1,045) $ 870,728 - ------------------------------------------------------------- Dividends from affiliated money market funds 27,524 - ------------------------------------------------------------- Interest 2,871 ============================================================= Total investment income 901,123 ============================================================= EXPENSES: Advisory fees 469,976 - ------------------------------------------------------------- Administrative services fees 174,685 - ------------------------------------------------------------- Custodian fees 13,437 - ------------------------------------------------------------- Distribution fees-Series II 1,742 - ------------------------------------------------------------- Transfer agent fees 3,957 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 8,343 - ------------------------------------------------------------- Other 30,944 ============================================================= Total expenses 703,084 ============================================================= Less: Fees waived (34,728) ============================================================= Net expenses 668,356 ============================================================= Net investment income 232,767 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND OPTION CONTRACTS: Net realized gain from: Investment securities 692,413 - ------------------------------------------------------------- Foreign currencies 4,771 - ------------------------------------------------------------- Futures contracts 8,348 - ------------------------------------------------------------- Option contracts written 88,509 ============================================================= 794,041 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (4,598,567) - ------------------------------------------------------------- Futures contracts (57,013) - ------------------------------------------------------------- Option contracts written 4,824 ============================================================= (4,650,756) ============================================================= Net gain (loss) from investment securities, foreign currencies, futures contracts and option contracts (3,856,715) ============================================================= Net increase (decrease) in net assets resulting from operations $(3,623,948) _____________________________________________________________ ============================================================= </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 232,767 $ 724,655 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities, foreign currencies, futures contracts and option contracts 794,041 817,453 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities, futures contracts and option contracts (4,650,756) 4,015,557 ========================================================================================== Net increase (decrease) in net assets resulting from operations (3,623,948) 5,557,665 ========================================================================================== Distributions to shareholders from net investment income-Series I -- (134,718) ========================================================================================== Share transactions-net: Series I (6,482,236) 3,778,955 - ------------------------------------------------------------------------------------------ Series II (55,581) 104,980 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (6,537,817) 3,883,935 ========================================================================================== Net increase (decrease) in net assets (10,161,765) 9,306,882 ========================================================================================== NET ASSETS: Beginning of period 133,150,095 123,843,213 ========================================================================================== End of period (including undistributed net investment income of $936,048 and $703,281, respectively) $122,988,330 $133,150,095 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. BLUE CHIP FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 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 including estimates and assumptions related to taxation. 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 AIM V.I. BLUE CHIP FUND 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 and domestic and foreign index futures. 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. 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 received or made 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 J. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $350 million 0.75% - ---------------------------------------------------------------------- Over $350 million 0.625% ______________________________________________________________________ ====================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $250 million 0.695% - ---------------------------------------------------------------------- Next $250 million 0.67% - ---------------------------------------------------------------------- Next $500 million 0.645% - ---------------------------------------------------------------------- Next $1.5 billion 0.62% - ---------------------------------------------------------------------- Next $2.5 billion 0.595% - ---------------------------------------------------------------------- Next $2.5 billion 0.57% - ---------------------------------------------------------------------- Next $2.5 billion 0.545% - ---------------------------------------------------------------------- Over $10 billion 0.52% ______________________________________________________________________ ====================================================================== </Table> Effective July 1, 2005, 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 Series I shares to 1.01% and Series II shares to 1.26% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, AIM and/or the distributor had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding items (i) through (vi) discussed below) of Series I to 1.30% and Series II to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Neither AIM or the distributor waived fees and/or reimbursed expenses during the period under the 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $34,728. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $149,890 for services provided by insurance companies. AIM V.I. BLUE CHIP 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 six months ended June 30, 2005, the Fund paid AISI $3,957. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $1,742. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. <Table> <Caption> UNREALIZED REALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND GAIN FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $2,849,475 $ 6,972,318 $ (8,616,994) $ -- $1,204,799 $13,682 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 2,849,475 6,972,318 (8,616,994) -- 1,204,799 13,842 -- ================================================================================================================================== Total $5,698,950 $13,944,636 $(17,233,988) $ -- $2,409,598 $27,524 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $576,916 and sales of $0. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,216 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. AIM V.I. BLUE CHIP FUND 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 six months ended June 30, 2005, 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--OPTION CONTRACTS WRITTEN <Table> <Caption> TRANSACTIONS DURING THE PERIOD - ----------------------------------------------------------------------------------- CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ----------------------------------------------------------------------------------- Beginning of period -- $ -- - ----------------------------------------------------------------------------------- Written 1,562 150,205 - ----------------------------------------------------------------------------------- Closed (618) (50,729) - ----------------------------------------------------------------------------------- Exercised (439) (48,787) - ----------------------------------------------------------------------------------- Expired (438) (42,850) =================================================================================== End of period 67 $ 7,839 ___________________________________________________________________________________ =================================================================================== </Table> <Table> <Caption> OPEN CALL OPTIONS WRITTEN AT PERIOD END - ------------------------------------------------------------------------------------------------------------------------------- CONTRACT STRIKE NUMBER OF PREMIUMS MARKET VALUE UNREALIZED MONTH PRICE CONTRACTS RECEIVED 06/30/05 APPRECIATION - ------------------------------------------------------------------------------------------------------------------------------- BJ Services Co. Jul-05 $55 67 $7,839 $3,015 $4,824 _______________________________________________________________________________________________________________________________ =============================================================================================================================== </Table> NOTE 8--FUTURES CONTRACTS On June 30, 2005, $112,000 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 DEPRECIATION - -------------------------------------------------------------------------------------------------------------------- S&P 500 Index 6 Sep-05/Long $1,793,250 $(23,864) ____________________________________________________________________________________________________________________ ==================================================================================================================== </Table> NOTE 9--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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. BLUE CHIP FUND The Fund had 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 six months ended June 30, 2005 was $32,277,120 and $37,690,717, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 14,968,669 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (4,596,120) =============================================================================== Net unrealized appreciation of investment securities $ 10,372,549 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $111,692,550. </Table> NOTE 11--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 4,583,049 $ 30,842,059 5,292,562 $ 34,996,471 - ---------------------------------------------------------------------------------------------------------------------- Series II 161,648 1,082,778 45,425 299,097 ====================================================================================================================== Issued as reinvestment of dividends-Series I -- -- 19,754 134,718 ====================================================================================================================== Reacquired: Series I (5,547,379) (37,324,295) (4,776,958) (31,352,234) - ---------------------------------------------------------------------------------------------------------------------- Series II (169,978) (1,138,359) (29,772) (194,117) ====================================================================================================================== (972,660) $ (6,537,817) 551,011 $ 3,883,935 ______________________________________________________________________________________________________________________ ====================================================================================================================== </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 92% 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. BLUE CHIP 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 ---------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.87 $ 6.57 $ 5.25 $ 7.11 $ 9.18 $ 10.00 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.01 0.04(a) 0.01(b) (0.00)(b) (0.01) 0.02(b) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.20) 0.27 1.31 (1.86) (2.06) (0.84) ============================================================================================================================ Total from investment operations (0.19) 0.31 1.32 (1.86) (2.07) (0.82) ============================================================================================================================ Less dividends from net investment income -- (0.01) -- -- -- -- ============================================================================================================================ Net asset value, end of period $ 6.68 $ 6.87 $ 6.57 $ 5.25 $ 7.11 $ 9.18 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(c) (2.77)% 4.67% 25.14% (26.16)% (22.54)% (8.18)% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $121,622 $131,687 $122,543 $65,490 $60,129 $29,787 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets 1.06%(d)(e) 1.11% 1.13% 1.18% 1.26% 1.31%(e) ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of net investment income (loss) to average net assets 0.38%(d) 0.56%(a) 0.14% (0.03)% (0.17)% 0.07% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(f) 26% 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 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 $0.02 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 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 annualized and based on average daily net assets of $124,960,159. (e) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.12% and 2.13% (annualized) for the period ended June 30, 2005 and for the year ended December 31, 2000, respectively. (f) Not annualized for periods less than one year. AIM V.I. BLUE CHIP FUND NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ---------------------------------------------------------- MARCH 13, 2002 (DATE SALES SIX MONTHS YEAR ENDED DECEMBER COMMENCED) ENDED 31, TO JUNE 30, ------------------- DECEMBER 31, 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 6.82 $ 6.54 $ 5.24 $ 7.00 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) 0.01 0.02(a) (0.01)(b) (0.01)(b) - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (0.20) 0.26 1.31 (1.75) ======================================================================================================================== Total from investment operations (0.19) 0.28 1.30 (1.76) ======================================================================================================================== Net asset value, end of period $ 6.63 $ 6.82 $ 6.54 $ 5.24 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(c) (2.79)% 4.28% 24.81% (25.14)% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $1,366 $1,463 $1,301 $ 273 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets 1.31%(d)(e) 1.36% 1.38% 1.43%(f) ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of net investment income (loss) to average net assets 0.13%(d) 0.31%(a) (0.11)% (0.28)%(f) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(g) 26% 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 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 annualized and based on average daily net assets of $1,405,433. (e) After fee waivers. Ratio of expenses to average net assets prior to fee waivers was 1.37% for the period ended June 30, 2005. (f) Annualized. (g) Not annualized for periods less than one year. NOTE 13--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be AIM V.I. BLUE CHIP FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec.. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. BLUE CHIP FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. BLUE CHIP FUND AIM V.I. CAPITAL APPRECIATION FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. CAPITAL APPRECIATION FUND seeks to provide growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. CAPITAL APPRECIATION FUND <Table> MANAGEMENT'S DISCUSSION We divide attractive investment OF FUND PERFORMANCE candidates into two groups, which we ===================================================================================== define as "core growth" and "accelerating PERFORMANCE SUMMARY growth" stocks. ======================================== Stocks, as measured by the performance FUND VS. INDEXES We adjust our exposure to each group of the S&P 500 Index and other market based on our analysis of economic and benchmarks, generally posted lackluster TOTAL RETURNS, 12/31/04-6/30/05, market conditions. returns over the period, amid investor EXCLUDING VARIABLE PRODUCT ISSUER concerns about higher oil prices and CHARGES. IF VARIABLE PRODUCT ISSUER o core growth stocks typically have more rising interest rates. These trends also CHARGES WERE INCLUDED, RETURNS WOULD BE consistent long-term earnings growth adversely affected the Fund's LOWER. records, and tend to be more defensive. performance. Series I Shares -2.25% o accelerating growth stocks usually The Fund underperformed the S&P 500 Series II Shares -2.36 have a catalyst driving rapid growth, Index because that benchmark includes Standard & Poor's Composite Index such as a new product, process or value stocks, which generally of 500 Stocks (S&P 500 Index) technology. These stocks tend to be more outperformed growth stocks over the (Broad Market Index) -0.81 volatile, but offer attractive returns period. The portfolio's industrials Russell 1000 Growth Index during periods of strong economic holdings generally underperformed those (Style-specific Index) -1.72 growth. of the Russell 1000 Growth Index, Lipper Multi-Cap Growth Fund Index causing the Fund to lag that benchmark. (Peer Group Index) -1.90 We construct the portfolio using a bottom-up process, one security at a SOURCE: LIPPER, INC. time. We diversify the portfolio across ======================================== many industries and sectors; however, ===================================================================================== there are no formal sector guidelines or constraints. We are conscious of our HOW WE INVEST able list of potential investments. We weightings and risk relative to our We believe that a growth investment focus on the level, growth rate and benchmark indexes and competitors, and strategy is an essential component of a sustainability of earnings, revenue and we use internal controls and proprietary diversified portfolio. Our disciplined cash flow, ranking investment candidates software to monitor risk levels and investment process combines quantitative on absolute and relative attractiveness. sector concentration. and fundamental analysis to find Our fundamental analysis seeks to define companies exhibiting long-term, a company's key drivers of success and We combine this investment process sustainable earnings and cash flow to assess their durability. We carefully with an unemotional sell process that is growth that is not yet reflected in review financial statements and earnings designed to reduce the risk of capital investor expectations or equity reports, the company's structure, loss by avoiding what we call "growth valuations. business model and management team, the stock failure". Some conditions that may competitive environment and market cause us to reduce or sell a position Our quantitative analysis helps us opportunities. include: narrow our investment universe down to a manage- o deterioration in business prospects o worsening competitive position o slowing earnings growth o extended valuation o more attractive investment opportunities ======================================== ======================================== ======================================== PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Health Care Equipment 6.4% 1. Dell Inc. 2.6% 1. Information Technology 25.9% 2. Semiconductors 4.7 2. Johnson & Johnson 1.9 2. Health Care 19.8 3. Computer Hardware 4.2 3. Caremark Rx, Inc. 1.9 3. Consumer Discretionary 13.8 4. Pharmaceuticals 4.1 4. Microsoft Corp. 1.8 4. Energy 11.1 5. Industrial Machinery 4.0 5. Yahoo! Inc. 1.6 5. Industrials 10.8 6. Apple Computer, Inc. 1.6 6. Financials 5.9 The fund's holdings are subject to 7. Microchip Technology Inc. 1.6 7. Materials 5.9 change, and there is no assurance that 8. Exxon Mobil Corp 1.5 8. Consumer Staples 5.1 the fund will continue to hold any 9. Ingersoll-Rand Co. Ltd. particular security. -Class A (Bermuda) 1.4 Money Market Funds 10. Biomet, Inc. 1.4 Plus Other Assets Less *Excluding money market fund holdings. Liabilities 1.7 TOTAL NET ASSETS $1.0 billion TOTAL NUMBER OF HOLDINGS* 130 ======================================== ======================================== ======================================== </Table> 2 AIM V.I. CAPITAL APPRECIATION FUND <Table> MARKET CONDITIONS AND YOUR FUND already in the portfolio. Alcon was a KENNETH A. ZSCHAPPEL, particularly strong-performing health [ZSCHAPPEL senior portfolio The S&P 500 Index declined at the care stock for the Fund. The company, PHOTO] manager, is lead portfolio beginning of the reporting period amid which focuses on pharmaceuticals, manager of AIM V.I. concerns about increasing oil prices and surgical equipment and consumer eye-care Capital Appreciation Fund. rising interest rates. The Federal products, has benefited from cost-cutting He joined AIM in 1990 and in 1992 became Reserve (the Fed) continued measures, enabling it to increase its a portfolio analyst for equity raising interest rates to slow economic profit margin. securities, specializing in technology growth and curb potential inflation. The and health care. A native of Austin, market generally rebounded in the last Information technology and industrials Texas, he received a B.A. in political two months of the period as oil prices were the largest detractors from Fund science from Baylor University. fell in May--before rising again in performance as concerns about the June--and many companies in the S&P 500 strength of the U.S. economy detracted CHRISTIAN A. COSTANZO, Index reported strong earnings. from the performance of stocks in these [COSTANZO Chartered Financial sectors. Stocks in these sectors that PHOTO] Analyst, portfolio As we were generally optimistic about detracted from performance included: manager, is portfolio the economy, we continued to favor manager of AIM V.I. accelerating growth stocks over core o EBAY, the world's largest Internet Capital Appreciation Fund. He joined AIM growth holdings in the portfolio. At the auctioneering company. In January, the in 1995 as an analyst and assumed his close of the reporting period, company failed to meet profit estimates current duties in 1997. Prior to joining accelerating growth stocks composed about and witnessed a slowing of its growth in AIM, he worked as a business analyst from 65% of the portfolio while core growth the U.S. market. We sold the stock prior 1991 to 1993. He holds a B.A. in biology holdings made up about 35%. to the close of the reporting period and economics from the University of because of concerns about the company's Virginia and an M.B.A. from The This strategy proved more beneficial earnings. University of Texas at Austin. to the Fund during the last two months of the reporting period, when more o UNITED STATES STEEL, the nation's ROBERT J. LLOYD, Chartered economically sensitive sectors such as second-largest steelmaker. The company's [LLOYD Financial Analyst, consumer discretionary and information stock declined amid concerns about PHOTO] portfolio manager, is technology performed well. However, it falling steel prices and China's portfolio manager of AIM generally detracted from performance faster-than-anticipated move toward V.I. Capital Appreciation during the first four months of the self-sufficiency in steel production. We Fund. He joined AIM in 2000 as an analyst period as investors favored more continued to hold this stock because of for the technology funds. He was promoted defensive sectors such as utilities, the company's recent strong earnings to portfolio manager in 2001. He received energy and health care. reports. a B.B.A. from the University of Notre Dame and an M.B.A. from the University of The portfolio had no exposure to IN CLOSING Chicago. utilities, one of the better-performing sectors for the period, as it is Despite the improvement in the BRYAN A. UNTERHALTER, generally not considered a growth sector. performance of large-cap growth stocks [UNTERHALTER portfolio manager, is toward the end of the reporting period, PHOTO] portfolio manager of AIM Over the reporting period, we overall it was a challenging six months V.I. Capital Appreciation increased the portfolios exposure to for this asset class. Regardless of Fund. He began his energy, and it was the best-performing market conditions, we are always striving investment career in 1995 as an equity sector for the Fund. Energy companies to improve performance. We remain trader. In 1997, he joined AIM as a benefited from rising oil prices, and a confident in our investment process, and domestic equity trader and later became stock in this sector, Valero Energy, was we encourage investors to maintain a an analyst on AIM's International the top contributor to Fund performance long-term perspective. We thank you for (Europe/Canada) investment management for the period. Valero is an independent your continued participation in AIM V.I. team in 1998. He was promoted to his refining and marketing company which owns Capital Appreciation Fund. current position in 2003. He received a and operates 15 refineries. The company B.A. from The University of Texas at has developed an efficient, The views and opinions expressed in Austin and an M.B.A. from the University cost-effective process for refining Management's Discussion of Fund of St. Thomas. grades of oil that are heavier and Performance are those of A I M Advisors, higher in sulfur content. Because these Inc. These views and opinions are subject Assisted by the Multi-Cap Growth Team grades cost less to purchase, this gives to change at any time based on factors Valero somewhat of an advantage over its such as market and economic conditions. competitors. The company reported record These views and opinions may not be [RIGHT ARROW GRAPHIC] first-quarter earnings. relied upon as investment advice or recommendations, or as an offer for a Health care was the second-best particular security. The information is For a discussion of risks of investing in performing sector for the Fund as demand not a complete analysis of every aspect your Fund, indexes used in this report for medical products and services tends of any market, country, industry, and your Fund's long-term performance, to remain constant regardless of economic security or the fund. Statements of fact please turn the page. conditions. Our exposure to this sector are from sources considered reliable, but increased over the period largely because A I M Advisors, Inc. makes no of price appreciation of holdings representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. </Table> 3 AIM V.I. CAPITAL APPRECIATION FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ========================================= AVERAGE ANNUAL TOTAL RETURNS The inception date of the fund's Series annuity contracts and variable life As of 6/30/05 II shares is 8/21/01. insurance policies, and through certain pension or retirement plans. You cannot SERIES I SHARES The Series I and Series II shares purchase shares of the fund directly. Inception (5/5/93) 8.42% invest in the same portfolio of Performance figures given represent the 10 Years 5.87 securities and will have substantially fund and are not intended to reflect 5 Years -8.40 similar performance, except to the extent actual variable product values. They do 1 Year 2.12 that expenses borne by each class differ. not reflect sales charges, expenses and fees assessed in connection with a SERIES II SHARES The performance data quoted represent variable product. Sales charges, expenses 10 Years 5.61% past performance and cannot guarantee and fees, which are determined by the 5 Years -8.63 comparable future results; current variable product issuers, will vary and 1 Year 1.86 performance may be lower or higher. will lower the total return. Per NASD ========================================= Please consult the product issuer or your requirements, the most recent month-end financial advisor for the most recent performance data at the Fund level, Returns since the inception date of month-end performance. Performance excluding variable product charges, is Series II shares are historical. All figures reflect fund expenses, reinvested available on this AIM automated other returns are the blended returns of distributions and changes in net asset information line, 866-702-4402. As the historical performance of the fund's value. Investment return and principal mentioned above, for the most recent Series II shares since their inception value will fluctuate so that you may have month-end performance including variable and the restated historical performance a gain or loss when you sell shares. product charges, please contact your of the fund's Series I shares (for variable product issuer or financial periods prior to inception of the Series AIM V.I. Capital Appreciation Fund, a advisor. II shares) adjusted to reflect the higher series portfolio of AIM Variable Rule 12b-1 fees applicable to the Series Insurance Funds, is offered through II shares. insurance company separate accounts to fund variable PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER MULTI-CAP GROWTH OTHER INFORMATION FUND INDEX represents an average of the Investing in small and mid-size companies performance of the 30 largest The returns shown in the Management's involves risks not associated with multi-capitalization growth funds tracked Discussion of Fund Performance are based investing in more established companies, by Lipper, Inc., an independent mutual on net asset values calculated for including business risk, significant fund performance monitor. shareholder transactions. Generally stock price fluctuations and illiquidity. accepted accounting principles require The unmanaged RUSSELL 1000--Registered adjustments to be made to the net assets International investing presents Trademark-- GROWTH INDEX is a subset of of the fund at period end for financial certain risks not associated with the unmanaged RUSSELL 1000--Registered reporting purposes, and as such, the net investing solely in the United States. Trademark-- INDEX, which represents the asset value for shareholder transactions These include risks relating to performance of the stocks of large- and the returns based on those net asset fluctuations in the value of the U.S. capitalization companies; the Growth values may differ from the net asset dollar relative to the values of other subset measures the performance of values and returns reported in the currencies, the custody arrangements made Russell 1000 companies with higher Financial Highlights. Additionally, the for the Fund's foreign holdings, price/book ratios and higher forecasted returns and net asset values shown differences in accounting, political growth values. throughout this report are at the fund risks and the lesser degree of public level only and do not include variable information required to be provided by The fund is not managed to track the product issuer charges. If such charges non-U.S. companies. The Fund may invest performance of any particular index, were included, the total returns would be up to 25% of its assets in the securities including the indexes defined here, and lower. of non-U.S. issuers. consequently, the performance of the fund may deviate significantly from the Industry classifications used in this ABOUT INDEXES USED IN THIS REPORT performance of the indexes. report are generally according to the Global Industry Classification Standard, The unmanaged Standard & Poor's Composite A direct investment cannot be made in which was developed by and is the Index of 500 Stocks (the an index. Unless otherwise indicated, exclusive property and a service mark of S&P 500--Registered Trademark-- INDEX) is index results include reinvested Morgan Stanley Capital International Inc. an index of common stocks frequently used dividends, and they do not reflect sales and Standard & Poor's. as a general measure of U.S. stock market charges. Performance of an index of funds performance. reflects fund expenses; performance of a market index does not. </Table> 4 AIM V.I. CAPITAL APPRECIATION FUND <Table> CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management fees; about actual account values and actual ended June 30, 2005, appear in the table distribution and/or service fees (12b-1); expenses. You may use the information in "Fund vs. Indexes" on the first page of and other Fund expenses. This example is this table, together with the amount you management's discussion of Fund intended to help you understand your invested, to estimate the expenses that performance. ongoing costs (in dollars) of investing you paid over the period. Simply divide in the Fund and to compare these costs your account value by $1,000 (for The hypothetical account values and with ongoing costs of investing in other example, an $8,600 account value divided expenses may not be used to estimate the mutual funds. The example is based on an by $1,000 = 8.6), then multiply the actual ending account balance or expenses investment of $1,000 invested at the result by the number in the table under you paid for the period. You may use this beginning of the period and held for the the heading entitled "Actual Expenses Paid information to compare the ongoing costs entire period January 1, 2005, through During Period" to estimate the expenses of investing in the Fund and other funds. June 30, 2005. you paid on your account during this To do so, compare this 5% hypothetical period. example with the 5% hypothetical examples The actual and hypothetical expenses that appear in the shareholder reports of in the examples below do not represent the other funds. the effect of any fees or other fees HYPOTHETICAL EXAMPLE FOR expressed in connection with a variable COMPARISON PURPOSES Please note that the expenses shown in product; if they did, the expenses shown the table are meant to highlight your would be higher while the ending account The table below also provides information ongoing costs. Therefore, the values shown would be lower. about hypothetical account values and hypothetical information is useful in hypothetical expenses based on the Fund's comparing ongoing costs, and will not actual expense ratio and an assumed rate help you determine the relative total of return of 5% per year before expenses, costs of owning different funds. which is not the Fund's ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 977.50 $ 4.36 $ 1,020.38 $ 4.46 Series II 1,000.00 976.40 5.59 1,019.14 5.71 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. CAPITAL APPRECIATION FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided comparable to those of the Fund; (ii) was Insurance Funds (the "Board") oversees by AIM. The Board reviewed the lower than the advisory fee rates for an the management of AIM V.I. Capital credentials and experience of the offshore fund advised by an AIM affiliate Appreciation Fund (the "Fund") and, as officers and employees of AIM who will with investment strategies comparable to required by law, determines annually provide investment advisory services to those of the Fund; (iii) was higher than whether to approve the continuance of the Fund. In reviewing the qualifications the sub-advisory fee rates for three the Fund's advisory agreement with A I M of AIM to provide investment unaffiliated mutual funds for which an Advisors, Inc. ("AIM"). Based upon the advisory services, the Board reviewed the AIM affiliate serves as sub-advisor, recommendation of the Investments qualifications of AIM's investment although the total management fees paid Committee of the Board, which is personnel and considered such issues as by such unaffiliated mutual funds were comprised solely of independent AIM's portfolio and product review higher than the advisory fee rate for the trustees, at a meeting held on June 30, process, various back office support Fund; and (iv) was higher than the 2005, the Board, including all of the functions provided by AIM and AIM's advisory fee rates for three separately independent trustees, approved the equity and fixed income trading managed wrap accounts managed by an AIM continuance of the advisory agreement operations. Based on the review of these affiliate with investment strategies (the "Advisory Agreement") between the and other factors, the Board concluded comparable to those of the Fund. The Fund and AIM for another year, effective that the quality of services to be Board noted that AIM has agreed to waive July 1, 2005. provided by AIM was appropriate and that advisory fees of the Fund and to limit the AIM currently is providing satisfactory Fund's total operating expenses, as The Board considered the factors services in accordance with the terms of discussed below. Based on this review, discussed below in evaluating the the Advisory Agreement. the Board concluded that the advisory fee fairness and reasonableness of the rate for the Fund under the Advisory Advisory Agreement at the meeting on June o The performance of the Fund relative to Agreement was fair and reasonable. 30, 2005 and as part of the Board's comparable funds. The Board reviewed the ongoing oversight of the Fund. In their performance of the Fund during the past o Fees relative to those of comparable deliberations, the Board and the one, three and five calendar years funds with other advisors. The Board independent trustees did not identify any against the performance of funds advised reviewed the advisory fee rate for the particular factor that was controlling, by other advisors with investment Fund under the Advisory Agreement. The and each trustee attributed different strategies comparable to those of the Board compared effective contractual weights to the various factors. Fund. The Board noted that the Fund's advisory fee rates at a common asset performance was below the median level and noted that the Fund's rate was One of the responsibilities of the performance of such comparable funds for above the median rate of the funds Senior Officer of the Fund, who is the one year period and above such median advised by other advisors with investment independent of AIM and AIM's affiliates, performance for the three and five year strategies comparable to those of the is to manage the process by which the periods. Based on this review, the Board Fund that the Board reviewed. The Board Fund's proposed management fees are concluded that no changes should be made noted that AIM has agreed to waive negotiated to ensure that they are to the Fund and that it was not necessary advisory fees of the Fund and to limit negotiated in a manner which is at arm's to change the Fund's portfolio management the Fund's total operating expenses, as length and reasonable. To that end, the team at this time. discussed below. Based on this review, Senior Officer must either supervise a the Board concluded that the advisory fee competitive bidding process or prepare an o The performance of the Fund relative to rate for the Fund under the Advisory independent written evaluation. The indices. The Board reviewed the Agreement was fair and reasonable. Senior Officer has recommended an performance of the Fund during the past independent written evaluation in lieu of one, three and five calendar years o Expense limitations and fee waivers. a competitive bidding process and, upon against the performance of the Lipper The Board noted that AIM has the direction of the Board, has prepared Multi Cap Growth Index. The Board noted contractually agreed to waive advisory such an independent written evaluation. that the Fund's performance was below the fees of the Fund through June 30, 2006 to Such written evaluation also considered performance of such Index for the one and the extent necessary so that the advisory certain of the factors discussed below. three year periods and above such Index fees payable by the Fund do not exceed a In addition, as discussed below, the for the five year period. Based on this specified maximum advisory fee rate, Senior Officer made certain review, the Board concluded that no which maximum rate includes breakpoints recommendations to the Board in changes should be made to the Fund and and is based on net asset levels. The connection with such written evaluation. that it was not necessary to change the Board considered the contractual nature Fund's portfolio management team at this of this fee waiver and noted that it The discussion below serves as a time. remains in effect until June 30, 2006. summary of the Senior Officer's The Board noted that AIM has independent written evaluation and o Meeting with the Fund's portfolio contractually agreed to waive fees and/or recommendations to the Board in managers and investment personnel. With limit expenses of the Fund through April connection therewith, as well as a respect to the Fund, the Board is meeting 30, 2006 in an amount necessary to limit discussion of the material factors and periodically with such Fund's portfolio total annual operating expenses to a the conclusions with respect thereto that managers and/or other investment specified percentage of average daily net formed the basis for the Board's approval personnel and believes that such assets for each class of the Fund. The of the Advisory Agreement. After individuals are competent and able to Board considered the contractual nature consideration of all of the factors below continue to carry out their of this fee waiver/expense limitation and and based on its informed business responsibilities under the Advisory noted that it remains in effect until judgment, the Board determined that the Agreement. April 30, 2006. The Board considered the Advisory Agreement is in the best effect these fee waivers/expense interests of the Fund and its o Overall performance of AIM. The Board limitations would have on the Fund's shareholders and that the compensation to considered the overall performance of AIM estimated expenses and concluded that the AIM under the Advisory Agreement is fair in providing investment advisory and levels of fee waivers/expense limitations and reasonable and would have been portfolio administrative services to the for the Fund were fair and reasonable. obtained through arm's length Fund and concluded that such performance negotiations. was satisfactory. o The nature and extent of the advisory o Fees relative to those of clients of services to be provided by AIM. The Board AIM with comparable investment reviewed the services to be provided by strategies. The Board reviewed the AIM under the Advisory Agreement. Based advisory fee rate for the Fund under the on such review, the Board concluded that Advisory Agreement. The Board noted that the range of services to be provided by this rate (i) was comparable to the AIM under the Advisory Agreement was advisory fee rates for a mutual fund appropriate and that AIM currently is advised by AIM with investment strategies providing services in accordance with the (continued) terms of the Advisory Agreement. </Table> 6 AIM V.I. CAPITAL APPRECIATION FUND <Table> o Breakpoints and economies of scale. The the recommendation made by the Senior transfer agency and distribution Board reviewed the structure of the Officer to the Board that the Board services, and that AIM and its affiliates Fund's advisory fee under the Advisory consider implementing a process to assist currently are providing satisfactory Agreement, noting that it includes one them in more closely monitoring the non-investment advisory services. breakpoint. The Board reviewed the level performance of the AIM Funds. The Board of the Fund's advisory fees, and noted concluded that it would be advisable to o Other factors and current trends. In that such fees, as a percentage of the implement such a process as soon as determining whether to continue the Fund's net assets, have decreased as net reasonably practicable. Advisory Agreement for the Fund, the assets increased because the Advisory Board considered the fact that AIM, along Agreement includes a breakpoint. The o Profitability of AIM and its with others in the mutual fund industry, Board noted that AIM has contractually affiliates. The Board reviewed is subject to regulatory inquiries and agreed to waive advisory fees of the Fund information concerning the profitability litigation related to a wide range of through June 30, 2006 to the extent of AIM's (and its affiliates ) investment issues. The Board also considered the necessary so that the advisory fees advisory and other activities and its governance and compliance reforms being payable by the Fund do not exceed a financial condition. The Board considered undertaken by AIM and its affiliates, specified maximum advisory fee rate, the overall profitability of AIM, as well including maintaining an internal which maximum rate includes breakpoints as the profitability of AIM in connection controls committee and retaining an and is based on net asset levels. The with managing the Fund. The Board noted independent compliance consultant, and Board concluded that the Fund's fee that AIM's operations remain profitable, the fact that AIM has undertaken to cause levels under the Advisory Agreement although increased expenses in recent the Fund to operate in accordance with therefore reflect economies of scale and years have reduced AIM's profitability. certain governance policies and that it was not necessary to change the Based on the review of the profitability practices. The Board concluded that these advisory fee breakpoints in the Fund's of AIM's and its affiliates' investment actions indicated a good faith effort on advisory fee schedule. advisory and other activities and its the part of AIM to adhere to the highest financial condition, the Board concluded ethical standards, and determined that o Investments in affiliated money market that the compensation to be paid by the the current regulatory and litigation funds. The Board also took into account Fund to AIM under the Advisory Agreement environment to which AIM is subject the fact that uninvested cash and cash was not excessive. should not prevent the Board from collateral from securities lending continuing the Advisory Agreement for the arrangements (collectively, "cash o Benefits of soft dollars to AIM. The Fund. balances") of the Fund may be invested in Board considered the benefits realized by money market funds advised by AIM AIM as a result of brokerage transactions pursuant to the terms of an SEC exemptive executed through "soft dollar" order. The Board found that the Fund may arrangements. Under these arrangements, realize certain benefits upon investing brokerage commissions paid by the Fund cash balances in AIM advised money market and/or other funds advised by AIM are funds, including a higher net return, used to pay for research and execution increased liquidity, increased services. This research is used by AIM in diversification or decreased transaction making investment decisions for the Fund. costs. The Board also found that the Fund The Board concluded that such will not receive reduced services if it arrangements were appropriate. invests its cash balances in such money market funds. The Board noted that, to o AIM's financial soundness in light of the extent the Fund invests in affiliated the Fund's needs. The Board considered money market funds, AIM has voluntarily whether AIM is financially sound and has agreed to waive a portion of the advisory the resources necessary to perform its fees it receives from the Fund obligations under the Advisory Agreement, attributable to such investment. The and concluded that AIM has the financial Board further determined that the resources necessary to fulfill its proposed securities lending program and obligations under the Advisory Agreement. related procedures with respect to the lending Fund is in the best interests of o Historical relationship between the the lending Fund and its respective Fund and AIM. In determining whether to shareholders. The Board therefore continue the Advisory Agreement for the concluded that the investment of cash Fund, the Board also considered the prior collateral received in connection with relationship between AIM and the Fund, as the securities lending program in the well as the Board's knowledge of AIM's money market funds according to the operations, and concluded that it was procedures is in the best interests of beneficial to maintain the the lending Fund and its respective current relationship, in part, because of shareholders. such knowledge. The Board also reviewed the general nature of the non-investment o Independent written evaluation and advisory services currently performed by recommendations of the Fund's Senior AIM and its affiliates, such as Officer. The Board noted that, upon their administrative, transfer agency and direction, the Senior Officer of the Fund distribution services, and the fees had prepared an independent written received by AIM and its affiliates for evaluation in order to assist the Board performing such services. In addition to in determining the reasonableness of the reviewing such services, the trustees proposed management fees of the AIM also considered the organizational Funds, including the Fund. The Board structure employed by AIM and its noted that the Senior Officer's written affiliates to provide those services. evaluation had been relied upon by the Based on the review of these and other Board in this regard in lieu of a factors, the Board concluded that AIM and competitive bidding process. In its affiliates were qualified to continue determining whether to continue the to provide non-investment advisory Advisory Agreement for the Fund, the services to the Fund, including Board considered the Senior Officer's administrative, written evaluation and </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-98.33% ADVERTISING-1.34% Lamar Advertising Co.-Class A(a)(b) 201,400 $ 8,613,878 - -------------------------------------------------------------------------- Omnicom Group Inc. 63,600 5,079,096 ========================================================================== 13,692,974 ========================================================================== AEROSPACE & DEFENSE-0.81% Honeywell International Inc. 225,400 8,256,402 ========================================================================== AIR FREIGHT & LOGISTICS-0.71% FedEx Corp. 90,100 7,299,001 ========================================================================== ALUMINUM-0.29% Alcoa Inc. 113,500 2,965,755 ========================================================================== APPAREL RETAIL-1.15% Abercrombie & Fitch Co.-Class A 90,100 6,189,870 - -------------------------------------------------------------------------- Ross Stores, Inc. 193,000 5,579,630 ========================================================================== 11,769,500 ========================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.87% Coach, Inc.(a) 265,400 8,909,478 ========================================================================== APPLICATION SOFTWARE-1.95% Amdocs Ltd. (United Kingdom)(a) 139,500 3,686,985 - -------------------------------------------------------------------------- Autodesk, Inc. 216,300 7,434,231 - -------------------------------------------------------------------------- NAVTEQ Corp.(a) 236,300 8,785,634 ========================================================================== 19,906,850 ========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-0.41% Franklin Resources, Inc. 54,100 4,164,618 ========================================================================== BIOTECHNOLOGY-2.16% Amgen Inc.(a) 134,300 8,119,778 - -------------------------------------------------------------------------- Gilead Sciences, Inc.(a) 221,900 9,761,381 - -------------------------------------------------------------------------- Protein Design Labs, Inc.(a) 206,000 4,163,260 ========================================================================== 22,044,419 ========================================================================== BROADCASTING & CABLE TV-1.65% Univision Communications Inc.-Class A(a)(b) 270,460 7,451,173 - -------------------------------------------------------------------------- XM Satellite Radio Holdings Inc.-Class A(a)(b) 279,900 9,421,434 ========================================================================== 16,872,607 ========================================================================== COMMUNICATIONS EQUIPMENT-2.32% Cisco Systems, Inc.(a) 631,000 12,058,410 - -------------------------------------------------------------------------- Comverse Technology, Inc.(a) 180,300 4,264,095 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> COMMUNICATIONS EQUIPMENT-(CONTINUED) QUALCOMM Inc. 225,400 $ 7,440,454 ========================================================================== 23,762,959 ========================================================================== COMPUTER & ELECTRONICS RETAIL-0.41% Best Buy Co., Inc. 61,500 4,215,825 ========================================================================== COMPUTER HARDWARE-4.24% Apple Computer, Inc.(a) 450,700 16,590,267 - -------------------------------------------------------------------------- Dell Inc.(a) 676,100 26,712,711 ========================================================================== 43,302,978 ========================================================================== COMPUTER STORAGE & PERIPHERALS-0.97% EMC Corp.(a) 721,100 9,886,281 ========================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.59% Caterpillar Inc. 108,200 10,312,542 - -------------------------------------------------------------------------- Deere & Co. 90,100 5,900,649 ========================================================================== 16,213,191 ========================================================================== CONSUMER ELECTRONICS-1.29% Garmin Ltd. (Cayman Islands)(b) 69,700 2,979,675 - -------------------------------------------------------------------------- Harman International Industries, Inc. 125,000 10,170,000 ========================================================================== 13,149,675 ========================================================================== CONSUMER FINANCE-1.60% American Express Co. 135,200 7,196,696 - -------------------------------------------------------------------------- SLM Corp. 180,300 9,159,240 ========================================================================== 16,355,936 ========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.42% Automatic Data Processing, Inc. 180,300 7,567,191 - -------------------------------------------------------------------------- Fiserv, Inc.(a) 270,412 11,614,195 - -------------------------------------------------------------------------- Iron Mountain Inc.(a) 180,300 5,592,906 ========================================================================== 24,774,292 ========================================================================== DEPARTMENT STORES-1.22% J.C. Penney Co., Inc. 60,800 3,196,864 - -------------------------------------------------------------------------- Kohl's Corp.(a) 90,100 5,037,491 - -------------------------------------------------------------------------- Sears Holdings Corp.(a) 28,363 4,250,763 ========================================================================== 12,485,118 ========================================================================== DIVERSIFIED BANKS-0.80% Bank of America Corp. 180,300 8,223,483 ========================================================================== DIVERSIFIED CHEMICALS-1.46% Dow Chemical Co. (The) 117,200 5,218,916 - -------------------------------------------------------------------------- </Table> AIM V.I. CAPITAL APPRECIATION FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- DIVERSIFIED CHEMICALS-(CONTINUED) E. I. du Pont de Nemours & Co. 135,400 $ 5,823,554 - -------------------------------------------------------------------------- Eastman Chemical Co. 69,700 3,843,955 ========================================================================== 14,886,425 ========================================================================== DIVERSIFIED METALS & MINING-0.51% Phelps Dodge Corp. 56,100 5,189,250 ========================================================================== DRUG RETAIL-0.81% Walgreen Co. 180,300 8,291,997 ========================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-1.16% Emerson Electric Co. 92,000 5,761,960 - -------------------------------------------------------------------------- Rockwell Automation, Inc. 126,200 6,147,202 ========================================================================== 11,909,162 ========================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-0.78% Monsanto Co. 126,200 7,934,194 ========================================================================== FOOD DISTRIBUTORS-0.34% Sysco Corp. 95,900 3,470,621 ========================================================================== FOOD RETAIL-0.45% Whole Foods Market, Inc.(b) 38,700 4,578,210 ========================================================================== FOOTWEAR-0.76% NIKE, Inc.-Class B 90,100 7,802,660 ========================================================================== HEALTH CARE EQUIPMENT-6.45% Bard (C.R.), Inc. 93,900 6,245,289 - -------------------------------------------------------------------------- Becton, Dickinson & Co. 186,400 9,780,408 - -------------------------------------------------------------------------- Biomet, Inc. 399,325 13,832,618 - -------------------------------------------------------------------------- Fisher Scientific International Inc.(a)(b) 119,900 7,781,510 - -------------------------------------------------------------------------- Medtronic, Inc. 147,100 7,618,309 - -------------------------------------------------------------------------- St. Jude Medical, Inc.(a) 226,200 9,864,582 - -------------------------------------------------------------------------- Varian Medical Systems, Inc.(a) 187,700 7,006,841 - -------------------------------------------------------------------------- Zimmer Holdings, Inc.(a) 49,500 3,770,415 ========================================================================== 65,899,972 ========================================================================== HEALTH CARE FACILITIES-0.96% HCA Inc. 90,100 5,105,967 - -------------------------------------------------------------------------- Health Management Associates, Inc.-Class A(b) 180,300 4,720,254 ========================================================================== 9,826,221 ========================================================================== HEALTH CARE SERVICES-1.91% Caremark Rx, Inc.(a) 437,670 19,485,068 ========================================================================== HEALTH CARE SUPPLIES-1.31% Alcon, Inc. (Switzerland) 122,100 13,351,635 ========================================================================== HOME ENTERTAINMENT SOFTWARE-0.55% Electronic Arts Inc.(a) 99,200 5,615,712 ========================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> HOMEFURNISHING RETAIL-0.88% Bed Bath & Beyond Inc.(a) 216,300 $ 9,037,014 ========================================================================== HOTELS, RESORTS & CRUISE LINES-1.64% Carnival Corp. (Panama)(c) 162,300 8,853,465 - -------------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc.(d) 135,200 7,918,664 ========================================================================== 16,772,129 ========================================================================== HOUSEHOLD PRODUCTS-0.56% Procter & Gamble Co. (The) 108,200 5,707,550 ========================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-0.99% Robert Half International Inc. 405,600 10,127,832 ========================================================================== HYPERMARKETS & SUPER CENTERS-0.52% Wal-Mart Stores, Inc. 110,600 5,330,920 ========================================================================== INDUSTRIAL CONGLOMERATES-1.56% General Electric Co. 270,400 9,369,360 - -------------------------------------------------------------------------- Tyco International Ltd. (Bermuda) 225,400 6,581,680 ========================================================================== 15,951,040 ========================================================================== INDUSTRIAL GASES-0.94% Air Products & Chemicals, Inc. 80,200 4,836,060 - -------------------------------------------------------------------------- Praxair, Inc. 102,900 4,795,140 ========================================================================== 9,631,200 ========================================================================== INDUSTRIAL MACHINERY-4.00% Danaher Corp. 180,300 9,436,902 - -------------------------------------------------------------------------- Eaton Corp. 90,100 5,396,990 - -------------------------------------------------------------------------- Illinois Tool Works Inc. 65,500 5,219,040 - -------------------------------------------------------------------------- Ingersoll-Rand Co. Ltd.-Class A (Bermuda) 198,300 14,148,705 - -------------------------------------------------------------------------- Parker Hannifin Corp. 108,200 6,709,482 ========================================================================== 40,911,119 ========================================================================== INTEGRATED OIL & GAS-3.58% Chevron Corp. 88,000 4,920,960 - -------------------------------------------------------------------------- ConocoPhillips 180,300 10,365,447 - -------------------------------------------------------------------------- Exxon Mobil Corp. 270,400 15,539,888 - -------------------------------------------------------------------------- Occidental Petroleum Corp. 74,700 5,746,671 ========================================================================== 36,572,966 ========================================================================== INTERNET SOFTWARE & SERVICES-3.38% Google Inc.-Class A(a) 35,900 10,559,985 - -------------------------------------------------------------------------- VeriSign, Inc.(a) 250,900 7,215,884 - -------------------------------------------------------------------------- Yahoo! Inc.(a) 483,800 16,763,670 ========================================================================== 34,539,539 ========================================================================== INVESTMENT BANKING & BROKERAGE-1.76% Goldman Sachs Group, Inc. (The) 99,200 10,120,384 - -------------------------------------------------------------------------- </Table> AIM V.I. CAPITAL APPRECIATION FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- INVESTMENT BANKING & BROKERAGE-(CONTINUED) Merrill Lynch & Co., Inc. 143,800 $ 7,910,438 ========================================================================== 18,030,822 ========================================================================== MANAGED HEALTH CARE-2.96% Aetna Inc. 149,100 12,348,462 - -------------------------------------------------------------------------- PacifiCare Health Systems, Inc.(a) 86,400 6,173,280 - -------------------------------------------------------------------------- UnitedHealth Group Inc. 167,000 8,707,380 - -------------------------------------------------------------------------- WellPoint, Inc.(a) 44,100 3,071,124 ========================================================================== 30,300,246 ========================================================================== OIL & GAS DRILLING-1.92% ENSCO International Inc. 191,500 6,846,125 - -------------------------------------------------------------------------- GlobalSantaFe Corp. (Cayman Islands) 153,200 6,250,560 - -------------------------------------------------------------------------- Patterson-UTI Energy, Inc. 234,400 6,523,352 ========================================================================== 19,620,037 ========================================================================== OIL & GAS EQUIPMENT & SERVICES-1.39% Baker Hughes Inc. 151,400 7,745,624 - -------------------------------------------------------------------------- National-Oilwell Varco Inc.(a) 135,200 6,427,408 ========================================================================== 14,173,032 ========================================================================== OIL & GAS EXPLORATION & PRODUCTION-3.08% Apache Corp. 72,100 4,657,660 - -------------------------------------------------------------------------- Burlington Resources Inc. 101,900 5,628,956 - -------------------------------------------------------------------------- Devon Energy Corp. 203,700 10,323,516 - -------------------------------------------------------------------------- Newfield Exploration Co.(a) 108,200 4,316,098 - -------------------------------------------------------------------------- XTO Energy, Inc. 192,333 6,537,399 ========================================================================== 31,463,629 ========================================================================== OIL & GAS REFINING & MARKETING-1.18% Valero Energy Corp.(b) 153,200 12,119,652 ========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-1.11% Citigroup Inc. 246,300 11,386,449 ========================================================================== PACKAGED FOODS & MEATS-0.89% Hershey Co. (The) 90,100 5,595,210 - -------------------------------------------------------------------------- Kellogg Co. 78,700 3,497,428 ========================================================================== 9,092,638 ========================================================================== PERSONAL PRODUCTS-0.93% Gillette Co. (The) 187,900 9,513,377 ========================================================================== PHARMACEUTICALS-4.09% Johnson & Johnson 305,800 19,877,000 - -------------------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(b) 238,600 7,570,778 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> PHARMACEUTICALS-(CONTINUED) Pfizer Inc. 233,100 $ 6,428,898 - -------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 254,300 7,918,902 ========================================================================== 41,795,578 ========================================================================== RESTAURANTS-1.02% Brinker International, Inc.(a) 96,600 3,868,830 - -------------------------------------------------------------------------- Starbucks Corp.(a) 126,200 6,519,492 ========================================================================== 10,388,322 ========================================================================== SEMICONDUCTOR EQUIPMENT-0.82% Applied Materials, Inc. 285,500 4,619,390 - -------------------------------------------------------------------------- KLA-Tencor Corp. 87,200 3,810,640 ========================================================================== 8,430,030 ========================================================================== SEMICONDUCTORS-4.70% Analog Devices, Inc. 315,500 11,771,305 - -------------------------------------------------------------------------- Linear Technology Corp. 261,400 9,590,766 - -------------------------------------------------------------------------- Marvell Technology Group Ltd. (Bermuda)(a) 135,200 5,143,008 - -------------------------------------------------------------------------- Maxim Integrated Products, Inc. 145,500 5,559,555 - -------------------------------------------------------------------------- Microchip Technology Inc. 540,825 16,019,237 ========================================================================== 48,083,871 ========================================================================== SOFT DRINKS-0.57% PepsiCo, Inc. 108,200 5,835,226 ========================================================================== SPECIALIZED FINANCE-0.21% Chicago Mercantile Exchange Holdings Inc. 7,200 2,127,600 ========================================================================== SPECIALTY CHEMICALS-0.87% Ecolab Inc. 144,200 4,666,312 - -------------------------------------------------------------------------- Rohm & Haas Co. 91,800 4,254,012 ========================================================================== 8,920,324 ========================================================================== SPECIALTY STORES-1.56% Office Depot, Inc.(a) 209,800 4,791,832 - -------------------------------------------------------------------------- Staples, Inc. 521,900 11,126,908 ========================================================================== 15,918,740 ========================================================================== STEEL-1.04% Nucor Corp. 78,400 3,576,608 - -------------------------------------------------------------------------- United States Steel Corp. 205,800 7,073,346 ========================================================================== 10,649,954 ========================================================================== SYSTEMS SOFTWARE-3.73% Adobe Systems Inc. 171,100 4,896,882 - -------------------------------------------------------------------------- McAfee Inc.(a) 180,300 4,720,254 - -------------------------------------------------------------------------- Microsoft Corp. 721,100 17,912,124 - -------------------------------------------------------------------------- Oracle Corp.(a) 800,200 10,562,640 ========================================================================== 38,091,900 ========================================================================== </Table> AIM V.I. CAPITAL APPRECIATION FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- TECHNOLOGY DISTRIBUTORS-0.80% CDW Corp.(b) 144,200 $ 8,232,378 ========================================================================== Total Common Stocks & Other Equity Interests (Cost $793,972,442) 1,005,247,583 ========================================================================== MONEY MARKET FUNDS-3.67% Liquid Assets Portfolio-Institutional Class(e) 18,765,707 18,765,707 - -------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(e) 18,765,707 18,765,707 ========================================================================== Total Money Market Funds (Cost $37,531,414) 37,531,414 ========================================================================== TOTAL INVESTMENTS-102.00% (excluding investments purchased with cash collateral from securities loaned) (Cost $831,503,856) 1,042,778,997 ========================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED MONEY MARKET FUNDS-4.61% STIC Prime Portfolio-Institutional Class(e)(f) 47,156,670 $ 47,156,670 ========================================================================== Total Money Market Funds (purchased with cash collateral from securities loaned) (Cost $47,156,670) 47,156,670 ========================================================================== TOTAL INVESTMENTS-106.61% (Cost $878,660,526) 1,089,935,667 ========================================================================== OTHER ASSETS LESS LIABILITIES-(6.61%) (67,611,671) ========================================================================== NET ASSETS-100.00% $1,022,323,996 __________________________________________________________________________ ========================================================================== </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 June 30, 2005. (c) Each unit represents one common share and one trust share. (d) Each unit represents one common share and one Class B share. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (f) The security has been segregated to satisfy the forward commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 7. See accompanying notes which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $793,972,442)* $1,005,247,583 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $84,688,084) 84,688,084 ============================================================= Total investments (cost $878,660,526) 1,089,935,667 ============================================================= Receivables for: Investments sold 12,239,392 - ------------------------------------------------------------- Fund shares sold 713,280 - ------------------------------------------------------------- Dividends 567,915 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 68,448 - ------------------------------------------------------------- Other assets 9,239 ============================================================= Total assets 1,103,533,941 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 32,222,256 - ------------------------------------------------------------- Fund shares reacquired 510,404 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 120,338 - ------------------------------------------------------------- Collateral upon return of securities loaned 47,156,670 - ------------------------------------------------------------- Accrued administrative services fees 1,073,702 - ------------------------------------------------------------- Accrued distribution fees -- Series II 111,045 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 213 - ------------------------------------------------------------- Accrued operating expenses 15,317 ============================================================= Total liabilities 81,209,945 ============================================================= Net assets applicable to shares outstanding $1,022,323,996 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,213,462,606 - ------------------------------------------------------------- Undistributed net investment income 718,656 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (403,132,407) - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 211,275,141 ============================================================= $1,022,323,996 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 811,221,606 _____________________________________________________________ ============================================================= Series II $ 211,102,390 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 36,579,376 _____________________________________________________________ ============================================================= Series II 9,609,507 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 22.18 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 21.97 _____________________________________________________________ ============================================================= </Table> * At June 30, 2005, securities with an aggregate market value of $45,909,962 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $47,041) $ 4,418,306 - ------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $30,998 after compensation to counterparties of $384,034) 470,553 - ------------------------------------------------------------- Interest 1,035 ============================================================= Total investment income 4,889,894 ============================================================= EXPENSES: Advisory fees 3,027,846 - ------------------------------------------------------------- Administrative services fees 1,237,376 - ------------------------------------------------------------- Custodian fees 38,543 - ------------------------------------------------------------- Distribution fees -- Series II 201,987 - ------------------------------------------------------------- Transfer agent fees 19,408 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 20,165 - ------------------------------------------------------------- Other 36,519 ============================================================= Total expenses 4,581,844 ============================================================= Less: Fees waived (4,846) ============================================================= Net expenses 4,576,998 ============================================================= Net investment income 312,896 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $1,486,044) 19,803,725 - ------------------------------------------------------------- Foreign currencies 83,623 ============================================================= 19,887,348 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (43,064,292) - ------------------------------------------------------------- Foreign currencies (68) ============================================================= (43,064,360) ============================================================= Net gain (loss) from investment securities and foreign currencies (23,177,012) ============================================================= Net increase (decrease) in net assets resulting from operations $(22,864,116) _____________________________________________________________ ============================================================= </Table> 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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 312,896 $ 647,415 - ---------------------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies and option contracts 19,887,348 53,272,992 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (43,064,360) 5,399,330 ============================================================================================== Net increase (decrease) in net assets resulting from operations (22,864,116) 59,319,737 ============================================================================================== Share transactions-net: Series I (55,529,798) (103,365,150) - ---------------------------------------------------------------------------------------------- Series II 76,746,410 58,730,811 ============================================================================================== Net increase (decrease) in net assets resulting from share transactions 21,216,612 (44,634,339) ============================================================================================== Net increase (decrease) in net assets (1,647,504) 14,685,398 ============================================================================================== NET ASSETS: Beginning of period 1,023,971,500 1,009,286,102 ============================================================================================== End of period (including undistributed net investment income of $718,656 and $405,760, respectively). $1,022,323,996 $1,023,971,500 ______________________________________________________________________________________________ ============================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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 AIM V.I. CAPITAL APPRECIATION FUND 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 and domestic and foreign index futures. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.65% - ------------------------------------------------------------------- Over $250 million 0.60% ___________________________________________________________________ =================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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). AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $4,846. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $118,650 for accounting and fund administrative services and reimbursed $1,118,726 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $19,408. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $201,987. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. AIM V.I. CAPITAL APPRECIATION 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $11,214,768 $124,501,098 $(116,950,159) $ -- $18,765,707 $218,612 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class 11,214,768 124,501,098 (116,950,159) -- 18,765,707 220,943 -- ================================================================================================================================== Subtotal $22,429,536 $249,002,196 $(233,900,318) $ -- $37,531,414 $439,555 $ -- ================================================================================================================================== </Table> INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class $30,500,985 $201,445,719 $(184,790,034) $ -- $47,156,670 $ 30,998 $ -- ================================================================================================================================== Total $52,930,521 $450,447,915 $(418,690,352) $ -- $84,688,084 $470,553 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </Table> * Net of compensation to 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 six months ended June 30, 2005, the Fund engaged in securities purchases of $4,513,168 and sales of $7,251,139, which resulted in net realized gains of $1,486,044. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $3,853 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 AIM V.I. CAPITAL APPRECIATION FUND 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 six months ended June 30, 2005, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. NOTE 7--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to a loss on the collateral invested. At June 30, 2005, securities with an aggregate value of $45,909,962 were on loan to brokers. The loans were secured by cash collateral of $47,156,670 received by the Fund and subsequently invested in an affiliated money market fund. For the six months ended June 30, 2005, the Fund received dividends on cash collateral of $30,998 for securities lending transactions, which are net of compensation to counterparties. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 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 six months ended June 30, 2005 was $432,302,165 and $407,213,178, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $219,818,119 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (15,471,758) ============================================================================== Net unrealized appreciation of investment securities $204,346,361 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $885,589,306. </Table> AIM V.I. CAPITAL APPRECIATION FUND NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 5,862,745 $ 129,151,710 6,397,229 $ 136,561,015 - ------------------------------------------------------------------------------------------------------------------------- Series II 4,118,404 89,757,109 3,114,855 66,251,744 ========================================================================================================================= Reacquired: Series I (8,383,322) (184,681,508) (11,416,993) (239,926,165) - ------------------------------------------------------------------------------------------------------------------------- Series II (597,201) (13,010,699) (357,082) (7,520,933) ========================================================================================================================= 1,000,626 $ 21,216,612 (2,261,991) $ (44,634,339) _________________________________________________________________________________________________________________________ ========================================================================================================================= </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 51% 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 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I -------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84 $ 35.58 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.01 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b) (0.05) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.52) 1.39 4.89 (5.24) (7.17) (3.79) ================================================================================================================================= Total from investment operations (0.51) 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 $ 22.18 $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (2.25)% 6.62% 29.52% (24.35)% (23.28)% (10.91)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $811,222 $886,990 $938,820 $763,038 $1,160,236 $1,534,209 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.89%(d) 0.91% 0.85% 0.85% 0.85% 0.82% ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.10%(d) 0.09%(a) (0.23)% (0.27)% (0.22)% (0.17)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 42% 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 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 annualized and based on average daily net assets of $833,884,405. (e) Not annualized for periods less than one year. AIM V.I. CAPITAL APPRECIATION FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------------------------------------------------- AUGUST 21, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------------------------ DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 22.50 $ 21.16 $ 16.38 $ 21.70 $23.19 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.51) 1.36 4.87 (5.23) 0.45 ================================================================================================================================= Total from investment operations (0.53) 1.34 4.78 (5.32) 0.41 ================================================================================================================================= Less distributions from net realized gains -- -- -- -- (1.90) ================================================================================================================================= Net asset value, end of period $ 21.97 $ 22.50 $ 21.16 $ 16.38 $21.70 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (2.36)% 6.33% 29.18% (24.52)% 1.94% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $211,102 $136,982 $70,466 $23,893 $3,527 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.14%(d) 1.16% 1.10% 1.10% 1.09%(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.15)%(d) (0.16)%(a) (0.48)% (0.52)% (0.46)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 42% 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 annualized and based on average daily net assets of $162,928,404. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the"Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or AIM V.I. CAPITAL APPRECIATION FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. CAPITAL APPRECIATION FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley Vice President J. Philip Ferguson Vice President Mark D. Greenberg Vice President William R. Keithler Vice President Karen Dunn Kelley Vice President COUNSEL TO THE FUND Foley & Lardner LLP 3000 K N.W., Suite 500 Washington, D.C. 20007-5111 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 DISTRIBUTOR A I M Distributors, Inc. 11 Greenway Plaza Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. Capital Development Fund Semiannual Report to Shareholders o June 30, 2005 AIM V.I. CAPITAL DEVELOPMENT FUND seeks to provide long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. CAPITAL DEVELOPMENT FUND <Table> MANAGEMENT'S DISCUSSION o a stock's price reaches our valuation OF FUND PERFORMANCE target ====================================================================================== o a company moves into the large capitalization range PERFORMANCE SUMMARY ========================================= FUND VS. INDEXES o we find a more attractive investment Despite a market rally at the close of option the reporting period, stock indexes TOTAL RETURNS 12/31/04--6/30/05, EXCLUDING generally posted lackluster returns for PRODUCT ISSUER CHARGES. IF PRODUCT MARKET CONDITIONS AND YOUR FUND the half year, amid investor concerns ISSUER CHARGES WERE INCLUDED, RETURNS about higher oil prices and rising WOULD BE LOWER. The S&P 500 Index declined at the interest rates. These trends also muted beginning of the reporting period amid the Fund's performance. Series I Shares 0.75% concerns about increasing oil prices and rising interest rates. The Federal The Fund's focus on mid-cap stocks Series II Shares 0.62 Reserve (the Fed) continued raising helped it outperform the large-cap interest rates to slow economic growth oriented S&P 500 Index, as mid-cap stocks S&P 500 Index (Broad Market Index) -0.81 and curb potential inflation. The market generally outperformed their large-cap generally rebounded in the last two counterparts over the period. The Fund Russell Midcap Growth Index months of the period as oil prices fell outperformed its Lipper peer group, but (Style-specific Index) 1.70 in May before rising again in June and underperformed the Russell Midcap Growth many companies in the S&P 500 Index Index because its holdings in industrials Lipper Mid-Cap Growth Fund Index reported strong earnings. and information technology generally (Peer Group Index) -0.92 lagged those of the benchmark. During the period, investors generally SOURCE: LIPPER, INC. favored more defensive sectors such as utilities, energy and health care. The ========================================= Fund's exposure to these sectors helped performance. In addition, the Fund's ====================================================================================== focus on attractively valued stocks of conservative growth companies also HOW WE INVEST business models, improving balance sheets enhanced performance. and solid management teams We select stocks based on evaluation of Over the reporting period, we individual companies, focusing on mid-cap o using a variety of valuation techniques increased the Fund's exposure to health growth companies that are favorably to determine target buy prices and a care, its best-performing sector. Demand priced relative to the rest of the stock's valuation upside and downside for health care products and services market. potential tends to remain stable regardless of economic trends and that benefited Our investment process involves: We strive to control volatility and stocks in this sector. Health care risk by diversifying Fund holdings across stocks that performed well for the Fund o identifying companies with sustainable sectors and by building a portfolio of included COMMUNITY HEALTH SYSTEMS, which cash flow and earnings growth and low 100 to 120 stocks with approximately operates 70 hospitals in rural areas. stock prices relative to their projected equal weights within the portfolio. This holding is particularly reflective growth rates of our investment discipline. This We consider selling a stock if: company operates hospitals in o applying fundamental research, including financial statement analysis, o a company's fundamentals deteriorate to identify companies with large potential markets, cash-generating ========================================= ========================================= ========================================= PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Health Care Equipment 6.9 1. Spectrasite, Inc. 1.4% Consumer Discretionary 25.4% 2. Application Software 4.7 2. Scientific Games Corp.--Class A 1.3 Information Technology 19.0 3. Health Care Services 4.2 3. Jarden Corp. 1.3 Health Care 17.4 4. Communications Equipment 3.4 4. Nordstrom, Inc. 1.2 Financials 10.6 5. Real Estate 3.1 5. C.B. Richard Ellis Group, Inc.-- Class A 1.2 Industrials 8.8 The Fund's holdings are subject to change, and there is no assurance that 6. Williams Cos., Inc. (The) 1.2 Energy 8.3 the Fund will continue to hold any particular security. 7. Abercrombie & Fitch 1.2 Consumer Staples 3.1 Co.-Class A *Excluding money market fund holdings. Telecommunication Services 3.0 8. Corrections Corp. of America 1.2 Materials 1.9 9. Harrah's Entertainment, Inc. 1.2 Utilities 1.0 10. Murphy Oil Corp. 1.2 Money Market Funds TOTAL NET ASSETS $187.1 MILLION Plus Other Assets Less Liabilities 1.5 TOTAL NUMBER OF HOLDINGS* 122 ========================================= ========================================= ========================================= </Table> 2 AIM V.I. CAPITAL DEVELOPMENT FUND <Table> rural areas where it typically faces little IN CLOSING PAUL J. RASPLICKA, competition for patients. In addition, the [RASPLICKA Chartered Financial company has few competitors in attracting Although we are pleased to have provided PHOTO] Analyst, portfolio doctors who want to work in non-urban positive returns for our investors for manager, is lead portfolio areas. the reporting period, we are always manager of AIM V.I. striving to improve performance and help Capital Development Fund. Mr. Rasplicka We also increased the portfolio's you meet your financial goals. We remain began his investment career in 1982. exposure to consumer discretionary, the committed to our investment process of Anative of Denver, Mr. Rasplicka is a second-best performing sector for the focusing on the attractively priced magna cum laude graduate of the Fund. In this sector, the Fund benefited stocks of mid-cap companies with growing University of Colorado at Boulder with a from strong stock selection as continued earnings. Although growth stocks have B.S. in business administration. He strength in consumer spending helped many struggled in recent years, it is received an M.B.A. from the University of of its retail holdings. ADVANCE AUTO important to remember that market Chicago. He is also a Chartered PARTS, for example, was the segments go in and out of favor. We Investment Counselor. best-performing stock for the Fund for believe our strategy has the potential to the period. This auto parts retail chain provide investors with attractive returns Assisted by the Mid Cap Growth/GARP Team is particularly reflective of our over the long term and thank you for your investment discipline. Led by what we commitment to AIM V.I. Capital believe is a talented management team, Development Fund. the company has grown its revenues and increased profit margins over the three The views and opinions expressed in and a half years it has been owned in the Management's Discussion of Fund Fund. The firm also continues to gain Performance are those of A I M Advisors, market share, and is now the second Inc. These views and opinions are subject largest auto parts retailer in the U.S. to change at any time based on factors such as market and economic conditions. The sector that detracted the most These views and opinions may not be from Fund performance was industrials. relied upon as investment advice or Within this sector, several of the fund's recommendations, or as an offer for a capital goods holdings performed poorly. particular security. The information is In each of these areas, many of the fund's not a complete analysis of every aspect holdings were tied to an economic of any market, country, industry, recovery that has been uneven. An security or the fund. Statements of fact industrial stock that adversely affected are from sources considered reliable, but Fund performance was SIRVA, a global A I M Advisors, Inc. makes no relocation services company. Its stock representation or warranty as to their declined when the company announced that completeness or accuracy. Although it would not meet its previously issued historical performance is no guarantee of earnings guidance for the fourth quarter future results, these insights may help of 2004. Reasons cited included you understand our investment management accounting issues in its insurance and philosophy. European operations and lower-than-expected operating margins in each of its business segments. We sold the stock. The Fund also was hurt by poor stock selection in information technology, despite being underweight the sector relative to the Russell Midcap Growth Index. For instance, AVAYA, which produces communication equipment and software, faltered on concerns that corporations may be slower to deploy the company's voice over Internet protocol (VoIP) products than originally expected. VoIP technology allows users to make phone calls without incurring typical analog telephone charges, such as for [RIGHT ARROW GRAPHIC] long-distance calls, and also allows the flexibility of connecting from virtually any location. We sold the stock. FOR A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. CAPITAL DEVELOPMENT FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== AVERAGE ANNUAL TOTAL RETURNS shares is May 1, 1998. The inception annuity contracts and variable life As of 6/30/05 date of the fund's Series II shares is insurance policies, and through certain August 2, 2001. pension or retirement plans. You cannot SERIES I SHARES purchase shares of the fund directly. Inception (5/1/98) 5.68% The Series I and Series II shares Performance figures given represent the 5 Years 2.18 invest in the same portfolio of fund and are not intended to reflect 1 Year 10.37 securities and will have substantially actual variable product values. They do similar performance, except to the not reflect sales charges, expenses and SERIES II SHARES extent that expenses borne by each class fees assessed in connection with a Inception 5.43% differ. variable product. Sales charges, 5 Years 1.94 expenses and fees, which are determined 1 Year 10.14 The performance data quoted represent by the variable product issuers, will past performance and cannot guarantee vary and will lower the total return. ======================================== comparable future results; current Per NASD requirements, the most recent performance may be lower or higher. month-end performance data at the Fund Returns since the inception date of Please consult the product issuer or level, excluding variable product Series II shares are historical. All your financial advisor for the most charges, is available on this AIM other returns are the blended returns of recent month-end performance. automated information line, the historical performance of the fund's Performance figures reflect fund 866-702-4402. As mentioned above, for Series II shares since their inception expenses, reinvested distributions and the most recent month-end performance and the restated historical performance changes in net asset value. Investment including variable product charges, of the fund's Series I shares (for return and principal value will please contact your variable product periods prior to inception of the Series fluctuate so that you may have a gain or issuer or financial advisor. II shares) adjusted to reflect the loss when you sell shares. higher Rule 12b-1 fees applicable to the Series II shares. The inception date of AIM V.I. Capital Development Fund, a the Fund's Series I series portfolio of AIM Variable Insurance Funds, is offered through insurance company separate accounts to fund variable PRINCIPAL RISKS OF INVESTING IN THE FUND common stocks frequently used as a OTHER INFORMATION general measure of U.S. stock market Investing in small and mid-size performance. The returns shown in the Management's companies involves risks not associated Discussion of Fund Performance are based with investing in more established The unmanaged LIPPER MID-CAP on net asset values calculated for companies, including business risk, GROWTH FUND INDEX represents an average shareholder transactions. Generally significant stock price fluctuations and of the performance of the 30 largest accepted accounting principles require illiquidity. mid-capitalization growth funds tracked adjustments to be made to the net assets by Lipper, Inc., an independent mutual of the fund at period end for financial International investing presents fund performance monitor. reporting purposes, and as such, the net certain risks not associated with asset value for shareholder transactions investing solely in the United States. The unmanaged RUSSELL MIDCAP and the returns based on those net asset These include risks relating to --Registered Trademark-- GROWTH INDEX values may differ from the net asset fluctuations in the value of the U.S. represents the performance of the stocks values and returns reported in the dollar relative to the values of other of domestic mid-capitalization Financial Highlights. Additionally, the currencies, the custody arrangements companies. returns and net asset values shown made for the fund's foreign holdings, throughout this report are at the fund differences in accounting, political The fund is not managed to track the level only and do not include variable risks and the lesser degree of public performance of any particular index, product issuer charges. If such charges information required to be provided by including the indexes defined here, and were included, the total returns would non-U.S. companies. The fund may invest consequently, the performance of the be lower. up to 25% of its assets in the fund may deviate significantly from the securities of non-U.S. issuers. performance of the indexes. Industry classifications used in this report are generally according to the ABOUT INDEXES USED IN THIS REPORT A direct investment cannot be made in Global Industry Classification Standard, an index. Unless otherwise indicated, which was developed by and is the The unmanaged Standard & Poor's index results include reinvested exclusive property and a service mark of Composite Index of 500 Stocks (the dividends, and they do not reflect sales Morgan Stanley Capital International S&P 500--Registered Trademark-- INDEX) is charges. Performance of an index of Inc. and Standard & Poor s. an index of funds reflects fund expenses; performance of a market index does not. </Table> 4 AIM V.I. CAPITAL DEVELOPMENT FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. the effect of any fees or other expenses PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $1,000.00 $1,007.50 $5.38 $1,019.44 $5.41 Series II 1,000.00 1,006.20 6.62 1,018.20 6.66 (1)The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2)Expenses are equal to the Fund's annualized expense ratio (1.08% and 1.33% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable Agreement was appropriate and o Fees relative to those of clients of Insurance Funds (the "Board") oversees that AIM currently is providing services AIM with comparable investment the management of AIM V.I. Capital in accordance with the terms of the strategies. The Board reviewed the Development Fund (the "Fund") and, as Advisory Agreement. advisory fee rate for the Fund under the required by law, determines annually Advisory Agreement. The Board noted that whether to approve the continuance of o The quality of services to be provided this rate was the same as the advisory the Fund's advisory agreement with A I M by AIM. The Board reviewed the fee rates for a mutual fund advised by Advisors, Inc. ("AIM"). Based upon the credentials and experience of the AIM with investment strategies recommendation of the Investments officers and employees of AIM who will comparable to those of the Fund. The Committee of the Board, which is provide investment advisory services to Board noted that AIM has agreed to waive comprised solely of independent the Fund. In reviewing the advisory fees of the Fund and to limit trustees, at a meeting held on June 30, qualifications of AIM to provide the Fund's total operating expenses, as 2005, the Board, including all of the investment advisory services, the Board discussed below. Based on this review, independent trustees, approved the reviewed the qualifications of AIM's the Board concluded that the advisory continuance of the advisory agreement investment personnel and considered such fee rate for the Fund under the Advisory (the "Advisory Agreement") between the issues as AIM's portfolio and product Agreement was fair and reasonable. Fund and AIM for another year, effective review process, various back office July 1, 2005. support functions provided by AIM and o Fees relative to those of comparable AIM's equity and fixed income trading funds with other advisors. The Board The Board considered the factors operations. Based on the review of these reviewed the advisory fee rate for the discussed below in evaluating the and other factors, the Board concluded Fund under the Advisory Agreement. The fairness and reasonableness of the that the quality of services to be Board compared effective contractual Advisory Agreement at the meeting on provided by AIM was appropriate and that advisory fee rates at a common asset June 30, 2005 and as part of the Board's AIM currently is providing satisfactory level and noted that the Fund's rate was ongoing oversight of the Fund. In their services in accordance with the terms of below the median rate of the funds deliberations, the Board and the the Advisory Agreement. advised by other advisors with independent trustees did not identify investment strategies comparable to any particular factor that was o The performance of the Fund relative those of the Fund that the Board controlling, and each trustee attributed to comparable funds. The Board reviewed reviewed. The Board noted that AIM has different weights to the various the performance of the Fund during the agreed to waive advisory fees of the factors. past one, three and five calendar years Fund and to limit the Fund's total against the performance of funds advised operating expenses, as discussed below. One of the responsibilities of the by other advisors with investment Based on this review, the Board Senior Officer of the Fund, who is strategies comparable to those of the concluded that the advisory fee rate for independent of AIM and AIM's affiliates, Fund. The Board noted that the Fund's the Fund under the Advisory Agreement is to manage the process by which the performance was at the median was fair and reasonable. Fund's proposed management fees are performance of such comparable funds for negotiated to ensure that they are the one year period and above such o Expense limitations and fee waivers. negotiated in a manner which is at arm's median performance for the three and The Board noted that AIM has length and reasonable. To that end, the five year periods. Based on this review, contractually agreed to waive advisory Senior Officer must either supervise a the Board concluded that no changes fees of the Fund through June 30, 2006 competitive bidding process or prepare should be made to the Fund and that it to the extent necessary so that the an independent written evaluation. The was not necessary to change the Fund's advisory fees payable by the Fund do not Senior Officer has recommended an portfolio management team at this time. exceed a specified maximum advisory fee independent written evaluation in lieu rate, which maximum rate includes of a competitive bidding process and, o The performance of the Fund relative breakpoints and is based on net asset upon the direction of the Board, has to indices. The Board reviewed the levels. The Board considered the prepared such an independent written performance of the Fund during the past contractual nature of this fee waiver evaluation. Such written evaluation also one, three and five calendar years and noted that it remains in effect considered certain of the factors against the performance of the Lipper until June 30, 2006. The Board noted discussed below. In addition, as Mid-Cap Growth Fund Index. The Board that AIM has contractually agreed to discussed below, the Senior Officer made noted that the Fund's performance in waive fees and/or limit expenses of the certain recommendations to the Board in such periods was above the performance Fund through April 30, 2006 in an amount connection with such written evaluation. of such Index. Based on this review, the necessary to limit total annual Board concluded that no changes should operating expenses to a specified The discussion below serves as a be made to the Fund and that it was not percentage of average daily net assets summary of the Senior Officer's necessary to change the Fund's portfolio for each class of the Fund. The Board independent written evaluation and management team at this time. considered the contractual nature of recommendations to the Board in this fee waiver/expense limitation and connection therewith, as well as a o Meeting with the Fund's portfolio noted that it remains in effect through discussion of the material factors and managers and investment personnel. With April 30, 2006. The Board considered the the conclusions with respect thereto respect to the Fund, the Board is effect these fee waivers/expense that formed the basis for the Board's meeting periodically with such Fund's limitations would have on the Fund's approval of the Advisory Agreement. portfolio managers and/or other estimated expenses and concluded that After consideration of all of the investment personnel and believes that the levels of fee waivers/expense factors below and based on its informed such individuals are competent and able limitations for the Fund were fair and business judgment, the Board determined to continue to carry out their reasonable. that the Advisory Agreement is in the responsibilities under the Advisory best interests of the Fund and its Agreement. o Breakpoints and economies of scale. shareholders and that the compensation The Board reviewed the structure of the to AIM under the Advisory Agreement is o Overall performance of AIM. The Board Fund's advisory fee under the Advisory fair and reasonable and would have been considered the overall performance of Agreement, noting that it includes one obtained through arm's length AIM in providing investment advisory and breakpoint. The Board reviewed the level negotiations. portfolio administrative services to the of the Fund's advisory fees, and noted Fund and concluded that such performance that such fees, as a percentage of the o The nature and extent of the advisory was satisfactory. Fund's net assets, would decrease as net services to be provided by AIM. The assets increase because the Advisory Board reviewed the services to be Agreement includes a breakpoint. The provided by AIM under the Advisory Board noted that, due to the Fund's Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory (continued) </Table> <Table> current asset levels and the way in would be advisable to implement such a Fund, the Board considered the fact that which the advisory fee breakpoints have process as soon as reasonably AIM, along with others in the mutual been structured, the Fund has yet to practicable. fund industry, is subject to regulatory benefit from the breakpoint. The Board inquiries and litigation related to a noted that AIM has contractually agreed o Profitability of AIM and its wide range of issues. The Board also to waive advisory fees of the Fund affiliates. The Board reviewed considered the governance and compliance through June 30, 2006 to the extent information concerning the profitability reforms being undertaken by AIM and its necessary so that the advisory fees of AIM's (and its affiliates') investment affiliates, including maintaining an payable by the Fund do not exceed a advisory and other activities and its internal controls committee and specified maximum advisory fee rate, financial condition. The Board retaining an independent compliance which maximum rate includes breakpoints considered the overall profitability of consultant, and the fact that AIM has and is based on net asset levels. The AIM, as well as the profitability of AIM undertaken to cause the Fund to operate Board concluded that the Fund's fee in connection with managing the Fund. in accordance with certain governance levels under the Advisory Agreement The Board noted that AIM's operations policies and practices. The Board therefore would reflect economies of remain profitable, although increased concluded that these actions indicated a scale at higher asset levels and that it expenses in recent years have reduced good faith effort on the part of AIM to was not necessary to change the advisory AIM's profitability. Based on the review adhere to the highest ethical standards, fee breakpoints in the Fund's advisory of the profitability of AIM's and its and determined that the current fee schedule. affiliates investment advisory and other regulatory and litigation environment to activities and its financial condition, which AIM is subject should not prevent o Investments in affiliated money market the Board concluded that the the Board from continuing the Advisory funds. The Board also took into account compensation to be paid by the Fund to Agreement for the Fund. the fact that uninvested cash and cash AIM under its Advisory Agreement was not collateral from securities lending excessive. arrangements (collectively, "cash balances") of the Fund may be invested o Benefits of soft dollars to AIM. The in money market funds advised by AIM Board considered the benefits realized pursuant to the terms of an SEC by AIM as a result of brokerage exemptive order. The Board found that transactions executed through "soft the Fund may realize certain benefits dollar" arrangements. Under these upon investing cash balances in AIM arrangements, brokerage commissions paid advised money market funds, including a by the Fund and/or other funds advised higher net return, increased liquidity, by AIM are used to pay for research and increased diversification or decreased execution services. This research is transaction costs. The Board also found used by AIM in making investment that the Fund will not receive reduced decisions for the Fund. The Board services if it invests its cash balances concluded that such arrangements were in such money market funds. The Board appropriate. noted that, to the extent the Fund invests in affiliated money market o AIM's financial soundness in light of funds, AIM has voluntarily agreed to the Fund's needs. The Board considered waive a portion of the advisory fees it whether AIM is financially sound and has receives from the Fund attributable to the resources necessary to perform its such investment. The Board further obligations under the Advisory determined that the proposed securities Agreement, and concluded that AIM has lending program and related procedures the financial resources necessary to with respect to the lending Fund is in fulfill its obligations under the the best interests of the lending Fund Advisory Agreement. and its respective shareholders. The Board therefore concluded that the o Historical relationship between the investment of cash collateral received Fund and AIM. In determining whether to in connection with the securities continue the Advisory Agreement for the lending program in the money market Fund, the Board also considered the funds according to the procedures is in prior relationship between AIM and the the best interests of the lending Fund Fund, as well as the Board's knowledge and its respective shareholders. of AIM's operations, and concluded that it was beneficial to maintain the o Independent written evaluation and current relationship, in part, because recommendations of the Fund's Senior of such knowledge. The Board also Officer. The Board noted that, upon reviewed the general nature of the their direction, the Senior Officer of non-investment advisory services the Fund had prepared an independent currently performed by AIM and its written evaluation in order to assist affiliates, such as administrative, the Board in determining the transfer agency and distribution reasonableness of the proposed services, and the fees received by AIM management fees of the AIM Funds, and its affiliates for performing such including the Fund. The Board noted that services. In addition to reviewing such the Senior Officer's written evaluation services, the trustees also considered had been relied upon by the Board in the organizational structure employed by this regard in lieu of a competitive AIM and its affiliates to provide those bidding process. In determining whether services. Based on the review of these to continue the Advisory Agreement for and other factors, the Board concluded the Fund, the Board considered the that AIM and its affiliates were Senior Officer's written evaluation and qualified to continue to provide the recommendation made by the Senior non-investment advisory services to the Officer to the Board that the Board Fund, including administrative, transfer consider implementing a process to agency and distribution services, and assist them in more closely monitoring that AIM and its affiliates currently the performance of the AIM Funds. The are providing satisfactory Board concluded that it non-investment advisory services. o Other factors and current trends. In determining whether to continue the Advisory Agreement for the </Table> SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-98.47% ADVERTISING-2.07% Omnicom Group Inc. 22,200 $ 1,772,892 - ----------------------------------------------------------------------- R.H. Donnelley Corp.(a) 33,900 2,101,122 ======================================================================= 3,874,014 ======================================================================= AEROSPACE & DEFENSE-2.03% Aviall, Inc.(a) 60,200 1,901,718 - ----------------------------------------------------------------------- L-3 Communications Holdings, Inc. 24,800 1,899,184 ======================================================================= 3,800,902 ======================================================================= AIR FREIGHT & LOGISTICS-0.86% Robinson (C.H.) Worldwide, Inc. 27,600 1,606,320 ======================================================================= APPAREL RETAIL-2.40% Abercrombie & Fitch Co.-Class A 32,000 2,198,400 - ----------------------------------------------------------------------- DSW Inc.-Class A(a) 10,200 254,490 - ----------------------------------------------------------------------- Ross Stores, Inc. 70,600 2,041,046 ======================================================================= 4,493,936 ======================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-0.56% Polo Ralph Lauren Corp. 24,300 1,047,573 ======================================================================= APPLICATION SOFTWARE-4.66% Amdocs Ltd. (United Kingdom)(a) 63,300 1,673,019 - ----------------------------------------------------------------------- Autodesk, Inc. 50,300 1,728,811 - ----------------------------------------------------------------------- Citrix Systems, Inc.(a) 36,700 794,922 - ----------------------------------------------------------------------- Hyperion Solutions Corp.(a) 31,200 1,255,488 - ----------------------------------------------------------------------- Mercury Interactive Corp.(a) 40,400 1,549,744 - ----------------------------------------------------------------------- NAVTEQ Corp.(a) 46,000 1,710,280 ======================================================================= 8,712,264 ======================================================================= ASSET MANAGEMENT & CUSTODY BANKS-0.42% Legg Mason, Inc. 7,500 780,825 ======================================================================= AUTO PARTS & EQUIPMENT-0.50% Autoliv, Inc. 21,500 941,700 ======================================================================= AUTOMOTIVE RETAIL-1.04% Advance Auto Parts, Inc.(a) 30,000 1,936,500 ======================================================================= BIOTECHNOLOGY-1.53% Charles River Laboratories International, Inc.(a) 37,900 1,828,675 - ----------------------------------------------------------------------- Martek Biosciences Corp.(a) 27,400 1,039,830 ======================================================================= 2,868,505 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> BROADCASTING & CABLE TV-0.50% Univision Communications Inc.-Class A(a) 34,000 $ 936,700 ======================================================================= BUILDING PRODUCTS-0.87% American Standard Cos. Inc. 39,000 1,634,880 ======================================================================= CASINOS & GAMING-2.53% Harrah's Entertainment, Inc. 30,700 2,212,549 - ----------------------------------------------------------------------- Scientific Games Corp.-Class A(a) 93,300 2,512,569 ======================================================================= 4,725,118 ======================================================================= COMMODITY CHEMICALS-1.43% Celanese Corp.-Series A(a) 107,900 1,714,531 - ----------------------------------------------------------------------- Lyondell Chemical Co. 36,200 956,404 ======================================================================= 2,670,935 ======================================================================= COMMUNICATIONS EQUIPMENT-3.38% Corning Inc.(a) 68,600 1,140,132 - ----------------------------------------------------------------------- Harris Corp. 60,600 1,891,326 - ----------------------------------------------------------------------- Plantronics, Inc. 49,800 1,810,728 - ----------------------------------------------------------------------- Scientific-Atlanta, Inc. 44,400 1,477,188 ======================================================================= 6,319,374 ======================================================================= COMPUTER HARDWARE-0.60% PalmOne, Inc.(a)(b) 38,000 1,131,260 ======================================================================= COMPUTER STORAGE & PERIPHERALS-1.19% Emulex Corp.(a) 75,000 1,369,500 - ----------------------------------------------------------------------- QLogic Corp.(a) 27,800 858,186 ======================================================================= 2,227,686 ======================================================================= CONSUMER ELECTRONICS-0.50% Harman International Industries, Inc. 11,400 927,504 ======================================================================= CONSUMER FINANCE-0.99% AmeriCredit Corp.(a)(b) 72,800 1,856,400 ======================================================================= DATA PROCESSING & OUTSOURCED SERVICES-2.75% Alliance Data Systems Corp.(a) 50,100 2,032,056 - ----------------------------------------------------------------------- CSG Systems International, Inc.(a) 99,000 1,879,020 - ----------------------------------------------------------------------- Iron Mountain Inc.(a) 39,737 1,232,642 ======================================================================= 5,143,718 ======================================================================= DEPARTMENT STORES-2.22% Kohl's Corp.(a) 33,200 1,856,212 - ----------------------------------------------------------------------- Nordstrom, Inc. 33,900 2,304,183 ======================================================================= 4,160,395 ======================================================================= </Table> AIM V.I. CAPITAL DEVELOPMENT FUND <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- DISTILLERS & VINTNERS-0.97% Constellation Brands, Inc.-Class A(a) 61,500 $ 1,814,250 ======================================================================= DIVERSIFIED BANKS-0.75% Centennial Bank Holdings, Inc. (Acquired 12/27/04; Cost $1,358,700)(a)(c)(d) 129,400 1,397,520 ======================================================================= DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-2.19% ChoicePoint Inc.(a) 48,400 1,938,420 - ----------------------------------------------------------------------- Corrections Corp. of America(a) 54,800 2,150,900 ======================================================================= 4,089,320 ======================================================================= DRUG RETAIL-1.11% Shoppers Drug Mart Corp. (Canada) 59,600 2,067,333 ======================================================================= EDUCATION SERVICES-1.03% Career Education Corp.(a) 52,600 1,925,686 ======================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-0.95% Cooper Industries, Ltd.-Class A (Bermuda) 27,700 1,770,030 ======================================================================= ELECTRONIC EQUIPMENT MANUFACTURERS-1.10% Amphenol Corp.-Class A 51,400 2,064,738 ======================================================================= ELECTRONIC MANUFACTURING SERVICES-0.86% Benchmark Electronics, Inc.(a) 53,000 1,612,260 ======================================================================= GAS UTILITIES-0.98% Questar Corp. 27,700 1,825,430 ======================================================================= GENERAL MERCHANDISE STORES-0.95% Dollar General Corp. 86,900 1,769,284 ======================================================================= HEALTH CARE DISTRIBUTORS-0.69% Henry Schein, Inc.(a) 31,200 1,295,424 ======================================================================= HEALTH CARE EQUIPMENT-6.90% Biomet, Inc. 54,000 1,870,560 - ----------------------------------------------------------------------- Fisher Scientific International Inc.(a) 29,200 1,895,080 - ----------------------------------------------------------------------- INAMED Corp.(a) 15,700 1,051,429 - ----------------------------------------------------------------------- Kinetic Concepts, Inc.(a) 30,700 1,842,000 - ----------------------------------------------------------------------- Mentor Corp. 22,500 933,300 - ----------------------------------------------------------------------- PerkinElmer, Inc. 96,200 1,818,180 - ----------------------------------------------------------------------- Varian Medical Systems, Inc. 47,000 1,754,510 - ----------------------------------------------------------------------- Waters Corp.(a) 47,000 1,746,990 ======================================================================= 12,912,049 ======================================================================= HEALTH CARE FACILITIES-1.44% Community Health Systems Inc.(a) 46,000 1,738,340 - ----------------------------------------------------------------------- VCA Antech, Inc.(a) 39,000 945,750 ======================================================================= 2,684,090 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> HEALTH CARE SERVICES-4.16% Cerner Corp.(a)(b) 14,000 $ 951,580 - ----------------------------------------------------------------------- Covance Inc.(a) 37,400 1,678,138 - ----------------------------------------------------------------------- DaVita, Inc.(a) 40,100 1,823,748 - ----------------------------------------------------------------------- Express Scripts, Inc.(a) 33,200 1,659,336 - ----------------------------------------------------------------------- Omnicare, Inc. 39,200 1,663,256 ======================================================================= 7,776,058 ======================================================================= HEALTH CARE SUPPLIES-1.05% Cooper Cos., Inc. (The) 24,500 1,491,070 - ----------------------------------------------------------------------- Gen-Probe Inc.(a) 13,000 470,990 ======================================================================= 1,962,060 ======================================================================= HOME FURNISHINGS-0.94% Tempur-Pedic International Inc.(a) 79,600 1,765,528 ======================================================================= HOMEBUILDING-1.03% Ryland Group, Inc. (The) 25,300 1,919,511 ======================================================================= HOMEFURNISHING RETAIL-0.98% Williams-Sonoma, Inc.(a) 46,100 1,824,177 ======================================================================= HOTELS, RESORTS & CRUISE LINES-1.12% Hilton Hotels Corp. 87,700 2,091,645 ======================================================================= HOUSEHOLD PRODUCTS-0.58% Central Garden & Pet Co.(a) 22,200 1,090,464 ======================================================================= HOUSEWARES & SPECIALTIES-1.82% Fortune Brands, Inc. 10,500 932,400 - ----------------------------------------------------------------------- Jarden Corp.(a) 46,000 2,480,320 ======================================================================= 3,412,720 ======================================================================= INDUSTRIAL MACHINERY-0.85% ITT Industries, Inc. 16,300 1,591,369 ======================================================================= INTEGRATED OIL & GAS-1.15% Murphy Oil Corp. 41,000 2,141,430 ======================================================================= INTEGRATED TELECOMMUNICATION SERVICES-0.20% NeuStar, Inc.-Class A(a) 14,900 381,440 ======================================================================= INTERNET SOFTWARE & SERVICES-1.66% Akamai Technologies, Inc.(a) 22,800 299,364 - ----------------------------------------------------------------------- Digital River, Inc.(a) 40,600 1,289,050 - ----------------------------------------------------------------------- VeriSign, Inc.(a) 52,800 1,518,528 ======================================================================= 3,106,942 ======================================================================= LEISURE PRODUCTS-0.98% Brunswick Corp. 42,200 1,828,104 ======================================================================= </Table> AIM V.I. CAPITAL DEVELOPMENT FUND <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- MANAGED HEALTH CARE-1.13% CIGNA Corp. 11,100 $ 1,188,033 - ----------------------------------------------------------------------- Molina Healthcare Inc.(a) 21,000 929,460 ======================================================================= 2,117,493 ======================================================================= MULTI-LINE INSURANCE-0.04% Quanta Capital Holdings Ltd. (Bermuda)(a)(e) 13,300 82,859 ======================================================================= OIL & GAS DRILLING-2.00% Nabors Industries, Ltd. (Bermuda)(a) 32,000 1,939,840 - ----------------------------------------------------------------------- Noble Corp. (Cayman Islands) 29,200 1,796,092 ======================================================================= 3,735,932 ======================================================================= OIL & GAS EQUIPMENT & SERVICES-2.96% Grant Prideco, Inc.(a) 54,200 1,433,590 - ----------------------------------------------------------------------- National-Oilwell Varco Inc.(a) 43,000 2,044,220 - ----------------------------------------------------------------------- Weatherford International Ltd. (Bermuda)(a) 35,500 2,058,290 ======================================================================= 5,536,100 ======================================================================= OIL & GAS EXPLORATION & PRODUCTION-0.99% Rosetta Resources, Inc.(a)(c)(d)(e) 116,100 1,857,600 ======================================================================= OIL & GAS STORAGE & TRANSPORTATION-1.20% Williams Cos., Inc. (The) 118,000 2,242,000 ======================================================================= OTHER DIVERSIFIED FINANCIAL SERVICES-1.58% Alliance Capital Management Holding L.P.(a) 23,600 1,103,064 - ----------------------------------------------------------------------- CapitalSource Inc.(a) 94,800 1,860,924 ======================================================================= 2,963,988 ======================================================================= PACKAGED FOODS & MEATS-0.48% TreeHouse Foods, Inc.(a) 31,400 895,214 ======================================================================= PHARMACEUTICALS-0.53% Medicis Pharmaceutical Corp.-Class A(b) 31,000 983,630 ======================================================================= RAILROADS-0.49% CSX Corp. 21,400 912,924 ======================================================================= REAL ESTATE-3.14% Aames Investment Corp. 134,700 1,309,284 - ----------------------------------------------------------------------- Fieldstone Investment Corp. 9,000 129,600 - ----------------------------------------------------------------------- Fieldstone Investment Corp. (Acquired 11/10/03-02/06/04; Cost $1,254,664)(c)(e) 81,654 1,175,818 - ----------------------------------------------------------------------- KKR Financial Corp. (Acquired 08/05/04; Cost $1,505,000)(a)(c)(d)(e) 75,250 1,693,125 - ----------------------------------------------------------------------- People's Choice Financial Corp. (Acquired 12/21/04-06/30/05; Cost $1,730,650)(a)(c)(d) 174,400 1,569,600 ======================================================================= 5,877,427 ======================================================================= </Table> <Table> MARKET SHARES VALUE - ----------------------------------------------------------------------- <Caption> REAL ESTATE MANAGEMENT & DEVELOPMENT-1.22% CB Richard Ellis Group, Inc.-Class A(a) 52,200 $ 2,289,492 ======================================================================= REGIONAL BANKS-0.49% Signature Bank(a) 37,800 922,320 ======================================================================= RESTAURANTS-0.70% Applebee's International, Inc. 49,500 1,311,255 ======================================================================= SEMICONDUCTORS-2.83% Analog Devices, Inc. 42,900 1,600,599 - ----------------------------------------------------------------------- ATI Technologies Inc. (Canada)(a) 59,000 699,150 - ----------------------------------------------------------------------- Microchip Technology Inc. 59,600 1,765,352 - ----------------------------------------------------------------------- National Semiconductor Corp. 55,700 1,227,071 ======================================================================= 5,292,172 ======================================================================= SPECIALIZED CONSUMER SERVICES-0.61% Jackson Hewitt Tax Service Inc. 48,100 1,137,084 ======================================================================= SPECIALIZED FINANCE-0.88% Chicago Mercantile Exchange Holdings Inc. 5,600 1,654,800 ======================================================================= SPECIALTY CHEMICALS-0.49% Minerals Technologies Inc. 14,900 917,840 ======================================================================= SPECIALTY STORES-2.87% Office Depot, Inc.(a) 88,000 2,009,920 - ----------------------------------------------------------------------- PETCO Animal Supplies, Inc.(a) 61,100 1,791,452 - ----------------------------------------------------------------------- Tractor Supply Co.(a) 31,700 1,556,470 ======================================================================= 5,357,842 ======================================================================= THRIFTS & MORTGAGE FINANCE-1.05% Hudson City Bancorp, Inc. 172,000 1,962,520 ======================================================================= TRUCKING-0.54% Swift Transportation Co., Inc.(a) 43,000 1,001,470 ======================================================================= WIRELESS TELECOMMUNICATION SERVICES-2.78% American Tower Corp.-Class A(a) 50,900 1,069,918 - ----------------------------------------------------------------------- NII Holdings Inc.(a) 24,500 1,566,530 - ----------------------------------------------------------------------- SpectraSite, Inc.(a) 34,300 2,552,949 ======================================================================= 5,189,397 ======================================================================= Total Common Stocks and Other Equity Interests (Cost $152,485,043) 184,156,730 ======================================================================= </Table> AIM V.I. CAPITAL DEVELOPMENT FUND <Table> <Caption> NUMBER OF EXERCISE EXPIRATION MARKET CONTRACTS PRICE DATE VALUE - ----------------------------------------------------------------------------------------------- OPTIONS PURCHASED-0.01% INTERNET SOFTWARE & SERVICES-0.01% Digital River, Inc. (Cost $7,562) 249 $30 Jul-05 $ 11,205 =============================================================================================== </Table> <Table> <Caption> SHARES MONEY MARKET FUNDS-3.32% Liquid Assets Portfolio-Institutional Class(f) 3,102,929 3,102,929 - ----------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(f) 3,102,929 3,102,929 ======================================================================= Total Money Market Funds (Cost $6,205,858) 6,205,858 ======================================================================= TOTAL INVESTMENTS-101.80% (excluding investments purchased with cash collateral from securities loaned) (Cost $158,698,463) 190,373,793 ======================================================================= </Table> <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED MONEY MARKET FUNDS-1.63% Liquid Assets Portfolio-Institutional Class(f)(g) 1,525,043 $ 1,525,043 - ----------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(f)(g) 1,525,043 1,525,043 ======================================================================= Total Money Market Funds (purchased with cash collateral from securities loaned) (Cost $3,050,086) 3,050,086 ======================================================================= TOTAL INVESTMENTS-103.43% (Cost $161,748,549) 193,423,879 ======================================================================= OTHER ASSETS LESS LIABILITIES-(3.43%) (6,415,570) ======================================================================= NET ASSETS-100.00% $187,008,309 _______________________________________________________________________ ======================================================================= </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 June 30, 2005. (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 June 30, 2005 was $7,693,663, which represented 4.11% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (d) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities. The aggregate market value of these securities considered illiquid at June 30, 2005 was $6,517,845, which represented 3.49% 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 June 30, 2005 was $4,809,402, which represented 2.49% 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 7. See accompanying notes which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $152,492,605)* $184,167,935 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $9,255,944) 9,255,944 ============================================================= Total investments (cost $161,748,549) 193,423,879 ============================================================= Cash 954,890 - ------------------------------------------------------------- Receivables for: Investments sold 4,553,488 - ------------------------------------------------------------- Fund shares sold 11,925 - ------------------------------------------------------------- Dividends 58,767 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 29,837 ============================================================= Total assets 199,032,786 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 8,041,296 - ------------------------------------------------------------- Investments purchased from affiliates 286,389 - ------------------------------------------------------------- Fund shares reacquired 356,281 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 34,734 - ------------------------------------------------------------- Collateral upon return of securities loaned 3,050,086 - ------------------------------------------------------------- Accrued administrative services fees 189,384 - ------------------------------------------------------------- Accrued distribution fees -- Series II 44,617 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 125 - ------------------------------------------------------------- Accrued transfer agent fees 938 - ------------------------------------------------------------- Accrued operating expenses 20,627 ============================================================= Total liabilities 12,024,477 ============================================================= Net assets applicable to shares outstanding $187,008,309 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $159,543,134 - ------------------------------------------------------------- Undistributed net investment income (loss) (435,699) - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (3,774,475) - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 31,675,349 ============================================================= $187,008,309 _____________________________________________________________ ============================================================= NET ASSETS: Series I $113,597,007 _____________________________________________________________ ============================================================= Series II $ 73,411,302 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 7,679,664 _____________________________________________________________ ============================================================= Series II 5,008,827 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 14.79 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 14.66 _____________________________________________________________ ============================================================= </Table> * At June 30, 2005, securities with an aggregate market value of $3,023,260 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $1,506) $ 564,059 - ------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $24,372, after compensation to counterparties of $28,710) 118,743 ============================================================= Total investment income 682,802 ============================================================= EXPENSES: Advisory fees 687,252 - ------------------------------------------------------------- Administrative services fees 245,269 - ------------------------------------------------------------- Custodian fees 15,883 - ------------------------------------------------------------- Distribution fees -- Series II 90,424 - ------------------------------------------------------------- Transfer agent fees 9,158 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 9,038 - ------------------------------------------------------------- Other 31,068 ============================================================= Total expenses 1,088,092 ============================================================= Less: Fees waived (5,478) - ------------------------------------------------------------- Net expenses 1,082,614 ============================================================= Net investment income (loss) (399,812) ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $116,647) 7,451,323 - ------------------------------------------------------------- Foreign currencies 2,331 ============================================================= 7,453,654 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (5,975,183) - ------------------------------------------------------------- Foreign currencies 19 ============================================================= (5,975,164) ============================================================= Net gain from investment securities and foreign currencies 1,478,490 ============================================================= Net increase in net assets resulting from operations $ 1,078,678 _____________________________________________________________ ============================================================= </Table> 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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (399,812) $ (444,721) - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and foreign currencies 7,453,654 12,985,972 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (5,975,164) 10,570,249 ========================================================================================== Net increase in net assets resulting from operations 1,078,678 23,111,500 ========================================================================================== Share transactions-net: Series I 597,452 3,400,003 - ------------------------------------------------------------------------------------------ Series II 1,964,928 29,492,919 ========================================================================================== Net increase in net assets resulting from share transactions 2,562,380 32,892,922 ========================================================================================== Net increase in net assets 3,641,058 56,004,422 ========================================================================================== NET ASSETS: Beginning of period 183,367,251 127,362,829 ========================================================================================== End of period (including undistributed net investment income (loss) of $(435,699) and $(35,887), respectively) $187,008,309 $183,367,251 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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, 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 including estimates and assumptions related to taxation. 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 AIM V.I. CAPITAL DEVELOPMENT FUND 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 and domestic and foreign index futures. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. H. PUT OPTIONS -- The Fund may purchase and write put options including securities index 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, securities index, 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. The Fund may write put options to earn additional income in the form of option premiums if it expects the price of the underlying securities to remain stable or rise during the option period so that the option will not be exercised. The risk in this strategy is that the price of the underlying securities may decline by an amount greater than the premium received. 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. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. This practice does not apply to securities pledged as collateral for securities lending transactions. AIM V.I. CAPITAL DEVELOPMENT 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $350 million 0.75% - -------------------------------------------------------------------- Over $350 million 0.625% ____________________________________________________________________ ==================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $250 million 0.745% - -------------------------------------------------------------------- Next $250 million 0.73% - -------------------------------------------------------------------- Next $500 million 0.715% - -------------------------------------------------------------------- Next $1.5 billion 0.70% - -------------------------------------------------------------------- Next $2.5 billion 0.685% - -------------------------------------------------------------------- Next $2.5 billion 0.67% - -------------------------------------------------------------------- Next $2.5 billion 0.655% - -------------------------------------------------------------------- Over $10 billion 0.64% ____________________________________________________________________ ==================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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). AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $5,478. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 Fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $220,474 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $9,158. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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 AIM V.I. CAPITAL DEVELOPMENT FUND 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $90,424. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Asset Portfolio- Institutional Class $ 2,558,677 $28,630,195 $(28,085,943) $ -- $3,102,929 $ 46,975 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 2,558,677 28,630,195 (28,085,943) -- 3,102,929 47,396 -- ================================================================================================================================== Subtotal $ 5,117,354 $57,260,390 $(56,171,886) $ -- $6,205,858 $ 94,371 $ -- ================================================================================================================================== </Table> INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Asset Portfolio- Institutional Class $ 2,893,043 $ 6,546,749 $ (7,914,749) $ -- $1,525,043 $ 12,083 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 2,893,043 6,546,749 (7,914,749) -- 1,525,043 12,289 -- ================================================================================================================================== Subtotal $ 5,786,086 $13,093,498 $(15,829,498) $ -- $3,050,086 $ 24,372 $ -- ================================================================================================================================== Total $10,903,440 $70,353,888 $(72,001,384) $ -- $9,255,944 $118,743 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </Table> * Net of compensation to 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 six months ended June 30, 2005, the Fund engaged in securities purchases of $1,300,858 and sales of $650,699, which resulted in net realized gains of $116,647. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,311 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. CAPITAL DEVELOPMENT 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 six months ended June 30, 2005, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. NOTE 7--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to a loss on the collateral invested. At June 30, 2005, securities with an aggregate value of $3,023,260 were on loan to brokers. The loans were secured by cash collateral of $3,050,086 received by the Fund and subsequently invested in affiliated money market funds. For the six months ended June 30, 2005, the Fund received dividends on cash collateral of $24,372 for securities lending transactions, which are net of compensation to counterparties. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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. AIM V.I. CAPITAL DEVELOPMENT 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 six months ended June 30, 2005 was $117,236,274 and $113,605,069, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $35,179,887 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (3,578,847) =============================================================================== Net unrealized appreciation of investment securities $31,601,040 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $161,822,839. </Table> NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, -------------------------------------------------------- 2005 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 2,594,678 $ 37,104,950 1,264,587 $ 16,685,624 - ---------------------------------------------------------------------------------------------------------------------- Series II 974,341 13,902,462 2,916,252 38,179,047 ====================================================================================================================== Reacquired: Series I (2,545,040) (36,507,498) (1,015,409) (13,285,621) - ---------------------------------------------------------------------------------------------------------------------- Series II (863,127) (11,937,534) (672,418) (8,686,128) ====================================================================================================================== 160,852 $ 2,562,380 2,493,012 $ 32,892,922 ______________________________________________________________________________________________________________________ ====================================================================================================================== </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 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. AIM V.I. CAPITAL DEVELOPMENT 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 ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.68 $ 12.71 $ 9.39 $ 11.94 $ 12.99 $ 11.89 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.03)(a) (0.01) (0.01)(a) (0.02) (0.01)(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.13 2.00 3.33 (2.54) (1.03) 1.11 ================================================================================================================================= Total from investment operations 0.11 1.97 3.32 (2.55) (1.05) 1.10 ================================================================================================================================= Net asset value, end of period $ 14.79 $ 14.68 $ 12.71 $ 9.39 $ 11.94 $ 12.99 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 0.75% 15.50% 35.36% (21.36)% (8.08)% 9.25% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $113,597 $112,028 $93,813 $70,018 $92,732 $74,874 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.08%(c)(d) 1.10% 1.13% 1.14% 1.16% 1.19%(d) ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.34)%(c) (0.21)% (0.13)% (0.08)% (0.16)% (0.07)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 64% 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 annualized and based on average daily net assets of $111,847,167. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.09% (annualized) and 1.38% for the six months ended June 30, 2005 and the year ended December 31, 2000, respectively. (e) Not annualized for periods less than one year. AIM V.I. CAPITAL DEVELOPMENT FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ----------------------------------------------------------------------- AUGUST 21, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, -------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.57 $ 12.64 $ 9.36 $ 11.94 $11.88 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.04) (0.06)(a) (0.03) (0.03)(a) (0.01) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.13 1.99 3.31 (2.55) 0.07 ================================================================================================================================= Total from investment operations 0.09 1.93 3.28 (2.58) 0.06 ================================================================================================================================= Net asset value, end of period $ 14.66 $ 14.57 $ 12.64 $ 9.36 $11.94 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 0.62% 15.27% 35.04% (21.61)% 0.50% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $73,411 $71,339 $33,550 $14,969 $2,767 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.33%(c)(d) 1.35% 1.38% 1.39% 1.41%(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.59)%(c) (0.46)% (0.38)% (0.33)% (0.41)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 64% 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 do not reflect charges assessed in connections with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $72,938,936. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.34% (annualized) for the six months ended June 30, 2005. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004 the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such report. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent AIM V.I. CAPITAL DEVELOPMENT FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. CAPITAL DEVELOPMENT FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. CAPITAL DEVELOPMENT FUND AIM V.I. CORE EQUITY FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. CORE EQUITY FUND seeks to provide growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330,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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30,2005,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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. CORE EQUITY FUND <Table> MANAGEMENT'S DISCUSSION means to limit volatility in certain OF FUND PERFORMANCE market environments. We consider selling a stock when ===================================================================================== o it exceeds our target price PERFORMANCE SUMMARY ======================================= o we have not seen a demonstrable As shown in the table, large-cap stocks FUND VS. INDEXES improvement in fundamentals during an either gave up ground or were virtually 18- to 24-month time horizon stalled for the six months ended June TOTAL RETURNS,12/31/04-6/30/05,EXCLUDING 30, 2005. In fact, most equity indexes VARIABLE PRODUCT ISSUER CHARGES. IF o there is a deterioration in company provided only meager or negative returns VARIABLE PRODUCT ISSUER CHARGES WERE fundamentals for the period. INCLUDED, RETURNS WOULD BE LOWER. o more compelling investment The Fund's performance was in line Series I Shares -0.97% opportunities exist with the broad market as represented by the S&P 500 Index. The Fund somewhat Series II Shares -1.07 MARKET CONDITIONS AND YOUR FUND lagged the Russell 1000 Index because of the performance of the Fund's stocks Standard & Poor's Composite Index During the first three months of 2005, in three sectors: health care, of 500 Stocks (S&P 500 Index) domestic equity markets failed to gain industrials and information technology. (Broad Market Index) -0.81 consistent traction despite continued growth in the U.S gross domestic Russell 1000 Index product. Investors worried that rising (Style-specific Index) 0.11 energy prices and interest rates would have a negative impact on economic Lipper Large-Cap Core Fund Index growth and inflation. (Peer Group Index) -1.01 Crude oil prices remained high SOURCE: LIPPER,INC. during the second quarter, but stocks performed relatively well--although not ======================================= well enough to overcome the poor performance of the first quarter. ===================================================================================== Accordingly, major domestic equity indexes produced either low single-digit HOW WE INVEST We conduct quantitative research to or negative returns for the six-month identify growing companies whose stock period. In both the Fund and its We manage your Fund as a "core" fund, prices may be experiencing some benchmark index, the Russell 1000 Index, seeking to provide upside potential and near-term distress. By further applying only energy and utilities produced a measure of protection in difficult rigorous fundamental research, including double-digit returns. markets to complement more aggressive analysis of company financial statements value and growth investments. with a special focus on cash flow, we The most significant contribution to assess the prospects for each business Fund performance came from its energy We believe a portfolio of and its appreciation potential. holdings. At period-end, our weighting attractively valued companies with in energy was the second-highest in the consistent free cash flow and management We target a well-diversified, portfolio, almost double the energy teams that effectively allocate excess large-cap core portfolio and attempt to weighting in the cash to the benefit of shareholders can protect against volatility through the outperform the market over the long size of individual holdings and sector term. We believe these companies are weightings. Sector exposure is best positioned to weather temporary consistent with a core investment to setbacks and therefore provide the complement value and growth investments. potential for both long-term capital We may also maintain a cash position as a appreciation and lower downside risk. ===================================== ========================================= ========================================= PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Pharmaceuticals 11.6% 1. Microsoft Corp. 3.1% 1. Information Technology 19.3% 2. Integrated Oil & Gas 6.9 2. Merck & Co. Inc. 2.8 2. Energy 14.0 3. Property & Casualty Insurance 5.9 3. GlaxoSmithKline PLC-ADR (United Kingdom) 2.6 3. Financials 13.4 4. Packaged Foods & Meats 5.5 4. Berkshire Hathaway Inc. 2.3 4. Health Care 12.6 5. Oil & Gas Equipment & 4.8 -Class A Services 5. Waste Management,Inc. 2.2 5. Consumer Staples 11.9 6. Systems Software 4.6 6. Kroger Co. (The) 2.2 6. Industrials 9.1 7. Semiconductors 4.4 7. BJ Services Co. 2.1 7. Consumer Discretionary 6.9 8. Industrial Conglomerates 3.0 8. Tyco International Ltd. 2.0 8. Utilities 2.3 9. Publishing 3.0 (Bermuda) 9. Telecommunication Services 1.9 10. Communications Equipment 2.2 9. TOTAL S.A. (France) 1.9 10. Materials 1.3 TOTAL NET ASSETS $1.35 BILLION 10. General Mills, Inc. 1.9 Money Market Funds TOTAL NUMBER OF HOLDINGS* 64 Plus Other Assets Less Liabilities 7.3 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. CORE EQUITY FUND <Table> Russell 1000 Index. We have maintained mounting debt forced management to begin IN CLOSING our overweight position in energy making good decisions regarding cash because we believe opportunities for allocation. We took advantage of Xerox's The period covered by this report was a growth continue to exist. Although news still-distressed share price to add it time of muted or negative returns for outlets continue to report record-high to the Fund's portfolio. Since that much of the equity market. We urge you oil prices, on an inflation-adjusted time, the company paid down debt, to keep in mind that this was only a basis, prices are still at a significant maintained its leadership in color print six-month period. When we evaluate the discount to peak historical levels. Our production and enjoyed escalating share companies in which we invest, we look overweight position and the Fund's prices in 2003 and 2004. for those that can increase in value strong, double-digit returns in the over a two-to-three-year time horizon. sector helped compensate for However, while its earnings report We believe that our investment strategy disappointing returns in other sectors. issued in 2005 announced a 15% increase can add value over the long term by in color equipment sales, declining providing competitive returns with less MURPHY OIL is a worldwide oil and gas sales in older products disappointed volatility to complement more aggressive exploration and production company with investors. Though its share price had investments. Thank you for investing in refining and marketing operations in not recovered at period-end, Xerox AIM V.I. Core Equity Fund. North America and the United Kingdom. A remains an industry leader with a robust subsidiary operates high-volume, new product introduction, and we believe lower-cost gasoline stations located it can still reach its appreciation The views and opinions expressed in primarily in the parking areas of potential. management's discussion of Fund Wal-Mart Supercenters in 21 states. In performance are those of A I M Advisors, April, the company announced a 15% The Fund's holdings in health care and Inc. These views and opinions are increase in first-quarter profit industrials detracted for the period. subject to change at any time based on resulting from higher oil and gas The health care sector posted low factors such as market and economic prices, and it later declared a single-digit returns in the Russell 1000 conditions. These views and opinions may two-for-one stock split. and the S&P 500 indexes. Relative to not be relied upon as investment advice these indexes, the Fund suffered from or recommendations, or as an offer for a Another energy-sector holding, AMERADA not having stocks in the health care particular security. The information is HESS, illustrates our strategy of providers and services industry. not a complete analysis of every aspect carefully studying management teams' of any market, country, industry, past performance and strengths. The After a strong showing in 2004, security or the Fund. Statements of fact company suffered while under family industrials stocks generally suffered are from sources considered reliable, management, but when a new management during the period, primarily because but A I M Advisors, Inc. makes no team with specialized financial savvy investors fled to other sectors out of representation or warranty as to their was installed, we became interested in fear that the industrial expansion of completeness or accuracy. Although the stock. We added the stock to the the last two years might be running out historical performance is no guarantee Fund's portfolio when we found strong of steam. However, capital spending is of future results, these insights may indicators that the team would turn the expected to gain momentum in the second help you understand our investment business around. Thus far, the stock has half the year, as companies deploy cash management philosophy. provided significant benefit. from profit growth. We believe that companies in the sector remain RONALD S. SLOAN, The Fund's largest sector weighting was attractive because of their ability to [SLOAN Chartered Financial in information technology. Information generate cash flow, the weakness of the PHOTO] Analyst, senior technology produced negative returns in dollar and their leverage to U.S. portfolio manager, is both the Russell 1000 and the S&P 500 economic growth. lead portfolio manager indexes, largely because of of AIM V.I. Core Equity Fund. Mr. Sloan corporations' failure to deploy the In its earnings report in May, has 34 years of experience in the capital expenditures that had been industrials holding TYCO noted that it investment industry. He joined AIM in expected to benefit the sector during had used $1.5 billion of its cash to 1998. Mr. Sloan attended the University the first half of 2005. Disappointments repurchase convertible debt securities. of Missouri, where he received both a in key holdings, as well as the This generated a one-time charge that B.S. in business administration and an negative performance of the sector in adversely affected earnings. Since Tyco M.B.A. general, detracted from Fund began repurchasing its convertible performance. securities in fourth-quarter 2004, it Assisted by the Mid/Large Cap Core Team has reduced diluted shares outstanding Information technology holding XEROX has by 76 million shares. We believe that long been a leader in office equipment. this represents good stewardship of We often select leading companies in cash, and at period-end, we remained [RIGHT ARROW GRAPHIC] mature industries because it is more confident in the group of difficult for newcomers to compete in a large-market-share businesses that FOR A DISCUSSION OF RISKS OF INVESTING mature industry than in an industry comprise Tyco. IN YOUR FUND, INDEXES USED IN THIS wherein the technology is newly REPORT AND YOUR FUND'S LONG-TERM emerging. Several years ago, Xerox's PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I.CORE EQUITY FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== AVERAGE ANNUAL TOTAL RETURNS shares is October 24, 2001. The Series I Performance figures given represent the As of 6/30/05 and Series II shares invest in the same Fund and are not intended to reflect portfolio of securities and will have actual variable product values. They do SERIES I SHARES substantially similar performance, not reflect sales charges, expenses and Inception (5/2/94) 8.88% except to the extent that expenses borne fees assessed in connection with a 10 Years 7.97 by each class differ. variable product. Sales charges, 5 Years -5.87 expenses and fees, which are determined 1 Year 3.70 The performance data quoted represent by the variable product issuers, will past performance and cannot guarantee vary and will lower the total return. SERIES II SHARES comparable future results; current 10 Years 7.70 performance may be lower or higher. Per NASD requirements, the most 5 Years -6.10 Please contact your variable product recent month-end performance data at the 1 Year 3.44 issuer or financial advisor for the most Fund level, excluding variable product recent month-end variable product charges, is available on this AIM ======================================== performance. Performance figures reflect automated information line, Fund expenses, reinvested distributions 866-702-4402. As mentioned above, the Returns since the inception date of and changes in net asset value. most recent month-end performance Series II shares are historical. All Investment return and principal value including variable product charges, other returns are the blended returns of will fluctuate so that you may have a please contact your variable product the historical performance of the Fund's gain or loss when you sell shares. issuer or financial advisor. Series II shares since their inception and the restated historical performance AIM V.I. Core Equity Fund, a series of the Fund's Series I shares (for portfolio of AIM Variable Insurance periods prior to inception of the Series Funds, is currently offered through II shares) adjusted to reflect the insurance companies issuing variable higher Rule 12b-1 fees applicable to the products. You cannot purchase shares of Series II shares. The inception date of the Fund directly. the Fund's Series II PRINCIPAL RISKS OF INVESTING IN THE FUND an independent mutual fund performance returns reported in the Financial monitor. Highlights. Additionally, the returns The Fund may invest up to 25% of its and net asset values shown throughout assets in the securities of non-U.S. The Fund is not managed to track this report are at the Fund level only issuers. International investing the performance of any particular index, and do not include variable product presents certain risks not associated including the indexes defined here, and issuer charges. If such charges were with investing solely in the United consequently, the performance of the included, the total returns would be States. These include risks relating to Fund may deviate significantly from the lower. fluctuations in the value of the U.S. performance of the indexes. dollar relative to the values of other currencies, the custody arrangements A direct investment cannot be made Industry classifications used in made for the Fund's foreign holdings, in an index. Unless otherwise indicated, this report are generally according to differences in accounting, political index results include reinvested the Global Industry Classification risks and the lesser degree of public dividends, and they do not reflect sales Standard, which was developed by and is information required to be provided by charges. Performance of an index of the exclusive property and a service non-U.S. companies. funds reflects fund expenses; mark of Morgan Stanley Capital performance of a market index does not. International Inc. and Standard & ABOUT INDEXES USED IN THIS REPORT Poor's. OTHER INFORMATION The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P The returns shown in management's 500--Registered Trademark-- INDEX) is discussion of Fund performance are based an index of common stocks frequently on net asset values calculated for used as a general measure of U.S. stock shareholder transactions. Generally market performance. accepted accounting principles require adjustments to be made to the net assets The unmanaged RUSSELL of the Fund at period end for financial 1000--Registered Trademark--INDEX reporting purposes, and as such, the net represents the performance of the stocks asset values for shareholder of large-capitalization companies. transactions and the returns based on those net asset values may differ from The unmanaged LIPPER LARGE-CAP CORE the net asset values and FUND INDEX represents an average of the performance of the 30 largest large-capitalization core equity funds tracked by Lipper, Inc., </Table> 4 AIM V.I. CORE EQUITY FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical hypothetical examples that appear in the expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. represent the effect of any fees or PURPOSES other expenses assessed in connection Please note that the expenses shown with a variable product; if they did, The table below also provides in the table are meant to highlight your the expenses shown would be higher while information about hypothetical account ongoing costs. Therefore, the the ending account values shown would be values and hypothetical expenses based hypothetical information is useful in lower. on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's 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 (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 990.30 $ 4.34 $ 1,020.43 $ 4.41 Series II 1,000.00 989.30 5.57 1,019.19 5.66 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (0.88% and 1.13% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. CORE EQUITY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided comparable to the advisory fee rates for Insurance Funds (the "Board") oversees by AIM. The Board reviewed the a mutual fund advised by AIM with the management of AIM V.I. Core Equity credentials and experience of the investment strategies comparable to Fund (the "Fund") and, as required by officers and employees of AIM who will those of the Fund; and (ii) was higher law, determines annually whether to provide investment advisory services to than the sub-advisory fee rates for an approve the continuance of the Fund's the Fund. In reviewing the unaffiliated mutual fund for which an advisory agreement with A I M Advisors, qualifications of AIM to provide AIM affiliate serves as sub-advisor, Inc. ("AIM"). Based upon the investment advisory services, the Board although the total management fees paid recommendation of the Investments reviewed the qualifications of AIM's by such unaffiliated mutual fund were Committee of the Board, which is investment personnel and considered such higher than the advisory fee rate for comprised solely of independent issues as AIM's portfolio and product the Fund. The Board noted that AIM has trustees, at a meeting held on June 30, review process, various back office agreed to waive advisory fees of the 2005, the Board, including all of the support functions provided by AIM and Fund and to limit the Fund's total independent trustees, approved the AIM's equity and fixed income trading operating expenses, as discussed below. continuance of the advisory agreement operations. Based on the review of these Based on this review, the Board (the "Advisory Agreement") between the and other factors, the Board concluded concluded that the advisory fee rate for Fund and AIM for another year, effective that the quality of services to be the Fund under the Advisory Agreement July 1, 2005. provided by AIM was appropriate and that was fair and reasonable. AIM currently is providing satisfactory The Board considered the factors services in accordance with the terms of o Fees relative to those of comparable discussed below in evaluating the the Advisory Agreement. funds with other advisors. The Board fairness and reasonableness of the reviewed the advisory fee rate for the Advisory Agreement at the meeting on Fund under the Advisory Agreement. The June 30, 2005 and as part of the Board's o The performance of the Fund relative Board compared effective contractual ongoing oversight of the Fund. In their to comparable funds. The Board reviewed advisory fee rates at a common asset deliberations, the Board and the the performance of the Fund during the level and noted that the Fund's rate was independent trustees did not identify past one, three and five calendar years above the median rate of the funds any particular factor that was against the performance of funds advised advised by other advisors with controlling, and each trustee attributed by other advisors with investment investment strategies comparable to different weights to the various strategies comparable to those of the those of the Fund that the Board factors. Fund. The Board noted that the Fund's reviewed. The Board noted that AIM has performance was below the median agreed to waive advisory fees of the One of the responsibilities of the performance of such comparable funds for Fund and to limit the Fund's total Senior Officer of the Fund, who is the one and five year periods and above operating expenses, as discussed below. independent of AIM and AIM's affiliates, such median performance for the three Based on this review, the Board is to manage the process by which the year period. Based on this review, the concluded that the advisory fee rate for Fund's proposed management fees are Board concluded that no changes should the Fund under the Advisory Agreement negotiated to ensure that they are be made to the Fund and that it was not was fair and reasonable. negotiated in a manner which is at arm's necessary to change the Fund's portfolio length and reasonable. To that end, the management team at this time. Senior Officer must either supervise a o Expense limitations and fee waivers. competitive bidding process or prepare The Board noted that AIM has an independent written evaluation. The o The performance of the Fund relative contractually agreed to waive advisory Senior Officer has recommended an to indices. The Board reviewed the fees of the Fund through June 30, 2006 independent written evaluation in lieu performance of the Fund during the past to the extent necessary so that the of a competitive bidding process and, one, three and five calendar years advisory fees payable by the Fund do not upon the direction of the Board, has against the performance of the Lipper exceed a specified maximum advisory fee prepared such an independent written Large-Cap Core Fund Index. The Board rate, which maximum rate includes evaluation. Such written evaluation also noted that the Fund's performance was breakpoints and is based on net asset considered certain of the factors comparable to the performance of such levels. The Board considered the discussed below. In addition, as Index for the one year period, above contractual nature of this fee waiver discussed below, the Senior Officer made such Index for the three year period, and noted that it remains in effect certain recommendations to the Board in and below such Index for the five year until June 30, 2006. The Board noted connection with such written evaluation. period. Based on this review, the Board that AIM has contractually agreed to concluded that no changes should be made waive fees and/or limit expenses of the The discussion below serves as a to the Fund and that it was not Fund through April 30, 2006 in an amount summary of the Senior Officer's necessary to change the Fund's portfolio necessary to limit total annual independent written evaluation and management team at this time. operating expenses to a specified recommendations to the Board in percentage of average daily net assets connection therewith, as well as a for each class of the Fund. The Board discussion of the material factors and o Meeting with the Fund's portfolio considered the contractual nature of the conclusions with respect thereto managers and investment personnel. With this fee waiver/expense limitation and that formed the basis for the Board's respect to the Fund, the Board is noted that it remains in effect through approval of the Advisory Agreement. meeting periodically with such Fund's April 30, 2006. The Board considered the After consideration of all of the portfolio managers and/or other effect these fee waivers/expense factors below and based on its informed investment personnel and believes that limitations would have on the Fund's business judgment, the Board determined such individuals are competent and able estimated expenses and concluded that that the Advisory Agreement is in the to continue to carry out their the levels of fee waivers/expense best interests of the Fund and its responsibilities under the Advisory limitations for the Fund were fair and shareholders and that the compensation Agreement. reasonable. to AIM under the Advisory Agreement is fair and reasonable and would have been obtained through arm's length o Overall performance of AIM. The Board o Breakpoints and economies of scale. negotiations. considered the overall performance of The Board reviewed the structure of the AIM in providing investment advisory and Fund's advisory fee under the Advisory o The nature and extent of the advisory portfolio administrative services to the Agreement, noting that it includes one services to be provided by AIM. The Fund and concluded that such performance breakpoint. The Board reviewed the level Board reviewed the services to be was satisfactory. of the Fund's advisory fees, and noted provided by AIM under the Advisory that such fees, as a percentage of the Agreement. Based on such review, the Fund's net assets, have decreased as net Board concluded that the range of o Fees relative to those of clients of assets increased because the Advisory services to be provided by AIM under the AIM with comparable investment Agreement includes a breakpoint. The Advisory Agreement was appropriate and strategies. The Board reviewed the Board noted that AIM has that AIM currently is providing services advisory fee rate for the Fund under the in accordance with the terms of the Advisory Agreement. The Board noted that Advisory Agreement. this rate (i) was (continued) </Table> 6 AIM V.I.CORE EQUITY FUND <Table> contractually agreed to waive advisory o Profitability of AIM and its o Other factors and current trends. In fees of the Fund through June 30, 2006 affiliates. The Board reviewed determining whether to continue the to the extent necessary so that the information concerning the profitability Advisory Agreement for the Fund, the advisory fees payable by the Fund do not of AIM's (and its affiliates') Board considered the fact that AIM, exceed a specified maximum advisory fee investment advisory and other activities along with others in the mutual fund rate, which maximum rate includes and its financial condition. The Board industry, is subject to regulatory breakpoints and is based on net asset considered the overall profitability of inquiries and litigation related to a levels. The Board concluded that the AIM, as well as the profitability of AIM wide range of issues. The Board also Fund's fee levels under the Advisory in connection with managing the Fund. considered the governance and compliance Agreement therefore reflect economies of The Board noted that AIM's operations reforms being undertaken by AIM and its scale and that it was not necessary to remain profitable, although increased affiliates, including maintaining an change the advisory fee breakpoints in expenses in recent years have reduced internal controls committee and the Fund's advisory fee schedule. AIM's profitability. Based on the review retaining an independent compliance of the profitability of AIM's and its consultant, and the fact that AIM has o Investments in affiliated money market affiliates' investment advisory and undertaken to cause the Fund to operate funds. The Board also took into account other activities and its financial in accordance with certain governance the fact that uninvested cash and cash condition, the Board concluded that the policies and practices. The Board collateral from securities lending compensation to be paid by the Fund to concluded that these actions indicated a arrangements (collectively, "cash AIM under its Advisory Agreement was not good faith effort on the part of AIM to balances") of the Fund may be invested excessive. adhere to the highest ethical standards, in money market funds advised by AIM and determined that the current pursuant to the terms of an SEC o Benefits of soft dollars to AIM. The regulatory and litigation environment to exemptive order. The Board found that Board considered the benefits realized which AIM is subject should not prevent the Fund may realize certain benefits by AIM as a result of brokerage the Board from continuing the Advisory upon investing cash balances in AIM transactions executed through "soft Agreement for the Fund. advised money market funds, including a dollar" arrangements. Under these higher net return, increased liquidity, arrangements, brokerage commissions paid increased diversification or decreased by the Fund and/or other funds advised transaction costs. The Board also found by AIM are used to pay for research and that the Fund will not receive reduced execution services. This research is services if it invests its cash balances used by AIM in making investment in such money market funds. The Board decisions for the Fund. The Board noted that, to the extent the Fund concluded that such arrangements were invests in affiliated money market appropriate. funds, AIM has voluntarily agreed to waive a portion of the advisory fees it o AIM's financial soundness in light of receives from the Fund attributable to the Fund's needs. The Board considered such investment. The Board further whether AIM is financially sound and has determined that the proposed securities the resources necessary to perform its lending program and related procedures obligations under the Advisory with respect to the lending Fund is in Agreement, and concluded that AIM has the best interests of the lending Fund the financial resources necessary to and its respective shareholders. The fulfill its obligations under the Board therefore concluded that the Advisory Agreement. investment of cash collateral received in connection with the securities o Historical relationship between the lending program in the money market Fund and AIM. In determining whether to funds according to the procedures is in continue the Advisory Agreement for the the best interests of the lending Fund Fund, the Board also considered the and its respective shareholders. prior relationship between AIM and the Fund, as well as the Board's knowledge o Independent written evaluation and of AIM's operations, and concluded that recommendations of the Fund's Senior it was beneficial to maintain the Officer. The Board noted that, upon current relationship, in part, because their direction, the Senior Officer of of such knowledge. The Board also the Fund had prepared an independent reviewed the general nature of the written evaluation in order to assist non-investment advisory services the Board in determining the currently performed by AIM and its reasonableness of the proposed affiliates, such as administrative, management fees of the AIM Funds, transfer agency and distribution including the Fund. The Board noted that services, and the fees received by AIM the Senior Officer's written evaluation and its affiliates for performing such had been relied upon by the Board in services. In addition to reviewing such this regard in lieu of a competitive services, the trustees also considered bidding process. In determining whether the organizational structure employed by to continue the Advisory Agreement for AIM and its affiliates to provide those the Fund, the Board considered the services. Based on the review of these Senior Officer's written evaluation and and other factors, the Board concluded the recommendation made by the Senior that AIM and its affiliates were Officer to the Board that the Board qualified to continue to provide consider implementing a process to non-investment advisory services to the assist them in more closely monitoring Fund, including administrative, transfer the performance of the AIM Funds. The agency and distribution services, and Board concluded that it would be that AIM and its affiliates currently advisable to implement such a process as are providing satisfactory soon as reasonably practicable. non-investment advisory services. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- DOMESTIC COMMON STOCKS-73.55% AEROSPACE & DEFENSE-1.01% Northrop Grumman Corp. 245,300 $ 13,552,825 ========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.37% Bank of New York Co., Inc. (The) 640,100 18,422,078 ========================================================================== BIOTECHNOLOGY-1.01% Amgen Inc.(a) 226,000 13,663,960 ========================================================================== COMMUNICATIONS EQUIPMENT-1.00% Cisco Systems, Inc.(a) 705,000 13,472,550 ========================================================================== COMPUTER HARDWARE-1.83% International Business Machines Corp. 332,000 24,634,400 ========================================================================== COMPUTER STORAGE & PERIPHERALS-1.67% Lexmark International, Inc.-Class A(a) 346,500 22,463,595 ========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.19% First Data Corp. 351,500 14,109,210 - -------------------------------------------------------------------------- Sabre Holdings Corp.-Class A 93,800 1,871,310 ========================================================================== 15,980,520 ========================================================================== DEPARTMENT STORES-1.01% Kohl's Corp.(a) 242,900 13,580,539 ========================================================================== DIVERSIFIED BANKS-1.45% Bank of America Corp. 426,800 19,466,348 ========================================================================== ELECTRIC UTILITIES-1.05% FPL Group, Inc. 336,300 14,144,778 ========================================================================== ENVIRONMENTAL & FACILITIES SERVICES-2.17% Waste Management, Inc. 1,029,600 29,178,864 ========================================================================== FOOD RETAIL-2.16% Kroger Co. (The)(a) 1,531,500 29,144,445 ========================================================================== HOUSEHOLD PRODUCTS-1.22% Kimberly-Clark Corp. 263,200 16,473,688 ========================================================================== INDUSTRIAL CONGLOMERATES-0.99% General Electric Co. 383,200 13,277,880 ========================================================================== INDUSTRIAL MACHINERY-1.85% Dover Corp. 685,300 24,931,214 ========================================================================== INTEGRATED OIL & GAS-3.91% Amerada Hess Corp. 125,000 13,313,750 - -------------------------------------------------------------------------- Exxon Mobil Corp. 318,300 18,292,701 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> INTEGRATED OIL & GAS-(CONTINUED) Murphy Oil Corp. 403,600 $ 21,080,028 ========================================================================== 52,686,479 ========================================================================== INTEGRATED TELECOMMUNICATION SERVICES-1.88% SBC Communications Inc. 1,068,000 25,365,000 ========================================================================== INVESTMENT BANKING & BROKERAGE-1.38% Morgan Stanley 354,100 18,579,627 ========================================================================== MOVIES & ENTERTAINMENT-1.07% News Corp.-Class A 893,000 14,448,740 ========================================================================== MULTI-LINE INSURANCE-1.07% American International Group, Inc. 248,000 14,408,800 ========================================================================== MULTI-UTILITIES-1.24% Dominion Resources, Inc. 228,300 16,754,937 ========================================================================== OFFICE ELECTRONICS-1.87% Xerox Corp.(a) 1,827,600 25,202,604 ========================================================================== OIL & GAS EQUIPMENT & SERVICES-4.78% Baker Hughes Inc. 330,100 16,887,916 - -------------------------------------------------------------------------- BJ Services Co. 529,500 27,788,160 - -------------------------------------------------------------------------- Smith International, Inc. 308,100 19,625,970 ========================================================================== 64,302,046 ========================================================================== OIL & GAS EXPLORATION & PRODUCTION-1.12% Apache Corp. 232,800 15,038,880 ========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-1.18% Citigroup Inc. 343,800 15,893,874 ========================================================================== PACKAGED FOODS & MEATS-4.32% Campbell Soup Co. 443,000 13,631,110 - -------------------------------------------------------------------------- General Mills, Inc. 542,900 25,402,291 - -------------------------------------------------------------------------- Kraft Foods Inc.-Class A 600,400 19,098,724 ========================================================================== 58,132,125 ========================================================================== PAPER PRODUCTS-1.32% Georgia-Pacific Corp. 557,800 17,738,040 ========================================================================== PHARMACEUTICALS-7.11% Bristol-Myers Squibb Co. 839,000 20,958,220 - -------------------------------------------------------------------------- Forest Laboratories, Inc.(a) 462,400 17,964,240 - -------------------------------------------------------------------------- Merck & Co. Inc. 1,241,800 38,247,440 - -------------------------------------------------------------------------- </Table> AIM V.I. CORE EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- PHARMACEUTICALS-(CONTINUED) Wyeth 418,000 $ 18,601,000 ========================================================================== 95,770,900 ========================================================================== PROPERTY & CASUALTY INSURANCE-4.87% Berkshire Hathaway Inc.-Class A(a) 375 31,312,500 - -------------------------------------------------------------------------- Chubb Corp. (The) 204,200 17,481,562 - -------------------------------------------------------------------------- St. Paul Travelers Cos., Inc. (The) 424,988 16,799,776 ========================================================================== 65,593,838 ========================================================================== PUBLISHING-3.02% Gannett Co., Inc. 343,500 24,433,155 - -------------------------------------------------------------------------- Tribune Co. 461,800 16,246,124 ========================================================================== 40,679,279 ========================================================================== RAILROADS-1.00% Union Pacific Corp. 207,700 13,458,960 ========================================================================== REGIONAL BANKS-1.01% Fifth Third Bancorp 329,400 13,574,574 ========================================================================== SEMICONDUCTORS-4.36% Analog Devices, Inc. 385,400 14,379,274 - -------------------------------------------------------------------------- Intel Corp. 688,500 17,942,310 - -------------------------------------------------------------------------- National Semiconductor Corp. 656,200 14,456,086 - -------------------------------------------------------------------------- Xilinx, Inc. 469,500 11,972,250 ========================================================================== 58,749,920 ========================================================================== SOFT DRINKS-1.49% Coca-Cola Co. (The) 479,200 20,006,600 ========================================================================== SYSTEMS SOFTWARE-4.57% Computer Associates International, Inc. 716,311 19,684,226 - -------------------------------------------------------------------------- Microsoft Corp. 1,686,700 41,897,628 ========================================================================== 61,581,854 ========================================================================== Total Domestic Common Stocks (Cost $914,768,414) 990,354,761 - -------------------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS-19.09% BERMUDA-4.84% Accenture Ltd.-Class A (IT Consulting & Other Services)(a) 958,600 21,731,462 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> BERMUDA-(CONTINUED) Nabors Industries, Ltd. (Oil & Gas Drilling)(a) 262,200 $ 15,894,564 - -------------------------------------------------------------------------- Tyco International Ltd. (Industrial Conglomerates) 942,800 27,529,760 ========================================================================== 65,155,786 ========================================================================== CAYMAN ISLANDS-1.04% ACE Ltd. (Property & Casualty Insurance) 312,900 14,033,565 ========================================================================== FINLAND-1.22% Nokia Oyj-ADR (Communications Equipment) 987,300 16,428,672 ========================================================================== FRANCE-1.92% TOTAL S.A. (Integrated Oil & Gas)(b) 110,500 25,857,609 ========================================================================== ISRAEL-1.82% Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals) 785,200 24,451,128 ========================================================================== NETHERLANDS-4.54% Heineken N.V. (Brewers)(b) 691,249 21,326,229 - -------------------------------------------------------------------------- Koninklijke (Royal) Philips Electronics N.V. (Consumer Electronics)(b) 961,100 24,209,362 - -------------------------------------------------------------------------- Unilever N.V. (Packaged Foods & Meats)(b) 240,000 15,544,091 ========================================================================== 61,079,682 ========================================================================== UNITED KINGDOM-3.71% BP PLC-ADR (Integrated Oil & Gas) 231,050 14,412,899 - -------------------------------------------------------------------------- GlaxoSmithKline PLC-ADR (Pharmaceuticals) 733,800 35,596,638 ========================================================================== 50,009,537 ========================================================================== Total Foreign Stocks & Other Equity Interests (Cost $222,907,044) 257,015,979 ========================================================================== MONEY MARKET FUNDS-6.68% Liquid Assets Portfolio-Institutional Class(c) 45,021,608 45,021,608 - -------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(c) 45,021,608 45,021,608 ========================================================================== Total Money Market Funds (Cost $90,043,216) 90,043,216 ========================================================================== TOTAL INVESTMENTS-99.32% (Cost $1,227,718,674) 1,337,413,956 ========================================================================== OTHER ASSETS LESS LIABILITIES-0.68% 9,096,097 ========================================================================== NET ASSETS-100.00% $1,346,510,053 __________________________________________________________________________ ========================================================================== </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 June 30, 2005 was $86,937,291, which represented 6.50% 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. CORE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $1,137,675,458) $1,247,370,740 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $90,043,216) 90,043,216 ============================================================= Total investments (cost $1,227,718,674) 1,337,413,956 ============================================================= Foreign currencies, at market value (cost $20,107) 20,077 - ------------------------------------------------------------- Receivables for: Investments sold 9,522,034 - ------------------------------------------------------------- Fund shares sold 62,016 - ------------------------------------------------------------- Investments matured (Note 9) 1,135,900 - ------------------------------------------------------------- Dividends 2,649,691 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 89,657 - ------------------------------------------------------------- Other assets 7,244 ============================================================= Total assets 1,350,900,575 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Fund shares reacquired 2,407,693 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 168,126 - ------------------------------------------------------------- Accrued administrative services fees 1,749,920 - ------------------------------------------------------------- Accrued distribution fees-Series II 2,424 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 256 - ------------------------------------------------------------- Accrued transfer agent fees 2,026 - ------------------------------------------------------------- Accrued operating expenses 60,077 ============================================================= Total liabilities 4,390,522 ============================================================= Net assets applicable to shares outstanding $1,346,510,053 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,467,184,329 - ------------------------------------------------------------- Undistributed net investment income 20,124,002 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (250,481,208) - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 109,682,930 ============================================================= $1,346,510,053 _____________________________________________________________ ============================================================= NET ASSETS: Series I $1,342,659,848 _____________________________________________________________ ============================================================= Series II $ 3,850,205 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 59,986,131 _____________________________________________________________ ============================================================= Series II 173,119 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 22.38 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 22.24 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $282,784) $ 13,104,947 - ------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $54,933 after compensation to counterparties of $91,005) 1,627,704 ============================================================= Total investment income 14,732,651 ============================================================= EXPENSES: Advisory fees 4,271,477 - ------------------------------------------------------------- Administrative services fees 1,833,503 - ------------------------------------------------------------- Custodian fees 46,537 - ------------------------------------------------------------- Distribution fees-Series II 4,925 - ------------------------------------------------------------- Transfer agent fees 16,511 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 26,367 - ------------------------------------------------------------- Other 17,144 ============================================================= Total expenses 6,216,464 ============================================================= Less: Fees waived (17,009) ============================================================= Net expenses 6,199,455 ============================================================= Net investment income 8,533,196 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $253,992) 61,551,575 - ------------------------------------------------------------- Foreign currencies 98,380 ============================================================= 61,649,955 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (84,266,361) - ------------------------------------------------------------- Foreign currencies (12,352) ============================================================= (84,278,713) ============================================================= Net gain (loss) from investment securities and foreign currencies (22,628,758) ============================================================= Net increase (decrease) in net assets resulting from operations $(14,095,562) _____________________________________________________________ ============================================================= </Table> 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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 8,533,196 $ 18,752,512 - ---------------------------------------------------------------------------------------------- Net realized gain from investment securities and foreign currencies 61,649,955 97,933,629 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (84,278,713) 10,319,904 ============================================================================================== Net increase (decrease) in net assets resulting from operations (14,095,562) 127,006,045 ============================================================================================== Distributions to shareholders from net investment income: Series I -- (14,182,082) - ---------------------------------------------------------------------------------------------- Series II -- (32,455) ============================================================================================== Decrease in net assets resulting from distributions -- (14,214,537) ============================================================================================== Share transactions-net: Series I (130,753,144) (180,502,395) - ---------------------------------------------------------------------------------------------- Series II (277,112) 63,621 ============================================================================================== Net increase (decrease) in net assets resulting from share transactions (131,030,256) (180,438,774) ============================================================================================== Net increase (decrease) in net assets (145,125,818) (67,647,266) ______________________________________________________________________________________________ ============================================================================================== NET ASSETS: Beginning of period 1,491,635,871 1,559,283,137 ============================================================================================== End of period (including undistributed net investment income of $20,124,002 and $11,590,806, respectively) $1,346,510,053 $1,491,635,871 ______________________________________________________________________________________________ ============================================================================================== </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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. 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 including estimates and assumptions related to taxation. 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, 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 and domestic and foreign index futures. 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. AIM V.I. CORE EQUITY FUND 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.65% - ------------------------------------------------------------------- Over $250 million 0.60% ___________________________________________________________________ =================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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). AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $17,009. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $166,323 for accounting and fund administrative services and reimbursed $1,667,180 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $16,511. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $4,925. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - -------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ 66,319,755 $ 94,354,073 $(115,652,220) $ -- $45,021,608 $ 781,749 $ -- - -------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 66,319,755 94,354,073 (115,652,220) -- 45,021,608 791,022 -- ================================================================================================================================ Subtotal $132,639,510 $188,708,146 $(231,304,440) $ -- $90,043,216 $1,572,771 $ -- ________________________________________________________________________________________________________________________________ ================================================================================================================================ </Table> INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS) - --------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class $ 4,769,488 $ 54,918,795 $ (59,688,283) $ -- $ -- $ 54,933 $ -- ================================================================================================================================= Total $137,408,998 $243,626,941 $(290,992,723) $ -- $90,043,216 $1,627,704 $ -- _________________________________________________________________________________________________________________________________ ================================================================================================================================= </Table> * Net of compensation to 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 six months ended June 30, 2005, the Fund engaged in securities purchases of $12,632,772 and sales of $3,443,325, which resulted in net realized gains of $253,992. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $4,719 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--BORROWINGS Pursuant to an exemptive order from the SEC, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the six months ended June 30, 2005, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. AIM V.I. CORE EQUITY FUND Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. NOTE 7--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to a loss on the collateral invested. At June 30, 2005, there were no securities were on loan to brokers. For the six months ended June 30, 2005, the Fund received dividends on cash collateral of $54,933 for securities lending transactions, which are net of compensation to counterparties. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 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 six months ended June 30, 2005 was $348,466,291 and $438,754,053, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. 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 $126,090,136 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (38,715,058) ============================================================================== Net unrealized appreciation of investment securities $ 87,375,078 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $1,250,038,878. </Table> AIM V.I. CORE EQUITY FUND NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ---------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 5,623,447 $ 124,373,147 706,992 $ 15,076,577 - ------------------------------------------------------------------------------------------------------------------------- Series II 35,893 793,070 46,375 984,768 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 633,129 14,182,082 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 1,456 32,454 ========================================================================================================================= Reacquired: Series I (11,467,983) (255,126,291) (9,797,694) (209,761,054) - ------------------------------------------------------------------------------------------------------------------------- Series II (48,430) (1,070,182) (44,856) (953,601) ========================================================================================================================= (5,857,073) $(131,030,256) (8,454,598) $(180,438,774) _________________________________________________________________________________________________________________________ ========================================================================================================================= </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 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 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 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ----------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------ 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 22.60 $ 20.94 $ 16.99 $ 20.20 $ 26.19 $ 31.59 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.13(a) 0.30(b) 0.17(a) 0.12(a) 0.03(c) 0.01(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.35) 1.58 3.97 (3.27) (6.01) (4.56) ================================================================================================================================= Total from investment operations (0.22) 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 $ 22.38 $ 22.60 $ 20.94 $ 16.99 $ 20.20 $ 26.19 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(d) (0.97)% 8.97% 24.42% (15.58)% (22.83)% (14.56)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,342,660 $1,487,462 $1,555,475 $1,385,050 $1,916,875 $2,514,262 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: 0.89%(e) 0.91% 0.81%(f) 0.78% 0.82% 0.84% ================================================================================================================================= Ratio of net investment income to average net assets 1.22%(e) 1.25%(b) 0.91% 0.67% 0.12%(c) 0.04% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(g) 27% 52% 31% 113% 73% 75% _________________________________________________________________________________________________________________________________ ================================================================================================================================= </Table> (a) Calculated using average shares outstanding. (b) 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 $0.23 and 0.92%, respectively. (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 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. (e) Ratios are annualized and based on average daily net assets of $1,410,819,475. (f) After fee waivers and/or expense reimbursements. Ratio of expense to average net assets prior to fee waivers and/or expense reimbursements was 0.82%. (g) Not annualized for periods less than one year. AIM V.I. CORE EQUITY FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ------------------------------------------------------------------ OCTOBER 24, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ----------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 22.48 $ 20.85 $16.94 $20.19 $ 18.97 - -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.11(a) 0.21(b) 0.12(a) 0.07(a) (0.00) - -------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.35) 1.60 3.96 (3.26) 1.23 ================================================================================================================================ Total from investment operations (0.24) 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 $ 22.24 $ 22.48 $20.85 $16.94 $ 20.19 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Total return(c) (1.07)% 8.67% 24.15% (15.79)% 6.49% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $ 3,850 $ 4,173 $3,808 $1,949 $ 400 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratio of expenses to average net assets: 1.14%(d) 1.16% 1.06%(e) 1.03% 1.03%(f) ================================================================================================================================ Ratio of net investment income (loss) to average net assets 0.97%(d) 1.00%(b) 0.66% 0.42% (0.10)(f) ________________________________________________________________________________________________________________________________ ================================================================================================================================ Portfolio turnover rate(g) 27% 52% 31% 113% 73% ________________________________________________________________________________________________________________________________ ================================================================================================================================ </Table> (a) Calculated using average shares outstanding. (b) 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 $0.14 and 0.67%, respectively. (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 annualized and based on average daily net assets of $3,972,462. (e) After fee waivers and/or expense reimbursements. Ratio of expense to average net assets prior to fee waivers and/or expense reimbursements was 1.07%. (f) Annualized. (g) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related AIM V.I. CORE EQUITY FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. CORE EQUITY FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. CORE EQUITY FUND AIM V.I. DEMOGRAPHIC TRENDS FUND Semiannual Report to Shareholders o June 30, 2005 EFFECTIVE JULY 1, 2005, AFTER THE CLOSE OF THE REPORTING PERIOD, AIM V.I. DENT DEMOGRAPHIC TRENDS FUND WAS RENAMED AIM V.I. DEMOGRAPHIC TRENDS FUND. AIM V.I. DEMOGRAPHIC TRENDS FUND seeks to provide long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. DEMOGRAPHIC TRENDS FUND <Table> MANAGEMENT'S DISCUSSION o information technology companies may OF FUND PERFORMANCE benefit because their products and ======================================================================================= services facilitate advances and enhance productivity throughout the economy PERFORMANCE SUMMARY ========================================== Quantitative analysis focuses on the For the six months ended June 30, 2005, FUND VS. INDEXES level, growth rate and sustainability of AIM V.I. Demographic Trends Fund earnings, revenue and cash flow, delivered slightly negative returns. But TOTAL RETURNS, 12/31/04-6/30/05, EXCLUDING ranking investment candidates on in a difficult market, it held up better VARIABLE PRODUCT ISSUER CHARGES. IF absolute and relative attractiveness. than the S&P 500 Index, which represents VARIABLE PRODUCT ISSUER CHARGES WERE Fundamental analysis seeks to define a the performance of the broad U.S. stock INCLUDED, RETURNS WOULD BE LOWER. company's key drivers of success and market, and its style-specific to assess their durability. We review index, both of which were negative. Series I Shares -0.18% financial statements and earnings reports, the company's structure, business We believe the Fund held up better Series II Shares -0.36 model and management team, the competitive than its indexes due to the strength of environment and market opportunities. its health care holdings, which, as a Standard & Poor's Composite Index group, enjoyed significantly higher of 500 Stocks (S&P 500 Index) We may reduce or eliminate exposure returns than did health care holdings in (Broad Market Index) -0.81 to a stock when we see: the Fund's broad market and style-specific indexes. Indeed, the Fund's Russell 3000 Growth Index o deterioration in business prospects health care holdings performed so well (Style-specific Index) -1.88 that it allowed the Fund to overcome its o worsening competitive position lack of exposure to energy and utilities Lipper Multi-Cap Growth Fund Index stocks, which led the market during the (Peer Group Index) -1.90 o slowing earnings growth SOURCE: LIPPER, INC. o overvaluation of the stock ======================================== o more attractive investment opportunities reporting period. The Fund's broad market and style-specific indexes contained MARKET CONDITIONS AND YOUR FUND energy and utilities stocks, while the Fund did not. The market rally that began in late 2004 faded during the early months of 2005. ===================================================================================== During the first half of 2005, the market lost ground and then gained HOW WE INVEST will affect the following four market ground, finally closing not far from sectors in which we invest the bulk of where it began. The market's indecision We believe changing demographics creates Fund assets: was the result of record-high energy investment opportunities. Our investment prices and rising short-term interest process combines quantitative and o consumer discretionary businesses may rates, among other factors. In contrast fundamental analysis to uncover benefit from the growth of disposable with the stock market, U.S. gross companies exhibiting long-term, income as baby boomers pay off domestic product, the broadest measure sustainable earnings and cash flow obligations such as children's college of the nation's overall economic growth that is not yet reflected in tuition and home mortgages activity, expanded strongly throughout investor expectations or equity the first half of 2005. valuations. o financial firms may benefit as baby boomers accumulate assets for their Because the Fund invests primarily in AIM V.I. Demographic Trends Fund retirement four economic sectors, its performance focuses on companies likely to benefit is dependent from certain demographic trends. We o health care businesses may benefit as believe these trends baby boomers age and require greater health care services ======================================== ======================================== ======================================== PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Semiconductors 7.0% 1. Dell Inc. 3.6% 1. Information Technology 35.4% 2. Internet Software & Services 5.4 2. Goldman Sachs Group, Inc. (The) 3.2 2. Consumer Discretionary 20.7 3. Computer Hardware 5.2 3. Aetna Inc. 3.1 3. Health Care 20.6 4. Pharmaceuticals 5.2 4. Johnson & Johnson 2.7 4. Financials 10.9 5. Systems Software 5.1 5. Analog Devices, Inc. 2.5 5. Consumer Staples 4.8 6. Communications Equipment 4.8 6. Alcon, Inc. (Switzerland) 2.3 6. Industrials 2.7 7. Investment Banking & Brokerage 4.4 7. Amdocs Ltd. (United Kingdom) 2.2 7. Materials 1.0 8. Health Care Equipment 4.1 8. Oracle Corp. 2.2 Money Market Funds 9. Department Stores 3.9 9. National Semiconductor Corp. 2.2 Plus Other Assets Less Liabilities 3.9 10. Managed Health Care 3.1 10. Yahoo! Inc. 2.1 TOTAL NET ASSETS $131.1 MILLION TOTAL NUMBER OF HOLDINGS* 67 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. DEMOGRAPHIC TRENDS FUND <Table> on the performance of those sectors. For Holdings that contributed to Fund THE VIEWS AND OPINIONS EXPRESSED IN the reporting period, only one of the performance included GOOGLE and AETNA. MANAGEMENT'S DISCUSSION OF FUND sectors in which the Fund invests the PERFORMANCE ARE THOSE OF A I M ADVISORS, bulk of its assets showed positive Google maintains the world's largest INC. THESE VIEWS AND OPINIONS ARE returns. online searchable index of Internet SUBJECT TO CHANGE AT ANY TIME BASED ON sites, generating revenue through online FACTORS SUCH AS MARKET AND ECONOMIC ======================================== advertising. Internet advertising CONDITIONS. THESE VIEWS AND OPINIONS MAY currently accounts for just five per- NOT BE RELIED UPON AS INVESTMENT ADVICE CUMULATIVE TOTAL RETURNS cent of total ad spending in the U.S., OR RECOMMENDATIONS, OR AS AN OFFER FOR A but we believe that will expand PARTICULAR SECURITY. THE INFORMATION IS SELECTED S&P 500 INDEX SECTORS, significantly as advertisers seek to NOT A COMPLETE ANALYSIS OF EVERY ASPECT 12/31/04-6/30-05 reach consumers who increasingly are not OF ANY MARKET, COUNTRY, INDUSTRY, reachable by network television SECURITY OR THE FUND. STATEMENTS OF FACT Health Care 3.51 commercials. Given its dominant market ARE FROM SOURCES CONSIDERED RELIABLE, position, we continued to own Google at BUT A I M ADVISORS, INC. MAKES NO Financials -2.33 the close of the reporting period. REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH Information Technology -5.70 Aetna is one of the nation's largest HISTORICAL PERFORMANCE IS NO GUARANTEE providers of health, dental, pharmacy, OF FUTURE RESULTS, THESE INSIGHTS MAY Consumer Discretionary -6.63% group life, disability and long-term HELP YOU UNDERSTAND OUR INVESTMENT care benefits. Management completed a MANAGEMENT PHILOSOPHY. SOURCE: LIPPER, INC. multi-year turnaround of the company in 2004, achieving growth in virtually all ======================================== geographic regions and product lines. LANNY H. SACHNOWITZ, Aetna's focus on cost containment helped senior portfolio The Fund's absolute performance was increase earnings and operating margins, [SACHNOWITZ manager, is lead hindered by its lack of exposure to and the company's stock price PHOTO] portfolio manager of energy and utilities stocks. The four appreciated. Given the company's strong AIM V.I. Demographic sectors of the economy in which the Fund earnings and cash flow growth, we Trends Fund. He joined invests were affected by various trends. continued to hold the stock. AIM in 1987 as a money market trader and research analyst. In 1990, Mr. o Health care stocks as a group Stocks that hindered Fund performance Sachnowitz's trading responsibilities performed relatively well in a generally included EBAY. were expanded to include head of equity weak market. Investors favored health trading. He was named to his current care stocks, many of which paid eBay is the largest online position in 1992. Mr. Sachnowitz dividends and were viewed as trading at marketplace for consumers and small received a B.S. in finance from the low valuations relative to the market as businesses. Investors reacted negatively University of Southern California and an a whole. Health care services and to the company's disappointing M.B.A. from the University of Houston. equipment stocks were the top performers year-over-year U.S. earnings growth in the sector, while biotechnology figures, announced in January, which stocks declined. Pharmaceutical stocks caused the stock to decline for much of KIRK L. ANDERSON, did well in the second quarter. the reporting period. We believe portfolio manager, is investors overreacted to short-term [ANDERSON a portfolio manager of o Financials stocks were hurt by rising trends, and we believe eBay's long-term PHOTO] AIM V.I. Demographic short-term interest rates, causing prospects remain positive. We believe Trends Fund. He joined lending, including mortgage refinancing, eBay is an exceptionally well managed AIM in 1994 and to slow somewhat. Also, lackluster stock company that dominates its market, and assumed his current position in 2003. market performance contributed to we continued to hold the stock at the Mr. Anderson earned a B.A. in political weakness in many banking and brokerage close of the reporting period. science from Texas A&M University and stocks. We slightly decreased our M.S. in finance from the University of holdings in the sector as we saw signs IN CLOSING Houston. of deteriorating company-specific fundamentals. Large-cap growth stocks seemed well positioned at the close of the reporting o Information technology stocks as a period. Reasonable valuations, a JAMES G. BIRDSALL, group were weak during the reporting moderately strong economy and portfolio manager, is period. While some of this weakness was significant cash reserves on many [BIRDSALL a portfolio manager of seasonal, much of it was due to the fact companies' balance sheets caused us to PHOTO] AIM V.I. Demographic that companies generally remained remain positive about large-cap growth Trends Fund. He has hesitant to commit to major information stocks. We thank you for your continued been associated with technology improvements until economic investment in AIM V.I. Demographic AIM Investments since 1995 and assumed and industry trends became clearer. The Trends Fund. his current position in 1999. Mr. percentage of Fund assets invested in Birdsall received his B.B.A. with a this sector was essentially unchanged concentration in finance from Stephen F. during the reporting period. Austin State University before earning his M.B.A. with a concentration in o Consumer discretionary stocks were finance and international business from hurt by concerns that rising interest the University of St. Thomas. rates and record-high energy prices could crimp consumer spending. Concerns that the economy might be slowing--which Assisted by the Large Cap Growth Team were not borne out--were negative for the sector. We slightly increased our holdings in the sector based on company- [RIGHT ARROW GRAPHIC] specific research. FOR A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. DEMOGRAPHIC TRENDS FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== Series I shares is December 29, 1999. Funds, is currently offered through AVERAGE ANNUAL TOTAL RETURNS The inception date of Series II shares insurance companies issuing variable is November 7, 2001. The Series I and products. You cannot purchase shares of As of 6/30/05 Series II shares invest in the same the Fund directly. Performance figures portfolio of securities and will have given represent the Fund and are not SERIES I SHARES substantially similar performance, intended to reflect actual variable Inception (12/29/99) -9.91% except to the extent that expenses borne product values. They do not reflect 5 Years -11.57 by each class differ. sales charges, expenses and fees 1 Year 4.26 assessed in connection with a variable The performance data quoted represent product. Sales charges, expenses and SERIES II SHARES past performance and cannot guarantee fees, which are determined by the Inception -10.13% comparable future results; current variable product issuers, will vary and 5 Years -11.79 performance may be lower or higher. will lower the total return. 1 Year 3.91 Please contact your variable product issuer or financial advisor for the most Per NASD requirements, the most ======================================== recent month-end variable product recent month-end performance data at the performance. Performance figures reflect Fund level, excluding variable product Returns since the inception date of Fund expenses, reinvested distributions charges, is available on this AIM Series II shares are historical. All and changes in net asset value. automated information line, other returns are the blended returns of Investment return and principal value 866-702-4402. As mentioned above, for the historical performance of Series II will fluctuate so that you may have a the most recent month-end performance shares since their inception and the gain or loss when you sell shares. including variable product charges, restated historical performance of please contact your variable product Series I shares (for periods prior to AIM V.I. Demographic Trends Fund, a issuer or financial advisor. inception of the Series II shares) series portfolio of AIM Variable adjusted to reflect the higher Rule Insurance 12b-1 fees applicable to Series II shares. The inception date of PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged RUSSELL OTHER INFORMATION 3000--Registered Trademark-- GROWTH Investing in small and mid-size INDEX is a subset of the RUSSELL The returns shown in management's companies involves risks not associated 3000--Registered Trademark-- INDEX, an discussion of Fund performance are based with investing in more established index of common stocks that measures on net asset values calculated for companies, including business risk, performance of the largest 3,000 U.S. shareholder transactions. Generally significant stock price fluctuations and companies based on market accepted accounting principles require illiquidity. capitalization; the Growth subset adjustments to be made to the net assets measures the performance of Russell 3000 of the Fund at period end for financial The Fund may invest up to 25% of its companies with higher price/book ratios reporting purposes, and as such, the net assets in the securities of non-U.S. and higher forecasted growth values. asset values for shareholder issuers. International investing transactions and the returns based on presents certain risks not associated The unmanaged Standard & Poor's those net asset values may differ from with investing solely in the United Composite Index of 500 Stocks (the S&P the net asset values and returns States. These include risks relating to 500--Registered Trademark-- INDEX) is reported in the Financial Highlights. fluctuations in the value of the U.S. an index of common stocks frequently Additionally, the returns and net dollar relative to the values of other used as a general measure of U.S. stock asset values shown throughout this currencies, the custody arrangements market performance. report are at the Fund level only and do made for the Fund's foreign holdings, not include variable product issuer differences in accounting, political The Fund is not managed to track the charges. If such charges were included, risks and the lesser degree of public performance of any particular index, the total returns would be lower. information required to be provided by including the indexes defined here, and non-U.S. companies. consequently, the performance of the Industry classifications used in this Fund may deviate significantly from the report are generally according to the ABOUT INDEXES USED IN THIS REPORT performance of the indexes. Global Industry Classification Standard, which was developed by and is the The unmanaged LIPPER MULTI-CAP GROWTH A direct investment cannot be made in exclusive property and a service mark of FUND INDEX represents an average of the an index. Unless otherwise indicated, Morgan Stanley Capital International performance of the 30 largest index results include reinvested Inc. and Standard & Poor's. multi-capitalization growth funds dividends, and they do not reflect sales tracked by Lipper, Inc., an independent charges. Performance of an index of mutual fund performance monitor. funds reflects fund expenses; performance of a market index does not. </Table> 4 AIM V.I. DEMOGRAPHIC TRENDS FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate the As a shareholder of the Fund, you incur invested, to estimate the expenses that actual ending account balance or ongoing costs, including management you paid over the period. Simply divide expenses you paid for the period. You fees; distribution and/or service fees your account value by $1,000 (for may use this information to compare the (12b-1); and other Fund expenses. This example, an $8,600 account value divided ongoing costs of investing in the Fund example is intended to help you by $1,000 = 8.6), then multiply the and other funds. To do so, compare this understand your ongoing costs (in result by the number in the table under 5% hypothetical example with the 5% dollars) of investing in the Fund and to the heading entitled "Actual Expenses hypothetical examples that appear in the compare these costs with ongoing costs Paid During Period" to estimate the shareholder reports of the other funds. of investing in other mutual funds. The expenses you paid on your account during example is based on an investment of this period. Please note that the expenses shown $1,000 invested at the beginning of the in the table are meant to highlight your period and held for the entire period HYPOTHETICAL EXAMPLE FOR ongoing costs. Therefore, the January 1, 2005, through June 30, 2005. COMPARISON PURPOSES hypothetical information is useful in comparing ongoing costs, and will not The actual and hypothetical expenses The table below also provides help you determine the relative total in the examples below do not represent information about hypothetical account costs of owning different funds. the effect of any fees or other expenses values and hypothetical expenses based assessed in connection with a variable on the Fund's actual expense ratio and product; if they did, the expenses shown an assumed rate of return of 5% per year would be higher while the ending account before expenses, which is not the Fund's values shown would be lower. actual return. The Fund's actual cumulative total returns at net asset ACTUAL EXPENSES value after expenses for the six months ended June 30, 2005, appear in the table The table below provides information "Fund vs. Indexes" on the first page of about actual account values and actual management's discussion of Fund expenses. performance. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $1,000.00 $998.20 $5.15 $1,019.64 $5.21 Series II 1,000.00 996.40 6.39 1,018.40 6.46 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (1.04% and 1.29% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 1.01% and 1.26% for Series I and Series II shares, respectively. 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 change discussed above had been in effect throughout the most recent fiscal half year are $5.00 and $6.24 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 most recent fiscal half year are $5.06 and $6.31 for Series I and Series II shares, respectively. ==================================================================================================================================== </Table> 5 AIM V.I. DEMOGRAPHIC TRENDS FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable providing services in accordance with o Overall performance of AIM. The Board Insurance Funds (the "Board") oversees the terms of the Advisory Agreement. considered the overall performance of the management of AIM V.I. Demographic AIM in providing investment advisory and Trends Fund (the "Fund") (formerly known o The quality of services to be provided portfolio administrative services to the as "AIM V.I. Dent Demographic Trends by AIM. The Board reviewed the Fund and concluded that such performance Fund") and, as required by law, credentials and experience of the was satisfactory. determines annually whether to approve officers and employees of AIM who will the continuance of the Fund's advisory provide investment advisory services to o Fees relative to those of clients of agreement with A I M Advisors, Inc. the Fund. In reviewing the AIM with comparable investment ("AIM"). Based upon the recommendation qualifications of AIM to provide strategies. The Board reviewed the of the Investments Committee of the investment advisory services, the Board advisory fee rate for the Fund under the Board, which is comprised solely of reviewed the qualifications of AIM's Advisory Agreement. The Board noted that independent trustees, at a meeting held investment personnel and considered such this rate (i) was the same as the on June 30, 2005, the Board, including issues as AIM's portfolio and product advisory fee rates for a mutual fund all of the independent trustees, review process, various back office advised by AIM with investment approved the continuance of the advisory support functions provided by AIM and strategies comparable to those of the agreement (the "Advisory Agreement") AIM's equity and fixed income trading Fund; and (ii) was higher than the sub- between the Fund and AIM for another operations. Based on the review of these advisory fee rates for an unaffiliated year, effective July 1, 2005. and other factors, the Board concluded mutual fund for which an AIM affiliate that the quality of services to be serves as sub-advisor, although the The Board considered the factors provided by AIM was appropriate and that total management fees paid by such discussed below in evaluating the AIM currently is providing satisfactory unaffiliated mutual fund were the same fairness and reasonableness of the services in accordance with the terms of as the advisory fee rate for the Fund. Advisory Agreement at the meeting on the Advisory Agreement. The Board noted that AIM has agreed to June 30, 2005 and as part of the Board's waive advisory fees of the Fund and to ongoing oversight of the Fund. In their o The performance of the Fund relative limit the Fund's total operating deliberations, the Board and the to comparable funds. The Board reviewed expenses, as discussed below. Based on independent trustees did not identify the performance of the Fund during the this review, the Board concluded that any particular factor that was past one, three and five calendar years the advisory fee rate for the Fund under controlling, and each trustee attributed against the performance of funds advised the Advisory Agreement was fair and different weights to the various by other advisors with investment reasonable. factors. strategies comparable to those of the Fund. The Board noted that the Fund's o Fees relative to those of comparable One of the responsibilities of the performance in such periods was below funds with other advisors. The Board Senior Officer of the Fund, who is the median performance of such reviewed the advisory fee rate for the independent of AIM and AIM's affiliates, comparable funds. The Board noted that Fund under the Advisory Agreement. The is to manage the process by which the AIM has acknowledged that the Fund Board compared effective contractual Fund's proposed management fees are continues to require a long-term advisory fee rates at a common asset negotiated to ensure that they are solution to its under-performance, and level and noted that the Fund's rate was negotiated in a manner which is at arm's that management is continuing to closely above the median rate of the funds length and reasonable. To that end, the monitor the performance of the Fund and advised by other advisors with Senior Officer must either supervise a analyze various possible long-term investment strategies comparable to competitive bidding process or prepare solutions. Based on this review, the those of the Fund that the Board an independent written evaluation. The Board concluded that no changes should reviewed. The Board noted that AIM has Senior Officer has recommended an be made to the Fund and that it was not agreed to waive advisory fees of the independent written evaluation in lieu necessary to change the Fund's portfolio Fund and to limit the Fund's total of a competitive bidding process and, management team at this time. operating expenses, as discussed below. upon the direction of the Board, has Based on this review, the Board prepared such an independent written o The performance of the Fund relative concluded that the advisory fee rate for evaluation. Such written evaluation also to indices. The Board reviewed the the Fund under the Advisory Agreement considered certain of the factors performance of the Fund during the past was fair and reasonable. discussed below. In addition, as one, three and five calendar years discussed below, the Senior Officer made against the performance of the Lipper o Expense limitations and fee waivers. certain recommendations to the Board in Multi-Cap Growth Fund Index. The Board The Board noted that AIM has connection with such written evaluation. noted that the Fund's performance in contractually agreed to waive advisory such periods was below the performance fees of the Fund through December 31, The discussion below serves as a of such Index. The Board noted that AIM 2009 to the extent necessary so that the summary of the Senior Officer's has acknowledged that the Fund continues advisory fees payable by the Fund do not independent written evaluation and to require a long-term solution to its exceed a specified maximum advisory fee recommendations to the Board in under-performance, and that management rate, which maximum rate includes connection therewith, as well as a is continuing to closely monitor the breakpoints and is based on net asset discussion of the material factors and performance of the Fund and analyze levels. The Board considered the the conclusions with respect thereto various possible long-term solutions. contractual nature of this fee waiver that formed the basis for the Board's Based on this review, the Board and noted that it remains in effect approval of the Advisory Agreement. concluded that no changes should be made until December 31, 2009. The Board noted After consideration of all of the to the Fund and that it was not that AIM has contractually agreed to factors below and based on its informed necessary to change the Fund's portfolio waive fees and/or limit expenses of the business judgment, the Board determined management team at this time. Fund through June 30, 2006 in an amount that the Advisory Agreement is in the necessary to limit total annual best interests of the Fund and its o Meeting with the Fund's portfolio operating expenses to a specified shareholders and that the compensation managers and investment personnel. With percentage of average daily net assets to AIM under the Advisory Agreement is respect to the Fund, the Board is for each class of the Fund. The Board fair and reasonable and would have been meeting periodically with such Fund's considered the contractual nature of obtained through arm's length portfolio managers and/or other this fee waiver/expense limitation and negotiations. investment personnel and believes that noted that it remains in effect until such individuals are competent and able June 30, 2006. The Board considered the o The nature and extent of the advisory to continue to carry out their effect these fee waivers/expense services to be provided by AIM. The responsibilities under the Advisory limitations would have on the Fund's Board reviewed the services to be Agreement. estimated expenses and concluded that provided by AIM under the Advisory the levels of fee waivers/expense Agreement. Based on such review, the limitations for the Fund were fair and Board concluded that the range of reasonable. services to be provided by AIM under the (continued) Advisory Agreement was appropriate and that AIM currently is </Table> 6 AIM V.I. DEMOGRAPHIC TRENDS FUND <Table> o Breakpoints and economies of scale. bidding process. In determining whether were qualified to continue to provide The Board reviewed the structure of the to continue the Advisory Agreement for non-investment advisory services to the Fund's advisory fee under the Advisory the Fund, the Board considered the Fund, including administrative, transfer Agreement, noting that it includes one Senior Officer's written evaluation and agency and distribution services, and breakpoint. The Board reviewed the level the recommendation made by the Senior that AIM and its affiliates currently of the Fund's advisory fees, and noted Officer to the Board that the Board are providing satisfactory that such fees, as a percentage of the consider implementing a process to non-investment advisory services. Fund's net assets, would decrease as net assist them in more closely monitoring assets increase because the Advisory the performance of the AIM Funds. The o Other factors and current trends. In Agreement includes a breakpoint. The Board concluded that it would be determining whether to continue the Board noted that, due to the Fund's advisable to implement such a process as Advisory Agreement for the Fund, the current asset levels and the way in soon as reasonably practicable. Board considered the fact that AIM, which the advisory fee breakpoints have along with others in the mutual fund been structured, the Fund has yet to o Profitability of AIM and its industry, is subject to regulatory benefit from the breakpoint. The Board affiliates. The Board reviewed inquiries and litigation related to a noted that AIM has contractually agreed information concerning the profitability wide range of issues. The Board also to waive advisory fees of the Fund of AIM's (and its affiliates') considered the governance and compliance through December 31, 2009 to the extent investment advisory and other activities reforms being undertaken by AIM and its necessary so that the advisory fees and its financial condition. The Board affiliates, including maintaining an payable by the Fund do not exceed a considered the overall profitability of internal controls committee and specified maximum advisory fee rate, AIM, as well as the profitability of AIM retaining an independent compliance which maximum rate includes breakpoints in connection with managing the Fund. consultant, and the fact that AIM has and is based on net asset levels. The The Board noted that AIM's operations undertaken to cause the Fund to operate Board concluded that the Fund's fee remain profitable, although increased in accordance with certain governance levels under the Advisory Agreement expenses in recent years have reduced policies and practices. The Board therefore would reflect economies of AIM's profitability. Based on the review concluded that these actions indicated a scale at higher asset levels and that it of the profitability of AIM's and its good faith effort on the part of AIM to was not necessary to change the advisory affiliates' investment advisory and adhere to the highest ethical standards, fee breakpoints in the Fund's advisory other activities and its financial and determined that the current fee schedule. condition, the Board concluded that the regulatory and litigation environment to compensation to be paid by the Fund to which AIM is subject should not prevent o Investments in affiliated money market AIM under its Advisory Agreement was not the Board from continuing the Advisory funds. The Board also took into account excessive. Agreement for the Fund. the fact that uninvested cash and cash collateral from securities lending o Benefits of soft dollars to AIM. The arrangements (collectively, "cash Board considered the benefits realized balances") of the Fund may be invested by AIM as a result of brokerage in money market funds advised by AIM transactions executed through "soft pursuant to the terms of an SEC dollar" arrangements. Under these exemptive order. The Board found that arrangements, brokerage commissions paid the Fund may realize certain benefits by the Fund and/or other funds advised upon investing cash balances in AIM by AIM are used to pay for research and advised money market funds, including a execution services. This research is higher net return, increased liquidity, used by AIM in making investment increased diversification or decreased decisions for the Fund. The Board transaction costs. The Board also found concluded that such arrangements were that the Fund will not receive reduced appropriate. services if it invests its cash balances in such money market funds. The Board o AIM's financial soundness in light of noted that, to the extent the Fund the Fund's needs. The Board considered invests in affiliated money market whether AIM is financially sound and has funds, AIM has voluntarily agreed to the resources necessary to perform its waive a portion of the advisory fees it obligations under the Advisory receives from the Fund attributable to Agreement, and concluded that AIM has such investment. The Board further the financial resources necessary to determined that the proposed securities fulfill its obligations under the lending program and related procedures Advisory Agreement. with respect to the lending Fund is in the best interests of the lending Fund o Historical relationship between the and its respective shareholders. The Fund and AIM. In determining whether to Board therefore concluded that the continue the Advisory Agreement for the investment of cash collateral received Fund, the Board also considered the in connection with the securities prior relationship between AIM and the lending program in the money market Fund, as well as the Board's knowledge funds according to the procedures is in of AIM's operations, and concluded that the best interests of the lending Fund it was beneficial to maintain the current and its respective shareholders. relationship, in part, because of such knowledge. The Board also reviewed o Independent written evaluation and the general nature of the non-investment recommendations of the Fund's Senior advisory services currently performed by Officer. The Board noted that, upon AIM and its affiliates, such as their direction, the Senior Officer of administrative, transfer agency and the Fund had prepared an independent distribution services, and the fees written evaluation in order to assist received by AIM and its affiliates for the Board in determining the performing such services. In addition to reasonableness of the proposed reviewing such services, the trustees management fees of the AIM Funds, also considered the organizational including the Fund. The Board noted that structure employed by AIM and its the Senior Officer's written evaluation affiliates to provide those services. had been relied upon by the Board in Based on the review of these and other this regard in lieu of a competitive factors, the Board concluded that AIM and its affiliates </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.11% ADVERTISING-1.16% Omnicom Group Inc. 19,000 $ 1,517,340 ==================================================================== APPAREL RETAIL-1.57% Chico's FAS, Inc.(a) 60,000 2,056,800 ==================================================================== APPLICATION SOFTWARE-2.19% Amdocs Ltd. (United Kingdom)(a) 108,800 2,875,584 ==================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.48% Legg Mason, Inc. 18,700 1,946,857 ==================================================================== BIOTECHNOLOGY-1.61% Gilead Sciences, Inc.(a) 48,000 2,111,520 ==================================================================== BROADCASTING & CABLE TV-0.95% XM Satellite Radio Holdings Inc.-Class A(a) 37,000 1,245,420 ==================================================================== CASINOS & GAMING-0.98% Las Vegas Sands Corp.(a) 36,000 1,287,000 ==================================================================== COMMUNICATIONS EQUIPMENT-4.79% Cisco Systems, Inc.(a) 110,000 2,102,100 - -------------------------------------------------------------------- QUALCOMM Inc. 84,000 2,772,840 - -------------------------------------------------------------------- Research In Motion Ltd. (Canada)(a)(b) 19,000 1,401,250 ==================================================================== 6,276,190 ==================================================================== COMPUTER & ELECTRONICS RETAIL-0.68% Best Buy Co., Inc. 13,000 891,150 ==================================================================== COMPUTER HARDWARE-5.18% Apple Computer, Inc.(a) 56,500 2,079,765 - -------------------------------------------------------------------- Dell Inc.(a) 119,300 4,713,543 ==================================================================== 6,793,308 ==================================================================== COMPUTER STORAGE & PERIPHERALS-2.86% EMC Corp.(a) 169,800 2,327,958 - -------------------------------------------------------------------- Lexmark International, Inc.-Class A(a) 22,000 1,426,260 ==================================================================== 3,754,218 ==================================================================== CONSUMER FINANCE-1.42% American Express Co. 26,000 1,383,980 - -------------------------------------------------------------------- SLM Corp. 9,500 482,600 ==================================================================== 1,866,580 ==================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.11% Alliance Data Systems Corp.(a) 68,200 2,766,192 ==================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------- <Caption> DEPARTMENT STORES-3.86% Federated Department Stores, Inc. 15,000 $ 1,099,200 - -------------------------------------------------------------------- J.C. Penney Co., Inc. 30,000 1,577,400 - -------------------------------------------------------------------- Nordstrom, Inc. 35,000 2,378,950 ==================================================================== 5,055,550 ==================================================================== DISTILLERS & VINTNERS-1.36% Constellation Brands, Inc.-Class A(a) 60,400 1,781,800 ==================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-1.11% Cendant Corp. 65,000 1,454,050 ==================================================================== DRUG RETAIL-0.75% CVS Corp. 34,000 988,380 ==================================================================== FOOTWEAR-1.56% NIKE, Inc.-Class B 23,600 2,043,760 ==================================================================== GENERAL MERCHANDISE STORES-1.55% Target Corp. 37,400 2,034,934 ==================================================================== HEALTH CARE EQUIPMENT-4.13% Bard (C.R.), Inc. 28,500 1,895,535 - -------------------------------------------------------------------- Fisher Scientific International Inc.(a) 21,200 1,375,880 - -------------------------------------------------------------------- Kinetic Concepts, Inc.(a) 13,800 828,000 - -------------------------------------------------------------------- Varian Medical Systems, Inc.(a) 35,200 1,314,016 ==================================================================== 5,413,431 ==================================================================== HEALTH CARE FACILITIES-1.77% HCA Inc. 41,000 2,323,470 ==================================================================== HEALTH CARE SERVICES-2.53% Caremark Rx, Inc.(a) 35,400 1,576,008 - -------------------------------------------------------------------- Quest Diagnostics Inc. 32,600 1,736,602 ==================================================================== 3,312,610 ==================================================================== HEALTH CARE SUPPLIES-2.32% Alcon, Inc. (Switzerland) 27,800 3,039,930 ==================================================================== HOMEBUILDING-1.00% D.R. Horton, Inc. 35,000 1,316,350 ==================================================================== HOTELS, RESORTS & CRUISE LINES-1.36% Hilton Hotels Corp. 75,000 1,788,750 ==================================================================== HOUSEHOLD PRODUCTS-0.98% Clorox Co. (The) 23,000 1,281,560 ==================================================================== HOUSEWARES & SPECIALTIES-1.45% Fortune Brands, Inc. 21,400 1,900,320 ==================================================================== </Table> AIM V.I. DEMOGRAPHIC TRENDS FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES-1.54% Tyco International Ltd. (Bermuda) 69,000 $ 2,014,800 ==================================================================== INTERNET RETAIL-0.68% eBay Inc.(a) 27,000 891,270 ==================================================================== INTERNET SOFTWARE & SERVICES-5.39% Google Inc.-Class A(a) 8,300 2,441,445 - -------------------------------------------------------------------- VeriSign, Inc.(a) 63,500 1,826,260 - -------------------------------------------------------------------- Yahoo! Inc.(a) 81,000 2,806,650 ==================================================================== 7,074,355 ==================================================================== INVESTMENT BANKING & BROKERAGE-4.39% Goldman Sachs Group, Inc. (The) 40,800 4,162,416 - -------------------------------------------------------------------- Lehman Brothers Holdings Inc. 16,100 1,598,408 ==================================================================== 5,760,824 ==================================================================== IT CONSULTING & OTHER SERVICES-0.78% Accenture Ltd.-Class A (Bermuda)(a) 45,000 1,020,150 ==================================================================== MANAGED HEALTH CARE-3.05% Aetna Inc.(b) 48,300 4,000,206 ==================================================================== MOVIES & ENTERTAINMENT-1.85% Pixar(a) 10,000 500,500 - -------------------------------------------------------------------- Walt Disney Co. (The) 76,200 1,918,716 ==================================================================== 2,419,216 ==================================================================== MULTI-LINE INSURANCE-0.86% Hartford Financial Services Group, Inc. (The) 15,000 1,121,700 ==================================================================== PERSONAL PRODUCTS-1.75% Gillette Co. (The) 45,400 2,298,602 ==================================================================== PHARMACEUTICALS-5.17% Johnson & Johnson 54,500 3,542,500 - -------------------------------------------------------------------- Sepracor Inc.(a) 30,000 1,800,300 - -------------------------------------------------------------------- Shire Pharmaceuticals Group PLC-ADR (United Kingdom) 44,000 1,443,200 ==================================================================== 6,786,000 ==================================================================== PROPERTY & CASUALTY INSURANCE-1.55% Allstate Corp. (The) 34,100 2,037,475 ==================================================================== RESTAURANTS-1.34% Yum! Brands, Inc. 33,800 1,760,304 ==================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------- <Caption> SEMICONDUCTORS-7.04% Analog Devices, Inc. 88,000 $ 3,283,280 - -------------------------------------------------------------------- Marvell Technology Group Ltd. (Bermuda)(a) 23,000 874,920 - -------------------------------------------------------------------- Microchip Technology Inc. 76,200 2,257,044 - -------------------------------------------------------------------- National Semiconductor Corp. 128,000 2,819,840 ==================================================================== 9,235,084 ==================================================================== SPECIALIZED FINANCE-1.24% Chicago Mercantile Exchange Holdings Inc. 5,500 1,625,250 ==================================================================== SPECIALTY CHEMICALS-1.01% Ecolab Inc. 41,000 1,326,760 ==================================================================== SPECIALTY STORES-0.68% Office Depot, Inc.(a) 39,000 890,760 ==================================================================== SYSTEMS SOFTWARE-5.08% Microsoft Corp. 41,100 1,020,924 - -------------------------------------------------------------------- Oracle Corp.(a) 215,000 2,838,000 - -------------------------------------------------------------------- VERITAS Software Corp.(a) 115,000 2,806,000 ==================================================================== 6,664,924 ==================================================================== Total Common Stocks & Other Equity Interests Stocks (Cost $106,129,419) 126,050,734 ==================================================================== </Table> <Table> <Caption> NUMBER OF EXERCISE EXPIRATION CONTRACTS PRICE DATE PUT OPTIONS PURCHASED-0.01% COMMUNICATIONS EQUIPMENT-0.01% Research In Motion Ltd. (Canada) (Cost $48,686) 190 $ 70.0 Jul-05 19,475 ========================================================================= </Table> <Table> <Caption> SHARES MONEY MARKET FUNDS-2.95% Liquid Assets Portfolio-Institutional Class(c) 1,932,156 1,932,156 - -------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(c) 1,932,156 1,932,156 ========================================================================== Total Money Market Funds (Cost $3,864,312) 3,864,312 ========================================================================== TOTAL INVESTMENTS-99.07% (Cost $110,042,417) 129,934,521 ========================================================================== OTHER ASSETS LESS LIABILITIES-0.93% 1,213,814 ========================================================================== NET ASSETS-100.00% $ 131,148,335 __________________________________________________________________________ ========================================================================== </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 7. (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. DEMOGRAPHIC TRENDS FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $106,178,105) $126,070,209 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $3,864,312) 3,864,312 ============================================================= Total investments (cost $110,042,417) 129,934,521 ============================================================= Receivables for: Investments sold 1,895,742 - ------------------------------------------------------------- Investments sold to affiliates 350,031 - ------------------------------------------------------------- Fund shares sold 2,035 - ------------------------------------------------------------- Dividends 57,086 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 21,257 - ------------------------------------------------------------- Other assets 2,270 ============================================================= Total assets 132,262,942 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 591,550 - ------------------------------------------------------------- Fund shares reacquired 290,681 - ------------------------------------------------------------- Options written, at market value (premiums received $48,611) 18,560 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 24,626 - ------------------------------------------------------------- Accrued administrative services fees 122,655 - ------------------------------------------------------------- Accrued distribution fees -- Series II 44,551 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 122 - ------------------------------------------------------------- Accrued transfer agent fees 1,234 - ------------------------------------------------------------- Accrued operating expenses 20,628 ============================================================= Total liabilities 1,114,607 ============================================================= Net assets applicable to shares outstanding $131,148,335 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $139,128,338 - ------------------------------------------------------------- Undistributed net investment income (loss) (384,211) - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and option contracts (27,517,947) - ------------------------------------------------------------- Unrealized appreciation of investment securities and option contracts 19,922,155 ============================================================= $131,148,335 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 67,443,099 _____________________________________________________________ ============================================================= Series II $ 63,705,236 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 11,988,149 _____________________________________________________________ ============================================================= Series II 11,411,897 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 5.63 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 5.58 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $10,041) $ 349,993 - ------------------------------------------------------------- Dividends from affiliated money market funds 57,699 ============================================================= Total investment income 407,692 ============================================================= EXPENSES: Advisory fees 512,870 - ------------------------------------------------------------- Administrative services fees 187,203 - ------------------------------------------------------------- Custodian fees 7,814 - ------------------------------------------------------------- Distribution fees -- Series II 80,032 - ------------------------------------------------------------- Transfer agent fees 7,612 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 8,461 - ------------------------------------------------------------- Other 16,459 ============================================================= Total expenses 820,451 ============================================================= Less: Fees waived (50,453) ============================================================= Net expenses 769,998 ============================================================= Net investment income (loss) (362,306) ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND OPTION CONTRACTS: Net realized gain from: Investment securities (Includes gains (losses) from securities sold to affiliates of $(36,754)) 6,356,297 - ------------------------------------------------------------- Option contracts written 27,561 ============================================================= 6,383,858 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (6,814,034) - ------------------------------------------------------------- Option contracts written 30,051 ============================================================= (6,783,983) ============================================================= Net gain (loss) from investment securities and option contracts (400,125) ============================================================= Net increase (decrease) in net assets resulting from operations $ (762,431) _____________________________________________________________ ============================================================= </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. DEMOGRAPHIC TRENDS FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (362,306) $ (738,517) - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and option contracts 6,383,858 4,627,433 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and option contracts (6,783,983) 6,264,074 ========================================================================================== Net increase (decrease) in net assets resulting from operations (762,431) 10,152,990 ========================================================================================== Share transactions-net: Series I (8,193,808) 5,206,868 - ------------------------------------------------------------------------------------------ Series II (5,104,320) 5,328,383 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (13,298,128) 10,535,251 ========================================================================================== Net increase (decrease) in net assets (14,060,559) 20,688,241 __________________________________________________________________________________________ ========================================================================================== NET ASSETS: Beginning of period 145,208,894 124,520,653 ========================================================================================== End of period (including undistributed net investment income (loss) of $(384,211) and $(21,905), respectively). $131,148,335 $145,208,894 __________________________________________________________________________________________ ========================================================================================== </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Demographic Trends Fund, formerly 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 including estimates and assumptions related to taxation. 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"). AIM V.I. DEMOGRAPHIC TRENDS 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 and domestic and foreign index futures. 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. G. 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 a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, Purchasing put options does not eliminate the potential for the Fund to profit from an AIM V.I. DEMOGRAPHIC TRENDS FUND 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. H. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $2 billion 0.77% - -------------------------------------------------------------------- Over $2 billion 0.72% ____________________________________________________________________ ==================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $250 million 0.695% - ---------------------------------------------------------------------- Next $250 million 0.67% - ---------------------------------------------------------------------- Next $500 million 0.645% - ---------------------------------------------------------------------- Next $1.5 billion 0.62% - ---------------------------------------------------------------------- Next $2.5 billion 0.595% - ---------------------------------------------------------------------- Next $2.5 billion 0.57% - ---------------------------------------------------------------------- Next $2.5 billion 0.545% - ---------------------------------------------------------------------- Over $10 billion 0.52% ______________________________________________________________________ ====================================================================== </Table> Under the terms of a master sub-advisory agreement between AIM and H.S. Dent Advisors, Inc. ("H.S. Dent"), AIM paid H.S. Dent a sub-advisory fee at the annual rate of 6.49% of the net management fee of the Fund, however, no sub-advisory fee shall be due with respect to the Fund if the net assets of the Fund fall below $50 million. This sub-advisory agreement expired on June 30, 2005. Effective July 1, 2005, 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 Series I shares to 1.01% and Series II shares to 1.26% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, AIM had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding items (i) through (vi) discussed below and Rule 12b-1 plan fees) of each Series to 1.30% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $50,453. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $162,408 for services provided by insurance companies. AIM V.I. DEMOGRAPHIC TRENDS 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 six months ended June 30, 2005, the Fund paid AISI $7,612. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Through June 30, 2005, ADI had 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 (i) through (vi) discussed above) of Series II shares to 1.45% of average daily net assets. ADI did not reimburse fees during the period under this expense limitation. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $80,032. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - --------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $2,563,954 $17,961,553 $(18,593,351) $ -- $1,932,156 $28,692 $ -- - --------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 2,563,954 17,961,553 (18,593,351) -- 1,932,156 29,007 -- ================================================================================================================================= Total $5,127,908 $35,923,106 $(37,186,702) $ -- $3,864,312 $57,699 $ -- _________________________________________________________________________________________________________________________________ ================================================================================================================================= </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $534,287 and sales of $64,000, which resulted in net realized gains (losses) of $(36,754). NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,232 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. DEMOGRAPHIC TRENDS FUND During the six months ended June 30, 2005, 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--OPTION CONTRACTS WRITTEN <Table> <Caption> TRANSACTIONS DURING THE PERIOD - ----------------------------------------------------------------------------------- CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ----------------------------------------------------------------------------------- Beginning of period -- $ -- - ----------------------------------------------------------------------------------- Written 380 77,316 - ----------------------------------------------------------------------------------- Closed (107) (28,705) =================================================================================== End of period 273 $ 48,611 ___________________________________________________________________________________ =================================================================================== </Table> <Table> <Caption> OPEN CALL OPTIONS WRITTEN AT PERIOD END - ------------------------------------------------------------------------------------------------------------------------------ MARKET CONTRACT STRIKE NUMBER OF PREMIUMS VALUE UNREALIZED MONTH PRICE CONTRACTS RECEIVED 06/30/05 APPRECIATION - ------------------------------------------------------------------------------------------------------------------------------ Aetna Inc. Jul-05 $82.5 83 $20,560 $16,185 $ 4,375 - ------------------------------------------------------------------------------------------------------------------------------ Research In Motion Ltd. (Canada) Jul-05 85.0 190 28,051 2,375 25,676 ============================================================================================================================== Total outstanding options written 273 $48,611 $18,560 $30,051 ______________________________________________________________________________________________________________________________ ============================================================================================================================== </Table> NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 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 six months ended June 30, 2005 was $71,151,091 and $84,396,085, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 20,900,784 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,679,770) =============================================================================== Net unrealized appreciation of investment securities $ 19,221,014 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $110,713,507. </Table> AIM V.I. DEMOGRAPHIC TRENDS FUND NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(A) - --------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------- Sold: Series I 2,858,215 $ 15,665,503 3,599,332 $19,023,172 - --------------------------------------------------------------------------------------------------------------------- Series II 445,337 2,381,246 4,811,300 25,774,483 ===================================================================================================================== Reacquired: Series I (4,353,832) (23,859,311) (2,626,910) (13,816,304) - --------------------------------------------------------------------------------------------------------------------- Series II (1,381,904) (7,485,566) (3,910,303) (20,446,100) ===================================================================================================================== (2,432,184) $(13,298,128) 1,873,419 $10,535,251 _____________________________________________________________________________________________________________________ ===================================================================================================================== </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 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 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 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01) (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) (0.00) 0.45 1.45 (1.77) (2.57) (1.72) ================================================================================================================================= Total from investment operations (0.01) 0.43 1.42 (1.80) (2.62) (1.79) ================================================================================================================================= Net asset value, end of period $ 5.63 $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.18)% 8.25% 37.47% (32.20)% (31.91)% (17.90)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $67,443 $76,040 $65,162 $26,747 $39,226 $41,300 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.04%(d) 1.18% 1.30% 1.30% 1.38% 1.40% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.11%(d) 1.19% 1.30% 1.43% 1.44% 1.63% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.43)%(d) (0.42)%(b) (0.61)% (0.67)% (0.79)% (0.69)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 54% 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 income (loss) to average net assets excluding the special dividend are $(0.03) and (0.52)%, respectively. (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 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 annualized and based on average daily net assets of $69,760,852. (e) Not annualized for periods less than one year. AIM V.I. DEMOGRAPHIC TRENDS FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------------------------------------------------- NOVEMBER 7, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ----------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 5.60 $ 5.19 $ 3.78 $ 5.58 $ 5.33 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.03)(a)(b) (0.03)(a) (0.04)(a) (0.01)(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.00) 0.44 1.44 (1.76) 0.26 ================================================================================================================================= Total from investment operations (0.02) 0.41 1.41 (1.80) 0.25 ================================================================================================================================= Net asset value, end of period $ 5.58 $ 5.60 $ 5.19 $ 3.78 $ 5.58 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.36)% 7.90% 37.30% (32.26)% 4.69% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $63,705 $69,169 $59,358 $11,498 $ 3,552 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.29%(d) 1.43% 1.45% 1.45% 1.45%(e) - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.36%(d) 1.44% 1.55% 1.68% 1.61%(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.68)%(d) (0.67)%(b) (0.76)% (0.82)% (0.85)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 54% 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 income (loss) to average net assets excluding the special dividend are $(0.04) and (0.77)%, respectively. (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 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 annualized and based on average daily net assets of $64,556,201. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. NOTE 13--SUBSEQUENT EVENT A significant shareholder of the Fund has filed an application for an SEC substitution order and notified AIM of their intent to substitute their investment selection in the Fund with another fund. It is anticipated that this substitution will occur in September 2005 and will result in a significant redemption of Fund shares. The market value of the accounts anticipated to be redeemed were 47% of the Fund's net assets as of June 30, 2005. To the extent that the redemption occurs, AIM currently intends to settle the transaction with a pro rata redemption-in-kind. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil AIM V.I. DEMOGRAPHIC TRENDS FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. DEMOGRAPHIC TRENDS FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley Vice President J. Philip Ferguson Vice President Mark D. Greenberg Vice President William R. Keithler Vice President Karen Dunn Kelley Vice President COUNSEL TO THE FUND Foley & Lardner LLP 3000 K N.W., Suite 500 Washington, D.C. 20007-5111 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 DISTRIBUTOR A I M Distributors, Inc. 11 Greenway Plaza Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. DEMOGRAPHIC TRENDS FUND AIM V.I. DIVERSIFIED INCOME FUND Semiannual Report to Shareholders o June 30,2005 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I.DIVERSIFIED INCOME FUND <Table> MANAGEMENT'S DISCUSSION We consider selling a bond when: OF FUND PERFORMANCE ===================================================================================== o it becomes fully valued PERFORMANCE SUMMARY o overall market and economic trends ======================================== indicate that sector emphasis should be Rising interest rates weighed on bond changed performance during the first half of FUND VS. INDEXES 2005, but AIM V.I.Diversified Income o fundamentals, such as credit quality Fund Series I and Series II shares Total returns, 12/31/04-6/30/05, ratings, deteriorate for an individual outperformed the Lehman U.S. Aggregate excluding variable product issuer issuer or a sector Bond Index and the Lehman U.S. Credit charges. If variable product issuer Index during the reporting period ended charges were included, returns would be o an unanticipated change occurs June 30, 2005. lower. involving an individual issuer or sector The primary reason the Fund Series I Shares 2.86% MARKET CONDITIONS AND YOUR FUND outperformed its benchmarks was our underweight position in corporate bonds Series II Shares 2.77 In an effort to stem inflation, the and lack of exposure to automobile Federal Reserve (the Fed) continued its company bonds, which underperformed. Our Lehman U.S. Aggregate Bond Index measured pace of raising the federal overweight position in U.S. Treasury (Broad Market Index) 2.51 funds rate, which is the interest rate securities, which outperformed at which banks make overnight loans to higher-yield bonds, and our slightly Lehman U.S. Credit Index one another. The Fed raised the rate overweight position in government agency (Style-specific Index) 2.49 four times in 0.25% increments during and securitized the reporting period, and the rate stood Lipper BBB-Rated Fund Index at 3.25% after the Fed's fourth rate (Peer Group Index) 1.95 hike on June 30. While short-term interest rates rose in step with the SOURCE: LIPPER,INC. Fed's tightening during the period, yields on long-term Treasury bonds fell. ======================================== In the U.S. bond markets, the bonds (mainly mortgage-backed downgrading of General Motors' and securities) also benefited relative Ford's bond ratings to non-investment performance. grade status dragged down corporate bonds during the reporting period. ===================================================================================== Investment-grade corporate issues outperformed their high yield HOW WE INVEST asset-backed securities, money markets, counterparts. Just prior to the close of high yield debt and convertible the reporting period, Treasury bonds We seek to provide consistent returns corporate bonds. We make allocation (Treasuries), which had performed well while minimizing risk. Our security decisions based on performance and for most of the period, fell as the selection process involves top-down valuations among the different areas of Conference Board reported that consumer analysis, which takes account of overall the bond market. Our focus is on bonds confidence reached a three-year high, economic and market trends, and that are attractively valued relative to which caused investor focus to shift bottom-up analysis, which includes an the rest of the bond market. from fixed-income investments to stocks. evaluation of individual bond issuers. In evaluating the credit quality of AIM V.I. Diversified Income Fund We look for potential investments in a security, we use input from various invested primarily in fixed-rate all sectors of the bond market: domestic rating agencies and Wall Street corporate bonds of both U.S. and and foreign governments, U.S. corporate fixed-income and equity analysts, and non-U.S. issuers. At the close of the bonds, mortgages, conduct our own internal credit analysis. ======================================== ======================================== ======================================== PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 FIXED-INCOME ISSUERS* Based on total investments 1. Other Diversified Financial 1. General Motors Acceptance Corp. 4.7% Services 12.7% 1. U.S. Corporate Bonds 2. Federal National Mortgage & Notes 66.0% 2. Sovereign Debt 10.9 Association (FNMA) 4.3 2. International Government 3. Consumer Finance 10.1 3. Ford Motor Credit Co. 4.1 Agency Securities 10.9 4. Diversified Banks 8.2 4. Patrons' Legacy 2.5 3. U.S. Government Agency Securities 7.9 5. U.S. Mortgage-Backed Securities 5.1 5. Russian Federation (Russia) 2.2 4. Asset Backed Securities 6.0 TOTAL NET ASSETS $61.6 MILLION 6. Pemex Project Funding Master Trust 1.7 5. Stocks & Other Equity Interests 4.5 TOTAL NUMBER OF HOLDINGS 223 7. Regional Diversified Funding 1.7 6. International Corporate Bonds & Notes 3.0 8. Bundersrepublik Deutschland (Germany) 1.7 7. Money Market Funds 2.1 9. Federal Home Loan Mortgage The Fund's holdings are subject to change, and there is no assurance that the Corp. (FHLMC) 1.5 Fund will continue to hold any particular security. 10. New South Wales Treasury *Excluding Money Market fund holdings. Corp. (Australia) 1.5 ======================================== ======================================== ======================================== </Table> 2 AIM V.I.DIVERSIFIED INCOME FUND <Table> period, U.S. corporate bonds comprised Our corporate bond holdings continued JAN H. FRIEDLI is lead approximately 66% of the Fund's to be concentrated in shorter maturity [FRIEDLI manager of AIM V.I. portfolio. Your Fund also had exposure issues, a defensive posture that helped PHOTO] Diversified Income Fund. to foreign bonds. The Fund had a minimize risk. With corporate bond He began his investment relative overweighting in government prices becoming more attractive on the career in 1990 and securities because its style-specific news of credit agency downgrades of both joined AIM in 1999. Mr. benchmark, the Lehman U.S. Credit Index, General Motors and Ford, we increased Friedli graduated cum laude from has no government securities or agency our allocation to these issuers near the Villanova University with a B.S. in bonds in it. end of the period, but only in issues computer science and earned an M.B.A. that were short-term in maturity. While with honors from the University of With corporate bond our increased weight in these two Chicago. prices becoming more issuers modestly reduced our overall attractive on the news credit rating, we maintained a strong CAROLYN L. GIBBS, of credit agency single-A rating as measured by Moody's [GIBBS Chartered Financial downgrades of both and Standard & Poor's, two credit-rating PHOTO] Analyst, is a portfolio General Motors and agencies. manager of AIM V.I. Ford, we increased our Diversified Income Fund. allocation to these Near the end of the period we She has been in the issues near the end of invested a very small amount of your investment business since 1983. Ms. the period ... Fund's assets in Treasury Gibbs is a Phi Beta Kappa graduate of Inflation-Protected Securities (TIPs). Texas Christian University, where she We weighted the portfolio in favor of This is the first time we have invested received a B.A. in English. She also bonds with short and intermediate in TIPs, which are identical to Treasury received an M.B.A. in finance from The maturities. We observed that the spread bonds except that the principal and Wharton School of the University of between longer maturity bonds and coupon (interest) payments are adjusted Pennsylvania. shorter maturity bonds narrowed at the to compensate for the effects of close of the reporting period. inflation. Although TIPs underperformed during the period we have held them, we SCOT W. JOHNSON, Our focus was on short and believe their prices were attractive. We [JOHNSON Chartered Financial intermediate maturity bonds because they view our acquisition of TIPs as a means PHOTO] Analyst, is a portfolio generally offered interest rates of helping to diversify the Fund's manager of AIM V.I. comparable to those of longer maturity portfolio. Diversified Income Fund. bonds without as much risk. The Fund's He joined AIM in 1994. average duration generally remained IN CLOSING He received both a B.A. in economics and longer than that of its broad market an M.B.A. in finance from Vanderbilt benchmark, the Lehman U.S. Aggregate We believe a relatively flat yield curve University. Bond Index. Average duration measures a may persist, but that demand for bonds bond fund's sensitivity to changes in and other fixed-income securities will Assisted by the Taxable Investment Grade interest rates. Since interest rates and increase. Amid this backdrop, yields on Bond Team. bond prices move inversely, rising corporate bonds are expected to interest rates generally lower the value increase, and mortgage rates are also [RIGHT ARROW GRAPHIC] of bonds in a fund's portfolio. expected to rise. Consequently, the longer a fund's FOR A DISCUSSION OF RISKS OF INVESTING average duration, the more its net asset We welcome new shareholders to the IN YOUR FUND,INDEXES USED IN THIS REPORT value (NAV) tends to drop when interest Fund, and we thank all shareholders for AND YOUR FUND'S LONG-TERM PERFORMANCE, rates rise; conversely, NAV tends to sharing our long-term investment PLEASE TURN THE PAGE. appreciate in a declining interest rate horizon. environment. The views and opinions expressed in With yields on 10-year Treasuries management's discussion of Fund falling below 4.00% by period end, this performance are those of A I M Advisors, defensive posture was a slight detractor Inc. These views and opinions are to Fund performance. However, your Fund subject to change at any time based on did have exposure to some factors such as market and economic longer-maturity Treasury bonds, and conditions. These views and opinions may these longer-dated bonds contributed not be relied upon as investment advice positively to performance. or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the fund. Statements of fact are from sources considered reliable, but A I M Advisors, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. </Table> 3 AIM V.I.DIVERSIFIED INCOME FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ======================================== shares. The inception date of Series II companies issuing variable products. You AVERAGE ANNUAL TOTAL RETURNS shares is March 14, 2002. Series I and cannot purchase shares of the Fund Series II shares invest in the same directly. Performance figures given As of 6/30/05 portfolio of securities and will have represent the Fund and are not intended substantially similar performance, to reflect actual variable product SERIES I SHARES except to the extent that expenses borne values. They do not reflect sales Inception (5/5/93) 5.18% by each class differ. charges, expenses and fees assessed in 10 Years 5.14 connection with a variable product. 5 Years 4.93 The performance data quoted represent Sales charges, expenses and fees, which 1 Year 7.79 past performance and cannot guarantee are determined by the variable product comparable future results; current issuers, will vary and will lower the SERIES II SHARES performance may be lower or higher. total return. 10 Years 4.88 Please contact your variable product 5 Years 4.67 issuer or financial advisor for the most Per NASD requirements, the most 1 Year 7.59 recent month-end variable product recent month-end performance data at the ======================================== performance. Performance figures reflect Fund level, excluding variable product Fund expenses, reinvested distributions charges, is available on this AIM Returns since the inception date of and changes in net asset value. automated information line, Series II shares are historical. All Investment return and principal value 866-702-4402. As mentioned above, for other returns are the blended returns of will fluctuate so that you may have a the most recent month-end performance the historical performance of Series II gain or loss when you sell shares. including variable product charges, shares since their inception and the please contact your variable product restated historical performance of AIM V.I. Diversified Income Fund, a issuer or financial advisor Series I shares (for periods prior to series portfolio of AIM Variable inception of Series II shares) adjusted Insurance Funds, is currently offered to reflect the higher Rule 12b-1 fees through insurance applicable to Series II PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION U.S. Treasury securities such as bills, The unmanaged LEHMAN U.S. AGGREGATE BOND The average credit quality of the Fund's notes and bonds offer a high degree of INDEX, which represents the U.S. holdings as of the close of the safety, and they guarantee the payment investment-grade fixed-rate bond market reporting period represents the weighted of principal and any applicable interest (including government and corporate average quality rating of the securities if held to maturity. Fund shares are not securities, mortgage pass-through in the portfolio as assigned by insured, and their value and yield will securities and asset-backed securities), Nationally Recognized Statistical Rating vary with market conditions. is compiled by Lehman Brothers, a global Organizations based on assessment of the investment bank. credit quality of the individual International investing presents securities. certain risks not associated with The unmanaged LIPPER BBB-RATED FUND investing solely in the United States. INDEX represents an average of the 30 The returns shown in management's These include risks relating to largest BBB-rated bond funds tracked by discussion of Fund performance are based fluctuations in the value of the U.S. Lipper, Inc., an independent mutual fund on net asset values calculated for dollar relative to the values of other performance monitor. shareholder transactions. Generally currencies, the custody arrangements accepted accounting principles require made for the Fund's foreign holdings, The LEHMAN U.S. CREDIT INDEX consists adjustments to be made to the net assets differences in accounting, political of publicly issued U.S. corporate and of the Fund at period end for financial risks and the lesser degree of public specified foreign debentures and secured reporting purposes, and as such, the net information required to be provided by notes that meet the specified maturity, asset values for shareholder non-U.S. companies. The Fund may invest liquidity, and quality requirements. It transactions and the returns based on up to 50% of its assets in the is compiled by Lehman Brothers, a global those net asset values may differ from securities of non-U.S. issuers. investment bank. To qualify, bonds must the net asset values and returns be SEC-registered. reported in the Financial Highlights. The Fund invests in higher-yielding, Additionally, the returns and net asset lower-rated corporate bonds, commonly The Fund is not managed to track the values shown throughout this report are known as junk bonds, which have a performance of any particular index, at the Fund level only and do not greater risk of price fluctuation and including the indexes defined here, and include variable product issuer charges. loss of principal and income than do consequently, the performance of the If such charges were included, the total U.S. government securities such as U.S. Fund may deviate significantly from the returns would be lower. Treasury bills, notes and bonds, for performance of the indexes. which principal and any applicable The Conference Board is a interest are guaranteed by the A direct investment cannot be made in not-for-profit organization that government if held to maturity. an index. Unless otherwise indicated, conducts research and publishes index results include reinvested information and analysis to help dividends, and they do not reflect sales businesses strengthen their performance. charges. Performance of an index of funds reflects fund expenses; Industry classifications used in this performance of a market index does not. 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> 4 AIM V.I. DIVERSIFIED INCOME FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. the effect of any fees or other expenses PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's 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 (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $ 1,000.00 $ 1,028.60 $ 5.13 $ 1,019.74 $ 5.11 Series II 1,000.00 1,027.70 6.39 1,018.50 6.36 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 0.75% and 1.00% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.75% and 1.00% 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 $3.77 and $5.03 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 $3.76 and $5.01 for Series I and Series II shares, respectively. ================================================================================================================================== </Table> 5 AIM V.I. DIVERSIFIED INCOME FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Meeting with the Fund's portfolio Insurance Funds (the "Board") oversees by AIM. The Board reviewed the managers and investment personnel. With the management of AIM V.I. Diversified credentials and experience of the respect to the Fund, the Board is Income Fund (the "Fund") and, as officers and employees of AIM who will meeting periodically with such Fund's required by law, determines annually provide investment advisory services to portfolio managers and/or other whether to approve the continuance of the Fund. In reviewing the investment personnel and believes that the Fund's advisory agreement with A I M qualifications of AIM to provide such individuals are competent and able Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board to continue to carry out their recommendation of the Investments reviewed the qualifications of AIM's responsibilities under the Advisory Committee of the Board, which is investment personnel and considered such Agreement. comprised solely of independent issues as AIM's portfolio and product trustees, at a meeting held on June 30, review process, various back office o Overall performance of AIM. The Board 2005, the Board, including all of the support functions provided by AIM and considered the overall performance of independent trustees, approved the AIM's equity and fixed income trading AIM in providing investment advisory and continuance of the advisory agreement operations. Based on the review of these portfolio administrative services to the (the "Advisory Agreement") between the and other factors, the Board concluded Fund and concluded that such performance Fund and AIM for another year, effective that the quality of services to be was satisfactory. July 1, 2005. provided by AIM was appropriate and that AIM currently is providing satisfactory o Fees relative to those of clients of The Board considered the factors services in accordance with the terms of AIM with comparable investment discussed below in evaluating the the Advisory Agreement. strategies. The Board reviewed the fairness and reasonableness of the advisory fee rate for the Fund under the Advisory Agreement at the meeting on o The performance of the Fund relative Advisory Agreement. The Board noted that June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed this rate was higher than the advisory ongoing oversight of the Fund. In their the performance of the Fund during the fee rates for a mutual fund advised by deliberations, the Board and the past one, three and five calendar years AIM with investment strategies independent trustees did not identify against the performance of funds advised comparable to those of the Fund. The any particular factor that was by other advisors with investment Board noted that AIM has agreed to limit controlling, and each trustee attributed strategies comparable to those of the the Fund's total operating expenses, as different weights to the various Fund. The Board noted that the Fund's discussed below. Based on this review, factors. performance in such periods was below the Board concluded that the advisory the median performance of such fee rate for the Fund under the Advisory One of the responsibilities of the comparable funds. Based on this review Agreement was fair and reasonable. Senior Officer of the Fund, who is and after taking account of all of the independent of AIM and AIM's affiliates, other factors that the Board considered o Fees relative to those of comparable is to manage the process by which the in determining whether to continue the funds with other advisors. The Board Fund's proposed management fees are Advisory Agreement for the Fund, the reviewed the advisory fee rate for the negotiated to ensure that they are Board concluded that no changes should Fund under the Advisory Agreement. The negotiated in a manner which is at arm's be made to the Fund and that it was not Board compared effective contractual length and reasonable. To that end, the necessary to change the Fund's portfolio advisory fee rates at a common asset Senior Officer must either supervise a management team at this time. However, level and noted that the Fund's rate was competitive bidding process or prepare due to the Fund's under-performance, the above the median rate of the funds an independent written evaluation. The Board also concluded that it would be advised by other advisors with Senior Officer has recommended an appropriate for management and the Board investment strategies comparable to independent written evaluation in lieu to continue to closely monitor the those of the Fund that the Board of a competitive bidding process and, performance of the Fund. reviewed. The Board noted that AIM has upon the direction of the Board, has agreed to limit the Fund's total prepared such an independent written o The performance of the Fund relative operating expenses, as discussed below. evaluation. Such written evaluation also to indices. The Board reviewed the Based on this review, the Board considered certain of the factors performance of the Fund during the past concluded that the advisory fee rate for discussed below. In addition, as one, three and five calendar years the Fund under the Advisory Agreement discussed below, the Senior Officer made against the performance of the Lipper was fair and reasonable. certain recommendations to the Board in BBB-Rated Fund Index. The Board noted connection with such written evaluation. that the Fund's performance for the o Expense limitations and fee waivers. three and five year periods was below The Board noted that AIM has The discussion below serves as a the performance of such Index and contractually agreed to waive fees summary of the Senior Officer's comparable to such Index for the one and/or limit expenses of the Fund independent written evaluation and year period. Based on this review and through June 30, 2006 so that total recommendations to the Board in after taking account of all of the other annual operating expenses are limited to connection therewith, as well as a factors that the Board considered in a specified percentage of average daily discussion of the material factors and determining whether to continue the net assets for each class of the Fund. the conclusions with respect thereto Advisory Agreement for the Fund, the The Board considered the contractual that formed the basis for the Board's Board concluded that no changes should nature of this fee waiver and noted that approval of the Advisory Agreement. be made to the Fund and that it was not it remains in effect until June 30, After consideration of all of the necessary to change the Fund's portfolio 2006. The Board considered the effect factors below and based on its informed management team at this time. However, this fee waiver/expense limitation would business judgment, the Board determined due to the Fund's under-performance, the have on the Fund's estimated expenses that the Advisory Agreement is in the Board also concluded that it would be and concluded that the levels of fee best interests of the Fund and its appropriate for management and the Board waivers/expense limitations for the Fund shareholders and that the compensation to continue to closely monitor the were fair and reasonable. to AIM under the Advisory Agreement is performance of the Fund. fair and reasonable and would have been obtained through arm's length negotiations. o The nature and extent of the advisory services to be provided by AIM. The Board reviewed the services to be provided by AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 6 AIM V.I. DIVERSIFIED INCOME FUND <Table> o Breakpoints and economies of scale. o Independent written evaluation and o Historical relationship between the The Board reviewed the structure of the recommendations of the Fund's Senior Fund and AIM. In determining whether to Fund's advisory fee under the Advisory Officer. The Board noted that, upon continue the Advisory Agreement for the Agreement, noting that it includes one their direction, the Senior Officer of Fund, the Board also considered the breakpoint. The Board reviewed the level the Fund had prepared an independent prior relationship between AIM and the of the Fund's advisory fees, and noted written evaluation in order to assist Fund, as well as the Board's knowledge that such fees, as a percentage of the the Board in determining the of AIM's operations, and concluded that Fund's net assets, would decrease as net reasonableness of the proposed it was beneficial to maintain the assets increase because the Advisory management fees of the AIM Funds, current relationship, in part, because Agreement includes a breakpoint. The including the Fund. The Board noted that of such knowledge. The Board also Board noted that, due to the Fund's the Senior Officer's written evaluation reviewed the general nature of the current asset levels and the way in had been relied upon by the Board in non-investment advisory services which the advisory fee breakpoints have this regard in lieu of a competitive currently performed by AIM and its been structured, the Fund has yet to bidding process. In determining whether affiliates, such as administrative, benefit from the breakpoint. The Board to continue the Advisory Agreement for transfer agency and distribution concluded that the Fund's fee levels the Fund, the Board considered the services, and the fees received by AIM under the Advisory Agreement therefore Senior Officer's written evaluation and and its affiliates for performing such would reflect economies of scale at the recommendation made by the Senior services. In addition to reviewing such higher asset levels and that it was not Officer to the Board that the Board services, the trustees also considered necessary to change the advisory fee consider implementing a process to the organizational structure employed by breakpoints in the Fund's advisory fee assist them in more closely monitoring AIM and its affiliates to provide those schedule. the performance of the AIM Funds. The services. Based on the review of these Board concluded that it would be and other factors, the Board concluded o Investments in affiliated money market advisable to implement such a process as that AIM and its affiliates were funds. The Board also took into account soon as reasonably practicable. qualified to continue to provide the fact that uninvested cash and cash non-investment advisory services to the collateral from securities lending o Profitability of AIM and its Fund, including administrative, transfer arrangements (collectively, "cash affiliates. The Board reviewed agency and distribution services, and balances") of the Fund may be invested information concerning the profitability that AIM and its affiliates currently in money market funds advised by AIM of AIM's (and its affiliates') are providing satisfactory pursuant to the terms of an SEC investment advisory and other activities non-investment advisory services. exemptive order. The Board found that and its financial condition. The Board the Fund may realize certain benefits considered the overall profitability of o Other factors and current trends. In upon investing cash balances in AIM AIM, as well as the profitability of AIM determining whether to continue the advised money market funds, including a in connection with managing the Fund. Advisory Agreement for the Fund, the higher net return, increased liquidity, The Board noted that AIM's operations Board considered the fact that AIM, increased diversification or decreased remain profitable, although increased along with others in the mutual fund transaction costs. The Board also found expenses in recent years have reduced industry, is subject to regulatory that the Fund will not receive reduced AIM's profitability. Based on the review inquiries and litigation related to a services if it invests its cash balances of the profitability of AIM's and its wide range of issues. The Board also in such money market funds. The Board affiliates' investment advisory and considered the governance and compliance noted that, to the extent the Fund other activities and its financial reforms being undertaken by AIM and its invests in affiliated money market condition, the Board concluded that the affiliates, including maintaining an funds, AIM has voluntarily agreed to compensation to be paid by the Fund to internal controls committee and waive a portion of the advisory fees it AIM under its Advisory Agreement was not retaining an independent compliance receives from the Fund attributable to excessive. consultant, and the fact that AIM has such investment. The Board further undertaken to cause the Fund to operate determined that the proposed securities o Benefits of soft dollars to AIM. The in accordance with certain governance lending program and related procedures Board considered the benefits realized policies and practices. The Board with respect to the lending Fund is in by AIM as a result of brokerage concluded that these actions indicated a the best interests of the lending Fund transactions executed through "soft good faith effort on the part of AIM to and its respective shareholders. The dollar" arrangements. Under these adhere to the highest ethical standards, Board therefore concluded that the arrangements, brokerage commissions paid and determined that the current investment of cash collateral received by the Fund and/or other funds advised regulatory and litigation environment to in connection with the securities by AIM are used to pay for research and which AIM is subject should not prevent lending program in the money market execution services. This research is the Board from continuing the Advisory funds according to the procedures is in used by AIM in making investment Agreement for the Fund. the best interests of the lending Fund decisions for the Fund. The Board and its respective shareholders. concluded that such arrangements were appropriate. o AIM's financial soundness in light of the Fund's needs. The Board considered whether AIM is financially sound and has the resources necessary to perform its obligations under the Advisory Agreement, and concluded that AIM has the financial resources necessary to fulfill its obligations under the Advisory Agreement. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- U.S. DOLLAR DENOMINATED BONDS & NOTES-70.14% ADVERTISING-0.23% Interpublic Group of Cos., Inc. (The), Sr. Unsec. Notes, 7.88%, 10/15/05(a) $ 139,000 $ 139,591 ========================================================================= ASSET MANAGEMENT & CUSTODY BANKS-0.44% Bank of New York Institutional Capital Trust- Series A, Bonds, 7.78%, 12/01/26 (Acquired 06/12/03; Cost $298,178)(a)(b) 250,000 269,737 ========================================================================= BROADCASTING & CABLE TV-4.39% Adelphia Communications Corp., Sr. Unsec. Notes, 10.88%, 10/01/10(a)(c) 350,000 309,750 - ------------------------------------------------------------------------- Cablevision Systems Corp.-Series B, Sr. Floating Rate Global Notes, 7.89%, 04/01/09(a)(d) 125,000 125,781 - ------------------------------------------------------------------------- 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) 160,000 160,800 - ------------------------------------------------------------------------- Comcast Corp. Sr. Sub. Deb., 10.63%, 07/15/12(a) 150,000 196,881 - ------------------------------------------------------------------------- Sr. Unsec. Deb., 9.50%, 08/01/13(a) 500,000 526,005 - ------------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 10.50%, 06/15/06(a) 535,000 568,882 - ------------------------------------------------------------------------- Cox Radio, Inc., Sr. Unsec. Notes, 6.63%, 02/15/06(a) 125,000 126,989 - ------------------------------------------------------------------------- CSC Holdings Inc. Sr. Unsec. Notes, 7.88%, 12/15/07(a) 155,000 160,425 - ------------------------------------------------------------------------- Sr. Unsec. Unsub. Notes, 7.63%, 04/01/11(a) 55,000 55,000 - ------------------------------------------------------------------------- Time Warner Cos., Inc., Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(a) 390,000 470,254 ========================================================================= 2,700,767 ========================================================================= COMMODITY CHEMICALS-0.20% Equistar Chemicals L.P./Equistar Funding Corp., Sr. Unsec. Gtd. Global Notes, 10.13%, 09/01/08(a) 115,000 125,062 ========================================================================= CONSUMER FINANCE-9.26% Capital One Capital I, Sub. Trust Pfd. Floating Rate Bonds, 4.76%, 02/01/27 (Acquired 09/15/04-09/16/04; Cost $279,609)(a)(b)(e) 275,000 275,921 - ------------------------------------------------------------------------- Ford Motor Credit Co. Global Notes, 7.60%, 08/01/05(a) 525,000 525,877 - ------------------------------------------------------------------------- Medium Term Notes, 7.75%, 02/15/07(a) 125,000 127,265 - ------------------------------------------------------------------------- Unsec. Global Notes, 6.50%, 01/25/07(a) 750,000 760,020 - ------------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- <Caption> CONSUMER FINANCE-(CONTINUED) 6.88%, 02/01/06(a) $ 960,000 $ 968,093 - ------------------------------------------------------------------------- Unsec. Notes, 6.13%, 01/09/06(a) 138,000 138,629 - ------------------------------------------------------------------------- General Motors Acceptance Corp. Floating Rate Medium Term Notes, 4.15%, 05/18/06(a)(e) 1,240,000 1,231,655 - ------------------------------------------------------------------------- Global Notes, 7.50%, 07/15/05(a) 250,000(f) 250,270 - ------------------------------------------------------------------------- Sr. Unsec. Gtd. Medium Term Notes, 2.00%, 07/15/05(a) 35,000 34,989 - ------------------------------------------------------------------------- Unsec. Unsub. Global Notes, 6.75%, 01/15/06(a) 1,380,000(f) 1,391,578 ========================================================================= 5,704,297 ========================================================================= DISTILLERS & VINTNERS-0.30% Constellation Brands, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) 170,000 182,325 ========================================================================= DIVERSIFIED BANKS-6.36% AB Spintab (Sweden), Bonds, 7.50% (Acquired 02/12/04; Cost $334,806)(a)(b)(g) 300,000 311,035 - ------------------------------------------------------------------------- Abbey National PLC (United Kingdom), Sub. Yankee Notes, 7.35%(a)(g) 250,000 261,132 - ------------------------------------------------------------------------- American Savings Bank, Notes, 6.63%, 02/15/06 (Acquired 03/05/03; Cost $66,543)(a)(b) 60,000 60,737 - ------------------------------------------------------------------------- Banco Nacional de Comercio Exterior S.N.C. (Mexico), Notes, 3.88%, 01/21/09 (Acquired 02/25/04; Cost $201,669)(a)(b) 205,000 197,686 - ------------------------------------------------------------------------- Bangkok Bank PCL (Hong Kong), Unsec. Sub. Notes, 9.03%, 03/15/29 (Acquired 04/21/05- 04/22/05; Cost $591,442)(a)(b) 475,000 616,650 - ------------------------------------------------------------------------- BankBoston Capital Trust IV, Gtd. Floating Rate Trust Pfd. Notes, 3.97%, 06/08/28(a)(e) 300,000 289,941 - ------------------------------------------------------------------------- Centura Capital Trust I, Gtd. Trust Pfd. Notes, 8.85%, 06/01/27 (Acquired 05/22/03; Cost $632,715)(a)(b) 500,000 554,535 - ------------------------------------------------------------------------- Corporacion Andina de Fomento (Venezuela), Unsec. Global Notes, 6.88%, 03/15/12(a) 175,000 199,715 - ------------------------------------------------------------------------- Danske Bank A/S (Denmark), First Tier Bonds, 5.91% (Acquired 06/07/04; Cost $195,000)(a)(b)(g) 195,000 208,974 - ------------------------------------------------------------------------- First Empire Capital Trust I, Gtd. Notes, 8.23%, 02/01/27(a) 260,000 282,766 - ------------------------------------------------------------------------- Golden State Bancorp. Inc., Sub. Deb., 10.00%, 10/01/06(a) 35,000 37,486 - ------------------------------------------------------------------------- </Table> AIM V.I. DIVERSIFIED INCOME FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- DIVERSIFIED BANKS-(CONTINUED) Lloyds Bank PLC (United Kingdom)-Series 1, Unsec. Sub. Floating Rate Euro Notes, 3.88%(a)(d)(g) $ 180,000 $ 159,483 - ------------------------------------------------------------------------- National Bank of Canada (Canada), Floating Rate Euro Deb., 3.31%, 08/29/87(a)(d) 200,000 161,912 - ------------------------------------------------------------------------- National Westminster Bank PLC (United Kingdom)- Series B, Unsec. Sub. Floating Rate Euro Notes, 3.31%,(a)(d)(g) 280,000 252,294 - ------------------------------------------------------------------------- NBD Bank N.A. Michigan, Unsec. Sub. Deb., 8.25%, 11/01/24(a) 140,000 196,267 - ------------------------------------------------------------------------- RBS Capital Trust III, Sub. Trust Pfd. Global Notes, 5.51%(a)(g) 120,000 124,544 ========================================================================= 3,915,157 ========================================================================= DIVERSIFIED CAPITAL MARKETS-0.73% UBS Preferred Funding Trust I, Gtd. Global Bonds, 8.62%(a)(g) 375,000 449,081 ========================================================================= ELECTRIC UTILITIES-1.58% AmerenEnergy Generating Co.-Series C, Sr. Unsec. Global Notes, 7.75%, 11/01/05(a) 100,000 101,234 - ------------------------------------------------------------------------- Consolidated Edison Co. of New York-Series A, Unsec. Deb., 7.75%, 06/01/26(a) 300,000 318,099 - ------------------------------------------------------------------------- Dynegy Holdings Inc., Sr. Sec. Gtd. Second Priority Notes, 10.13%, 07/15/13 (Acquired 08/01/03; Cost $143,865)(a)(b) 145,000 164,575 - ------------------------------------------------------------------------- Yorkshire Power Finance (Cayman Islands)- Series B, Sr. Unsec. Gtd. Unsub. Global Notes, 6.50%, 02/25/08(a) 375,000 389,479 ========================================================================= 973,387 ========================================================================= FOOD RETAIL-0.28% Couche-Tard U.S. L.P./Couche-Tard Finance Corp., Sr. Sub. Global Notes, 7.50%, 12/15/13(a) 160,000 170,000 ========================================================================= GAS UTILITIES-0.82% Columbia Energy Group-Series C, Notes, 6.80%, 11/28/05(a) 500,000 504,870 ========================================================================= GENERAL MERCHANDISE STORES-0.13% Pantry, Inc. (The), Sr. Sub. Global Notes, 7.75%, 02/15/14(a) 80,000 82,000 ========================================================================= GOLD-0.50% Newmont Mining Corp., Notes, 5.88%, 04/01/35(a) 300,000 307,986 ========================================================================= HEALTH CARE FACILITIES-1.19% HCA Inc. Medium Term Notes, 8.85%, 01/01/07(a) 250,000 262,330 - ------------------------------------------------------------------------- Notes, 7.00%, 07/01/07(a) 450,000 470,367 ========================================================================= 732,697 ========================================================================= HEALTH CARE SERVICES-0.32% Orlando Lutheran Towers Inc., Bonds, 7.75%, 07/01/11(h) 200,000 200,000 ========================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- <Caption> HOMEBUILDING-1.63% D.R. Horton, Inc. Sr. Unsec. Gtd. Notes, 8.00%, 02/01/09(a) $ 200,000 $ 218,750 - ------------------------------------------------------------------------- Sr. Unsec. Notes, 7.88%, 08/15/11(a) 400,000 449,000 - ------------------------------------------------------------------------- Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%, 10/24/05(a) 100,000 100,940 - ------------------------------------------------------------------------- Ryland Group, Inc. (The), Sr. Unsec. Unsub. Notes, 8.00%, 08/15/06(a) 50,000 51,914 - ------------------------------------------------------------------------- 9.75%, 09/01/10(a) 175,000 185,038 ========================================================================= 1,005,642 ========================================================================= HOTELS, RESORTS & CRUISE LINES-0.30% Intrawest Corp. (Canada), Sr. Unsec. Global Notes, 7.50%, 10/15/13(a) 180,000 185,400 ========================================================================= HOUSEWARES & SPECIALTIES-1.32% American Greetings Corp., Unsec. Putable Deb., 6.10%, 08/01/08(a) 790,000 814,292 ========================================================================= INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-0.25% Calpine Generating Co., Sec. Floating Rate Global Notes, 8.86%, 04/01/10(a)(i) 155,000 153,062 ========================================================================= INDUSTRIAL CONGLOMERATES-0.13% URC Holdings Corp., Sr. Notes, 7.88%, 06/30/06 (Acquired 10/08/03; Cost $84,920)(a)(b) 75,000 77,528 ========================================================================= INTEGRATED OIL & GAS-3.06% Amerada Hess Corp., Unsec. Notes, 7.13%, 03/15/33(a) 540,000 643,858 - ------------------------------------------------------------------------- ConocoPhillips, Unsec. Deb., 7.13%, 03/15/28(a) 300,000 325,137 - ------------------------------------------------------------------------- Husky Oil Ltd. (Canada) Sr. Unsec. Yankee Notes, 7.13%, 11/15/06(a) 300,000 310,959 - ------------------------------------------------------------------------- Yankee Bonds, 8.90%, 08/15/28(a) 540,000 606,825 ========================================================================= 1,886,779 ========================================================================= INTEGRATED TELECOMMUNICATION SERVICES-4.27% France Telecom S.A. (France), Sr. Unsec. Global Notes, 8.50%, 03/01/31(a) 260,000 368,280 - ------------------------------------------------------------------------- GTE Hawaiian Telephone Co., Inc.-Series A, Unsec. Deb., 7.00%, 02/01/06(a) 100,000 100,454 - ------------------------------------------------------------------------- Qwest Communications International, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.25%, 02/15/11(a) 200,000 193,500 - ------------------------------------------------------------------------- Sprint Corp., Deb., 9.25%, 04/15/22(a) 180,000 246,157 - ------------------------------------------------------------------------- Verizon California Inc.-Series F, Unsec. Deb., 6.75%, 05/15/27(a) 300,000 327,570 - ------------------------------------------------------------------------- </Table> AIM V.I. DIVERSIFIED INCOME FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED) Verizon Communications Inc. Unsec. Deb., 8.75%, 11/01/21(a) $ 400,000 $ 539,144 - ------------------------------------------------------------------------- Unsec. Gtd. Deb., 6.94%, 04/15/28(a) 178,000 207,418 - ------------------------------------------------------------------------- Verizon Florida Inc.-Series F, Sr. Unsec. Deb., 6.13%, 01/15/13(a) 175,000 187,829 - ------------------------------------------------------------------------- Verizon Maryland Inc.-Series A, Unsec. Global Notes, 6.13%, 03/01/12(a) 265,000 284,512 - ------------------------------------------------------------------------- Verizon Virginia Inc.-Series A, Unsec. Global Deb., 4.63%, 03/15/13(a) 175,000 173,089 ========================================================================= 2,627,953 ========================================================================= INTERNET RETAIL-0.14% IAC/InterActive Corp., Sr. Unsec. Gtd. Unsub. Notes, 6.75%, 11/15/05(a) 88,000 88,721 ========================================================================= INVESTMENT BANKING & BROKERAGE-0.53% Goldman Sachs Capital I, Gtd. Sub. Trust Pfd. Bonds, 6.35%, 02/15/34(a) 300,000 328,068 ========================================================================= LIFE & HEALTH INSURANCE-1.42% Americo Life Inc., Notes, 7.88%, 05/01/13 (Acquired 04/25/03; Cost $93,875)(a)(b) 95,000 101,367 - ------------------------------------------------------------------------- Prudential Holdings, LLC-Series B, Bonds, 7.25%, 12/18/23 (Acquired 01/22/04-01/29/04; Cost $588,417)(a)(b)(j) 500,000 613,225 - ------------------------------------------------------------------------- ReliaStar Financial Corp., Unsec. Notes, 8.00%, 10/30/06(a) 150,000 157,884 ========================================================================= 872,476 ========================================================================= METAL & GLASS CONTAINERS-0.41% Owens-Brockway Glass Container Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 05/15/13(a) 235,000 255,562 ========================================================================= MOVIES & ENTERTAINMENT-0.31% Time Warner Entertainment Co. L.P., Sr. Unsec. Deb., 8.38%, 03/15/23(a) 150,000 191,524 ========================================================================= MULTI-UTILITIES-0.31% AES Red Oak LLC-Series A, Sr. Sec. Bonds, 8.54%, 11/30/19(a) 168,245 188,435 ========================================================================= MUNICIPALITIES-4.89% Dallas (City of), Texas; Taxable Pension Limited Tax Series 2005 A GO, 4.61%, 02/15/14(a) 75,000 76,312 - ------------------------------------------------------------------------- 5.20%, 02/15/35(a) 125,000 132,467 - ------------------------------------------------------------------------- Detroit (City of), Michigan; Taxable Capital Improvement Limited Tax Series 2005 A-1 GO, 4.96%, 04/01/20(a)(j) 130,000 130,404 - ------------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- <Caption> MUNICIPALITIES-(CONTINUED) Indianapolis (City of), Indiana Local Public Improvement Bond Bank; Taxable Series 2005 A RB, 4.87%, 07/15/16(a) $ 100,000 $ 102,375 - ------------------------------------------------------------------------- 5.22%, 07/15/20(a) 125,000 128,781 - ------------------------------------------------------------------------- 5.28%, 01/15/22(a) 100,000 103,000 - ------------------------------------------------------------------------- Industry (City of), California Urban Development Agency (Project 3); Taxable Allocation Series 2003 RB, 6.10%, 05/01/24(a)(j) 650,000 684,125 - ------------------------------------------------------------------------- Louisiana (State of); Refunding Unlimited Tax Series 2005 A GO, 5.00%, 08/01/14(a)(j)(k) 300,000 335,445 - ------------------------------------------------------------------------- Michigan (State of), Western Michigan University; Series 2005 RB, 5.25%, 11/15/24(a)(j)(k) 100,000 105,157 - ------------------------------------------------------------------------- Michigan (State of), Western Michigan University; Taxable Series 2005 RB, 4.41%, 11/15/14(a)(j) 100,000 101,828 - ------------------------------------------------------------------------- New Hampshire (State of); Taxable Unlimited Tax Series 2005 B GO, 4.65%, 05/15/15(a) 125,000 128,437 - ------------------------------------------------------------------------- New Jersey (State of) Economic Development Authority (School Facilities Construction); Refunding Series 2005 K RB, 5.25%, 12/15/14(a)(j)(k) 50,000 56,553 - ------------------------------------------------------------------------- Oregon (State of) Community College District; Taxable Pension Limited Tax Series 2005 GO, 4.83%, 06/30/28(a)(j) 185,000 185,011 - ------------------------------------------------------------------------- Phoenix (City of), Arizona Civic Improvement Corp.; Taxable Rental Car Facility Series 2004 RB, 3.69%, 07/01/07(a)(j) 225,000 223,722 - ------------------------------------------------------------------------- 4.21%, 07/01/08(a)(j) 300,000 301,002 - ------------------------------------------------------------------------- Sacramento (County of), California; Taxable Pension Funding CARS Series 2004 C-1 RB, 6.80%, 07/10/30(a)(j)(l) 225,000 216,212 ========================================================================= 3,010,831 ========================================================================= OIL & GAS EXPLORATION & PRODUCTION-2.74% Newfield Exploration Co., Sr. Unsec. Unsub. Notes, 7.63%, 03/01/11(a) 320,000 352,000 - ------------------------------------------------------------------------- Pemex Project Funding Master Trust Unsec. Gtd. Unsub. Global Notes, 8.63%, 02/01/22(a) 675,000 823,568 - ------------------------------------------------------------------------- Unsec. Gtd. Unsub. Notes, 5.75%, 12/15/15 (Acquired 06/27/05; Cost $243,278)(a)(b) 245,000 243,065 - ------------------------------------------------------------------------- Petrozuata Finance, Inc. (Venezuela)-Series A, Gtd. Notes, 7.63%, 04/01/09 (Acquired 10/13/04; Cost $290,796)(a)(b) 274,336 266,106 ========================================================================= 1,684,739 ========================================================================= OIL & GAS REFINING & MARKETING-0.16% Enterprise Products Operating L.P., Sr. Notes, 4.95%, 06/01/10(a) 100,000 100,717 ========================================================================= </Table> AIM V.I. DIVERSIFIED INCOME FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- OTHER DIVERSIFIED FINANCIAL SERVICES-6.31% ING Capital Funding Trust III, Gtd. Trust Pfd. Global Bonds, 8.44%(a)(g) $ 250,000 $ 296,120 - ------------------------------------------------------------------------- Mizuho JGB Investment LLC-Series A, Bonds, 9.87%, (Acquired 06/16/04-06/14/05; Cost $565,964)(a)(b)(g) 500,000 566,335 - ------------------------------------------------------------------------- Pemex Finance Ltd. (Cayman Islands), Sr. Unsec. Global Notes, 8.02%, 05/15/07(a) 253,333 262,932 - ------------------------------------------------------------------------- Pemex Finance Ltd. (Cayman Islands)-Series 1999-2, Class A1, Global Bonds, 9.69%, 08/15/09(a) 403,750 445,033 - ------------------------------------------------------------------------- Premium Asset Trust-Series 2004-04, Sr. Notes, 4.13%, 03/12/09 (Acquired 03/04/04; Cost $399,732)(a)(b) 400,000 388,496 - ------------------------------------------------------------------------- Regional Diversified Funding (Cayman Islands), Sr. Floating Rate Notes, 3.46%, 01/25/36 (Acquired 03/21/05; Cost $500,000)(a)(b)(e)(h) 500,000 500,313 - ------------------------------------------------------------------------- Sr. Notes, 9.25%, 03/15/30 (Acquired 01/10/03-09/22/04; Cost $525,327)(a)(h) 453,889 564,257 - ------------------------------------------------------------------------- Toll Road Investors Partnership II, L.P.-Series A, Bonds, 5.49%, 02/15/45 (Acquired 03/11/05-05/03/05; Cost $561,927)(b)(c)(h)(l) 4,800,000 586,500 - ------------------------------------------------------------------------- UFJ Finance Aruba AEC (Aruba), Gtd. Sub. Second Tier Euro Bonds, 8.75%(a)(g) 250,000 276,688 ========================================================================= 3,886,674 ========================================================================= PROPERTY & CASUALTY INSURANCE-3.13% Executive Risk Capital Trust-Series B, Gtd. Bonds, 8.68%, 02/01/27(a) 125,000 137,323 - ------------------------------------------------------------------------- First American Capital Trust I, Gtd. Trust Pfd. Notes, 8.50%, 04/15/12(a) 700,000 785,631 - ------------------------------------------------------------------------- Oil Casualty Insurance Ltd. (Bermuda), Unsec. Sub. Deb., 8.00%, 09/15/34 (Acquired 04/29/05-06/09/05; Cost $437,512)(a)(b) 410,000 447,872 - ------------------------------------------------------------------------- Oil Insurance Ltd. (Bermuda), Unsec. Sub. Deb., 5.15%, 08/15/33 (Acquired 01/21/04-06/09/05; Cost $569,573)(a)(b) 550,000 559,438 ========================================================================= 1,930,264 ========================================================================= REAL ESTATE-0.82% Health Care Property Investors, Inc., Notes, 5.63%, 05/01/17(a) 200,000 204,288 - ------------------------------------------------------------------------- Health Care REIT, Inc., Sr. Notes, 5.88%, 05/15/15(a) 125,000 127,511 - ------------------------------------------------------------------------- Host Marriott L.P.-Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07(a) 165,000 176,138 ========================================================================= 507,937 ========================================================================= REAL ESTATE MANAGEMENT & DEVELOPMENT-0.55% Southern Investments UK PLC (United Kingdom), Sr. Unsec. Unsub. Yankee Notes, 6.80%, 12/01/06(a) 325,000 335,741 ========================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- <Caption> REGIONAL BANKS-2.03% Cullen/Frost Capital Trust I, Unsec. Sub. Floating Rate Notes, 4.88%, 03/01/34(a)(e) $ 600,000 $ 621,558 - ------------------------------------------------------------------------- Greater Bay Bancorp-Series B, Sr. Notes, 5.25%, 03/31/08(a) 350,000 356,633 - ------------------------------------------------------------------------- PNC Capital Trust C, Gtd. Floating Rate Trust Pfd. Bonds, 3.90%, 06/01/28(a)(e) 100,000 95,364 - ------------------------------------------------------------------------- TCF Financial Corp., Sub. Notes, 5.00%, 06/15/14(a) 175,000 176,440 ========================================================================= 1,249,995 ========================================================================= REINSURANCE-0.56% GE Global Insurance Holding Corp., Unsec. Notes, 7.00%, 02/15/26(a) 125,000 135,934 - ------------------------------------------------------------------------- 7.75%, 06/15/30(a) 175,000 207,436 ========================================================================= 343,370 ========================================================================= RESTAURANTS-0.37% McDonald's Corp., Unsec. Deb., 7.05%, 11/15/25(a) 220,000 229,621 ========================================================================= SOVEREIGN DEBT-4.30% Federative Republic of Brazil (Brazil) Gtd. Bonds, 8.00%, 04/15/14(a) 184,711 190,390 - ------------------------------------------------------------------------- Unsub. Global Bonds, 11.00%, 08/17/40(a) 175,000 210,000 - ------------------------------------------------------------------------- Federative Republic of Brazil (Brazil)-Series EI-L, Floating Rate Bonds, 4.25%, 04/15/06(a)(d) 128,000 128,134 - ------------------------------------------------------------------------- Russian Federation (Russia) Unsec. Unsub. Bonds, 7.50%, 03/31/30 (Acquired 05/18/04; Cost $360,250)(a)(b)(m) 400,000 446,072 - ------------------------------------------------------------------------- 8.75%, 07/24/05 (Acquired 09/10/04; Cost $52,475)(a)(b) 50,000 50,140 - ------------------------------------------------------------------------- Unsec. Unsub. Euro Bonds, 8.75%, 07/24/05 (Acquired 05/14/04; Cost $554,663)(a)(b) 525,000 526,943 - ------------------------------------------------------------------------- Unsec. Unsub. Euro Bonds-REGS, 10.00%, 06/26/07 (Acquired 05/14/04; Cost $364,406)(a)(b) 325,000 358,573 - ------------------------------------------------------------------------- United Mexican States (Mexico)-Series A, Medium Term Global Notes, 6.63%, 03/03/15(a) 150,000 164,175 - ------------------------------------------------------------------------- 7.50%, 04/08/33(a) 500,000 572,550 ========================================================================= 2,646,977 ========================================================================= THRIFTS & MORTGAGE FINANCE-0.50% Greenpoint Capital Trust I, Gtd. Sub. Trust Pfd. Notes, 9.10%, 06/01/27(a) 275,000 306,389 ========================================================================= TOBACCO-0.18% Altria Group, Inc., Unsec. Notes, 6.38%, 02/01/06(a) 110,000 111,469 ========================================================================= TRADING COMPANIES & DISTRIBUTORS-1.08% Western Power Distribution Holdings Ltd. (United Kingdom), Unsec. Unsub. Notes, 7.38%, 12/15/28 (Acquired 01/25/05-03/03/05; Cost $652,313)(a)(b) 575,000 662,636 ========================================================================= </Table> AIM V.I. DIVERSIFIED INCOME FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- TRUCKING-1.16% Roadway Corp., Sr. Sec. Gtd. Global Notes, 8.25%, 12/01/08(a) $ 650,000 $ 713,317 ========================================================================= WIRELESS TELECOMMUNICATION SERVICES-0.55% TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.63%, 07/15/10(a) 320,000 337,568 ========================================================================= Total U.S. Dollar Denominated Bonds & Notes (Cost $42,691,537) 43,190,644 ========================================================================= NON-U.S. DOLLAR DENOMINATED BONDS & NOTES-9.57%(N) AUSTRALIA-1.50% New South Wales Treasury Corp. (Sovereign Debt), Gtd. Euro Bonds, 5.50%, 08/01/14(a) AUD 1,200,000 923,958 ========================================================================= CANADA-0.59% Canadian Government (Sovereign Debt), Gtd. Bonds, 8.00%, 06/01/23(a) CAD 300,000 361,787 ========================================================================= CAYMAN ISLANDS-0.69% Sutton Bridge Financing Ltd. (Electric Utilities)- REGS, Gtd. Euro Bonds, 8.63%, 06/30/22 (Acquired 05/29/97; Cost $321,105)(a)(b) GBP 200,029 423,728 ========================================================================= GERMANY-1.71% Bundesrepublik Deutschland (Sovereign Debt), Euro Bonds, 4.75%, 07/04/34(a) EUR 500,000 722,244 - ------------------------------------------------------------------------- 6.25%, 01/04/24(a) EUR 200,000 330,689 ========================================================================= 1,052,933 ========================================================================= ITALY-0.94% Italian Government (Sovereign Debt), Unsec. Unsub. Global Bonds, 5.88%, 08/14/08(a) AUD 750,000 577,961 ========================================================================= JAPAN-0.83% Takefuji Corp. (Consumer Finance), Sr. Unsec. Medium Term Euro Notes, 1.01%, 03/01/34(a) JPY 100,000,000 508,150 ========================================================================= LUXEMBOURG-1.48% International Bank for Reconstruction & Development (The) (Diversified Banks)-Series E, Sr. Unsec. Medium Term Global Notes, 6.39%, 08/20/07(a)(l) NZD 1,500,000 913,289 ========================================================================= SPAIN-0.75% Spanish Government (Sovereign Debt), Euro Bonds, 4.20%, 01/30/37(a) EUR 350,000 462,578 ========================================================================= UNITED KINGDOM-1.08% United Kingdom (Treasury of) (Sovereign Debt), Bonds, 5.00%, 09/07/14(a) GBP 350,000 667,346 ========================================================================= Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $5,613,981) 5,891,730 ========================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- <Caption> ASSET-BACKED SECURITIES-5.97% AEROSPACE & DEFENSE-0.45% Systems 2001 Asset Trust LLC (Cayman Islands)- Series 2001, Class G, Pass Through Ctfs., 6.66%, 09/15/13 (Acquired 02/09/05; Cost $277,204)(a)(b)(j) $ 249,767 $ 278,178 ========================================================================= MULTI-SECTOR HOLDINGS-0.33% Longport Funding Ltd. (Cayman Islands)- Series 2005-2A, Class A1J, Floating Rate Bonds, 3.69%, 02/03/40 (Acquired 03/31/05; Cost $200,000)(b)(e)(h) 200,000 200,000 ========================================================================= OTHER DIVERSIFIED FINANCIAL SERVICES-4.10% Citicorp Lease-Series 1999-1, Class A2, Pass Through Ctfs., 8.04%, 12/15/19 (Acquired 07/14/00-05/20/05; Cost $501,544)(a)(b) 450,000 569,686 - ------------------------------------------------------------------------- Patrons' Legacy-Series 2003-III-Series A, Ctfs., 5.65%, 01/17/17 (Acquired 11/04/04; Cost $512,705)(b)(h) 500,000 519,600 - ------------------------------------------------------------------------- Patrons' Legacy-Series 2004-I, Ctfs., 6.67%, 02/04/17 (Acquired 04/30/04; Cost $1,000,000)(b)(h) 1,000,000 1,039,700 - ------------------------------------------------------------------------- Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 4.19%, (Acquired 12/07/04; Cost $400,000)(a)(b)(g)(i) 400,000 397,440 ========================================================================= 2,526,426 ========================================================================= PROPERTY & CASUALTY INSURANCE-0.59% North Front Pass-Through Trust, Notes, 5.81%, 12/15/24 (Acquired 12/08/04; Cost $351,994)(a)(b) 350,000 364,217 ========================================================================= REINSURANCE-0.50% Stingray Pass-Through Trust, Pass Through Ctfs., 5.90%, 01/12/15 (Acquired 01/07/05; Cost $300,000)(a)(b) 300,000 305,709 ========================================================================= Total Asset-Backed Securities (Cost $3,541,663) 3,674,530 ========================================================================= U.S. MORTGAGE-BACKED SECURITIES-5.09% FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-1.53% Pass Through Ctfs., 8.50%, 03/01/10(a) 1,739 1,817 - ------------------------------------------------------------------------- 6.50%, 05/01/16 to 08/01/32(a) 50,393 52,315 - ------------------------------------------------------------------------- 6.00%, 05/01/17 to 11/01/33(a) 357,750 367,726 - ------------------------------------------------------------------------- 5.50%, 09/01/17(a) 144,267 148,165 - ------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.00%, 07/01/20(a)(o) 369,580 373,738 ========================================================================= 943,761 ========================================================================= </Table> AIM V.I. DIVERSIFIED INCOME FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-2.89% Pass Through Ctfs., 6.00%, 05/01/17 to 07/01/17(a) $ 45,265 $ 46,832 - ------------------------------------------------------------------------- 5.00%, 11/01/18(a) 129,034 130,621 - ------------------------------------------------------------------------- 7.50%, 04/01/29 to 10/01/29(a) 123,936 132,579 - ------------------------------------------------------------------------- 8.00%, 04/01/32(a) 26,889 28,931 - ------------------------------------------------------------------------- 7.00%, 02/01/16 to 09/01/32(a) 71,063 74,840 - ------------------------------------------------------------------------- 6.50%, 05/01/16 to 09/01/34(a) 287,213 298,072 - ------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.50%, 07/01/20 to 08/01/35(a) 676,259 687,333 - ------------------------------------------------------------------------- 6.00%, 07/01/35(a)(o) 371,075 380,468 ========================================================================= 1,779,676 ========================================================================= GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-0.67% Pass Through Ctfs., 8.50%, 11/15/24(a) 29,571 32,654 - ------------------------------------------------------------------------- 7.00%, 07/15/31 to 08/15/31(a) 9,150 9,695 - ------------------------------------------------------------------------- 7.50%, 06/15/23 to 01/15/32(a) 36,075 38,894 - ------------------------------------------------------------------------- 6.50%, 11/15/31 to 09/15/32(a) 67,742 70,852 - ------------------------------------------------------------------------- 6.00%, 12/15/31 to 11/15/32(a) 87,065 89,933 - ------------------------------------------------------------------------- 5.50%, 02/15/34(a) 164,786 168,499 ========================================================================= 410,527 ========================================================================= Total U.S. Mortgage-Backed Securities (Cost $3,123,455) 3,133,964 ========================================================================= <Caption> SHARES STOCKS & OTHER EQUITY INTERESTS-4.48% DIVERSIFIED BANKS-0.32% HSBC Capital Funding L.P. (United Kingdom), 4.61% Pfd. (Acquired 11/05/03; Cost $186,504)(a)(b)(g) 200,000 195,638 ========================================================================= INTEGRATED OIL & GAS-0.65% Shell Frontier Oil & Gas Inc., Series C, 3.49% Floating Rate Pfd.(a)(e) 4 400,000 ========================================================================= INTEGRATED TELECOMMUNICATION SERVICES-0.00% NTELOS Inc.-Wts., expiring 08/15/10 (Acquired 11/15/00; Cost $0)(b)(h)(p)(q) 275 0 ========================================================================= LIFE & HEALTH INSURANCE-0.30% Aegon N.V. (Netherlands), 6.38% Pfd. 7,500 189,525 ========================================================================= OTHER DIVERSIFIED FINANCIAL SERVICES-2.32% ABN AMRO XVIII Custodial Receipts-Series MM18, 2.79% Floating Rate Pfd. (Acquired 09/10/04; Cost $200,000)(b)(h)(r) 2 200,000 - ------------------------------------------------------------------------- Zurich RegCaPS Funding Trust III, 3.73% Floating Rate Pfd. (Acquired 06/03/04-09/28/04; Cost $586,361)(a)(b)(e) 600 594,513 - ------------------------------------------------------------------------- </Table> <Table> - ------------------------------------------------------------------------- <Caption> MARKET SHARES VALUE OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED) Zurich RegCaPS Funding Trust IV, 3.80% Floating Rate Pfd. (Acquired 01/19/05; Cost $244,120)(a)(b)(e) 250 $ 244,173 - ------------------------------------------------------------------------- Zurich RegCaPS Funding Trust VI, 3.98% Floating Rate Pfd. (Acquired 01/19/05; Cost $388,587)(a)(b)(e) 400 388,548 ========================================================================= 1,427,234 ========================================================================= THRIFTS & MORTGAGE FINANCE-0.89% Fannie Mae-Series J, 4.72% Floating Rate Pfd.(s) 5,550 274,725 - ------------------------------------------------------------------------- Fannie Mae-Series K, 5.40% Floating Rate Pfd.(s) 5,450 271,955 ========================================================================= 546,680 ========================================================================= Total Stocks & Other Equity Interests (Cost $2,746,659) 2,759,077 ========================================================================= <Caption> PRINCIPAL AMOUNT U.S. TREASURY SECURITIES-1.44% U.S. TREASURY INFLATION-INDEXED NOTES-0.24% 0.88%, 04/15/10 154,047(t) 150,292 ========================================================================= U.S. TREASURY STRIPS-1.20% 4.76%, 02/15/23(a) 850,000 393,924 - ------------------------------------------------------------------------- 4.71%, 08/15/28(a) 925,000 343,406 ========================================================================= 737,330 ========================================================================= Total U.S. Treasury Securities (Cost $837,027) 887,622 ========================================================================= U.S. GOVERNMENT AGENCY SECURITIES-1.41% FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-1.41% Unsec. Floating Rate Global Notes, 4.29%, 02/17/09(a)(i) 575,000 570,802 - ------------------------------------------------------------------------- Unsec. Global Notes, 3.38%, 12/15/08(a) 300,000 294,735 ========================================================================= Total U.S. Government Agency Securities (Cost $866,268) 865,537 ========================================================================= BUNDLED SECURITIES-0.26% Targeted Return Index Securities Trust-Series HY 2004-I, Sec. Bonds, 8.21%, 08/01/05 (Acquired 04/19/05; Cost $156,337)(a)(b) 151,339 160,127 ========================================================================= <Caption> SHARES MONEY MARKET FUNDS-2.05% Liquid Assets Portfolio-Institutional Class(u) 631,820 631,820 - ------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(u) 631,820 631,820 ========================================================================= Total Money Market Funds (Cost $1,263,640) 1,263,640 ========================================================================= TOTAL INVESTMENTS-100.41% (Cost $60,840,567) 61,826,871 ========================================================================= OTHER ASSETS LESS LIABILITIES-(0.41%) (250,884) ========================================================================= NET ASSETS-100.00% $61,575,987 _________________________________________________________________________ ========================================================================= </Table> AIM V.I. DIVERSIFIED INCOME FUND Investment Abbreviations: <Table> AUD - Australian Dollar CAD - Canadian Dollars CARS - Convertible Auction Rate Security Ctfs. - Certificates Deb. - Debentures EUR - Euro GBP - British Pound Sterling GO - General Obligation Bonds Gtd. - Guaranteed JPY - Japanese Yen NZD - New Zealand Dollar Pfd. - Preferred RB - Revenue Bonds RegCaPS - Regulatory Capital Preferred Securities REGS - Regulation S REIT - Real Estate Investment Trust Sec. - Secured Sr. - Senior STRIPS - Separately Traded Registered Interest and Principle 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 June 30, 2005 was $56,930,934, which represented 92.08% 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 June 30, 2005 was $15,660,773, which represented 25.43% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (c) Defaulted security. Currently, the issuer is in default with respect to interest payments. The market value of this security at June 30, 2005 represented 0.50% of the Fund's Total Investments. (d) Interest rate is redetermined semi-annually. Rate shown is the rate in effect on June 30, 2005. (e) Interest or dividend rate is redetermined quarterly. Rate shown is the rate in effect on June 30, 2005. (f) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 7. (g) Perpetual bond with no specified maturity date. (h) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities. The aggregate market value of these securities considered illiquid at June 30, 2005 was $3,246,113, which represented 5.27% of the Fund's Net Assets. (i) Interest rate is redetermined monthly. Rate shown is the rate in effect on June 30, 2005. (j) Principal and/or interest payments are secured by bond insurance provided by one of the following companies: Ambac Assurance Corp., Financial Guaranty Insurance Co., or MBIA Insurance Corp. (k) Interest on this security is taxable income to the Fund. (l) Bond issued at a discount with a zero coupon. The rate shown represents the yield at issue to the remarketing date. The bond will be remarketed or converted to a fixed coupon rate at a specified future date. (m) Step coupon bond. Interest rate represents the coupon rate at which the bond will accrue at a specified future date. (n) Foreign denominated security. Par value is denominated in currency indicated. (o) Security purchased on forward commitment basis. This security is subject to dollar roll transactions. See Note 1F. (p) Non-income producing security acquired as part of a unit with or in exchange for other securities. (q) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The market value of this security at June 30, 2005 represented 0.00% of the Fund's Total Investments. See Note 1A. (r) Interest or dividend rate is redetermined annually. Rate shown is the rate in effect on June 30, 2005. (s) Interest or dividend rate is redetermined bi-annually. Rate shown is the rate in effect on June 30, 2005. (t) Principal amount of security and interest payments are adjusted for inflation. (u) 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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $59,576,927) $ 60,563,231 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $1,263,640) 1,263,640 ============================================================= Total investments (cost $60,840,567) 61,826,871 ============================================================= Foreign currencies, at market value (cost $10,968) 11,133 - ------------------------------------------------------------- Receivables for: Investments sold 270,103 - ------------------------------------------------------------- Variation margin 3,028 - ------------------------------------------------------------- Dividends and interest 862,069 - ------------------------------------------------------------- Foreign currency contracts outstanding 141,843 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 40,068 - ------------------------------------------------------------- Other assets 30,679 ============================================================= Total assets 63,185,794 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 1,444,193 - ------------------------------------------------------------- Fund shares reacquired 40,791 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 45,045 - ------------------------------------------------------------- Accrued administrative services fees 56,571 - ------------------------------------------------------------- Accrued distribution fees -- Series II 597 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 115 - ------------------------------------------------------------- Accrued transfer agent fees 508 - ------------------------------------------------------------- Accrued operating expenses 21,987 ============================================================= Total liabilities 1,609,807 ============================================================= Net assets applicable to shares outstanding $ 61,575,987 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $ 75,631,123 - ------------------------------------------------------------- Undistributed net investment income 4,787,440 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, foreign currency contracts and futures contracts (19,983,873) - ------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, foreign currency contracts and futures contracts 1,141,297 ============================================================= $ 61,575,987 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 60,608,159 _____________________________________________________________ ============================================================= Series II $ 967,828 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 6,740,510 _____________________________________________________________ ============================================================= Series II 108,631 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 8.99 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 8.91 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Interest $1,631,349 - ------------------------------------------------------------ Dividends 35,181 - ------------------------------------------------------------ Dividends from affiliated money market funds 9,332 ============================================================ Total investment income 1,675,862 ============================================================ EXPENSES: Advisory fees 188,556 - ------------------------------------------------------------ Administrative services fees 78,120 - ------------------------------------------------------------ Custodian fees 12,206 - ------------------------------------------------------------ Distribution fees -- Series II 1,197 - ------------------------------------------------------------ Transfer agent fees 4,240 - ------------------------------------------------------------ Trustees' and officer's fees and benefits 7,478 - ------------------------------------------------------------ Professional services fees 20,381 - ------------------------------------------------------------ Other 11,101 ============================================================ Total expenses 323,279 ============================================================ Less: Fees waived (91) ============================================================ Net expenses 323,188 ============================================================ Net investment income 1,352,674 ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities 388,701 - ------------------------------------------------------------ Foreign currencies 7,848 - ------------------------------------------------------------ Foreign currency contracts (78,696) - ------------------------------------------------------------ Futures contracts 228,095 ============================================================ 545,948 ============================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (379,319) - ------------------------------------------------------------ Foreign currencies (8,722) - ------------------------------------------------------------ Foreign currency contracts 294,241 - ------------------------------------------------------------ Futures contracts (70,577) ============================================================ (164,377) ============================================================ Net gain from investment securities, foreign currencies, foreign currency contracts and futures contracts 381,571 ============================================================ Net increase in net assets resulting from operations $1,734,245 ____________________________________________________________ ============================================================ </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,352,674 $ 2,790,905 - ----------------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, foreign currency contracts and futures contracts 545,948 889,949 - ----------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies, foreign currency contracts and futures contracts (164,377) (318,536) ========================================================================================= Net increase in net assets resulting from operations 1,734,245 3,362,318 ========================================================================================= Distributions to shareholders from net investment income: Series I -- (3,692,613) - ----------------------------------------------------------------------------------------- Series II -- (55,546) ========================================================================================= Decrease in net assets resulting from distributions -- (3,748,159) ========================================================================================= Share transactions-net: Series I (6,169,464) (6,418,302) - ----------------------------------------------------------------------------------------- Series II (37,794) 231,857 ========================================================================================= Net increase (decrease) in net assets resulting from share transactions (6,207,258) (6,186,445) ========================================================================================= Net increase (decrease) in net assets (4,473,013) (6,572,286) ========================================================================================= NET ASSETS: Beginning of period 66,049,000 72,621,286 ========================================================================================= End of period (including undistributed net investment income of $4,787,440 and $3,434,766, respectively). $61,575,987 $66,049,000 _________________________________________________________________________________________ ========================================================================================= </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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. 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 including estimates and assumptions related to taxation. 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 AIM V.I. DIVERSIFIED INCOME FUND 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 and domestic and foreign index futures. 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 purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. The difference between the selling price and the future purchase price is generally amortized to income between the date of the sell and the future purchase date. During the period between the sale and purchase, 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. Dollar roll transactions are considered borrowings under the 1940 Act. At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the purchase 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 purchase 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 purchase 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. AIM V.I. DIVERSIFIED INCOME FUND 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 received or made depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. J. LOWER-RATED SECURITIES -- The Fund may invest in lower-quality debt securities, i.e., "junk bonds". Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors claims. K. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - --------------------------------------------------------------------- First $250 million 0.60% - --------------------------------------------------------------------- Over $250 million 0.55% _____________________________________________________________________ ===================================================================== </Table> 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 Series I shares to 0.75% and Series II shares to 1.00% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, AIM and/or the distributor had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding items (i) through (vi) discussed below) of Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Neither AIM or the distributor waived fees and/or reimbursed 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $91. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $53,325 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $4,240. AIM V.I. DIVERSIFIED INCOME FUND The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $1,197. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. <Table> <Caption> PROCEEDS UNREALIZED MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ 866,287 $ 6,910,929 $ (7,145,396) $ -- $ 631,820 $4,627 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 866,287 6,910,929 (7,145,396) -- 631,820 4,705 -- ================================================================================================================================== Total $1,732,574 $13,821,858 $(14,290,792) $ -- $1,263,640 $9,332 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </Table> NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,075 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 six months ended June 30, 2005, 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. DIVERSIFIED INCOME FUND NOTE 6--FOREIGN CURRENCY CONTRACTS <Table> <Caption> OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END - --------------------------------------------------------------------------------------------------------------------------------- CONTRACT TO UNREALIZED SETTLEMENT -------------------------------------------------- APPRECIATION DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------------------------- 07/20/05 AUD 1,850,000 $1,427,035 $1,407,175 $ 19,860 - --------------------------------------------------------------------------------------------------------------------------------- 09/29/05 CAD 400,000 325,945 327,224 (1,279) - --------------------------------------------------------------------------------------------------------------------------------- 07/20/05 EUR 830,000 1,079,471 1,005,160 74,311 - --------------------------------------------------------------------------------------------------------------------------------- 09/13/05 GBP 470,000 849,393 840,073 9,320 - --------------------------------------------------------------------------------------------------------------------------------- 08/12/05 JPY 52,000,000 497,028 470,814 26,214 - --------------------------------------------------------------------------------------------------------------------------------- 09/16/05 NZD 1,250,000 876,600 863,183 13,417 ================================================================================================================================= 56,800,000 $5,055,472 $4,913,629 $141,843 _________________________________________________________________________________________________________________________________ ================================================================================================================================= </Table> NOTE 7--FUTURES CONTRACTS On June 30, 2005, $1,050,000 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 - ------------------------------------------------------------------------------------------------------------------------ MARKET UNREALIZED NO. OF MONTH/ VALUE APPRECIATION CONTRACT CONTRACTS COMMITMENT 06/30/05 (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------ U.S. Treasury 5 Year Notes 7 Sept-05/Long $ 762,234 $ 2,973 - ------------------------------------------------------------------------------------------------------------------------ U.S. Treasury 10 Years Notes 32 Sept-05/Long 3,631,000 17,840 - ------------------------------------------------------------------------------------------------------------------------ Japan 10 Year Bond 1 Sept-05/Short 1,273,104 (4,282) ======================================================================================================================== $5,666,338 $16,531 ________________________________________________________________________________________________________________________ ======================================================================================================================== </Table> NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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. AIM V.I. DIVERSIFIED INCOME 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 six months ended June 30, 2005 was $29,597,781 and $33,771,300, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $1,569,644 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (585,516) ============================================================================== Net unrealized appreciation of investment securities $ 984,128 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $60,842,743. </Table> NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 3,923,729 $ 34,234,749 731,021 $ 6,558,756 - ---------------------------------------------------------------------------------------------------------------------- Series II 88,562 766,121 25,137 224,174 ====================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 422,495 3,692,613 - ---------------------------------------------------------------------------------------------------------------------- Series II -- -- 6,399 55,546 ====================================================================================================================== Reacquired: Series I (4,625,197) (40,404,213) (1,857,496) (16,669,671) - ---------------------------------------------------------------------------------------------------------------------- Series II (92,897) (803,915) (5,373) (47,863) ====================================================================================================================== (705,803) $ (6,207,258) (677,817) $ (6,186,445) ______________________________________________________________________________________________________________________ ====================================================================================================================== </Table> (a) There are two entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate they own 76% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The fund, AIM and/or AIM affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, AIM and/or AIM affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these shareholders are also owned beneficially. AIM V.I. DIVERSIFIED INCOME 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 -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.74 $ 8.82 $ 8.60 $ 9.13 $ 9.49 $ 10.06 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.19(a) 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) 0.06 0.08 0.37 (0.35) (0.35) (0.69) ================================================================================================================================= Total from investment operations 0.25 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 $ 8.99 $ 8.74 $ 8.82 $ 8.60 $ 9.13 $ 9.49 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 2.86% 5.03% 9.24% 2.30% 3.48% 0.80% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $60,608 $65,069 $71,860 $70,642 $79,875 $83,722 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.02%(d) 1.01% 0.95% 0.94% 0.93% 0.90% ================================================================================================================================= Ratio of net investment income to average net assets 4.31%(d) 4.01% 4.71% 6.15% 6.87%(b) 7.84% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 47% 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 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 annualized and based on average daily net assets of $62,407,410. (e) Not annualized for periods less than one year. AIM V.I. DIVERSIFIED INCOME FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------------------------------- MARCH 14, 2002 SIX MONTHS YEAR ENDED (DATE SALES ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------- DECEMBER 31, 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $8.67 $8.78 $8.58 $ 8.97 - ----------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.18(a) 0.33(a) 0.40(a) 0.42(a) - ----------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.06 0.08 0.37 (0.08) ======================================================================================================================= Total from investment operations 0.24 0.41 0.77 0.34 ======================================================================================================================= Less dividends from net investment income -- (0.52) (0.57) (0.73) ======================================================================================================================= Net asset value, end of period $8.91 $8.67 $8.78 $ 8.58 _______________________________________________________________________________________________________________________ ======================================================================================================================= Total return(b) 2.77% 4.69% 9.02% 3.90% _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $ 968 $ 980 $ 762 $ 124 _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratio of expenses to average net assets 1.27%(c) 1.26% 1.20% 1.19%(d) ======================================================================================================================= Ratio of net investment income to average net assets 4.06%(c) 3.76% 4.46% 5.90%(d) _______________________________________________________________________________________________________________________ ======================================================================================================================= Portfolio turnover rate(e) 47% 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 annualized and based on average net assets of $965,354. (d) Annualized. (e) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent AIM V.I. DIVERSIFIED INCOME FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. DIVERSIFIED INCOME FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley COUNSEL TO THE FUND Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 J. Philip Ferguson Washington, D.C. 20007-5111 Vice President COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Vice President 1177 Avenue of the Americas New York, NY 10036-2714 William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. DIVERSIFIED INCOME FUND AIM V.I. GOVERNMENT SECURITIES FUND Semiannual Report to Shareholders o June 30, 2005 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. GOVERNMENT SECURITIES FUND <Table> MANAGEMENT'S DISCUSSION We begin by assessing the overall OF FUND PERFORMANCE economic environment and its likely impact on the level and direction of ====================================================================================== interest rates. We develop a six- to 12-month strategic outlook, but look to PERFORMANCE SUMMARY ========================================= take advantage of shorter-term tactical opportunities when they arise. This For the six-month period, the Fund FUND VS. INDEXES strategic outlook helps determine where returned 1.16%, trailing the 2.51% return we allocate Fund assets among the three of the Lehman Aggregate Index, which TOTAL RETURNS, 12/31/04--6/30/05, sectors represented in our style-specific represents the broad investment-grade EXCLUDING VARIABLE PRODUCT ISSUER benchmark--U.S. Treasuries, U.S. agency bond market. The Lehman Aggregate Index CHARGES. IF VARIABLE PRODUCT ISSUER bonds, and U.S. agency MBS--and where we includes bonds of much longer maturities CHARGES WERE INCLUDED, RETURNS WOULD BE position the Fund's duration within a than those in which your Fund invests. LOWER. band of plus or minus 1.50 years around Bonds with longer maturities typically our benchmark's duration. This duration offer a higher interest rate in return Series I Shares 1.16% band places limits on how much principal for the purchaser's willingness to commit risk we take relative to our benchmark. to the longer term. They are also much Series II Shares 1.00 more vulnerable to interest-rate risk in After our top-down strategic a rising-rate environment. Lehman U.S. Aggregate Bond Index decisions, we try to add value by (the Lehman Aggregate Index) identifying securities or security The Fund's style-specific index, or (Broad Market Index) 2.51 structures that are undervalued given the benchmark, the Lehman Brothers prevailing market environment or likely Intermediate U.S. Government and Mortgage Lehman Intermediate future developments. Examples of this Index, returned 1.90% for the period. U.S. Government and Mortgage Index security selection process include: (1) Your Fund's lower return is mostly a (Style-specific Index) 1.90 deciding whether to buy callable result of our defensive stance in the securities, (2) deciding how many months Lipper Intermediate or years of call protection we want, and U.S. Government Bond Fund Index (3) identifying mortgage-backed (Peer Group Index) 1.92 securities that might exhibit faster or slower refinancing activity than other SOURCE: LIPPER, INC. mortgages with the same coupon and ========================================= maturity. face of the Federal Reserve Board (the Instances when we sell a security Fed) raising the federal funds target include, but are not limited to: rate to tighten monetary policy. ====================================================================================== o a change in the economic or market outlook indicates assets should be HOW WE INVEST allocation, duration management and reallocated security selection to take advantage of We believe that in a variety of market prevailing market conditions and likely o a mortgage security is prepaying faster environments, a portfolio of future developments. Duration measures or slower than we would like intermediate-maturity bonds and how sensitive a bond's price is to mortgage-backed securities (MBS) interest rate movements. A longer duration o a security is likely to be called, and guaranteed by the U.S. government and its means more sensitivity to rate changes; a we want to own one with a longer maturity agencies has the potential to provide a shorter duration means less sensitivity. date more efficient risk/return tradeoff than For instance, a shorter duration bond's a portfolio holding only one of these price would fall less for a given rise in asset classes. interest rates and thus provide more principal protection. We seek to enhance returns relative to our benchmarks by using calculated risks in sector ========================================= ======================================================================================= PORTFOLIO COMPOSITION By sector, based on total investments TOP FIXED-INCOME ISSUERS [PIE CHART] 1. Federal National Mortgage Association (FNMA) 42.0% NON-MORTGAGE U.S. AGENCY 2. Federal Home Loan Mortgage Corp. (FHLMC) 31.0 OBLIGATIONS 20.8% 3. Government National Mortgage Association (GNMA) 12.3 U.S. TREASURY OBLIGATIONS 4.8% 4. Federal Home Loan Bank (FHLB) 10.0 MONEY MARKET FUNDS 8.9% 5. U.S. Treasury 5.6 MORTGAGE U.S. AGENCY OBLIGATIONS 65.5% 6. Federal Farm Credit Bank 3.3 7. Tennessee Valley Authority 1.6 8. Private Export Funding Company 0.6 TOTAL NET ASSETS $773.9 MILLION TOTAL NUMBER OF HOLDINGS* 596 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> o a security has become fully valued; in MBS. In a rising-rate environment, the IN CLOSING that is, we believe that relative to additional yield available by buying MBS other investment options, it has greater helps offset principal erosion that might Thank you for investing in AIM V.I. downside risk occur. The additional income can place Government Securities Fund. Though our MBS in an advantageous position relative defensive positioning of the portfolio MARKET CONDITIONS AND YOUR FUND to Treasuries or agencies in such an resulted in returns which lagged our environment. Within the Lehman Aggregate, broad and style-specific benchmarks over The federal funds rate is the interest mortgage-backed securities returned 2.15% the short term, we believe this stance rate at which depository institutions for the period, versus 1.55% for has been warranted given the Fed's stated (banks, credit unions, and savings and intermediate Treasuries and 1.76% for intention to continue tightening monetary loans) lend balances at the Federal agencies. policy by raising the federal funds Reserve to other depository institutions target rate. Be assured that all of our overnight. Changes in this rate affect Within our mortgage-backed-security efforts are focused on balancing current short-term interest rates throughout the holdings, we have focused on higher income with concern for the safety of financial marketplace. coupon bonds, which typically exhibit investors' principal. shorter durations and less principal Over the course of the past six erosion during periods of rising interest The views and opinions expressed in months, the Fed's Open Market Committee rates. Since these higher coupon MBS are management's discussion of Fund raised the federal funds target rate four backed by mortgage loans with higher performance are those of AIM Advisors, times--each time a 25-basis-point (0.25%) interest rates, they may be more prone to Inc. These views and opinions are subject move--to bring that rate to 3.25% at the refinancing activity, which can hamper to change at any time based on factors end of the period. Fed members, including investor returns. We seek to limit this such as market and economic conditions. Chairman Alan Greenspan, have given every risk by identifying pools of loans that These views and opinions may not be indication they foresee the need to may exhibit less refinancing activity relied upon as investment advice or continue tightening monetary policy. than similar pools. Factors that may recommendations, or as an offer for a point toward lower refinancing activity particular security. The information is As of June 30, the fed funds futures include smaller loan size, seasoning, and not a complete analysis of every aspect market anticipated at least two such new issuance. A smaller loan is less of any market, country, industry, moves before the end of 2005. In June, a onerous to a homeowner, so there may be security or the Fund. Statements of fact Bloomberg survey of 63 economists placed less pressure to refinance. Seasoning are from sources considered reliable, but the consensus for the end-of-the-year indicates a loan is older; thus, interest AIM Advisors, Inc. makes no federal funds rate at 3.75%, with almost is a smaller portion of the monthly representation or warranty as to their half believing that rate would reach 4% payment. Seasoning may also mean completeness or accuracy. Although or higher. In this environment, we have homeowners would not have time to recoup historical performance is no guarantee of believed there was much more risk of refinancing costs before they sell the future results, these insights may help interest rates in all maturities rising home. Newly issued status indicates a you understand our investment management substantially rather than falling homeowner has just taken out a mortgage philosophy. substantially. Therefore, we kept the and is less likely to want to pay closing Fund's duration shorter than the duration costs again soon. of either the broad or style-specific SCOT W. JOHNSON, benchmark to provide relatively more Another strategy employed during the [JOHNSON Chartered Financial principal protection should interest period was the use of a type of PHOTO] Analyst, senior portfolio rates rise--and bond prices consequently short-term borrowing known as a reverse manager, is lead portfolio fall. repurchase agreement (reverse repo), manager of AIM V.I. whereby a fund loans securities in Government Securities Fund. Mr. Johnson Bond market returns for the period exchange for cash according to an joined AIM in 1994. He received both a were modest. As was true of your Fund's agreement stipulating when the borrower B.A. in economics and an M.B.A. in style-specific benchmark, each of your will return those securities. The fund finance from Vanderbilt University. Funds three sectors--U.S. Treasuries, U.S. can then deploy the cash in an effort to agency bonds, and U.S. agency enhance total return by purchasing a CLINT DUDLEY, Chartered MBS--experienced falling prices overall. security either to provide additional [DUDLEY Financial Analyst, It is important to point out, however, income or to take advantage of capital PHOTO] portfolio manager, is that income more than made up for the appreciation opportunities. While your portfolio manager of AIM principal erosion, and all three sectors Fund is typically fully invested, reverse V.I. Government Securities posted positive total returns. repos provide ready cash to take Fund. Mr. Dudley joined AIM in 1998, was advantage of tactical opportunities that promoted to money market portfolio Our ongoing strategy is to position may arise. During the period, the Fund manager in 2000 and assumed his current the Fund's sector allocations to provide benefited from our having invested the duties in 2001. He received both a B.B.A. an efficient risk/return relationship, so reverse repo proceeds into MBS to enhance and an M.B.A. from Baylor University. that expected returns are appropriate for income. the level of risk taken. We maintained Assisted by the Taxable Investment Grade our largest weighting Bond Team [RIGHT ARROW GRAPHIC] For a discussion of risks of investing in your Fund, indexes used in this report and your Fund's long-term performance, please turn the page. </Table> 3 AIM V.I. GOVERNMENT SECURITIES FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== AVERAGE ANNUAL TOTAL RETURNS Series II shares. The inception date of ance companies issuing variable Series II shares is September 19, 2001. products. You cannot purchase shares of As of 6/30/05 The Series I and Series II shares invest the Fund directly. Performance figures in the same portfolio of securities and given represent the Fund and are not SERIES I SHARES will have substantially similar intended to reflect actual variable Inception (5/5/93) 5.07% performance, except to the extent that product values. They do not reflect 10 Years 5.25 expenses borne by each class differ. sales charges, expenses and fees 5 Years 5.41 assessed in connection with a variable 1 Year 3.58 The performance data quoted represent product. Sales charges, expenses and past performance and cannot guarantee fees, which are determined by the SERIES II SHARES comparable future results; current variable product issuers, will vary and 10 Years 4.99% performance may be lower or higher. will lower the total return. 5 Years 5.14 Please contact your product issuer or 1 Year 3.29 financial advisor for the most recent Per NASD requirements, the most month-end performance. Performance recent month-end performance data at the ======================================== figures reflect Fund expenses, Fund level, excluding variable product reinvested distributions and changes in charges, is available on this AIM Returns since the inception date of net asset value. Investment return and automated information line, Series II shares are historical. All principal value will fluctuate so that 866-702-4402. As mentioned above, for other returns are the blended returns of you may have a gain or loss when you the most recent month-end performance the historical performance of Series II sell shares. including variable product charges, shares since their inception and the please contact your variable product restated historical performance of AIM V.I. Government Securities Fund, issuer or financial advisor. Series I shares (for periods prior to a series portfolio of AIM Variable inception of the Series II shares) Insurance Funds, is currently offered adjusted to reflect the higher Rule through insur- 12b-1 fees applicable to the PRINCIPAL RISKS OF INVESTING IN THE FUND corporate securities, mortgage the indexes defined here, and pass-through securities and asset-backed consequently, the performance of the Debt securities are particularly securities), is compiled by Lehman Fund may deviate significantly from the vulnerable to credit risk and interest Brothers, a global investment bank. performance of the index. rate fluctuations. Interest rate increases can cause the price of a debt The unmanaged LEHMAN INTERMEDIATE A direct investment cannot be made in security to decrease. The longer a debt U.S. GOVERNMENT AND MORTGAGE INDEX is a an index. Unless otherwise indicated, security's duration, the more sensitive market-weighted combination of the index results include reinvested it is to this risk. unmanaged LEHMAN BROTHERS INTERMEDIATE dividends, and they do not reflect sales U.S. GOVERNMENT BOND INDEX and the charges. Performance of an index of The Fund invests in securities issued unmanaged LEHMAN BROTHERS MORTGAGE funds reflects fund expenses; or backed by the U.S. government, its BACKED SECURITIES FIXED RATE (MBS FR) performance of a market index does not. agencies or instrumentalities. They INDEX. THE LEHMAN BROTHERS INTERMEDIATE offer a high degree of safety and, in U.S. GOVERNMENT BOND INDEX represents OTHER INFORMATION the case of Treasury securities, are the performance of intermediate- and guaranteed as to timely payment of long-term U.S. Treasury and U.S. The returns shown in the management's principal and interest if held to government agency securities. The MBS FR discussion of Fund performance are based maturity. Some securities purchased by INDEX covers 30- and 15-year on net asset values calculated for the Fund are not guaranteed by the U.S. mortgage-backed pass-through securities shareholder transactions. Generally Government. Fund shares are not insured, offered by Ginnie Mae, Fannie Mae, and accepted accounting principles require and their value or yield will vary with Freddie Mac. The indexes are compiled by adjustments to be made to the net assets market conditions. Lehman Brothers, a global investment of the Fund at period end for financial bank. reporting purposes, and as such, the net The Fund may invest a portion of its asset values for shareholder assets in mortgage-backed securities, The LIPPER INTERMEDIATE U.S. transactions and the returns based on which may lose value if mortgages are GOVERNMENT BOND FUND INDEX represents an those net asset values may differ from prepaid in response to falling interest average of the 30 largest the net asset values and returns rates. intermediate-term U.S. government bond reported in the Financial Highlights. funds tracked by Lipper, Inc., an Additionally, the returns and net asset ABOUT INDEXES USED IN THIS REPORT independent mutual fund performance values shown throughout this report are monitor. at the Fund level only and do not The unmanaged Lehman U.S. Aggregate Bond include variable product issuer charges. Index (the LEHMAN AGGREGATE INDEX), The Fund is not managed to track the If such charges were included, the total which represents the U.S. performance of any particular index, returns would be lower. investment-grade fixed-rate bond market including (including government and </Table> 4 AIM V.I. GOVERNMENT SECURITIES FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. the effect of any fees or other expenses PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $1,000.00 $1,011.60 $4.29 $1,020.53 $4.31 Series II 1,000.00 1,010.00 5.53 1,019.29 5.56 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (0.86% and 1.11% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 0.73% and 0.98% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.73% and 0.98% 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 most recent fiscal half year, are $3.64 and $4.88 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 most recent fiscal half year are $3.66 and $4.91 for Series I and Series II shares, respectively. ==================================================================================================================================== </Table> 5 AIM V.I. GOVERNMENT SECURITIES FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided able to continue to carry out their Insurance Funds (the "Board") oversees by AIM. The Board reviewed the responsibilities under the Advisory the management of AIM V.I. Government credentials and experience of the Agreement. Securities Fund (the "Fund") and, as officers and employees of AIM who will required by law, determines annually provide investment advisory services to o Overall performance of AIM. The Board whether to approve the continuance of the Fund. In reviewing the considered the overall performance of the Fund's advisory agreement with A I M qualifications of AIM to provide AIM in providing investment advisory and Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board portfolio administrative services to the recommendation of the Investments reviewed the qualifications of AIM's Fund and concluded that such performance Committee of the Board, which is investment personnel and considered such was satisfactory. comprised solely of independent issues as AIM's portfolio and product trustees, at a meeting held on June 30, review process, various back office o Fees relative to those of clients of 2005, the Board, including all of the support functions provided by AIM and AIM with comparable investment independent trustees, approved the AIM's equity and fixed income trading strategies. The Board reviewed the continuance of the advisory agreement operations. Based on the review of these advisory fee rate for the Fund under the (the "Advisory Agreement") between the and other factors, the Board concluded Advisory Agreement. The Board noted that Fund and AIM for another year, effective that the quality of services to be this rate was the same as the initial July 1, 2005. provided by AIM was appropriate and that advisory fee rate for a mutual fund AIM currently is providing satisfactory advised by AIM with investment The Board considered the factors services in accordance with the terms of strategies comparable to those of the discussed below in evaluating the the Advisory Agreement. Fund. The Board noted that AIM has fairness and reasonableness of the agreed to limit the Fund's total Advisory Agreement at the meeting on o The performance of the Fund relative operating expenses, as discussed below. June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed Based on this review, the Board ongoing oversight of the Fund. In their the performance of the Fund during the concluded that the advisory fee rate for deliberations, the Board and the past one, three and five calendar years the Fund under the Advisory Agreement independent trustees did not identify against the performance of funds advised was fair and reasonable. any particular factor that was by other advisors with investment controlling, and each trustee attributed strategies comparable to those of the o Fees relative to those of comparable different weights to the various Fund. The Board noted that the Fund's funds with other advisors. The Board factors. performance in such periods was below reviewed the advisory fee rate for the the median performance of such Fund under the Advisory Agreement. The One of the responsibilities of the comparable funds. Based on this review Board compared effective contractual Senior Officer of the Fund, who is and after taking account of all of the advisory fee rates at a common asset independent of AIM and AIM's affiliates, other factors that the Board considered level and noted that the Fund's rate was is to manage the process by which the in determining whether to continue the above the median rate of the funds Fund's proposed management fees are Advisory Agreement for the Fund, the advised by other advisors with negotiated to ensure that they are Board concluded that no changes should investment strategies comparable to negotiated in a manner which is at arm's be made to the Fund and that it was not those of the Fund that the Board length and reasonable. To that end, the necessary to change the Fund's portfolio reviewed. The Board noted that AIM has Senior Officer must either supervise a management team at this time. However, agreed to limit the Fund's total competitive bidding process or prepare due to the Fund's under-performance, the operating expenses, as discussed below. an independent written evaluation. The Board also concluded that it would be Based on this review, the Board Senior Officer has recommended an appropriate for management and the Board concluded that the advisory fee rate for independent written evaluation in lieu to continue to closely monitor the the Fund under the Advisory Agreement of a competitive bidding process and, performance of the Fund. was fair and reasonable. upon the direction of the Board, has prepared such an independent written o The performance of the Fund relative o Expense limitations and fee waivers. evaluation. Such written evaluation also to indices. The Board reviewed the The Board noted that AIM has considered certain of the factors performance of the Fund during the past contractually agreed to waive fees discussed below. In addition, as one, three and five calendar years and/or limit expenses of the Fund discussed below, the Senior Officer made against the performance of the Lipper through June 30, 2006 so that total certain recommendations to the Board in General U.S. Government Fund Index. The annual operating expenses are limited to connection with such written evaluation. Board noted that the Fund's performance a specified percentage of average daily in such periods was below the net assets for each class of the Fund. The discussion below serves as a performance of such Index. Based on this The Board considered the contractual summary of the Senior Officer's review and after taking account of all nature of this fee waiver and noted that independent written evaluation and of the other factors that the Board it remains in effect until June 30, recommendations to the Board in considered in determining whether to 2006. The Board considered the effect connection therewith, as well as a continue the Advisory Agreement for the this fee waiver/expense limitation would discussion of the material factors and Fund, the Board concluded that no have on the Fund's estimated expenses the conclusions with respect thereto changes should be made to the Fund and and concluded that the levels of fee that formed the basis for the Board's that it was not necessary to change the waivers/expense limitations for the Fund approval of the Advisory Agreement. Fund's portfolio management team at this were fair and reasonable. After consideration of all of the time. However, due to the Fund's factors below and based on its informed under-performance, the Board also o Breakpoints and economies of scale. business judgment, the Board determined concluded that it would be appropriate The Board reviewed the structure of the that the Advisory Agreement is in the for management and the Board to continue Fund's advisory fee under the Advisory best interests of the Fund and its to closely monitor the performance of Agreement, noting that it includes one shareholders and that the compensation the Fund. breakpoint. The Board reviewed the level to AIM under the Advisory Agreement is of the Fund's advisory fees, and noted fair and reasonable and would have been o Meeting with the Fund's portfolio that such fees, as a percentage of the obtained through arm's length managers and investment personnel. With Fund's net assets, have decreased as net negotiations. respect to the Fund, the Board is assets increased because the Advisory meeting periodically with such Fund's Agreement includes a breakpoint. The o The nature and extent of the advisory portfolio managers and/or other Board concluded that the Fund's fee services to be provided by AIM. The investment personnel and believes that levels under the Advisory Agreement Board reviewed the services to be such individuals are competent and therefore reflect economies of scale and provided by AIM under the Advisory that it was not necessary to change the Agreement. Based on such review, the advisory fee breakpoints in the Fund's Board concluded that the range of advisory fee schedule. services to be provided by AIM under the Advisory Agreement was appropriate and (continued) that AIM currently is providing services in accordance with the terms of the Advisory Agreement. </Table> 6 AIM V.I. GOVERNMENT SECURITIES FUND <Table> o Investments in affiliated money market o Profitability of AIM and its o Other factors and current trends. In funds. The Board also took into account affiliates. The Board reviewed determining whether to continue the the fact that uninvested cash and cash information concerning the profitability Advisory Agreement for the Fund, the collateral from securities lending of AIM's (and its affiliates') Board considered the fact that AIM, arrangements (collectively, "cash investment advisory and other activities along with others in the mutual fund balances") of the Fund may be invested and its financial condition. The Board industry, is subject to regulatory in money market funds advised by AIM considered the overall profitability of inquiries and litigation related to a pursuant to the terms of an SEC AIM, as well as the profitability of AIM wide range of issues. The Board also exemptive order. The Board found that in connection with managing the Fund. considered the governance and compliance the Fund may realize certain benefits The Board noted that AIM's operations reforms being undertaken by AIM and its upon investing cash balances in AIM remain profitable, although increased affiliates, including maintaining an advised money market funds, including a expenses in recent years have reduced internal controls committee and higher net return, increased liquidity, AIM's profitability. Based on the review retaining an independent compliance increased diversification or decreased of the profitability of AIM's and its consultant, and the fact that AIM has transaction costs. The Board also found affiliates' investment advisory and undertaken to cause the Fund to operate that the Fund will not receive reduced other activities and its financial in accordance with certain governance services if it invests its cash balances condition, the Board concluded that the policies and practices. The Board in such money market funds. The Board compensation to be paid by the Fund to concluded that these actions indicated a noted that, to the extent the Fund AIM under its Advisory Agreement was not good faith effort on the part of AIM to invests in affiliated money market excessive. adhere to the highest ethical standards, funds, AIM has voluntarily agreed to and determined that the current waive a portion of the advisory fees it o Benefits of soft dollars to AIM. The regulatory and litigation environment to receives from the Fund attributable to Board considered the benefits realized which AIM is subject should not prevent such investment. The Board further by AIM as a result of brokerage the Board from continuing the Advisory determined that the proposed securities transactions executed through "soft Agreement for the Fund. lending program and related procedures dollar" arrangements. Under these with respect to the lending Fund is in arrangements, brokerage commissions paid the best interests of the lending Fund by the Fund and/or other funds advised and its respective shareholders. The by AIM are used to pay for research and Board therefore concluded that the execution services. This research is investment of cash collateral received used by AIM in making investment in connection with the securities decisions for the Fund. The Board lending program in the money market concluded that such arrangements were funds according to the procedures is in appropriate. the best interests of the lending Fund and its respective shareholders. o AIM's financial soundness in light of the Fund's needs. The Board considered o Independent written evaluation and whether AIM is financially sound and has recommendations of the Fund's Senior the resources necessary to perform its Officer. The Board noted that, upon obligations under the Advisory their direction, the Senior Officer of Agreement, and concluded that AIM has the Fund had prepared an independent the financial resources necessary to written evaluation in order to assist fulfill its obligations under the the Board in determining the Advisory Agreement. reasonableness of the proposed management fees of the AIM Funds, o Historical relationship between the including the Fund. The Board noted that Fund and AIM. In determining whether to the Senior Officer's written evaluation continue the Advisory Agreement for the had been relied upon by the Board in Fund, the Board also considered the this regard in lieu of a competitive prior relationship between AIM and the bidding process. In determining whether Fund, as well as the Board's knowledge to continue the Advisory Agreement for of AIM's operations, and concluded that the Fund, the Board considered the it was beneficial to maintain the Senior Officer's written evaluation and current relationship, in part, because the recommendation made by the Senior of such knowledge. The Board also Officer to the Board that the Board reviewed the general nature of the consider implementing a process to non-investment advisory services assist them in more closely monitoring currently performed by AIM and its the performance of the AIM Funds. The affiliates, such as administrative, Board concluded that it would be transfer agency and distribution advisable to implement such a process as services, and the fees received by AIM soon as reasonably practicable. and its affiliates for performing such services. In addition to reviewing such services, the trustees also considered the organizational structure employed by AIM and its affiliates to provide those services. Based on the review of these and other factors, the Board concluded that AIM and its affiliates were qualified to continue to provide non-investment advisory services to the Fund, including administrative, transfer agency and distribution services, and that AIM and its affiliates currently are providing satisfactory non-investment advisory services. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - -------------------------------------------------------------------------- U.S. MORTGAGE-BACKED SECURITIES-76.51% FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-24.75% Pass Through Ctfs., 6.00%, 11/01/08 to 11/01/34(a) $15,515,739 $ 16,018,788 - -------------------------------------------------------------------------- 6.50%, 12/01/08 to 02/01/35(a) 53,230,548 55,336,426 - -------------------------------------------------------------------------- 7.00%, 11/01/10 to 05/01/35(a) 48,409,505 50,979,390 - -------------------------------------------------------------------------- 8.00%, 07/01/15 to 05/01/32(a) 4,990,977 5,381,473 - -------------------------------------------------------------------------- 5.00%, 05/01/18(a) 9,852,034 9,973,628 - -------------------------------------------------------------------------- 4.50%, 05/01/19(a) 15,753,206 15,701,684 - -------------------------------------------------------------------------- 10.50%, 08/01/19(a) 20,726 23,106 - -------------------------------------------------------------------------- 8.50%, 09/01/20 to 08/01/31(a) 2,602,139 2,842,459 - -------------------------------------------------------------------------- 10.00%, 03/01/21(a) 322,684 363,091 - -------------------------------------------------------------------------- 9.00%, 06/01/21(a) 1,800,271 1,958,895 - -------------------------------------------------------------------------- 7.05%, 05/20/27(a) 1,179,339 1,244,254 - -------------------------------------------------------------------------- 7.50%, 09/01/30 to 12/01/34(a) 6,941,426 7,434,887 - -------------------------------------------------------------------------- 5.50%, 10/01/33 to 01/01/34(a) 5,889,824 5,977,966 - -------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.00%, 07/01/19(a)(b) 8,732,000 8,830,235 - -------------------------------------------------------------------------- 4.50%, 07/01/20(a)(b) 9,500,000 9,458,437 ========================================================================== 191,524,719 ========================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-39.48% Pass Through Ctfs., 7.50%, 11/01/09 to 04/01/35(a) 18,002,746 19,307,736 - -------------------------------------------------------------------------- 6.50%, 02/01/20 1,928,077 2,029,904 - -------------------------------------------------------------------------- 6.50%, 10/01/10 to 04/01/35(a) 53,620,045 55,754,635 - -------------------------------------------------------------------------- 7.00%, 12/01/10 to 05/01/35(a) 55,621,890 58,669,825 - -------------------------------------------------------------------------- 8.00%, 06/01/12 to 08/01/32(a) 15,564,526 16,701,834 - -------------------------------------------------------------------------- 8.50%, 06/01/12 to 10/01/33(a) 9,240,108 10,101,341 - -------------------------------------------------------------------------- 10.00%, 09/01/13 to 03/01/16(a) 322,666 353,714 - -------------------------------------------------------------------------- 6.00%, 06/01/16 to 02/01/34(a) 46,158,792 47,748,250 - -------------------------------------------------------------------------- 5.00%, 11/01/17 to 08/01/33(a) 2,854,158 2,889,428 - -------------------------------------------------------------------------- 5.50%, 02/01/18(a) 5,347,716 5,495,043 - -------------------------------------------------------------------------- 6.95%, 10/01/25 to 09/01/26(a) 309,125 327,269 - -------------------------------------------------------------------------- Pass Through Ctfs., TBA, 5.50%, 07/01/20 to 08/01/35(a)(b) 37,262,309 37,972,520 - -------------------------------------------------------------------------- 5.00%, 07/01/20 to 08/01/35(a)(b) 17,489,250 17,494,169 - -------------------------------------------------------------------------- 6.00%, 07/01/35(a)(b) 29,920,200 30,677,555 ========================================================================== 305,523,223 ========================================================================== </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - -------------------------------------------------------------------------- <Caption> GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-12.28% Pass Through Ctfs., 7.50%, 03/15/08 to 07/15/32(a) $ 2,397,456 $ 2,575,139 - -------------------------------------------------------------------------- 9.00%, 09/15/08 to 09/20/17(a) 423,582 460,719 - -------------------------------------------------------------------------- 6.50%, 09/20/08 to 04/15/35(a) 59,169,722 61,935,355 - -------------------------------------------------------------------------- 11.00%, 10/15/15(a) 3,074 3,433 - -------------------------------------------------------------------------- 9.50%, 09/15/16(a) 4,469 4,937 - -------------------------------------------------------------------------- 10.50%, 09/15/17 to 11/15/19(a) 5,872 6,721 - -------------------------------------------------------------------------- 10.00%, 06/15/19(a) 117,082 132,220 - -------------------------------------------------------------------------- 7.00%, 07/15/19 to 01/15/35(a) 6,765,503 7,163,247 - -------------------------------------------------------------------------- 8.00%, 07/15/24 to 11/15/31(a) 1,960,591 2,136,321 - -------------------------------------------------------------------------- 8.50%, 02/15/25 to 04/15/31(a) 2,945,343 3,214,987 - -------------------------------------------------------------------------- 6.95%, 08/20/25 to 08/20/27(a) 2,931,666 3,097,434 - -------------------------------------------------------------------------- 6.00%, 10/15/31 to 01/15/35(a) 13,837,423 14,305,585 ========================================================================== 95,036,098 ========================================================================== Total U.S. Mortgage-Backed Securities (Cost $595,908,436) 592,084,040 ========================================================================== U.S. GOVERNMENT AGENCY SECURITIES-24.30% FEDERAL FARM CREDIT BANK-3.33% Bonds, 6.00%, 06/11/08(a) 2,600,000 2,752,152 - -------------------------------------------------------------------------- 5.75%, 01/18/11(a) 2,000,000 2,163,580 - -------------------------------------------------------------------------- Medium Term Notes, 5.75%, 12/07/28(a) 5,500,000 6,383,465 - -------------------------------------------------------------------------- Unsec. Bonds, 7.25%, 06/12/07(a) 13,625,000 14,498,362 ========================================================================== 25,797,559 ========================================================================== FEDERAL HOME LOAN BANK (FHLB)-10.00% Unsec. Bonds, 6.50%, 11/15/05(a) 275,000 277,981 - -------------------------------------------------------------------------- 7.25%, 02/15/07(a) 895,000 943,267 - -------------------------------------------------------------------------- 4.88%, 05/15/07(a)(c) 4,000,000 4,076,840 - -------------------------------------------------------------------------- 3.50%, 11/15/07(a) 4,650,000 4,612,149 - -------------------------------------------------------------------------- 4.50%, 02/15/08(a) 15,000,000 15,048,750 - -------------------------------------------------------------------------- 5.48%, 01/28/09(a) 1,500,000 1,576,200 - -------------------------------------------------------------------------- 5.75%, 10/27/10(a) 31,555,000 32,499,860 - -------------------------------------------------------------------------- 6.00%, 12/23/11(a) 18,000,000(c) 18,331,380 ========================================================================== 77,366,427 ========================================================================== </Table> AIM V.I. GOVERNMENT SECURITIES FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - -------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-6.28% Unsec. Global Notes, 3.75%, 08/03/07(a) $14,375,000 $ 14,292,200 - -------------------------------------------------------------------------- 5.13%, 10/15/08(a) 4,000,000 4,146,840 - -------------------------------------------------------------------------- 4.75%, 12/08/10(a) 30,000,000 30,139,500 ========================================================================== 48,578,540 ========================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-2.55% Unsec. Bonds, 7.05%, 10/30/15(a) 1,700,000 1,807,542 - -------------------------------------------------------------------------- Unsec. Global Bonds, 6.63%, 11/15/30(a) 700,000 910,357 - -------------------------------------------------------------------------- Unsec. Global Notes, 7.00%, 07/15/05 8,100,000 8,116,706 - -------------------------------------------------------------------------- 3.85%, 04/14/09(a) 4,695,000 4,676,924 - -------------------------------------------------------------------------- Unsec. Notes, 5.00%, 12/15/08(a) 3,300,000 3,319,899 - -------------------------------------------------------------------------- Unsec. Sub. Disc. Deb., 7.37%, 10/09/19(a)(d) 1,800,000 926,118 ========================================================================== 19,757,546 ========================================================================== PRIVATE EXPORT FUNDING COMPANY-0.58% Series G, Sec. Gtd. Notes, 6.67%, 09/15/09(a) 2,701,000 2,983,417 - -------------------------------------------------------------------------- Series J, Sec. Gtd. Notes, 7.65%, 05/15/06(a) 1,500,000 1,550,070 ========================================================================== 4,533,487 ========================================================================== TENNESSEE VALLEY AUTHORITY-1.56% Series A, Bonds, 6.79%, 05/23/12(a) 5,000,000 5,784,450 - -------------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - -------------------------------------------------------------------------- <Caption> TENNESSEE VALLEY AUTHORITY-(CONTINUED) Series G, Global Bonds, 5.38%, 11/13/08(a) $ 6,000,000 $ 6,271,980 ========================================================================== 12,056,430 ========================================================================== Total U.S. Government Agency Securities (Cost $187,352,656) 188,089,989 ========================================================================== U.S. TREASURY SECURITIES-5.63% U.S. TREASURY NOTES-3.17% 4.63%, 05/15/06(a) 14,375,000 14,513,144 - -------------------------------------------------------------------------- 4.00%, 11/15/12(a) 1,480,000 1,499,432 - -------------------------------------------------------------------------- 4.25%, 08/15/13 to 08/15/14(a)(c) 7,700,000 7,896,965 - -------------------------------------------------------------------------- 6.88%, 08/15/25(a) 500,000 673,440 ========================================================================== 24,582,981 ========================================================================== U.S. TREASURY BONDS-2.24% 2.38%, 08/31/06(a) 7,500,000 7,400,400 - -------------------------------------------------------------------------- 9.25%, 02/15/16(a) 550,000 797,412 - -------------------------------------------------------------------------- 7.50%, 11/15/16 to 11/15/24(a) 6,050,000 8,324,735 - -------------------------------------------------------------------------- 7.63%, 02/15/25(a) 550,000 793,205 ========================================================================== 17,315,752 ========================================================================== U.S. TREASURY STRIPS-0.22% 6.79%, 11/15/18(a)(d) 3,005,000 1,689,381 ========================================================================== Total U.S. Treasury Securities (Cost $42,054,937) 43,588,114 ========================================================================== </Table> <Table> <Caption> SHARES MONEY MARKET FUNDS-10.40% Government & Agency Portfolio-Institutional Class(e)(Cost $80,450,086) 80,450,086 80,450,086 ========================================================================== TOTAL INVESTMENTS-116.84% (Cost $905,766,115) 904,212,229 ========================================================================== OTHER ASSETS LESS LIABILITIES-(16.84%) (130,348,692) ========================================================================== NET ASSETS-100.00% $ 773,863,537 __________________________________________________________________________ ========================================================================== </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 June 30, 2005 was $813,615,533, which represented 89.98% of the Fund's Total Investments. See Note 1A. (b) Security purchased on forward commitment basis. These securities are subject to dollar roll transactions. See Note 1F. (c) All or portion of principal amount has been deposited in escrow with the broker as collateral for reverse repurchase agreements outstanding at June 30, 2005. See Note 5. (d) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. See accompanying notes which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $825,316,029) $823,762,143 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $80,450,086) 80,450,086 ============================================================= Total investments (cost $905,766,115) 904,212,229 ============================================================= Receivables for: Investments sold 9,001,539 - ------------------------------------------------------------- Fund shares sold 990,690 - ------------------------------------------------------------- Dividends and interest 5,033,483 - ------------------------------------------------------------- Principal paydowns 44,580 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 50,566 - ------------------------------------------------------------- Other assets 7,540 ============================================================= Total assets 919,340,627 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 116,973,173 - ------------------------------------------------------------- Fund shares reacquired 420,491 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 72,072 - ------------------------------------------------------------- Reverse repurchase agreements 27,046,000 - ------------------------------------------------------------- Accrued administrative services fees 857,903 - ------------------------------------------------------------- Accrued distribution fees--Series II 11,061 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 177 - ------------------------------------------------------------- Accrued transfer agent fees 167 - ------------------------------------------------------------- Accrued operating expenses 96,046 ============================================================= Total liabilities 145,477,090 ============================================================= Net assets applicable to shares outstanding $773,863,537 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $759,019,290 - ------------------------------------------------------------- Undistributed net investment income 39,622,143 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities (23,224,010) - ------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities (1,553,886) ============================================================= $773,863,537 _____________________________________________________________ ============================================================= NET ASSETS: Series I $755,811,197 _____________________________________________________________ ============================================================= Series II $ 18,052,340 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 61,913,828 _____________________________________________________________ ============================================================= Series II 1,488,110 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 12.21 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 12.13 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Interest $15,104,688 - ------------------------------------------------------------ Dividends from affiliated money market funds 943,354 ============================================================ Total investment income 16,048,042 ============================================================ EXPENSES: Advisory fees 1,678,868 - ------------------------------------------------------------ Administrative services fees 950,808 - ------------------------------------------------------------ Custodian fees 25,579 - ------------------------------------------------------------ Distribution fees--Series II 21,916 - ------------------------------------------------------------ Interest 394,823 - ------------------------------------------------------------ Transfer agent fees 6,369 - ------------------------------------------------------------ Trustees' and officer's fees and benefits 16,050 - ------------------------------------------------------------ Other 43,084 ============================================================ Total expenses 3,137,497 ============================================================ Less: Fees waived (22,935) ============================================================ Net expenses 3,114,562 ============================================================ Net investment income 12,933,480 ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain (loss) from investment securities (2,150,029) - ------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities (2,008,401) - ------------------------------------------------------------ Net gain (loss) from investment securities (4,158,430) ============================================================ Net increase in net assets resulting from operations $ 8,775,050 ____________________________________________________________ ============================================================ </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 12,933,480 $ 19,126,783 - ------------------------------------------------------------------------------------------ Net realized gain (loss) from investment securities (2,150,029) (492,458) - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities (2,008,401) (3,698,196) ========================================================================================== Net increase in net assets resulting from operations 8,775,050 14,936,129 ========================================================================================== Distributions to shareholders from net investment income: Series I -- (24,312,926) - ------------------------------------------------------------------------------------------ Series II -- (614,972) ========================================================================================== Total distributions from net investment income -- (24,927,898) ========================================================================================== Share transactions-net: Series I 94,996,103 135,529,759 - ------------------------------------------------------------------------------------------ Series II 138,205 (4,390,961) ========================================================================================== Net increase in net assets resulting from share transactions 95,134,308 131,138,798 ========================================================================================== Net increase in net assets 103,909,358 121,147,029 ========================================================================================== NET ASSETS: Beginning of period 669,954,179 548,807,150 ========================================================================================== End of period (including undistributed net investment income of $39,622,143 and $26,688,663, respectively) $773,863,537 $669,954,179 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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. 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 AIM V.I. GOVERNMENT SECURITIES FUND 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 purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. The difference between the selling price and the future purchase price is generally amortized to income between the date of the sell and the future purchase date. During the period between the sale and purchase, 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. Dollar roll transactions are considered borrowings under the 1940 Act. At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the purchase 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 purchase 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 purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs. G. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - --------------------------------------------------------------------- First $250 million 0.50% ===================================================================== Over $250 million 0.45% _____________________________________________________________________ ===================================================================== </Table> Effective July 1, 2005, 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 Series I shares to 0.73% and Series II shares to 0.98% of average daily net assets, through June 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $22,935. AIM V.I. GOVERNMENT SECURITIES FUND At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $87,600 for accounting and fund administrative services and reimbursed $863,208 for services provided by insurance companies. 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 to reimburse AISI for certain expenses incurred by AISI in the course of providing such services. For the six months ended June 30, 2005, the Fund paid AISI $6,369. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $21,916. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 affiliated money market fund for the six months ended June 30, 2005. <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------- Government & Agency Portfolio-Institutional Class $87,204,509 $274,759,491 $(281,513,914) $ -- $80,450,086 $943,354 $ -- ____________________________________________________________________________________________________________________________ ============================================================================================================================ </Table> NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $3,263 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 six months ended June 30, 2005, the average borrowings for the 180 days the borrowings were outstanding was $27,976,178 with a weighted interest rate of 2.86% and interest expense of $394,823. 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 AIM V.I. GOVERNMENT SECURITIES FUND 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 six months ended June 30, 2005, 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 six months ended June 30, 2005 was $327,062,213 and $206,987,970, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 3,762,536 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (5,520,594) =============================================================================== Net unrealized appreciation (depreciation) of investment securities $ (1,758,058) _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $905,970,287. </Table> AIM V.I. GOVERNMENT SECURITIES FUND NOTE 8--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 13,943,940 $168,387,027 16,435,650 $202,834,635 - ------------------------------------------------------------------------------------------------------------------------ Series II 409,240 4,913,728 359,723 4,410,391 ======================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 2,015,997 24,312,926 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 51,247 614,971 ======================================================================================================================== Reacquired: Series I (6,084,831) (73,390,924) (7,431,260) (91,617,802) - ------------------------------------------------------------------------------------------------------------------------ Series II (397,796) (4,775,523) (768,954) (9,416,323) ======================================================================================================================== 7,870,553 $ 95,134,308 10,662,403 $131,138,798 ________________________________________________________________________________________________________________________ ======================================================================================================================== </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 this entity whereby this entity sells 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 not knowledge as to whether all or any portion of the shares owned of record by this shareholder are also owned beneficially. NOTE 9--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.07 $ 12.23 $ 12.40 $ 11.53 $ 11.16 $ 10.63 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.22(a) 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) (0.08) (0.09) (0.23) 0.61 0.12 0.41 ================================================================================================================================= Total from investment operations 0.14 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 $ 12.21 $ 12.07 $ 12.23 $ 12.40 $ 11.53 $ 11.16 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 1.16% 2.56% 1.07% 9.59% 6.41% 10.12% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $755,811 $652,226 $526,482 $428,322 $150,660 $84,002 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.86%(d)(e) 0.87% 0.76% 0.81% 1.08% 0.97% ================================================================================================================================= Ratio of net investment income to average net assets 3.61%(d) 3.20% 2.93% 4.01% 5.09%(b) 6.03% ================================================================================================================================= Ratio of interest expense to average net assets 0.11%(d) 0.09% 0.01% 0.01% 0.28% 0.12% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 31% 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 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 annualized and based on average daily net assets of $706,891,231. (e) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 0.87% (annualized). (f) Not annualized for periods less than one year. AIM V.I. GOVERNMENT SECURITIES FUND NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ------------------------------------------------------------------------------------- SEPTEMBER 19, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.01 $ 12.17 $ 12.35 $ 11.52 $11.84 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.20(a) 0.36(a) 0.33(a) 0.46(a) 0.16(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.08) (0.08) (0.22) 0.60 (0.14) ================================================================================================================================= Total from investment operations 0.12 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 $ 12.13 $ 12.01 $ 12.17 $ 12.35 $11.52 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 1.00% 2.27% 0.93% 9.25% 0.22% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $18,052 $17,728 $22,325 $14,926 $ 946 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.11%(c)(d) 1.12% 1.01% 1.06% 1.41%(e) ================================================================================================================================= Ratio of net investment income to average net assets 3.36%(c) 2.95% 2.68% 3.76% 4.76%(e) ================================================================================================================================= Ratio of interest expense to average net assets 0.11%(c) 0.09% 0.01% 0.01% 0.28%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 31% 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 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 $17,678,135. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.12% (annualized). (e) Annualized. (f) Not annualized for periods less than one year. NOTE 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil AIM V.I. GOVERNMENT SECURITIES FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. GOVERNMENT SECURITIES FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley COUNSEL TO THE FUND Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 J. Philip Ferguson Washington, D.C. 20007-5111 Vice President COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Vice President 1177 Avenue of the Americas New York, NY 10036-2714 William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. GOVERNMENT SECURITIES FUND AIM V.I. GROWTH FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. GROWTH FUND seeks growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. GROWTH FUND <Table> MANAGEMENT'S DISCUSSION sector guidelines or constraints, OF FUND PERFORMANCE internal controls and proprietary software help us monitor risk levels and ====================================================================================== sector concentration. PERFORMANCE SUMMARY ========================================= We employ an active, unemotional sell process designed to identify For the six months ended June 30, 2005, FUND VS. INDEXES deterioration in the underlying reasons a AIM V.I. Growth Fund delivered slightly stock was initially purchased and avoid negative returns, but it held up better TOTAL RETURNS, 12/31/04-6/30/05, the risk of capital loss. Conditions that than its broad market and style-specific EXCLUDING VARIABLE PRODUCT ISSUER may cause us to reduce or sell a position indexes, both of which were negative. The CHARGES. IF VARIABLE PRODUCT ISSUER include: Fund held up better than the S&P 500 Index CHARGES WERE INCLUDED, RETURNS because of the strength of its health WOULD BE LOWER. o deterioration in business prospects care holdings. Relative to the broad market, the Fund had a heavier weighting Series I Shares -0.19% o worsening competitive position in the health care sector, and its health care stocks generally outperformed those Series II Shares -0.31 o slowing earnings growth of the index. Standard & Poor's Composite o extended valuation The Fund held up better than the Index of 500 Stocks (S&P 500 Index) Russell 1000 Index because it had a (Broad Market Index) -0.81 o more attractive investment larger percentage of its assets invested opportunities in energy holdings than did the index, Russell 1000 Growth Index and because the return of the Fund's (Style-specific Index) -1.72 MARKET CONDITIONS AND YOUR FUND energy holdings generally exceeded that of the index. Also, as a group, the Lipper Large-Cap Growth Fund Index The market rally that began in late 2004 Fund's financials holdings significantly (Peer Group Index) -1.28 faded during the early months of 2005. outperformed those of the index. During the first half of 2005, the market Source: Lipper, Inc. lost ground and then gained ground, finally closing not far from where it ========================================= began. The market's indecision was the result of record-high energy prices and ====================================================================================== rising short-term interest rates, among other factors. In contrast with the stock HOW WE INVEST and cash flow, ranking investment market, U.S. gross domestic product, the candidates on absolute and relative broadest measure of the nation's overall We believe that a growth investment attractiveness. economic activity, expanded strongly strategy is an essential component of a throughout the first half of 2005. diversified portfolio. Our fundamental analysis seeks to define a company's key drivers of success For the reporting period, returns of Our investment process combines and to assess their durability. We indexes representing small- and large-cap quantitative and fundamental analysis to carefully review financial statements and stocks were similar, returning less than uncover companies exhibiting long-term, earnings reports, the company's business 1%. Mid-cap stocks performed sustainable earnings and cash flow growth model and management team, the significantly better, returning more than that is not yet reflected in investor competitive environment and market 4% for the period. Value stocks expectations or equity valuations. opportunities. consistently outperformed growth stocks across all capitalization levels for the Quantitative analysis helps us narrow We construct the portfolio using a six months ended June 30, 2005. our investment universe down to a bottom-up strategy, focusing on stocks manageable list of potential investments. rather than industries or sectors. While We build your Fund's portfolio stock We focus on the level, growth rate and there are no formal by stock and do not attempt to match its sustainability of earnings, revenue indexes' ========================================= ========================================= ========================================= TOP 10 EQUITY HOLDINGS* PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* 1. Tyco International Ltd. 3.7% By sector 1. Semiconductors 6.6% (Bermuda) 1. Information Technology 32.8% 2. Managed Health Care 6.1 2. Dell Inc. 3.4 2. Consumer Discretionary 20.3 3. Internet Software & Services 5.3 3. Aetna Inc. 2.9 3. Health Care 19.4 4. Pharmaceuticals 5.0 4. Johnson & Johnson 2.6 4. Financials 8.0 5. Computer Hardware 5.0 5. Goldman Sachs Group, Inc. 2.5 (The) 5. Industrials 7.6 6. Systems Software 5.0 6. Analog Devices, Inc. 2.5 6. Energy 5.4 7. Investment Banking & Brokerage 4.5 7. Oracle Corp. 2.2 7. Consumer Staples 4.3 8. Communications Equipment 4.5 8. National Semiconductor Corp. 2.1 8. Materials 1.7 9. Industrial Conglomerates 4.4 9. Yahoo! Inc. 2.0 Money Market Funds Plus 10. Department Stores 4.0 Other Assets Less Liabilities 0.5 10. VERITAS Software Corp. 2.0 The Fund's holdings are subject to change, and there is no assurance that the TOTAL NET ASSETS $340.1 million Fund will continue to hold any particular security. TOTAL NUMBER OF HOLDINGS* 77 *Excluding money market fund holdings. ========================================= ========================================= ========================================= </Table> 2 AIM V.I. GROWTH FUND <Table> sector weightings. However, sector believe that will expand significantly as buybacks, dividend increases or strategic performance is a part of the market advertisers seek to reach consumers who acquisitions conditions that affect short-term increasingly are not reachable by network performance of individual stocks and the television commercials. Given its We thank you for your continued Fund, so it can be helpful to recount dominant market position, we continued to investment in AIM V.I. Growth Fund. some generalizations about sector own Google at the close of the reporting performance during the reporting period. period. The views and opinions expressed in management's discussion of Fund Strong stock selection within the o Aetna is one of the nation's largest performance are those of AIM Advisors, health care and energy sectors providers of health, dental, pharmacy, Inc. These views and opinions are subject contributed to Fund performance for the group life, disability and long-term care to change at any time based on factors reporting period. Health care stocks as a benefits. Management completed a such as market and economic conditions. group performed relatively well in a multi-year turnaround of the company in These views and opinions may not be generally weak market. Investors favored 2004, achieving growth in virtually all relied upon as investment advice or health care stocks, many of which paid geographic regions and product lines. recommendations, or as an offer for a dividends and were viewed as trading at Aetna's focus on cost containment helped particular security. The information is low valuations relative to the market as increase earnings and operating margins, not a complete analysis of every aspect a whole. Health care services and and the company's stock price of any market, country, industry, equipment stocks were the top performers appreciated. Given the company's strong security or the Fund. Statements of fact within the sector, while biotechnology earnings and cash flow growth, we are from sources considered reliable, but stocks declined significantly during the continued to hold the stock. AIM Advisors, Inc. makes no period. Pharmaceutical stocks did well in representation or warranty as to their the second quarter. Stocks that hindered Fund performance completeness or accuracy. Although included EBAY and HARMAN INTERNATIONAL. historical performance is no guarantee of Record-high oil prices contributed to future results, these insights may help strength throughout the energy sector o eBay is the largest online market for you understand our investment management during the reporting period, and your the sale of goods and services by philosophy. Fund benefited from being overweight in consumers and small businesses. Investors the sector relative to its benchmark reacted negatively to the company's LANNY H. SACHNOWITZ, indexes. We added to the Fund's energy year-over-year U.S. earnings growth [SACHNOWITZ senior portfolio manager, holdings in recent months as we saw figures, announced in January, which PHOTO] is lead portfolio manager evidence that the sector may be caused the stock to decline for much of of AIM V.I. Growth Fund. experiencing a period of sustained the reporting period. We believe He joined AIM in 1987 as a growth. investors overreacted to short-term money market trader and research analyst. trends, and we believe eBay's long-term In 1990, Mr. Sachnowitz's trading While our financials stocks had a prospects remain positive. We believe responsibilities were expanded to include slight negative effect on Fund eBay is an exceptionally well managed head of equity trading. He was named to performance, they held up relatively well company that dominates its market, and we his current position in 1991. Mr. compared to financials stocks included in continued to hold the stock at the close Sachnowitz received a B.S. in finance the Fund's benchmark indexes. Financials of the reporting period. from the University of Southern stocks were hurt by rising short-term California and an M.B.A. from the interest rates, causing lending, o Harman International manufactures University of Houston. including mortgage refinancing, to slow high-end audio equipment for consumers somewhat. Also, lackluster stock market and professionals. The company's largest JAMES G. BIRDSALL, performance was a negative for many markets are in automotive sound systems [BIRDSALL portfolio manager, is a brokerage stocks. and vehicle dashboard systems. Both PHOTO] portfolio manager of AIM markets have become more competitive as V.I. Growth Fund. He has Approximately one-third of Fund assets automotive manufacturers have become more been associated with AIM were invested in information technology price-sensitive. We sold our holdings in Investments since 1997 and assumed his stocks at the close of the reporting the stock before the close of the current position in 1999. Mr. Birdsall period, but your Fund's investments in reporting period because we were received his B.B.A. with a concentration the sector had only a slight negative uncertain about the company's ability to in finance from Stephen F. Austin State effect on Fund performance. Information sustain its earnings. University before earning his M.B.A. with technology stocks as a group were weak a concentration in finance and during the reporting period. While some IN CLOSING international business from the of this weakness was seasonal, much of it University of St. Thomas. was due to the fact that companies Large-cap growth stocks seemed well generally remained hesitant to commit to positioned at the close of the reporting Assisted by the Large Cap Growth Team major information technology improvements period. In our view, several factors until economic and industry trends became favored such stocks, including: clearer. [RIGHT ARROW GRAPHIC] o reasonable valuations, particularly Holdings that contributed to Fund relative to expected growth rates performance included GOOGLE and AETNA. For a discussion of risks of investing in o a moderately strong, growing economy your Fund, indexes used in this report o Google maintains the world's largest and your Fund's long-term performance, online searchable index of Internet o significant cash reserves on many please turn the page. sites, generating revenue through online companies balance sheets, which could advertising. Internet advertising lead to share currently accounts for just five percent of total ad spending in the U.S., but we </Table> 3 AIM V.I. GROWTH FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== AVERAGE ANNUAL TOTAL RETURNS Series II shares invest in the same intended to reflect actual variable As of 6/30/05 portfolio of securities and will have product values. They do not reflect substantially similar performance, sales charges, expenses and fees SERIES I SHARES except to the extent that expenses borne assessed in connection with a variable Inception (5/5/93) 6.01% by each class differ. product. Sales charges, expenses and 10 Years 4.41 fees, which are determined by the 5 Years -13.28 The performance data quoted represent variable product issuers, will vary and 1 Year 3.76 past performance and cannot guarantee will lower the total return. comparable future results; current SERIES II SHARES performance may be lower or higher. Per NASD requirements, the most 10 Years 4.16 Please contact your variable product recent month-end performance data at the 5 Years -13.49 issuer or financial advisor for the most Fund level, excluding variable product 1 Year 3.45 recent month-end variable product charges, is available on this AIM performance. Performance figures reflect automated information line, ======================================== Fund expenses, reinvested distributions 866-702-4402. As mentioned above, for and changes in net asset value. the most recent month-end performance Returns since the inception date of Investment return and principal value including variable product charges, Series II shares are historical. All will fluctuate so that you may have a please contact your variable product other returns are the blended returns of gain or loss when you sell shares. issuer or financial advisor. the historical performance of Series II shares since their inception and the AIM V.I. Growth Fund, a series restated historical performance of portfolio of AIM Variable Insurance Series I shares (for periods prior to Funds, is currently offered through inception of Series II shares) adjusted insurance companies issuing variable to reflect the higher Rule 12b-1 fees products. You cannot purchase shares of applicable to the Series II shares. The the Fund directly. Performance figures inception date of Series II shares is given represent the Fund and are not September 19, 2001. Series I and PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged Standard & Poor's differ from the net asset values and Composite Index of 500 Stocks (the returns reported in the Financial The Fund may invest up to 25% of its S&P 500--Registered Trademark-- INDEX) Highlights. Additionally, the returns assets in the securities of non-U.S. is an index of common stocks and net asset values shown throughout issuers. International investing frequently used as a general measure of this report are at the Fund level only presents certain risks not associated U.S. stock market performance. and do not include variable product with investing solely in the United issuer charges. If such charges were States. These include risks relating to The Fund is not managed to track the included, the total returns would be fluctuations in the value of the U.S. performance of any particular index, lower. dollar relative to the values of other including the indexes defined here, and currencies, the custody arrangements consequently, the performance of the Industry classifications used in this made for the Fund's foreign holdings, Fund may deviate significantly from the report are generally according to the differences in accounting, political performance of the indexes. Global Industry Classification Standard, risks and the lesser degree of public which was developed by and is the information required to be provided by A direct investment cannot be made in exclusive property and a service mark of non-U.S. companies. an index. Unless otherwise indicated, Morgan Stanley Capital International index results include reinvested Inc. and Standard & Poor s. ABOUT INDEXES USED IN THIS REPORT dividends, and they do not reflect sales charges. Performance of an index of The unmanaged LIPPER LARGE-CAP GROWTH funds reflects fund expenses; FUND INDEX represents an average of the performance of a market index does not. performance of the 30 largest large-capitalization growth funds OTHER INFORMATION tracked by Lipper, Inc., an independent mutual fund performance monitor. The returns shown in management's discussion of Fund performance are based The unmanaged Russell on net asset values calculated for 1000--Registered Trademark-- Growth Index shareholder transactions. Generally is a subset of the unmanaged RUSSELL accepted accounting principles require 1000--Registered Trademark-- Index, adjustments to be made to the net assets which represents the performance of the of the Fund at period end for financial stocks of large-capitalization reporting purposes, and as such, the net companies; the Growth subset measures asset values for shareholder the performance of Russell 1000 transactions and the returns based on companies with higher price/book ratios those net asset values may and higher forecasted growth values. </Table> 4 AIM V.I. GROWTH FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate the As a shareholder of the Fund, you incur invested, to estimate the expenses that actual ending account balance or ongoing costs, including management you paid over the period. Simply divide expenses you paid for the period. You fees; distribution and/or service fees your account value by $1,000 (for may use this information to compare the (12b-1); and other Fund expenses. This example, an $8,600 account value divided ongoing costs of investing in the Fund example is intended to help you by $1,000 = 8.6), then multiply the and other funds. To do so, compare this understand your ongoing costs (in result by the number in the table under 5% hypothetical example with the 5% dollars) of investing in the Fund and to the heading entitled "Actual Expenses hypothetical examples that appear in the compare these costs with ongoing costs Paid During Period" to estimate the shareholder reports of the other funds. of investing in other mutual funds. The expenses you paid on your account during example is based on an investment of this period. Please note that the expenses shown $1,000 invested at the beginning of the in the table are meant to highlight your period and held for the entire period HYPOTHETICAL EXAMPLE FOR ongoing costs. Therefore, the January 1, 2005, through June 30, 2005. COMPARISON PURPOSES hypothetical information is useful in comparing ongoing costs, and will not The actual and hypothetical expenses The table below also provides help you determine the relative total in the examples below do not represent information about hypothetical account costs of owning different funds. the effect of any fees or other expenses values and hypothetical expenses based assessed in connection with a variable on the Fund's actual expense ratio and product; if they did, the expenses shown an assumed rate of return of 5% per year would be higher while the ending account before expenses, which is not the Fund's values shown would be lower. actual return. The Fund's actual cumulative total returns at net asset ACTUAL EXPENSES value after expenses for the six months ended June 30, 2005, appear in the table The table below provides information "Fund vs. Indexes" on the first page of about actual account values and actual management's discussion of Fund expenses. performance. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ENDING ENDING ACCOUNT ACCOUNT EXPENSES ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $1,000.00 $988.10 $4.61 $1,020.18 $4.66 Series II 1,000.00 996.90 5.84 1,018.94 5.91 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Fees relative to those of clients of Insurance Funds (the "Board") oversees by AIM. The Board reviewed the AIM with comparable investment the management of AIM V.I. Growth Fund credentials and experience of the strategies. The Board reviewed the (the "Fund") and, as required by law, officers and employees of AIM who will advisory fee rate for the Fund under the determines annually whether to approve provide investment advisory services to Advisory Agreement. The Board noted that the continuance of the Fund's advisory the Fund. In reviewing the this rate was comparable to the advisory agreement with AI M Advisors, Inc. qualifications of AIM to provide fee rates for a mutual fund advised by ("AIM"). Based upon the recommendation investment advisory services, the Board AIM with investment strategies of the Investments Committee of the reviewed the qualifications of AIM's comparable to those of the Fund. The Board, which is comprised solely of investment personnel and considered such Board noted that AIM has agreed to waive independent trustees, at a meeting held issues as AIM's portfolio and product advisory fees of the Fund and to limit on June 30, 2005, the Board, including review process, various back office the Fund's total operating expenses, as all of the independent trustees, support functions provided by AIM and discussed below. Based on this review, approved the continuance of the advisory AIM's equity and fixed income trading the Board concluded that the advisory agreement (the "Advisory Agreement") operations. Based on the review of these fee rate for the Fund under the Advisory between the Fund and AIM for another and other factors, the Board concluded Agreement was fair and reasonable. year, effective July 1, 2005. that the quality of services to be provided by AIM was appropriate and that o Fees relative to those of comparable The Board considered the factors AIM currently is providing satisfactory funds with other advisors. The Board discussed below in evaluating the services in accordance with the terms of reviewed the advisory fee rate for the fairness and reasonableness of the the Advisory Agreement. Fund under the Advisory Agreement. The Advisory Agreement at the meeting on Board compared effective contractual June 30, 2005 and as part of the Board's o The performance of the Fund relative advisory fee rates at a common asset ongoing oversight of the Fund. In their to comparable funds. The Board reviewed level and noted that the Fund's rate was deliberations, the Board and the the performance of the Fund during the above the median rate of the funds independent trustees did not identify past one, three and five calendar years advised by other advisors with any particular factor that was against the performance of funds advised investment strategies comparable to controlling, and each trustee attributed by other advisors with investment those of the Fund that the Board different weights to the various strategies comparable to those of the reviewed. The Board noted that AIM has factors. Fund. The Board noted that the Fund's agreed to waive advisory fees of the performance was at the median Fund and to limit the Fund's total One of the responsibilities of the performance of such comparable funds for operating expenses, as discussed below. Senior Officer of the Fund, who is the one and three year periods and below Based on this review, the Board independent of AIM and AIM's affiliates, such median performance for the five concluded that the advisory fee rate for is to manage the process by which the year period. Based on this review, the the Fund under the Advisory Agreement Fund's proposed management fees are Board concluded that no changes should was fair and reasonable. negotiated to ensure that they are be made to the Fund and that it was not negotiated in a manner which is at arm's necessary to change the Fund's portfolio o Expense limitations and fee waivers. length and reasonable. To that end, the management team at this time. The Board noted that AIM has Senior Officer must either supervise a contractually agreed to waive advisory competitive bidding process or prepare o The performance of the Fund relative fees of the Fund through June 30, 2006 an independent written evaluation. The to indices. The Board reviewed the to the extent necessary so that the Senior Officer has recommended an performance of the Fund during the past advisory fees payable by the Fund do not independent written evaluation in lieu one, three and five calendar years exceed a specified maximum advisory fee of a competitive bidding process and, against the performance of the Lipper rate, which maximum rate includes upon the direction of the Board, has Large-Cap Growth Fund Index. The Board breakpoints and is based on net asset prepared such an independent written noted that the Fund's performance was levels. The Board considered the evaluation. Such written evaluation also above the performance of such Index for contractual nature of this fee waiver considered certain of the factors the one year period, comparable to such and noted that it remains in effect discussed below. In addition, as Index for the three year period, and until June 30, 2006. The Board noted discussed below, the Senior Officer made below such Index for the five year that AIM has contractually agreed to certain recommendations to the Board in period. Based on this review, the Board waive fees and/or limit expenses of the connection with such written evaluation. concluded that no changes should be made Fund through April 30, 2006 in an amount to the Fund and that it was not necessary to limit total annual The discussion below serves as a necessary to change the Fund's portfolio operating expenses to a specified summary of the Senior Officer's management team at this time. percentage of average daily net assets independent written evaluation and for each class of the Fund. The Board recommendations to the Board in o Meeting with the Fund's portfolio considered the contractual nature of connection therewith, as well as a managers and investment personnel. With this fee waiver/expense limitation and discussion of the material factors and respect to the Fund, the Board is noted that it remains in effect through the conclusions with respect thereto meeting periodically with such Fund's April 30, 2006. The Board considered the that formed the basis for the Board's portfolio managers and/or other effect these fee waivers/expense approval of the Advisory Agreement. investment personnel and believes that limitations would have on the Fund's After consideration of all of the such individuals are competent and able estimated expenses and concluded that factors below and based on its informed to continue to carry out their the levels of fee waivers/expense business judgment, the Board determined responsibilities under the Advisory limitations for the Fund were fair and that the Advisory Agreement is in the Agreement. reasonable. best interests of the Fund and its shareholders and that the compensation o Overall performance of AIM. The Board o Breakpoints and economies of scale. to AIM under the Advisory Agreement is considered the overall performance of The Board reviewed the structure of the fair and reasonable and would have been AIM in providing investment advisory and Fund's advisory fee under the Advisory obtained through arm's length portfolio administrative services to the Agreement, noting that it includes one negotiations. Fund and concluded that such performance breakpoint. The Board reviewed the level was satisfactory. of the Fund's advisory fees, and noted o The nature and extent of the advisory that such fees, as a percentage of the services to be provided by AIM. The Fund's net assets, have decreased as net Board reviewed the services to be assets increased because the Advisory provided by AIM under the Advisory Agreement includes a breakpoint. The Agreement. Based on such review, the Board noted that AIM has contractually Board concluded that the range of agreed to waive advisory fees of the services to be provided by AIM under the Advisory Agreement was appropriate and (continued) that AIM currently is providing services in accordance with the terms of the Advisory Agreement. </Table> 6 AIM V.I. GROWTH FUND <Table> Fund through June 30, 2006 to the extent o Profitability of AIM and its o Other factors and current trends. In necessary so that the advisory fees affiliates. The Board reviewed determining whether to continue the payable by the Fund do not exceed a information concerning the profitability Advisory Agreement for the Fund, the specified maximum advisory fee rate, of AIM's (and its affiliates') Board considered the fact that AIM, which maximum rate includes breakpoints investment advisory and other activities along with others in the mutual fund and is based on net asset levels. The and its financial condition. The Board industry, is subject to regulatory Board concluded that the Fund's fee considered the overall profitability of inquiries and litigation related to a levels under the Advisory Agreement AIM, as well as the profitability of AIM wide range of issues. The Board also therefore reflect economies of scale and in connection with managing the Fund. considered the governance and compliance that it was not necessary to change the The Board noted that AIM's operations reforms being undertaken by AIM and its advisory fee breakpoints in the Fund's remain profitable, although increased affiliates, including maintaining an advisory fee schedule. expenses in recent years have reduced internal controls committee and AIM's profitability. Based on the review retaining an independent compliance o Investments in affiliated money market of the profitability of AIM's and its consultant, and the fact that AIM has funds. The Board also took into account affiliates investment advisory and other undertaken to cause the Fund to operate the fact that uninvested cash and cash activities and its financial condition, in accordance with certain governance collateral from securities lending the Board concluded that the policies and practices. The Board arrangements (collectively, "cash compensation to be paid by the Fund to concluded that these actions indicated a balances") of the Fund may be invested AIM under its Advisory Agreement was not good faith effort on the part of AIM to in money market funds advised by AIM excessive. adhere to the highest ethical standards, pursuant to the terms of an SEC and determined that the current exemptive order. The Board found that o Benefits of soft dollars to AIM. The regulatory and litigation environment to the Fund may realize certain benefits Board considered the benefits realized which AIM is subject should not prevent upon investing cash balances in AIM by AIM as a result of brokerage the Board from continuing the Advisory advised money market funds, including a transactions executed through "soft Agreement for the Fund. higher net return, increased liquidity, dollar" arrangements. Under these increased diversification or decreased arrangements, brokerage commissions paid transaction costs. The Board also found by the Fund and/or other funds advised that the Fund will not receive reduced by AIM are used to pay for research and services if it invests its cash balances execution services. This research is in such money market funds. The Board used by AIM in making investment noted that, to the extent the Fund decisions for the Fund. The Board invests in affiliated money market concluded that such arrangements were funds, AIM has voluntarily agreed to appropriate. waive a portion of the advisory fees it receives from the Fund attributable to o AIM's financial soundness in light of such investment. The Board further the Fund's needs. The Board considered determined that the proposed securities whether AIM is financially sound and has lending program and related procedures the resources necessary to perform its with respect to the lending Fund is in obligations under the Advisory the best interests of the lending Fund Agreement, and concluded that AIM has and its respective shareholders. The the financial resources necessary to Board therefore concluded that the fulfill its obligations under the investment of cash collateral received Advisory Agreement. in connection with the securities lending program in the money market o Historical relationship between the funds according to the procedures is in Fund and AIM. In determining whether to the best interests of the lending Fund continue the Advisory Agreement for the and its respective shareholders. Fund, the Board also considered the prior relationship between AIM and the o Independent written evaluation and Fund, as well as the Board's knowledge recommendations of the Fund's Senior of AIM's operations, and concluded that Officer. The Board noted that, upon it was beneficial to maintain the their direction, the Senior Officer of current relationship, in part, because the Fund had prepared an independent of such knowledge. The Board also written evaluation in order to assist reviewed the general nature of the the Board in determining the non-investment advisory services reasonableness of the proposed currently performed by AIM and its management fees of the AIM Funds, affiliates, such as administrative, including the Fund. The Board noted that transfer agency and distribution the Senior Officer's written evaluation services, and the fees received by AIM had been relied upon by the Board in and its affiliates for performing such this regard in lieu of a competitive services. In addition to reviewing such bidding process. In determining whether services, the trustees also considered to continue the Advisory Agreement for the organizational structure employed by the Fund, the Board considered the AIM and its affiliates to provide those Senior Officer's written evaluation and services. Based on the review of these the recommendation made by the Senior and other factors, the Board concluded Officer to the Board that the Board that AIM and its affiliates were consider implementing a process to qualified to continue to provide i assist them in more closely monitoring non-investment advisory services to the the performance of the AIM Funds. The Fund, including administrative, transfer Board concluded that it would be agency and distribution services, and advisable to implement such a process as that AIM and its affiliates currently soon as reasonably practicable. are providing satisfactory non-investment advisory services. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-99.47% ADVERTISING-1.15% Omnicom Group Inc. 49,000 $ 3,913,140 ===================================================================== AEROSPACE & DEFENSE-1.03% Boeing Co. (The) 53,000 3,498,000 ===================================================================== AIR FREIGHT & LOGISTICS-0.41% FedEx Corp. 17,000 1,377,170 ===================================================================== APPAREL RETAIL-1.06% Chico's FAS, Inc.(a) 105,000 3,599,400 ===================================================================== APPLICATION SOFTWARE-1.75% Amdocs Ltd. (United Kingdom)(a) 225,000 5,946,750 ===================================================================== BIOTECHNOLOGY-1.49% Gilead Sciences, Inc.(a) 115,000 5,058,850 ===================================================================== BROADCASTING & CABLE TV-0.95% XM Satellite Radio Holdings Inc.-Class A(a) 96,000 3,231,360 ===================================================================== CASINOS & GAMING-0.93% Las Vegas Sands Corp.(a) 88,000 3,146,000 ===================================================================== COMMUNICATIONS EQUIPMENT-4.52% Cisco Systems, Inc.(a) 265,000 5,064,150 - --------------------------------------------------------------------- QUALCOMM Inc. 205,000 6,767,050 - --------------------------------------------------------------------- Research In Motion Ltd. (Canada)(a)(b) 48,000 3,540,000 ===================================================================== 15,371,200 ===================================================================== COMPUTER & ELECTRONICS RETAIL-0.65% Best Buy Co., Inc. 32,000 2,193,600 ===================================================================== COMPUTER HARDWARE-4.99% Apple Computer, Inc.(a) 150,000 5,521,500 - --------------------------------------------------------------------- Dell Inc.(a) 290,000 11,457,900 ===================================================================== 16,979,400 ===================================================================== COMPUTER STORAGE & PERIPHERALS-2.78% EMC Corp.(a) 425,000 5,826,750 - --------------------------------------------------------------------- Lexmark International, Inc.-Class A(a) 56,000 3,630,480 ===================================================================== 9,457,230 ===================================================================== CONSUMER FINANCE-1.39% American Express Co. 65,000 3,459,950 - --------------------------------------------------------------------- SLM Corp. 25,000 1,270,000 ===================================================================== 4,729,950 ===================================================================== </Table> <Table> MARKET SHARES VALUE - --------------------------------------------------------------------- <Caption> DATA PROCESSING & OUTSOURCED SERVICES-1.14% Alliance Data Systems Corp.(a) 96,000 $ 3,893,760 ===================================================================== DEPARTMENT STORES-4.04% Federated Department Stores, Inc. 36,000 2,638,080 - --------------------------------------------------------------------- J.C. Penney Co., Inc. 95,000 4,995,100 - --------------------------------------------------------------------- Nordstrom, Inc. 90,000 6,117,300 ===================================================================== 13,750,480 ===================================================================== DISTILLERS & VINTNERS-0.78% Constellation Brands, Inc.-Class A(a) 90,000 2,655,000 ===================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-1.05% Cendant Corp. 160,000 3,579,200 ===================================================================== DRUG RETAIL-0.68% CVS Corp. 80,000 2,325,600 ===================================================================== FOOTWEAR-1.55% NIKE, Inc.-Class B 61,000 5,282,600 ===================================================================== GENERAL MERCHANDISE STORES-1.54% Target Corp. 96,000 5,223,360 ===================================================================== HEALTH CARE EQUIPMENT-2.23% Bard (C.R.), Inc. 40,000 2,660,400 - --------------------------------------------------------------------- Kinetic Concepts, Inc.(a) 20,000 1,200,000 - --------------------------------------------------------------------- Varian Medical Systems, Inc.(a) 50,000 1,866,500 - --------------------------------------------------------------------- Waters Corp.(a) 50,000 1,858,500 ===================================================================== 7,585,400 ===================================================================== HEALTH CARE FACILITIES-1.75% HCA Inc. 105,000 5,950,350 ===================================================================== HEALTH CARE SERVICES-1.13% Caremark Rx, Inc.(a) 86,000 3,828,720 ===================================================================== HEALTH CARE SUPPLIES-1.70% Alcon, Inc. (Switzerland) 53,000 5,795,550 ===================================================================== HOME IMPROVEMENT RETAIL-1.03% Home Depot, Inc. (The) 90,000 3,501,000 ===================================================================== HOMEBUILDING-0.88% D.R. Horton, Inc. 80,000 3,008,800 ===================================================================== HOTELS, RESORTS & CRUISE LINES-1.16% Hilton Hotels Corp. 165,000 3,935,250 ===================================================================== </Table> AIM V.I. GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- HOUSEHOLD PRODUCTS-0.92% Clorox Co. (The) 56,000 $ 3,120,320 ===================================================================== HOUSEWARES & SPECIALTIES-1.49% Fortune Brands, Inc. 57,000 5,061,600 ===================================================================== INDUSTRIAL CONGLOMERATES-4.36% Tyco International Ltd. (Bermuda) 425,000 12,410,000 - --------------------------------------------------------------------- Textron Inc. 32,000 2,427,200 ===================================================================== 14,837,200 ===================================================================== INDUSTRIAL MACHINERY-0.75% Danaher Corp. 49,000 2,564,660 ===================================================================== INTEGRATED OIL & GAS-1.22% ConocoPhillips 72,000 4,139,280 ===================================================================== INTERNET RETAIL-0.66% eBay Inc.(a) 68,000 2,244,680 ===================================================================== INTERNET SOFTWARE & SERVICES-5.25% Google Inc.-Class A(a) 21,500 6,324,225 - --------------------------------------------------------------------- VeriSign, Inc.(a) 160,000 4,601,600 - --------------------------------------------------------------------- Yahoo! Inc.(a) 200,000 6,930,000 ===================================================================== 17,855,825 ===================================================================== INVESTMENT BANKING & BROKERAGE-4.53% Goldman Sachs Group, Inc. (The) 85,000 8,671,700 - --------------------------------------------------------------------- Lehman Brothers Holdings Inc. 40,000 3,971,200 - --------------------------------------------------------------------- Merrill Lynch & Co., Inc. 50,000 2,750,500 ===================================================================== 15,393,400 ===================================================================== IT CONSULTING & OTHER SERVICES-0.87% Accenture Ltd.-Class A (Bermuda)(a) 130,100 2,949,367 ===================================================================== MANAGED HEALTH CARE-6.06% Aetna Inc.(b) 120,000 9,938,400 - --------------------------------------------------------------------- UnitedHealth Group Inc. 130,000 6,778,200 - --------------------------------------------------------------------- WellPoint, Inc.(a) 56,000 3,899,840 ===================================================================== 20,616,440 ===================================================================== MOVIES & ENTERTAINMENT-1.74% Pixar(a) 25,000 1,251,250 - --------------------------------------------------------------------- Walt Disney Co. (The) 185,000 4,658,300 ===================================================================== 5,909,550 ===================================================================== MULTI-LINE INSURANCE-0.81% Hartford Financial Services Group, Inc. (The) 37,000 2,766,860 ===================================================================== </Table> <Table> MARKET SHARES VALUE - --------------------------------------------------------------------- <Caption> OIL & GAS EQUIPMENT & SERVICES-2.66% BJ Services Co. 100,000 $ 5,248,000 - --------------------------------------------------------------------- National-Oilwell Varco Inc.(a) 80,000 3,803,200 ===================================================================== 9,051,200 ===================================================================== OIL & GAS REFINING & MARKETING-1.51% Valero Energy Corp. 65,000 5,142,150 ===================================================================== PERSONAL PRODUCTS-1.94% Gillette Co. (The) 130,000 6,581,900 ===================================================================== PHARMACEUTICALS-5.00% Johnson & Johnson 135,000 8,775,000 - --------------------------------------------------------------------- Sepracor Inc.(a) 76,000 4,560,760 - --------------------------------------------------------------------- Shire Pharmaceuticals Group PLC-ADR (United Kingdom) 112,000 3,673,600 ===================================================================== 17,009,360 ===================================================================== RESTAURANTS-0.84% Yum! Brands, Inc. 55,000 2,864,400 ===================================================================== SEMICONDUCTORS-6.59% Analog Devices, Inc. 225,000 8,394,750 - --------------------------------------------------------------------- Marvell Technology Group Ltd. (Bermuda)(a) 60,000 2,282,400 - --------------------------------------------------------------------- Microchip Technology Inc. 155,000 4,591,100 - --------------------------------------------------------------------- National Semiconductor Corp. 325,000 7,159,750 ===================================================================== 22,428,000 ===================================================================== SPECIALIZED FINANCE-1.22% Chicago Mercantile Exchange Holdings Inc. 14,000 4,137,000 ===================================================================== SPECIALTY CHEMICALS-1.00% Ecolab Inc. 105,000 3,397,800 ===================================================================== SPECIALTY STORES-0.67% Office Depot, Inc.(a) 100,000 2,284,000 ===================================================================== STEEL-0.67% Nucor Corp. 50,000 2,281,000 ===================================================================== SYSTEMS SOFTWARE-4.95% Microsoft Corp. 105,000 2,608,200 - --------------------------------------------------------------------- Oracle Corp.(a) 560,000 7,392,000 - --------------------------------------------------------------------- VERITAS Software Corp.(a) 280,000 6,832,000 ===================================================================== 16,832,200 ===================================================================== Total Common Stocks & Other Equity Interests (Cost $269,557,950) 338,285,312 _____________________________________________________________________ ===================================================================== </Table> AIM V.I. GROWTH FUND <Table> <Caption> NUMBER OF EXERCISE EXPIRATION MARKET CONTRACTS PRICE DATE VALUE - ------------------------------------------------------------------------------------------ PUT OPTIONS PURCHASED-0.01% Research in Motion Ltd. (Canada) (Communications Equipment) (Cost $123,029) 480 $70 Jul-05 $49,200 __________________________________________________________________________________________ ========================================================================================== </Table> <Table> <Caption> SHARES - --------------------------------------------------------------------- MONEY MARKET FUNDS-0.51% Liquid Assets Portfolio-Institutional Class(c) 863,543 863,543 - --------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(c) 863,543 863,543 ===================================================================== Total Money Market Funds (Cost $1,727,086) 1,727,086 ===================================================================== TOTAL INVESTMENTS-99.99% (Cost $271,408,065) 340,061,598 ===================================================================== OTHER ASSETS LESS LIABILITIES-0.01% 27,653 ===================================================================== NET ASSETS-100.00% $340,089,251 _____________________________________________________________________ ===================================================================== </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 1H and Note 7. (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. GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $269,680,979) $ 338,334,512 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $1,727,086) 1,727,086 ============================================================= Total investments (cost $271,408,065) 340,061,598 ============================================================= Foreign currencies, at market value (cost $123) 142 - ------------------------------------------------------------- Receivables for: Investments sold 2,874,633 - ------------------------------------------------------------- Fund shares sold 18,257 - ------------------------------------------------------------- Dividends 149,257 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 53,097 - ------------------------------------------------------------- Other assets 4,100 ============================================================= Total assets 343,161,084 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 2,345,927 - ------------------------------------------------------------- Fund shares reacquired 209,710 - ------------------------------------------------------------- Options written, at market value (premiums received $115,879) 41,100 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 78,757 - ------------------------------------------------------------- Accrued administrative services fees 366,234 - ------------------------------------------------------------- Accrued distribution fees -- Series II 7,828 - ------------------------------------------------------------- Accrued transfer agent fees 1,942 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 145 - ------------------------------------------------------------- Accrued operating expenses 20,190 ============================================================= Total liabilities 3,071,833 ============================================================= Net assets applicable to shares outstanding $ 340,089,251 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $ 687,087,816 - ------------------------------------------------------------- Undistributed net investment income (loss) (457,418) - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and option contracts (415,269,477) - ------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and option contracts 68,728,330 ============================================================= $ 340,089,251 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 326,939,298 _____________________________________________________________ ============================================================= Series II $ 13,149,953 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 20,407,621 _____________________________________________________________ ============================================================= Series II 828,094 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 16.02 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 15.88 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $16,940) $ 1,236,049 - ------------------------------------------------------------- Dividends from affiliated money market funds 20,180 ============================================================= Total investment income 1,256,229 ============================================================= EXPENSES: Advisory fees 1,103,616 - ------------------------------------------------------------- Administrative services fees 416,108 - ------------------------------------------------------------- Custodian fees 31,652 - ------------------------------------------------------------- Distribution fees -- Series II 15,747 - ------------------------------------------------------------- Transfer agent fees 20,172 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 11,520 - ------------------------------------------------------------- Other 39,796 ============================================================= Total expenses 1,638,611 ============================================================= Less: Fees waived (230) ============================================================= Net expenses 1,638,381 ============================================================= Net investment income (loss) (382,152) ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain from: Investment securities (includes gains (losses) from securities sold to affiliates of $(176,411)) 17,722,510 - ------------------------------------------------------------- Option contracts written 67,675 ============================================================= 17,790,185 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (19,215,966) - ------------------------------------------------------------- Foreign currencies (10) - ------------------------------------------------------------- Option contracts written 74,779 ============================================================= (19,141,197) ============================================================= Net gain (loss) from investment securities foreign currencies and option contracts (1,351,012) ============================================================= Net increase (decrease) in net assets resulting from operations $ (1,733,164) _____________________________________________________________ ============================================================= </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (382,152) $ (179,926) - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and option contracts 17,790,185 34,514,787 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies and option contracts (19,141,197) (5,082,659) ========================================================================================== Net increase (decrease) in net assets resulting from operations (1,733,164) 29,252,202 ========================================================================================== Share transactions-net: Series I (36,484,893) (55,702,056) - ------------------------------------------------------------------------------------------ Series II 35,826 2,385,025 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (36,449,067) (53,317,031) ========================================================================================== Net increase (decrease) in net assets (38,182,231) (24,064,829) ========================================================================================== NET ASSETS: Beginning of period 378,271,482 402,336,311 ========================================================================================== End of period (including undistributed net investment income (loss) of $(457,418) and $(75,266), respectively) $340,089,251 $378,271,482 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. GROWTH FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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 AIM V.I. GROWTH FUND 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 and domestic and foreign index futures. 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 a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, Purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. 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. GROWTH FUND J. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.65% - ------------------------------------------------------------------- Over $250 million 0.60% ___________________________________________________________________ =================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $230. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $44,888, for accounting and fund administrative services and reimbursed $371,220 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $20,172. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $15,747. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. AIM V.I. GROWTH FUND NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to an exemptive order from the SEC and approved procedures by the Board of Trustees, to invest daily available cash balances 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio-Institutional Class $2,220,563 $27,396,357 $(28,753,377) $ -- $ 863,543 $10,037 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class 2,220,563 27,396,357 (28,753,377) -- 863,543 10,143 -- ================================================================================================================================== Total $4,441,126 $54,792,714 $(57,506,754) $ -- $1,727,086 $20,180 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $3,316,588 and sales of $511,364, which resulted in net realized gains (losses) of $(176,411). NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,656 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--BORROWINGS Pursuant to an exemptive order from the SEC, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. During the six months ended June 30, 2005, the average interfund borrowings for the 3 days the borrowings were outstanding was $1,680,550 with a weighted average interest rate of 2.92% and interest expense of $404. 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 six months ended June 30, 2005, the Fund did not borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. AIM V.I. GROWTH FUND NOTE 7--OPTION CONTRACTS WRITTEN <Table> <Caption> TRANSACTIONS DURING THE PERIOD - ----------------------------------------------------------------------------------- CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ----------------------------------------------------------------------------------- Beginning of period -- $ -- - ----------------------------------------------------------------------------------- Written 915 186,369 - ----------------------------------------------------------------------------------- Closed (255) (70,490) =================================================================================== End of period 660 $115,879 ___________________________________________________________________________________ =================================================================================== </Table> <Table> <Caption> OPEN CALL OPTIONS WRITTEN AT PERIOD END - -------------------------------------------------------------------------------------------------------------------------------- MARKET CONTRACT STRIKE NUMBER OF PREMIUMS VALUE UNREALIZED MONTH PRICE CONTRACTS RECEIVED 06/30/05 APPRECIATION - -------------------------------------------------------------------------------------------------------------------------------- Aetna Inc. Jul-05 $82.5 180 $ 44,588 $35,100 $ 9,488 - -------------------------------------------------------------------------------------------------------------------------------- Research In Motion Ltd. (Canada) Jul-05 85.0 480 71,291 6,000 65,291 ================================================================================================================================ Total outstanding options written 660 $115,879 $41,100 $74,779 ________________________________________________________________________________________________________________________________ ================================================================================================================================ </Table> NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 ending December 31, 2005. The Fund had 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 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 six months ended June 30, 2005 was $168,160,993 and $204,753,819, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $72,194,770 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (5,745,927) =============================================================================== Net unrealized appreciation of investment securities $66,448,843 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $273,612,755. </Table> AIM V.I. GROWTH FUND NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 4,840,232 $ 75,810,385 2,624,088 $ 39,797,986 - ------------------------------------------------------------------------------------------------------------------------ Series II 125,583 1,957,389 417,397 6,230,930 ======================================================================================================================== Issued in connection with acquisitions:(b) Series I -- -- 451,258 6,684,290 ======================================================================================================================== Reacquired: Series I (7,175,428) (112,295,278) (6,809,056) (102,184,332) - ------------------------------------------------------------------------------------------------------------------------ Series II (123,686) (1,921,563) (255,813) (3,845,905) ======================================================================================================================== (2,333,299) $ (36,449,067) (3,572,126) $ (53,317,031) ________________________________________________________________________________________________________________________ ======================================================================================================================== </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 68% 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 on 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 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ---------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.05 $ 14.83 $ 11.30 $ 16.37 $ 24.81 $ 32.25 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.01)(a) (0.02) (0.03)(b) (0.03)(b) 0.03 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.01) 1.23 3.55 (5.04) (8.37) (6.60) ================================================================================================================================= Total from investment operations (0.03) 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 $ 16.02 $ 16.05 $ 14.83 $ 11.30 $ 16.37 $ 24.81 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.19)% 8.23% 31.24% (30.97)% (33.86)% (20.49)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $326,939 $365,108 $392,533 $361,259 $601,648 $879,182 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.93%(d) 0.91% 0.89% 0.91% 0.88% 0.83% ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.21)%(d) (0.04)%(a) (0.13)% (0.21)% (0.17)% 0.11% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 48% 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 income (loss) to average net assets excluding the special dividend were $(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 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 annualized and based on average daily net assets of $337,385,674. (e) Not annualized for periods less than one year. AIM V.I. GROWTH FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ------------------------------------------------------------------------- SEPTEMBER 19, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.93 $ 14.75 $11.27 $ 16.36 $14.67 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.04) (0.04)(a) (0.03) (0.06)(b) (0.02)(b) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.01) 1.22 3.51 (5.03) 1.75 ================================================================================================================================= Total from investment operations (0.05) 1.18 3.48 (5.09) 1.73 ================================================================================================================================= Less dividends from net investment income -- -- -- -- (0.04) ================================================================================================================================= Net asset value, end of period $ 15.88 $ 15.93 $14.75 $ 11.27 $16.36 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.31)% 8.00% 30.88% (31.11)% 11.79% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $13,150 $13,163 $9,803 $ 2,733 $ 604 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.18%(d) 1.16% 1.14% 1.16% 1.17%(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.46)%(d) (0.29)%(a) (0.38)% (0.46)% (0.46)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 48% 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 income (loss) to average net assets excluding the special dividend were $(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 annualized and based on average daily net assets of $12,701,605. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or AIM V.I. GROWTH FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code Section 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. GROWTH FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. GROWTH FUND AIM V.I. HIGH YIELD FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. HIGH YIELD FUND seeks to achieve a high level of current income. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. HIGH YIELD FUND <Table> MANAGEMENT'S DISCUSSION OF FUND o diversifying Fund holdings over PERFORMANCE different industries ===================================================================================== PERFORMANCE SUMMARY We will consider selling a security FUND VS. INDEXES if its risk profile deteriorates or we Despite sometimes volatile market determine that there are other conditions, the high yield market Total returns, 12/31/04 6/30/05, securities that are more attractive. produced modest gains for the first six excluding variable product issuer months of 2005. We are pleased to report charges. If variable product issuer MARKET CONDITIONS AND YOUR FUND that AIM V.I. High Yield Fund provided charges were included, returns would be shareholders positive returns for the lower. Despite some tumultuous events, the high reporting period and outperformed its yield market proved resilient in the style-specific index. We attribute the Series I Shares 1.40% first half of 2005. High yield markets Fund's higher return to sound credit were volatile in large part due to the selection and a well-diversified Series II Shares 1.24 prospect and eventual debt downgrade of portfolio which helped the Fund weather Lehman U.S. Aggregate Bond Index General Motors(GM) and Ford--two of the sometimes difficult market conditions. (Broad Market Index) 2.51 world's largest issuers of corporate The Fund underperformed the Lehman U.S. debt. Speculation that these large Aggregate Bond Index--an index composed Lehman High Yield Index issuers would enter the high yield of investment grade or higher-rated (Style-specific Index) 1.11 universe caused investors to sell the bonds--as investment grade bonds debt, sharply reducing prices on the outperformed high yield bonds during Lipper High Yield Bond Fund Index bonds, as well as other types of the reporting period (Peer Group Index) 0.59 correlated investments. SOURCE: LIPPER, INC. As market uncertainty increased, so did yield spreads--the difference between ===================================================================================== yields on high-yield bonds and comparable maturity Treasuries. (Bond HOW WE INVEST statements to assess a company's prices are inversely related to bond condition. yields. Therefore, as bond prices fell, Your Fund invests primarily in their yields increased.) By late-May lower-rated credit quality corporate We also seek to own securities that however, the high yield market began to bonds. Our investment discipline focuses are attractively valued relative to rally as it became apparent the on providing attractive current income other high yield bonds and within their automaker downgrades did not overwhelm for shareholders and consistent respective industries. the high yield market with new supply. performance within a framework designed Yield spreads tightened back to to control volatility. Additionally, we We consider general economic and earlier-year levels and cash--which had seek growth of shareholders' principal market trends in selecting securities largely flowed out of the asset class without exposure to undue risk. for the portfolio. Changes in a through much of 2005--came back into the security's risk profile or value and market in June. We use a bottom-up approach to overall market conditions generally investing, focusing on individual determine buy and sell decisions. With increased volatility and spread companies. Our analysts evaluate balance widening, credit quality was a sheets and income Measures we use to control risk performance factor throughout much of include: the reporting period. Higher-quality bonds generally outperformed o limiting the portfolio's assets that are invested in any one security ======================================== ======================================== ============================================ PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 ISSUERS* By credit rating quality 1. Wireless Telecommunication 1. Midwest Generation, LLC 1.4% Services 7.4% 1. BBB 1.0% 2. AES Corp. (The) 1.4 2. Broadcasting & Cable TV 7.0 2. BB 28.0 3. Grupo Transportacion Ferroviaria 3. Independent Power Producers Mexicana, S.A. de C.V. (Mexico) 1.4 3. B 49.0 & Energy Traders 5.7 4. Adelphia Communications Corp. 1.2 4. CCC 7.5 4. Electric Utilities 5.5 5. HealthSouth Corp. 1.1 5. NR 3.8 5. Casinos & Gaming 3.5 6. Mission Energy Holding Co. 1.1 6. Equity 2.3 TOTAL NET ASSETS $76.3 million 7. Owens-Brockway Glass Container Inc. 1.1 Money Market Funds TOTAL NUMBER OF HOLDINGS* 271 Plus Other Assets Less Liabilities 8.4 8. Reliant Energy Inc. 1.0 Source for Credit Quality Rating: 9. Calpine Corp. 1.0 Moody's and Standard & Poor's 10. Targeted Return Index Securities Trust 1.0 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. HIGH YIELD FUND <Table> lower-quality bonds. Within the high Another contributor to Fund PETER EHRET, Chartered yield universe, CCC--rated bonds (one of performance was TeleWest Global, a U.K. Financial Analyst, the lowest rated high yield bond television operator. During the [EHRET senior portfolio categories) proved the worst performer, reporting period, our investment PHOTO] manager, is co-lead while BB and B rated bonds (higher-rated in TeleWest Global continued to manager of AIM V.I. high yield bonds) produced better appreciate on increased merger and High Yield Fund. Mr. returns. acquisition activity. Ehret joined AIM in 2001. He graduated cum laude with a B.S. in economics from By late-May, however, While the Fund is diversified to help the University of Minnesota. He also has mitigate volatility in the portfolio, an M.S. in real estate appraisal and the high yield market there were a few detractors from Fund investment analysis from the University performance including long-time Fund of Wisconsin-Madison. began to rally as it holding, Adelphia Communication. Adelphia's bonds declined during the CAROLYN GIBBS, became apparent the reporting period due to a Chartered Financial longer-than-anticipated sale process. We [GIBBS Analyst, senior automaker downgrades continue to own the bonds, however, as PHOTO] portfolio manager, is it is anticipated that the sale and co-lead manager of AIM did not overwhelm the ultimate resolution to Adelphia's V.I. High Yield Fund. bankruptcy will result in additional Ms. Gibbs has been in the investment high yield market with recovery for bond investors. business since 1983. She graduated magna cum laude from Texas Christian new supply. IN CLOSING University, where she received a B.A. in English. She also received an M.B.A. in In 2004, we began to gradually reduce During the first half of 2005, the high finance from The Wharton School at the the portfolios risk--decreasing our yield market coped well with many events University of Pennsylvania. exposure to lower quality credits such including GM's transition into the high as CCC-rated bonds. Given the market yield universe. Another sign of recovery DARREN HUGHES, correction in the early part of the during the period, yield spreads are Chartered Financial year, we were better positioned to limit back below the level they were before [HUGHES Analyst, senior losses and subsequently outperformed our the auto downgrade. And despite the PHOTO] portfolio manager, is style-specific benchmark for the volatile market conditions, default manager of AIM V.I. reporting period as a whole. rates remain low. Given concerns over High Yield Fund. He interest rate hikes, few would have joined AIM in 1992. Mr. Hughes earned a We also strive to reduce risk through predicted that fixed-income markets B.B.A. in finance and economics from a rigorous credit evaluation process. By would outperform many equity markets Baylor University employing this strategy, we were able to during the reporting period. This avoid most of the losses suffered by the underscores, however, the value of asset Assisted by Taxable High Yield Team auto industry--GM now constitutes a allocation and diversification. We are significant weighting in the Lehman High pleased to report these trends and to Yield Index--as we had limited exposure provide our shareholders with positive to the auto sector. (Note: Under new Fund returns for the reporting period. rules instituted by Lehman, Ford had We appreciate your continued only a brief stay in its High Yield participation in AIM V.I. High Yield Index. As of July 1, 2005, Ford was Fund. moved back to the Lehman U.S. Credit Index, which covers investment grade The views and opinions expressed in corporate bonds.) management's discussion of Fund performance are those of A I M Advisors, Ntelos--a telecom provider servicing Inc. These views and opinions are markets for voice, data and digital subject to change at any time based on services--was our top contributor during factors such as market and economic the reporting period. Ntelos is actually conditions. These views and opinions may a private equity position we received not be relied upon as investment advice for bonds after Ntelos filed for or recommendations, or as an offer for a bankruptcy. We retained the equity to particular security. The information is maximize recovery. The company was not a complete analysis of every aspect acquired by private investors and has of any market, country, industry, made a substantial recovery. We sold the security or the Fund. Statements of fact position during the reporting period and are from sources considered reliable, put the proceeds to work in but A I M Advisors, Inc. makes no income-producing investments. representation or warranty as to their [RIGHT ARROW GRAPHIC] completeness or accuracy. Although historical performance is no guarantee For a discussion of risks of investing of future results, these insights may in your Fund, indexes used in this help you understand our investment report and your Fund's long-term management philosophy. performance, please turn the page. </Table> 3 AIM V.I. HIGH YIELD FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== Series I and Series II shares invest in companies issuing variable products. You the same portfolio of securities and cannot purchase shares of the Fund AVERAGE ANNUAL TOTAL RETURNS will have substantially similar directly. Performance figures given performance, except to the extent that represent the Fund and are not intended As of 6/30/05 expenses borne by each class differ. to reflect actual variable product values. They do not reflect sales SERIES I SHARES The performance data quoted represent charges, expenses and fees assessed in Inception (5/1/98) 0.93% past performance and cannot guarantee connection with a variable product. 5 Years 1.57 comparable future results; current Sales charges, expenses and fees, which 1 Year 10.94 performance may be lower or higher. are determined by the variable product Please contact your variable product issuers, will vary and will lower the SERIES II SHARES issuer or financial advisor for the most total return. Inception 0.71% recent month-end variable product 5 Years 1.37 performance. Performance figures reflect Per NASD requirements, the most recent 1 Year 10.84 Fund expenses, reinvested distributions month-end performance data at the Fund and changes in net asset value. level, excluding variable product ======================================== Investment return and principal value charges, is available on this AIM will fluctuate so that you may have a automated information line, Returns since the inception date of gain or loss when you sell shares. 866-702-4402. As mentioned above, for Series II shares are historical. All the most recent month-end performance other returns are the blended returns of AIM V.I. High Yield Fund, a series including variable product charges, the historical performance of Series II portfolio of AIM Variable Insurance please contact your variable product shares since their inception and the Funds, is currently offered through issuer or financial advisor. restated historical performance of insurance Series I shares (for periods prior to inception of Series II shares) adjusted to reflect the higher Rule 12b-1 fees applicable to Series II shares. The inception date of Series I shares is May 1, 1998. The inception date of Series II shares is March 26, 2002. PRINCIPAL RISKS OF INVESTING IN THE FUND and asset-backed securities), is net asset values calculated for compiled by Lehman Brothers, a global shareholder transactions. Generally The Fund may invest up to 25% of its investment bank. accepted accounting principles require assets in the securities of non-U.S. adjustments to be made to the net assets issuers. International investing The unmanaged LEHMAN HIGH YIELD of the Fund at period end for financial presents certain risks not associated INDEX, which represents the performance reporting purposes, and as such, the net with investing solely in the United of high-yield debt securities, is asset values for shareholder States. These include risks relating to compiled by Lehman Brothers, a global transactions and the returns based on fluctuations in the value of the U.S. investment bank. those net asset values may differ from dollar relative to the values of other the net asset values and returns currencies, the custody arrangements The unmanaged LIPPER HIGH YIELD BOND reported in the Financial Highlights. made for the Fund's foreign holdings, FUND INDEX represents an average of the Additionally, the returns and net asset differences in accounting, political 30 largest high-yield bond funds tracked values shown throughout this report are risks and the lesser degree of public by Lipper, Inc., an independent mutual at the Fund level only and do not information required to be provided by fund performance monitor. include variable product issuer charges. non-U.S. companies. If such charges were included, the total The Fund is not managed to track the returns would be lower. The Fund invests in higher-yielding, performance of any particular index, lower-rated corporate bonds, commonly including the indexes defined here, and Industry classifications used in this known as junk bonds, which have a consequently, the performance of the report are generally according to the greater risk of price fluctuation and Fund may deviate significantly from the Global Industry Classification Standard, loss of principal and income than do performance of the indexes. which was developed by and is the U.S. government securities such as U.S. exclusive property and a service mark of Treasury bills, notes and bonds, for A direct investment cannot be made in Morgan Stanley Capital International which principal and any applicable an index. Unless otherwise indicated, Inc. and Standard & Poor's. interest are guaranteed by the index results include reinvested government if held to maturity. dividends, and they do not reflect sales The average credit quality of the charges. Performance of an index of Fund's holdings as of the close of the ABOUT INDEXES USED IN THIS REPORT funds reflects fund expenses; reporting period represents the weighted performance of a market index does not. average quality rating of the securities The unmanaged LEHMAN U.S. AGGREGATE BOND in the portfolio as assigned by INDEX, which represents the U.S. OTHER INFORMATION Nationally Recognized Statistical Rating investment-grade fixed-rate bond market Organizations based on assessment of the (including government and corporate The returns shown in management's credit quality of the individual securities, mortgage pass-through discussion of Fund performance are based securities. securities on </Table> 4 AIM V.I. HIGH YIELD FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees, distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds. the effect of any fees or other expenses PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2),(3) (6/30/05) PERIOD(2),(4) Series I $1,000.00 $1,014.00 $5.29 $1,019.54 $5.31 Series II 1,000.00 1,012.40 6.04 1,018.79 6.06 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (1.06% and 1.21% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 0.95% and 1.20% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.96% and 1.21% 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 $4.79 and $6.04 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 $4.81 and $6.06 for Series I and Series II shares, respectively. ==================================================================================================================================== </Table> 5 AIM V.I. HIGH YIELD FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Fees relative to those of clients of Insurance Funds (the "Board") oversees by AIM. The Board reviewed the AIM with comparable investment the management of AIM V.I. High Yield credentials and experience of the strategies. The Board reviewed the Fund ("the Fund") and, as required by officers and employees of AIM who will advisory fee rate for the Fund under the law, determines annually whether to provide investment advisory services to Advisory Agreement. The Board noted that approve the continuance of the Fund's the Fund. In reviewing the this rate (i) was the same as the advisory agreement with A I M Advisors, qualifications of AIM to provide advisory fee rates for a mutual fund Inc. ("AIM"). Based upon the investment advisory services, the Board advised by AIM with investment recommendation of the Investments reviewed the qualifications of AIM's strategies comparable to those of the Committee of the Board, which is investment personnel and considered such Fund; and (ii) was lower than the comprised solely of independent issues as AIM's portfolio and product advisory fee rate for an offshore fund trustees, at a meeting held on June 30, review process, various back office for which an AIM affiliate serves as 2005, the Board, including all of the support functions provided by AIM and advisor with investment strategies independent trustees, approved the AIM's equity and fixed income trading comparable to those of the Fund. The continuance of the advisory agreement operations. Based on the review of these Board noted that AIM has agreed to limit (the "Advisory Agreement") between the and other factors, the Board concluded the Fund's total operating expenses, as Fund and AIM for another year, effective that the quality of services to be discussed below. Based on this review, July 1, 2005. provided by AIM was appropriate and that the Board concluded that the advisory AIM currently is providing satisfactory fee rate for the Fund under the Advisory The Board considered the factors services in accordance with the terms of Agreement was fair and reasonable. discussed below in evaluating the the Advisory Agreement. fairness and reasonableness of the o Fees relative to those of comparable Advisory Agreement at the meeting on o The performance of the Fund relative funds with other advisors. The Board June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed reviewed the advisory fee rate for the ongoing oversight of the Fund. In their the performance of the Fund during the Fund under the Advisory Agreement. The deliberations, the Board and the past one, three and five calendar years Board compared effective contractual independent trustees did not identify against the performance of funds advised advisory fee rates at a common asset any particular factor that was by other advisors with investment level and noted that the Fund's rate was controlling, and each trustee attributed strategies comparable to those of the above the median rate of the funds different weights to the various Fund. The Board noted that the Fund's advised by other advisors with factors. performance for the three and five year investment strategies comparable to periods was below the median performance those of the Fund that the Board One of the responsibilities of the of such comparable funds and above the reviewed. The Board noted that AIM has Senior Officer of the Fund, who is median performance for the one year agreed to limit the Fund's total independent of AIM and AIM's affiliates, period. Based on this review, the Board operating expenses, as discussed below. is to manage the process by which the concluded that no changes should be made Based on this review, the Board Fund's proposed management fees are to the Fund and that it was not concluded that the advisory fee rate for negotiated to ensure that they are necessary to change the Fund's portfolio the Fund under the Advisory Agreement negotiated in a manner which is at arm's management team at this time. was fair and reasonable. length and reasonable. To that end, the Senior Officer must either supervise a o The performance of the Fund relative o Expense limitations and fee waivers. competitive bidding process or prepare to indices. The Board reviewed the The Board noted that AIM has an independent written evaluation. The performance of the Fund during the past contractually agreed to waive fees Senior Officer has recommended an one, three and five calendar years and/or limit expenses of the Fund independent written evaluation in lieu against the performance of the Lipper through June 30, 2006 in an amount of a competitive bidding process and, High Yield Bond Fund Index. The Board necessary to limit total annual upon the direction of the Board, has noted that the Fund's performance for operating expenses to a specified prepared such an independent written the one and three year periods was percentage of average daily net assets evaluation. Such written evaluation also comparable to the performance of such for each class of the Fund. The Board considered certain of the factors Index and below such Index for the five considered the contractual nature of discussed below. In addition, as year period. Based on this review, the this fee waiver/expense limitation and discussed below, the Senior Officer made Board concluded that no changes should noted that it remains in effect until certain recommendations to the Board in be made to the Fund and that it was not June 30, 2006. The Board considered the connection with such written evaluation. necessary to change the Fund's portfolio effect this fee waiver/expense management team at this time. limitation would have on the Funds The discussion below serves as a estimated expenses and concluded that summary of the Senior Officer's o Meeting with the Fund's portfolio the levels of fee waivers/expense independent written evaluation and managers and investment personnel. With limitations for the Fund were fair and recommendations to the Board in respect to the Fund, the Board is reasonable. connection therewith, as well as a meeting periodically with such Fund's discussion of the material factors and portfolio managers and/or other o Breakpoints and economies of scale. the conclusions with respect thereto investment personnel and believes that The Board reviewed the structure of the that formed the basis for the Board's such individuals are competent and able Fund's advisory fee under the Advisory approval of the Advisory Agreement. to continue to carry out their Agreement, noting that it includes three After consideration of all of the responsibilities under the Advisory breakpoints. The Board reviewed the factors below and based on its informed Agreement. level of the Fund's advisory fees, and business judgment, the Board determined noted that such fees, as a percentage of that the Advisory Agreement is in the o Overall performance of AIM. The Board the Fund's net assets, would decrease as best interests of the Fund and its considered the overall performance of net assets increase because the Advisory shareholders and that the compensation AIM in providing investment advisory and Agreement includes breakpoints. The to AIM under the Advisory Agreement is portfolio administrative services to the Board noted that, due to the Fund's fair and reasonable and would have been Fund and concluded that such performance current asset levels and the way in obtained through arm's length was satisfactory. which the advisory fee breakpoints have negotiations. been structured, the Fund has yet to benefit from the breakpoints. The Board o The nature and extent of the advisory concluded that the Fund's fee levels services to be provided by AIM. The under the Advisory Agreement therefore Board reviewed the services to be would reflect economies of scale at provided by AIM under the Advisory higher asset levels and that it was not Agreement. Based on such review, the necessary to change the advisory fee Board concluded that the range of breakpoints in the Fund's advisory fee services to be provided by AIM under the schedule. Advisory Agreement was appropriate and that AIM currently is providing services (continued) in accordance with the terms of the Advisory Agreement. </Table> 6 AIM V.I. HIGH YIELD FUND <Table> o Investments in affiliated money market o Profitability of AIM and its o Other factors and current trends. In funds. The Board also took into account affiliates. The Board reviewed determining whether to continue the the fact that uninvested cash and cash information concerning the profitability Advisory Agreement for the Fund, the collateral from securities lending of AIM's (and its affiliates') investment Board considered the fact that AIM, arrangements (collectively, "cash advisory and other activities and its along with others in the mutual fund balances") of the Fund may be invested financial condition. The Board industry, is subject to regulatory in money market funds advised by AIM considered the overall profitability of inquiries and litigation related to a pursuant to the terms of an SEC AIM, as well as the profitability of AIM wide range of issues. The Board also exemptive order. The Board found that in connection with managing the Fund. considered the governance and compliance the Fund may realize certain benefits The Board noted that AIM's operations reforms being undertaken by AIM and its upon investing cash balances in AIM remain profitable, although increased affiliates, including maintaining an advised money market funds, including a expenses in recent years have reduced internal controls committee and higher net return, increased liquidity, AIM's profitability. Based on the review retaining an independent compliance increased diversification or decreased of the profitability of AIM's and its consultant, and the fact that AIM has transaction costs. The Board also found affiliates' investment advisory and other undertaken to cause the Fund to operate that the Fund will not receive reduced activities and its financial condition, in accordance with certain governance services if it invests its cash balances the Board concluded that the policies and practices. The Board in such money market funds. The Board compensation to be paid by the Fund to concluded that these actions indicated a noted that, to the extent the Fund AIM under its Advisory Agreement was not good faith effort on the part of AIM to invests in affiliated money market excessive. adhere to the highest ethical standards, funds, AIM has voluntarily agreed to and determined that the current waive a portion of the advisory fees it o Benefits of soft dollars to AIM. The regulatory and litigation environment to receives from the Fund attributable to Board considered the benefits realized which AIM is subject should not prevent such investment. The Board further by AIM as a result of brokerage the Board from continuing the Advisory determined that the proposed securities transactions executed through "soft Agreement for the Fund. lending program and related procedures dollar" arrangements. Under these with respect to the lending Fund is in arrangements, brokerage commissions paid the best interests of the lending Fund by the Fund and/or other funds advised and its respective shareholders. The by AIM are used to pay for research and Board therefore concluded that the execution services. This research is investment of cash collateral received used by AIM in making investment in connection with the securities decisions for the Fund. The Board lending program in the money market concluded that such arrangements were funds according to the procedures is in appropriate. the best interests of the lending Fund and its respective shareholders. o AIM's financial soundness in light of the Fund's needs. The Board considered o Independent written evaluation and whether AIM is financially sound and has recommendations of the Fund's Senior the resources necessary to perform its Officer. The Board noted that, upon obligations under the Advisory their direction, the Senior Officer of Agreement, and concluded that AIM has the Fund had prepared an independent the financial resources necessary to written evaluation in order to assist fulfill its obligations under the the Board in determining the Advisory Agreement. reasonableness of the proposed management fees of the AIM Funds, o Historical relationship between the including the Fund. The Board noted that Fund and AIM. In determining whether to the Senior Officer's written evaluation continue the Advisory Agreement for the had been relied upon by the Board in Fund, the Board also considered the this regard in lieu of a competitive prior relationship between AIM and the bidding process. In determining whether Fund, as well as the Board's knowledge to continue the Advisory Agreement for of AIM's operations, and concluded that the Fund, the Board considered the it was beneficial to maintain the Senior Officer's written evaluation and current relationship, in part, because the recommendation made by the Senior of such knowledge. The Board also Officer to the Board that the Board reviewed the general nature of the consider implementing a process to non-investment advisory services assist them in more closely monitoring currently performed by AIM and its the performance of the AIM Funds. The affiliates, such as administrative, Board concluded that it would be transfer agency and distribution advisable to implement such a process as services, and the fees received by AIM soon as reasonably practicable. and its affiliates for performing such services. In addition to reviewing such services, the trustees also considered the organizational structure employed by AIM and its affiliates to provide those services. Based on the review of these and other factors, the Board concluded that AIM and its affiliates were qualified to continue to provide non-investment advisory services to the Fund, including administrative, transfer agency and distribution services, and that AIM and its affiliates currently are providing satisfactory non-investment advisory services. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- BONDS & NOTES-88.09% AEROSPACE & DEFENSE-1.91% Argo-Tech Corp., Sr. Unsec. Gtd. Global Notes, 9.25%, 06/01/11(a) $ 190,000 $ 207,337 - ----------------------------------------------------------------------- Armor Holdings, Inc., Sr. Sub. Global Notes, 8.25%, 08/15/13(a) 200,000 216,500 - ----------------------------------------------------------------------- DRS Technologies, Inc., Sr. Unsec. Sub. Global Notes, 6.88%, 11/01/13(a) 230,000 239,487 - ----------------------------------------------------------------------- Hexcel Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 02/01/15(a) 185,000 185,925 - ----------------------------------------------------------------------- L-3 Communications Corp., Sr. Unsec. Gtd. Sub. Global Notes, 6.13%, 01/15/14(a) 415,000 419,150 - ----------------------------------------------------------------------- Orbital Sciences Corp.-Series B, Sr. Global Notes, 9.00%, 07/15/11(a) 80,000 87,200 - ----------------------------------------------------------------------- Standard Aero Holdings, Inc., Sr. Sub. Notes, 8.25%, 09/01/14 (Acquired 08/17/04; Cost $100,000)(a)(b) 100,000 105,500 ======================================================================= 1,461,099 ======================================================================= AIR FREIGHT & LOGISTICS-0.32% Park-Ohio Industries Inc., Sr. Sub. Notes, 8.38%, 11/15/14 (Acquired 11/19/04-12/07/04; Cost $280,875)(a)(b) 280,000 246,400 ======================================================================= AIRLINES-0.83% Continental Airlines, Inc., Notes, 8.00%, 12/15/05(a) 220,000 219,450 - ----------------------------------------------------------------------- Northwest Airlines Inc., Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06(a) 650,000 416,000 ======================================================================= 635,450 ======================================================================= ALTERNATIVE CARRIERS-0.41% Embratel Participacoes S.A.-Series B (Brazil), Gtd. Global Notes, 11.00%, 12/15/08(a) 270,000 310,500 ======================================================================= ALUMINUM-0.17% Century Aluminum Co., Sr. Unsec. Gtd. Global Notes, 7.50%, 08/15/14(a) 130,000 130,000 ======================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-0.85% Broder Bros. Co.-Series B, Sr. Unsec. Global Notes, 11.25%, 10/15/10(a) 120,000 121,800 - ----------------------------------------------------------------------- Perry Ellis International, Inc.-Series B, Sr. Sub. Global Notes, 8.88%, 09/15/13(a) 265,000 266,325 - ----------------------------------------------------------------------- Warnaco Inc., Sr. Unsec. Global Notes, 8.88%, 06/15/13(a) 235,000 258,500 ======================================================================= 646,625 ======================================================================= AUTO PARTS & EQUIPMENT-1.14% Accuride Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.50%, 02/01/15(a) 185,000 181,762 - ----------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> AUTO PARTS & EQUIPMENT-(CONTINUED) Autocam Corp., Sr. Unsec. Sub. Global Notes, 10.88%, 06/15/14(a) $ 115,000 $ 75,325 - ----------------------------------------------------------------------- Delphi Corp., Global Notes, 6.55%, 06/15/06(a) 250,000 244,375 - ----------------------------------------------------------------------- Tenneco Automotive Inc.-Series B, Sr. Sec. Second Lien Global Notes, 10.25%, 07/15/13(a) 80,000 90,800 - ----------------------------------------------------------------------- TRW Automotive Inc., Sr. Global Notes, 9.38%, 02/15/13(a) 249,000 277,635 ======================================================================= 869,897 ======================================================================= AUTOMOBILE MANUFACTURERS-0.56% General Motors Acceptance Corp., Global Notes, 5.63%, 05/15/09(a) 195,000 181,650 - ----------------------------------------------------------------------- General Motors Acceptance Corp.-Series GM, Sr. Medium Term Notes, 6.31%, 11/30/07(a) 250,000 246,285 ======================================================================= 427,935 ======================================================================= BROADCASTING & CABLE TV-6.35% Adelphia Communications Corp., Sr. Unsec. Notes, 10.88%, 10/01/10(a)(c) 1,030,000 911,550 - ----------------------------------------------------------------------- Allbritton Communications Co., Sr. Unsec. Sub. Global Notes, 7.75%, 12/15/12(a) 255,000 252,450 - ----------------------------------------------------------------------- Cablevision Systems Corp.-Series B, Sr. Floating Rate Global Notes, 7.89%, 04/01/09(a)(d) 120,000 120,750 - ----------------------------------------------------------------------- Charter Communications Holdings, LLC/Charter Communications Holdings Capital Corp., Sr. Unsec. Global Notes, 11.13%, 01/15/11(a) 190,000 143,450 - ----------------------------------------------------------------------- Sr. Unsec. Notes, 9.92%, 04/01/11(a) 140,000 103,600 - ----------------------------------------------------------------------- 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 $270,988)(a)(b) 280,000 281,400 - ----------------------------------------------------------------------- CSC Holdings Inc.-Series B, Sr. Unsec. Notes, 7.63%, 04/01/11(a) 480,000 480,000 - ----------------------------------------------------------------------- Echostar DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 10/01/08(a) 430,000 431,075 - ----------------------------------------------------------------------- Emmis Communications Corp., Sr. Floating Rate Notes, 9.31%, 06/15/12 (Acquired 06/16/05; Cost $100,000)(a)(b)(e) 100,000 101,500 - ----------------------------------------------------------------------- Granite Broadcasting Corp., Sr. Sec. Global Notes, 9.75%, 12/01/10(a) 365,000 339,450 - ----------------------------------------------------------------------- Intelsat Bermuda Ltd. (Bermuda), Sr. Notes, 8.25%, 01/15/13 (Acquired 06/14/05; Cost $199,875)(a)(b) 195,000 202,312 - ----------------------------------------------------------------------- Knology, Inc., Sr. Unsec. Notes, 12.00%, 11/30/09 (Acquired 05/15/03-12/02/04; Cost $210,286)(a)(b) 221,877 221,600 - ----------------------------------------------------------------------- Pegasus Communications Corp.-Series B, Sr. Notes, 9.63%, 10/15/05(a)(c) 390,000 208,650 - ----------------------------------------------------------------------- </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- BROADCASTING & CABLE TV-(CONTINUED) Rainbow National Services, LLC, Sr. Notes, 8.75%, 09/01/12 (Acquired 08/13/04; Cost $323,125)(a)(b) $ 325,000 $ 354,250 - ----------------------------------------------------------------------- Videotron Ltee (Canada), Sr. Notes, 6.88%, 01/15/14 (Acquired 11/15/04; Cost $220,500)(a)(b) 210,000 213,675 - ----------------------------------------------------------------------- XM Satellite Radio Inc., Sr. Sec. Global Notes, 12.00%, 06/15/10(a) 429,000 484,770 ======================================================================= 4,850,482 ======================================================================= BUILDING PRODUCTS-0.31% Nortek Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.50%, 09/01/14(a) 195,000 181,350 - ----------------------------------------------------------------------- NTK Holdings, Inc., Sr. Disc. Notes, 10.75%, 03/01/14 (Acquired 02/10/05; Cost $68,350)(a)(b)(f) 110,000 52,800 ======================================================================= 234,150 ======================================================================= CASINOS & GAMING-3.51% Aztar Corp., Sr. Sub. Global Notes, 7.88%, 06/15/14(a) 240,000 255,600 - ----------------------------------------------------------------------- Sr. Unsec. Sub. Global Notes, 9.00%, 08/15/11(a) 190,000 207,100 - ----------------------------------------------------------------------- Boyd Gaming Corp., Sr. Sub. Global Notes, 6.75%, 04/15/14(a) 400,000 412,000 - ----------------------------------------------------------------------- Isle of Capri Casinos, Inc., Sr. Unsec. Sub. Global Notes, 7.00%, 03/01/14(a) 370,000 374,625 - ----------------------------------------------------------------------- Las Vegas Sands Corp., Sr. Notes, 6.38%, 02/15/15 (Acquired 02/03/05; Cost $163,497)(a)(b) 165,000 161,287 - ----------------------------------------------------------------------- MGM Mirage Inc., Sr. Notes, 6.63%, 07/15/15 (Acquired 06/09/05; Cost $325,000)(a)(b) 325,000 330,281 - ----------------------------------------------------------------------- Penn National Gaming, Inc., Sr. Sub. Notes, 6.75%, 03/01/15 (Acquired 02/24/05-02/25/05; Cost $255,325)(a)(b) 250,000 250,000 - ----------------------------------------------------------------------- Pinnacle Entertainment, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 03/15/12(a) 375,000 391,875 - ----------------------------------------------------------------------- Poster Financial Group Inc., Sr. Sec. Global Notes, 8.75%, 12/01/11(a) 130,000 132,925 - ----------------------------------------------------------------------- Seneca Gaming Corp., Sr. Global Notes, 7.25%, 05/01/12(a) 155,000 161,006 ======================================================================= 2,676,699 ======================================================================= COAL & CONSUMABLE FUELS-0.44% James River Coal Co., Sr. Notes, 9.38%, 06/01/12(a) 195,000 200,850 - ----------------------------------------------------------------------- Massey Energy Co., Sr. Global Notes, 6.63%, 11/15/10(a) 130,000 134,875 ======================================================================= 335,725 ======================================================================= COMMODITY CHEMICALS-2.00% BCP Crystal US Holdings Corp., Sr. Sub. Global Notes, 9.63%, 06/15/14(a) 140,000 157,500 - ----------------------------------------------------------------------- Equistar Chemicals L.P./Equistar Funding Corp., Sr. Unsec. Gtd. Global Notes, 10.13%, 09/01/08(a) 435,000 473,062 - ----------------------------------------------------------------------- Millennium America Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 06/15/08(a) 502,000 547,807 - ----------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> COMMODITY CHEMICALS-(CONTINUED) Montell Finance Co. B.V. (Netherlands), Unsec. Gtd. Deb., 8.10%, 03/15/27 (Acquired 01/06/05-05/04/05; Cost $355,250)(a)(b) $ 375,000 $ 346,875 ======================================================================= 1,525,244 ======================================================================= COMMUNICATIONS EQUIPMENT-1.01% Lucent Technologies Inc., Unsec. Unsub. Global Deb., 6.45%, 03/15/29(a) 235,000 211,500 - ----------------------------------------------------------------------- Nortel Networks Ltd. (Canada), Sr. Global Notes, 6.13%, 02/15/06(a) 350,000 353,937 - ----------------------------------------------------------------------- Superior Essex Communications LLC/Essex Group Inc., Sr. Global Notes, 9.00%, 04/15/12(a) 205,000 205,000 ======================================================================= 770,437 ======================================================================= CONSTRUCTION & ENGINEERING-0.20% Great Lakes Dredge & Dock Co., Sr. Unsec. Sub. Global Notes, 7.75%, 12/15/13(a) 195,000 149,175 ======================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-2.29% Case New Holland Inc., Sr. Notes, 9.25%, 08/01/11 (Acquired 07/29/03; Cost $192,075)(a)(b) 195,000 207,187 - ----------------------------------------------------------------------- Commercial Vehicle Group Inc., Sr. Notes, 8.00%, 07/01/13 (Acquired 06/29/05; Cost $65,000)(a)(b) 65,000 66,462 - ----------------------------------------------------------------------- Manitowoc Co., Inc. (The), Sr. Unsec. Gtd. Sub. Global Notes, 10.50%, 08/01/12(a) 143,000 162,305 - ----------------------------------------------------------------------- Navistar International Corp., Sr. Notes, 6.25%, 03/01/12 (Acquired 02/23/05-04/20/05; Cost $378,588)(a)(b) 385,000 373,450 - ----------------------------------------------------------------------- 7.50%, 06/15/11(a) 55,000 56,375 - ----------------------------------------------------------------------- Terex Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 07/15/11(a) 465,000 506,850 - ----------------------------------------------------------------------- Wabtec Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/31/13(a) 365,000 375,037 ======================================================================= 1,747,666 ======================================================================= CONSTRUCTION MATERIALS-0.67% Goodman Global Holding Co., Inc., Sr. Sub. Notes, 7.88%, 12/15/12 (Acquired 12/15/04; Cost $70,000)(a)(b) 70,000 65,100 - ----------------------------------------------------------------------- RMCC Acquisition Co., Sr. Sub. Notes, 9.50%, 11/01/12 (Acquired 10/28/04; Cost $205,000)(a)(b) 205,000 199,875 - ----------------------------------------------------------------------- Texas Industries, Inc., Sr. Notes, 7.25%, 07/15/13 (Acquired 06/29/05; Cost $30,000)(a)(b) 30,000 30,900 - ----------------------------------------------------------------------- U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.38%, 04/01/14(a) 225,000 212,625 ======================================================================= 508,500 ======================================================================= CONSUMER FINANCE-1.04% Dollar Financial Group, Inc., Sr. Gtd. Global Notes, 9.75%, 11/15/11(a) 555,000 574,425 - ----------------------------------------------------------------------- Ford Motor Credit Co., Notes, 6.63%, 06/16/08(a) 225,000 223,051 ======================================================================= 797,476 ======================================================================= </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- DISTILLERS & VINTNERS-0.46% Constellation Brands, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) $ 330,000 $ 353,925 ======================================================================= DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.51% Corrections Corp. of America, Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 03/15/13(a) 215,000 214,462 - ----------------------------------------------------------------------- Geo Group Inc. (The), Sr. Unsec. Global Notes, 8.25%, 07/15/13(a) 180,000 175,050 ======================================================================= 389,512 ======================================================================= DRUG RETAIL-1.33% Jean Coutu Group (PJC) Inc. (The) (Canada), Sr. Sub. Global Notes, 8.50%, 08/01/14(a) 475,000 469,062 - ----------------------------------------------------------------------- Sr. Unsec. Global Notes, 7.63%, 08/01/12(a) 60,000 62,250 - ----------------------------------------------------------------------- Rite Aid Corp., Sr. Sec. Gtd. Second Lien Global Notes, 8.13%, 05/01/10(a) 130,000 134,387 - ----------------------------------------------------------------------- Sr. Unsec. Notes, 7.13%, 01/15/07(a) 210,000 211,575 - ----------------------------------------------------------------------- Unsec. Gtd. Unsub. Global Notes, 7.50%, 01/15/15(a) 140,000 134,750 ======================================================================= 1,012,024 ======================================================================= ELECTRIC UTILITIES-5.52% Allegheny Energy Supply Co., LLC, Unsec. Global Notes, 7.80%, 03/15/11(a) 355,000 386,950 - ----------------------------------------------------------------------- LSP Energy L.P./LSP Batesville Funding Corp.- Series C, Sr. Sec. Bonds, 7.16%, 01/15/14(a) 263,340 276,507 - ----------------------------------------------------------------------- Midwest Generation, LLC, Sr. Sec. Second Priority Putable Global Notes, 8.75%, 05/01/14(a) 315,000 354,375 - ----------------------------------------------------------------------- Series B, Global Asset-Backed Pass Through Ctfs., 8.56%, 01/02/16(a) 635,000 704,850 - ----------------------------------------------------------------------- Mission Energy Holding Co., Sr. Sec. Global Notes, 13.50%, 07/15/08(a) 705,000 840,712 - ----------------------------------------------------------------------- NRG Energy, Inc., Sr. Sec. Gtd. Notes, 8.00%, 12/15/13 (Acquired 12/17/03-05/25/05; Cost $549,825)(a)(b) 543,000 575,580 - ----------------------------------------------------------------------- Reliant Energy Inc., Sr. Sec. Global Notes, 9.25%, 07/15/10(a) 275,000 299,062 - ----------------------------------------------------------------------- 9.50%, 07/15/13(a) 255,000 283,369 - ----------------------------------------------------------------------- Sr. Sec. Gtd. Notes, 6.75%, 12/15/14(a) 210,000 206,850 - ----------------------------------------------------------------------- Reliant Energy Mid-Atlantic Power Holdings, LLC- Series B, Sr. Unsec. Asset-Backed Pass Through Ctfs., 9.24%, 07/02/17(a) 190,553 216,754 - ----------------------------------------------------------------------- South Point Energy Center LLC/Broad River Energy LLC/Rockgen Energy LLC, Sec. Gtd. Notes, 8.40%, 05/30/12 (Acquired 06/29/05; Cost $72,521)(a)(b) 76,741 72,521 ======================================================================= 4,217,530 ======================================================================= ELECTRONIC MANUFACTURING SERVICES-0.42% Sanmina-SCI Corp., Sub. Notes, 6.75%, 03/01/13 (Acquired 02/16/05-05/04/05; Cost $310,725)(a)(b) 335,000 321,600 ======================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> ENVIRONMENTAL & FACILITIES SERVICES-0.85% Allied Waste North America, Inc.-Series B, Sr. Gtd. Global Notes, 8.50%, 12/01/08(a) $ 615,000 $ 650,362 ======================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-0.35% IMC Global Inc., Sr. Unsec. Global Notes, 10.88%, 08/01/13(a) 225,000 265,500 ======================================================================= FOOD RETAIL-0.18% Ahold Finance USA, Inc., Sr. Unsec. Notes, 8.25%, 07/15/10(a) 125,000 138,750 ======================================================================= FOREST PRODUCTS-0.73% Ainsworth Lumber Co. Ltd. (Canada), Sr. Unsec. Global Notes, 6.75%, 03/15/14(a) 100,000 90,750 - ----------------------------------------------------------------------- Sr. Unsec. Yankee Notes, 6.75%, 03/15/14(a) 250,000 226,250 - ----------------------------------------------------------------------- Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 7.75%, 11/15/13(a) 255,000 240,337 ======================================================================= 557,337 ======================================================================= GAS UTILITIES-0.22% SEMCO Energy, Inc., Sr. Global Notes, 7.75%, 05/15/13(a) 85,000 88,825 - ----------------------------------------------------------------------- Sr. Unsec. Global Notes, 7.13%, 05/15/08(a) 75,000 76,875 ======================================================================= 165,700 ======================================================================= HEALTH CARE DISTRIBUTORS-0.12% National Nephrology Associates, Inc., Sr. Gtd. Sub. Notes, 9.00%, 11/01/11 (Acquired 10/16/03; Cost $80,000)(a)(b) 80,000 89,900 ======================================================================= HEALTH CARE FACILITIES-3.12% Ardent Health Services Inc., Sr. Sub. Global Notes, 10.00%, 08/15/13(a) 50,000 60,750 - ----------------------------------------------------------------------- Concentra Operating Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.13%, 06/01/12(a) 115,000 122,475 - ----------------------------------------------------------------------- Genesis HealthCare Corp., Sr. Sub. Global Notes, 8.00%, 10/15/13(a) 160,000 174,400 - ----------------------------------------------------------------------- HealthSouth Corp., Sr. Unsec. Putable Global Notes, 8.38%, 01/02/09(a) 850,000 847,875 - ----------------------------------------------------------------------- Select Medical Corp., Sr. Sub. Notes, 7.63%, 02/01/15 (Acquired 02/03/05-05/19/05; Cost $228,213)(a)(b) 230,000 227,700 - ----------------------------------------------------------------------- Tenet Healthcare Corp., Sr. Global Notes, 9.88%, 07/01/14(a) 90,000 97,200 - ----------------------------------------------------------------------- Sr. Unsec. Notes, 6.38%, 12/01/11(a) 345,000 331,200 - ----------------------------------------------------------------------- United Surgical Partners International, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.00%, 12/15/11(a) 470,000 519,350 ======================================================================= 2,380,950 ======================================================================= HEALTH CARE SERVICES-0.87% Quintiles Transnational Corp., Sr. Unsec. Sub. Global Notes, 10.00%, 10/01/13(a) 250,000 276,875 - ----------------------------------------------------------------------- Rural/Metro Corp., Sr. Sub. Notes, 9.88%, 03/15/15 (Acquired 02/28/05; Cost $70,000)(a)(b) 70,000 69,300 - ----------------------------------------------------------------------- </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- HEALTH CARE SERVICES-(CONTINUED) Team Health Inc., Sr. Sub. Global Notes, 9.00%, 04/01/12(a) $ 300,000 $ 314,250 ======================================================================= 660,425 ======================================================================= HEALTH CARE SUPPLIES-0.25% Inverness Medical Innovations, Inc., Sr. Sub. Global Notes, 8.75%, 02/15/12(a) 195,000 194,512 ======================================================================= HOMEBUILDING-0.52% Technical Olympic USA, Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/10(a) 205,000 211,150 - ----------------------------------------------------------------------- WCI Communities, Inc., Sr. Unsec. Gtd. Global Notes, 10.63%, 02/15/11(a) 170,000 184,450 ======================================================================= 395,600 ======================================================================= HOTELS, RESORTS & CRUISE LINES-2.28% Grupo Posadas S.A. de C.V. (Mexico), Sr. Notes, 8.75%, 10/04/11 (Acquired 09/27/04; Cost $250,000)(a)(b) 250,000 266,875 - ----------------------------------------------------------------------- Intrawest Corp. (Canada), Sr. Unsec. Global Notes, 7.50%, 10/15/13(a) 465,000 478,950 - ----------------------------------------------------------------------- La Quinta Properties, Inc., Sr. Global Notes, 8.88%, 03/15/11(a) 120,000 130,500 - ----------------------------------------------------------------------- Royal Caribbean Cruises Ltd. (Liberia), Sr. Unsec. Global Notes, 8.00%, 05/15/10(a) 120,000 133,800 - ----------------------------------------------------------------------- 8.75%, 02/02/11(a) 450,000 520,875 - ----------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc., Sr. Gtd. Global Notes, 7.88%, 05/01/12(a) 185,000 209,512 ======================================================================= 1,740,512 ======================================================================= HOUSEWARES & SPECIALTIES-0.37% Ames True Temper Inc., Sr. Sub. Global Notes, 10.00%, 07/15/12(a) 135,000 109,687 - ----------------------------------------------------------------------- Sr. Unsec. Gtd. Unsub. Floating Rate Global Notes, 7.14%, 01/15/12(a)(e) 180,000 172,350 ======================================================================= 282,037 ======================================================================= INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-4.93% AES Corp. (The), Sr. Unsec. Unsub. Notes, 7.75%, 03/01/14(a) 965,000 1,049,437 - ----------------------------------------------------------------------- AES Red Oak LLC-Series A, Sr. Sec. Bonds, 8.54%, 11/30/19(a) 448,654 502,493 - ----------------------------------------------------------------------- Calpine Canada Energy Finance ULC (Canada), Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08(a) 85,000 61,200 - ----------------------------------------------------------------------- Calpine Corp., Sr. Sec. Notes, (Acquired 07/10/03-05/11/04; Cost $241,950) 8.75%, 07/15/13 (Acquired 07/10/03-05/11/04; Cost $241,950)(a)(b) 265,000 196,762 - ----------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-(CONTINUED) Calpine Corp., 9.63%, 09/30/14 (Acquired 09/28/04; Cost $342,281)(a)(b) $ 345,000 $ 345,862 - ----------------------------------------------------------------------- Sr. Unsec. Notes, 8.75%, 07/15/07(a) 305,000 240,950 - ----------------------------------------------------------------------- Calpine Generating Co., Sec. Floating Rate Global Notes, 8.86%, 04/01/10(a)(g) 395,000 390,062 - ----------------------------------------------------------------------- CMS Energy Corp., Sr. Global Notes, 7.75%, 08/01/10(a) 90,000 97,200 - ----------------------------------------------------------------------- Sr. Unsec. Notes, 8.90%, 07/15/08(a) 280,000 305,200 - ----------------------------------------------------------------------- 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)(b) 300,000 340,500 - ----------------------------------------------------------------------- Unsec. Notes, 8.75%, 02/15/12(a) 120,000 131,400 - ----------------------------------------------------------------------- Mirant Americas Generation, LLC, Sr. Unsec. Notes, 7.63%, 05/01/06(a)(c) 85,000 98,387 ======================================================================= 3,759,453 ======================================================================= INDUSTRIAL MACHINERY-0.43% Aearo Co. I, Sr. Sub. Global Notes, 8.25%, 04/15/12(a) 140,000 140,700 - ----------------------------------------------------------------------- Valmont Industries, Inc., Sr. Gtd. Sub. Global Notes, 6.88%, 05/01/14(a) 180,000 182,250 - ----------------------------------------------------------------------- Wolverine Tube, Inc., Sr. Notes, 7.38%, 08/01/08 (Acquired 10/20/03; Cost $8,700)(a)(b) 10,000 8,750 ======================================================================= 331,700 ======================================================================= INTEGRATED OIL & GAS-0.81% Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Global Notes, 9.13%, 07/02/13(a) 545,000 618,575 ======================================================================= INTEGRATED TELECOMMUNICATION SERVICES-3.36% Citizens Communications Co., Sr. Notes, 6.25%, 01/15/13(a) 205,000 199,362 - ----------------------------------------------------------------------- LCI International, Inc., Sr. Notes, 7.25%, 06/15/07(a) 620,000 604,500 - ----------------------------------------------------------------------- Madison River Capital LLC/Madison River Finance Corp., Sr. Unsec. Notes, 13.25%, 03/01/10(a) 500,000 527,190 - ----------------------------------------------------------------------- Qwest Capital Funding, Inc., Unsec. Gtd. Global Notes, 7.00%, 08/03/09(a) 280,000 273,000 - ----------------------------------------------------------------------- 7.25%, 02/15/11(a) 100,000 96,000 - ----------------------------------------------------------------------- Qwest Communications International, Inc., Sr. Unsec. Gtd. Sub Global Notes, 7.25%, 02/15/11(a) 595,000 575,662 - ----------------------------------------------------------------------- Qwest Corp., Sr. Notes, 7.88%, 09/01/11 (Acquired 11/18/04; Cost $301,000)(a)(b) 280,000 292,600 ======================================================================= 2,568,314 ======================================================================= IT CONSULTING & OTHER SERVICES-0.18% Telcordia Technologies, Inc., Sr. Sub. Notes, 10.00%, 03/15/13 (Acquired 03/11/05; Cost $145,000)(a)(b) 145,000 135,938 ======================================================================= </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- LEISURE FACILITIES-0.50% Six Flags, Inc., Sr. Global Notes, 9.63%, 06/01/14(a) $ 120,000 $ 111,900 - ----------------------------------------------------------------------- Universal City Development Partners, Ltd., Sr. Global Notes, 11.75%, 04/01/10(a) 170,000 195,925 - ----------------------------------------------------------------------- Universal City Florida Holding Co. I/II, Sr. Unsec. Global Notes, 8.38%, 05/01/10(a) 70,000 73,150 ======================================================================= 380,975 ======================================================================= METAL & GLASS CONTAINERS-3.48% Constar International Inc., Sr. Sub. Notes, 11.00%, 12/01/12(a) 140,000 114,100 - ----------------------------------------------------------------------- Crown European Holdings S.A. (France), Sr. Sec. Second Lien Global Notes, 9.50%, 03/01/11(a) 150,000 166,875 - ----------------------------------------------------------------------- Greif Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 08/01/12(a) 520,000 561,600 - ----------------------------------------------------------------------- Owens Brockway Glass Container Inc., Sr. Gtd. Global Notes, 6.75%, 12/01/14(a) 175,000 178,719 - ----------------------------------------------------------------------- Sr. Gtd. Global Notes, 7.75%, 05/15/11(a) 215,000 231,125 - ----------------------------------------------------------------------- Sr. Sec. Gtd. Global Notes, 8.75%, 11/15/12(a) 255,000 282,412 - ----------------------------------------------------------------------- Sr. Unsec. Gtd. Global Notes, 8.25%, 05/15/13(a) 120,000 130,500 - ----------------------------------------------------------------------- Plastipak Holdings Inc., Sr. Unsec. Gtd. Global Notes, 10.75%, 09/01/11(a) 285,000 315,638 - ----------------------------------------------------------------------- Pliant Corp., Sr. Sec. PIK Notes, 11.63%, 06/15/09 (Acquired 05/06/05-06/01/05; Cost $387,403)(a)(b) 370,177 396,089 - ----------------------------------------------------------------------- Sr. Sec. Second Lien Global Notes, 11.13%, 09/01/09(a) 90,000 87,975 - ----------------------------------------------------------------------- U.S. Can Corp., Sr. Sec. Gtd. Global Notes, 10.88%, 07/15/10(a) 185,000 193,325 ======================================================================= 2,658,358 ======================================================================= MOVIES & ENTERTAINMENT-1.03% AMC Entertainment Inc., Sr. Unsec. Sub. Global Notes, 9.88%, 02/01/12(a) 325,000 324,188 - ----------------------------------------------------------------------- Sr. Unsec. Sub. Global Notes, 8.00%, 03/01/14(a) 125,000 111,250 - ----------------------------------------------------------------------- River Rock Entertainment Authority, Sr. Notes, 9.75%, 11/01/11(a) 130,000 143,975 - ----------------------------------------------------------------------- Warner Music Group, Sr. Sub. Global Notes, 7.38%, 04/15/14(a) 205,000 208,588 ======================================================================= 788,001 ======================================================================= OIL & GAS DRILLING-0.23% Parker Drilling Co., Sr. Unsec. Floating Rate Global Notes, 8.08%, 09/01/10(a)(e) 165,000 172,425 ======================================================================= OIL & GAS EQUIPMENT & SERVICES-1.45% CHC Helicopter Corp. (Canada), Sr. Sub. Global Notes, 7.38%, 05/01/14(a) 265,000 265,663 - ----------------------------------------------------------------------- Hanover Compressor Co., Sr. Notes, 9.00%, 06/01/14(a) 115,000 123,050 - ----------------------------------------------------------------------- Key Energy Services, Inc., Sr. Notes, 6.38%, 05/01/13(a) 435,000 437,175 - ----------------------------------------------------------------------- SESI, LLC, Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/11(a) 265,000 284,213 ======================================================================= 1,110,101 ======================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> OIL & GAS EXPLORATION & PRODUCTION-0.42% Compression Polymers Corp., Sr. Unsec. Floating Rate Notes, 10.46%, 07/01/12 (Acquired 06/29/05; Cost $64,675)(b)(d) $ 65,000 $ 65,325 - ----------------------------------------------------------------------- Paramount Resources Ltd. (Canada), Sr. Unsec. Yankee Notes, 8.50%, 01/31/13(a) 188,000 189,410 - ----------------------------------------------------------------------- Stone Energy Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 12/15/14(a) 70,000 68,250 ======================================================================= 322,985 ======================================================================= OIL & GAS REFINING & MARKETING-1.80% CITGO Petroleum Corp., Sr. Unsec. Global Notes, 6.00%, 10/15/11(a) 520,000 525,200 - ----------------------------------------------------------------------- Premcor Refining Group Inc. (The), Sr. Unsec. Global Notes, 7.50%, 06/15/15(a) 230,000 251,275 - ----------------------------------------------------------------------- United Refining Co., Sr. Notes, 10.50%, 08/15/12 (Acquired 02/16/05; Cost $152,975)(a)(b) 145,000 149,713 - ----------------------------------------------------------------------- Sr. Unsec. Global Notes, 10.50%, 08/15/12(a) 435,000 449,138 ======================================================================= 1,375,326 ======================================================================= OIL & GAS STORAGE & TRANSPORTATION-3.03% El Paso CGP Co., Unsec. Notes, 7.75%, 06/15/10(a) 550,000 564,438 - ----------------------------------------------------------------------- El Paso Production Holding Co., Sr. Unsec. Gtd. Global Notes, 7.75%, 06/01/13(a) 225,000 241,594 - ----------------------------------------------------------------------- Inergy L.P./Inergy Finance Corp., Sr. Notes, 6.88%, 12/15/14 (Acquired 12/17/04; Cost $100,000)(a)(b) 100,000 98,250 - ----------------------------------------------------------------------- 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)(b) 370,000 368,150 - ----------------------------------------------------------------------- Pacific Energy Partners L.P./Pacific Energy Finance Corp., Sr. Unsec. Global Notes, 7.13%, 06/15/14(a) 160,000 167,299 - ----------------------------------------------------------------------- Sonat Inc., Sr. Unsec. Notes, 7.63%, 07/15/11(a) 620,000 629,300 - ----------------------------------------------------------------------- Southern Natural Gas Co., Sr. Global Notes, 8.88%, 03/15/10(a) 35,000 38,588 - ----------------------------------------------------------------------- Williams Cos., Inc. (The), Notes, 7.13%, 09/01/11(a) 190,000 206,625 ======================================================================= 2,314,244 ======================================================================= PACKAGED FOODS & MEATS-0.50% Del Monte Corp., Sr. Unsec. Sub. Global Notes, 8.63%, 12/15/12(a) 140,000 154,700 - ----------------------------------------------------------------------- Dole Food Co., Inc., Sr. Unsec. Global Notes, 8.88%, 03/15/11(a) 3,000 3,218 - ----------------------------------------------------------------------- Smithfield Foods, Inc., Sr. Global Notes, 7.00%, 08/01/11(a) 210,000 222,075 ======================================================================= 379,993 ======================================================================= </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- PAPER PACKAGING-0.31% Jefferson Smurfit Corp. (U.S.), Sr. Unsec. Gtd. Global Notes, 7.50%, 06/01/13(a) $ 250,000 $ 240,000 ======================================================================= PAPER PRODUCTS-3.25% Bowater Inc., Global Notes, 6.50%, 06/15/13(a) 535,000 530,319 - ----------------------------------------------------------------------- Cascades Inc. (Canada), Sr. Unsec. Global Notes, 7.25%, 02/15/13(a) 445,000 440,550 - ----------------------------------------------------------------------- Cellu Tissue Holdings, Inc., Sec. Gtd. Global Notes, 9.75%, 03/15/10(a) 355,000 362,988 - ----------------------------------------------------------------------- Fraser Papers Inc. (Canada), Sr. Unsec. Gtd. Notes, 8.75%, 03/15/15 (Acquired 03/10/05; Cost $215,000)(a)(b) 215,000 197,263 - ----------------------------------------------------------------------- Georgia-Pacific Corp., Sr. Gtd. Global Notes, 7.38%, 07/15/08(a) 100,000 106,625 - ----------------------------------------------------------------------- Sr. Unsec. Gtd. Global Notes, 8.88%, 02/01/10(a) 325,000 370,500 - ----------------------------------------------------------------------- Mercer International Inc., Sr. Global Notes, 9.25%, 02/15/13(a) 210,000 168,000 - ----------------------------------------------------------------------- Neenah Paper, Inc., Sr. Notes, 7.38%, 11/15/14 (Acquired 11/18/04; Cost $157,275)(a)(b) 155,000 151,125 - ----------------------------------------------------------------------- Tembec Industries Inc. (Canada), Sr. Unsec. Gtd. Yankee Notes, 8.63%, 06/30/09(a) 190,000 154,850 ======================================================================= 2,482,220 ======================================================================= PERSONAL PRODUCTS-0.57% Playtex Products, Inc., Sr. Sec. Global Notes, 8.00%, 03/01/11(a) 405,000 438,413 ======================================================================= PHARMACEUTICALS-0.77% Athena Neurosciences Finance, LLC, Sr. Unsec. Gtd. Notes, 7.25%, 02/21/08(a) 95,000 88,588 - ----------------------------------------------------------------------- Elan Finance PLC/Elan Finance Corp. (Ireland), Sr. Notes, 7.75%, 11/15/11 (Acquired 11/10/04; Cost $70,000)(a)(b) 70,000 59,675 - ----------------------------------------------------------------------- Valeant Pharmaceuticals International, Sr. Unsec. Global Notes, 7.00%, 12/15/11(a) 445,000 438,325 ======================================================================= 586,588 ======================================================================= PUBLISHING-0.74% Dex Media Inc., Unsec. Disc. Global Notes, 9.00%, 11/15/13(a)(f) 200,000 162,000 - ----------------------------------------------------------------------- Dex Media West LLC/Dex Media Finance Co., Sr. Global Notes, 5.88%, 11/15/11(a) 215,000 212,850 - ----------------------------------------------------------------------- PRIMEDIA Inc., Sr. Global Notes, 8.00%, 05/15/13(a) 185,000 187,313 ======================================================================= 562,163 ======================================================================= RAILROADS-1.67% Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (Mexico), Sr. Gtd. Yankee Notes, 10.25%, 06/15/07(a) 605,000 648,863 - ----------------------------------------------------------------------- Sr. Notes, 9.38%, 05/01/12 (Acquired 04/13/05-06/28/05; Cost $383,413)(a)(b) 380,000 399,000 - ----------------------------------------------------------------------- Kansas City Southern Railway, Sr. Unsec. Gtd. Global Notes, 9.50%, 10/01/08(a) 210,000 229,950 ======================================================================= 1,277,813 ======================================================================= </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> REAL ESTATE-1.33% Host Marriott L.P., Sr. Unsec. Notes, 7.00%, 08/15/12 (Acquired 07/27/04; Cost $157,589)(a)(b) $ 160,000 $ 166,800 - ----------------------------------------------------------------------- Series G, Sr. Gtd. Global Notes, 9.25%, 10/01/07(a) 175,000 190,313 - ----------------------------------------------------------------------- Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07(a) 250,000 266,875 - ----------------------------------------------------------------------- iStar Financial Inc., Sr. Unsec. Notes, 6.50%, 12/15/13(a) 265,000 278,528 - ----------------------------------------------------------------------- Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 05/01/09(a) 100,000 111,000 ======================================================================= 1,013,516 ======================================================================= REGIONAL BANKS-0.24% Western Financial Bank, Unsec. Sub. Deb., 9.63%, 05/15/12(a) 170,000 185,300 ======================================================================= RESTAURANTS-0.45% Landry's Restaurants, Inc.-Series B, Sr. Unsec. Gtd. Unsub. Global Notes, 7.50%, 12/15/14(a) 350,000 341,250 ======================================================================= SEMICONDUCTORS-1.54% Advanced Micro Devices, Inc., Sr. Unsec. Global Notes, 7.75%, 11/01/12(a) 480,000 475,800 - ----------------------------------------------------------------------- MagnaChip Semiconductor S.A./MagnaChip Semiconductor Finance Co. (South Korea), Sr. Sub. Notes, 8.00%, 12/15/14 (Acquired 12/16/04; Cost $70,000)(a)(b) 70,000 67,375 - ----------------------------------------------------------------------- STATS ChipPAC Ltd. (Singapore), Sr. Unsec. Gtd. Global Notes, 6.75%, 11/15/11(a) 260,000 247,650 - ----------------------------------------------------------------------- Viasystems Inc., Sr. Unsec. Sub. Global Notes, 10.50%, 01/15/11(a) 415,000 382,838 ======================================================================= 1,173,663 ======================================================================= SPECIALIZED CONSUMER SERVICES-0.10% Coinmach Corp., Sr. Unsec. Global Notes, 9.00%, 02/01/10(a) 70,000 72,450 ======================================================================= SPECIALTY CHEMICALS-2.71% Huntsman Advanced Materials, LLC, Sr. Sec. Global Notes, 11.00%, 07/15/10(a) 170,000 192,950 - ----------------------------------------------------------------------- Huntsman International LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 03/01/09(a) 515,000 553,625 - ----------------------------------------------------------------------- Huntsman LLC, Sr. Unsec. Gtd. Global Notes, 11.63%, 10/15/10(a) 80,000 94,200 - ----------------------------------------------------------------------- Nalco Co., Sr. Unsec. Sub. Global Notes, 8.88%, 11/15/13(a) 490,000 526,750 - ----------------------------------------------------------------------- OM Group, Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 12/15/11(a) 330,000 333,300 - ----------------------------------------------------------------------- Rhodia S.A. (France), Sr. Unsec. Global Notes, 7.63%, 06/01/10(a) 120,000 117,000 - ----------------------------------------------------------------------- Westlake Chemical Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 07/15/11(a) 228,000 247,950 ======================================================================= 2,065,775 ======================================================================= </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- SPECIALTY STORES-2.00% Boise Cascade LLC, Sr. Sub. Notes, 7.13%, 10/15/14 (Acquired 10/15/04; Cost $375,000)(a)(b) $ 375,000 $ 370,313 - ----------------------------------------------------------------------- Couche-Tard U.S. L.P./Couche-Tard Finance Corp., Sr. Sub. Global Notes, 7.50%, 12/15/13(a) 170,000 180,625 - ----------------------------------------------------------------------- Nebraska Book Co., Inc., Sr. Unsec. Sub. Global Notes, 8.63%, 03/15/12(a) 335,000 314,063 - ----------------------------------------------------------------------- Pantry, Inc. (The), Sr. Sub. Global Notes, 7.75%, 02/15/14(a) 370,000 379,250 - ----------------------------------------------------------------------- Pep Boys (The)-Manny, Moe & Jack, Sr. Unsec. Sub. Notes, 7.50%, 12/15/14(a) 310,000 280,550 ======================================================================= 1,524,801 ======================================================================= STEEL-0.52% Chaparral Steel Co., Sr. Unsec. Notes, 10.00%, 07/15/13 (Acquired 06/29/05; Cost $130,000)(a)(b) 130,000 131,138 - ----------------------------------------------------------------------- IPSCO, Inc. (Canada), Sr. Global Notes, 8.75%, 06/01/13(a) 235,000 265,550 ======================================================================= 396,688 ======================================================================= TEXTILES-0.36% INVISTA Co., Sr. Notes, 9.25%, 05/01/12 (Acquired 06/17/04-07/20/04; Cost $253,563)(a)(b) 250,000 274,688 ======================================================================= TIRES & RUBBER-0.44% Cooper-Standard Automotive Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/15/14(a) 260,000 209,300 - ----------------------------------------------------------------------- Goodyear Tire & Rubber Co. (The), Sr. Notes, 9.00%, 07/01/15 (Acquired 06/20/05; Cost $130,000)(a)(b) 130,000 127,400 ======================================================================= 336,700 ======================================================================= TRADING COMPANIES & DISTRIBUTORS-0.45% United Rentals North America Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 02/15/12(a) 345,000 341,119 ======================================================================= WIRELESS TELECOMMUNICATION SERVICES-6.38% AirGate PCS, Inc., Sr. Sec. Gtd. Floating Rate Global Notes, 6.89%, 10/15/11(a)(e) 105,000 107,888 - ----------------------------------------------------------------------- Sr. Sec. Sub. Notes, 9.38%, 09/01/09(a) 181,300 192,178 - ----------------------------------------------------------------------- Alamosa (Delaware), Inc., Sr. Unsec. Gtd. Disc. Notes, 12.00%, 07/31/09(a)(f) 327,000 362,970 - ----------------------------------------------------------------------- American Tower Corp., Sr. Unsec. Global Notes, 7.13%, 10/15/12(a) 340,000 359,550 - ----------------------------------------------------------------------- Centennial Cellular Operating Co./Centennial Communications Corp., Sr. Unsec. Gtd. Global Notes, 10.13%, 06/15/13(a) 430,000 486,975 - ----------------------------------------------------------------------- Dobson Communications Corp., Sr. Global Notes, 8.88%, 10/01/13(a) 285,000 262,200 - ----------------------------------------------------------------------- Innova S. de R.L. (Mexico), Unsec. Global Notes, 9.38%, 09/19/13(a) 560,000 634,200 - ----------------------------------------------------------------------- iPCS, Inc., Sr. Unsec. Global Notes, 11.50%, 05/01/12(a) 145,000 163,488 - ----------------------------------------------------------------------- </Table> <Table> PRINCIPAL MARKET AMOUNT VALUE - ----------------------------------------------------------------------- <Caption> WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED) Nextel Communications, Inc., Sr. Unsec. Notes, 5.95%, 03/15/14(a) $ 330,000 $ 344,438 - ----------------------------------------------------------------------- Nextel Partners, Inc., Sr. Global Notes, 8.13%, 07/01/11(a) 250,000 273,125 - ----------------------------------------------------------------------- Rogers Wireless Communications, Inc. (Canada), Sr. Sec. Global Notes, 7.25%, 12/15/12(a) 175,000 189,438 - ----------------------------------------------------------------------- Rural Cellular Corp., Sr. Unsec. Global Notes, 9.88%, 02/01/10(a) 260,000 269,750 - ----------------------------------------------------------------------- SBA Communications Corp., Sr. Unsec. Global Notes, 8.50%, 12/01/12(a) 140,000 151,900 - ----------------------------------------------------------------------- SBA Telecommunications Inc./SBA Communications Corp., Sr. Unsec. Disc. Global Notes, 9.75%, 12/15/11(a)(f) 544,000 501,840 - ----------------------------------------------------------------------- UbiquiTel Operating Co., Sr. Notes, 9.88%, 03/01/11 (Acquired 09/29/04; Cost $72,450)(a)(b) 70,000 76,475 - ----------------------------------------------------------------------- US Unwired Inc. Series B, Sr. Sec. First Priority Floating Rate Global Notes, 7.66%, 06/15/10(a)(e) 210,000 217,350 - ----------------------------------------------------------------------- Series B, Sr. Sec. Second Priority Global Notes, 10.00%, 06/15/12(a) 65,000 72,475 - ----------------------------------------------------------------------- Western Wireless Corp., Sr. Unsec. Global Notes, 9.25%, 07/15/13(a) 175,000 200,813 ======================================================================= 4,867,053 ======================================================================= Total Bonds & Notes (Cost $65,247,596) 67,236,224 ======================================================================= <Caption> SHARES COMMON STOCKS & OTHER EQUITY INTERESTS-2.44% BROADCASTING & CABLE TV-0.67% ONO Finance PLC (United Kingdom)-Wts., expiring 05/31/09(h) 550 0 - ----------------------------------------------------------------------- Telewest Global, Inc.(i) 21,941 499,822 - ----------------------------------------------------------------------- XM Satellite Radio Inc.,-Wts., expiring 03/15/10(h) 230 13,800 ======================================================================= 513,622 ======================================================================= CONSTRUCTION MATERIALS-0.00% Dayton Superior-Wts., expiring 06/15/09 (Acquired 08/07/00; Cost $0)(a)(b)(h) 220 0 ======================================================================= GENERAL MERCHANDISE STORES-0.00% Travelcenters of America Inc.-Wts., expiring 05/01/09(a)(h) 400 530 ======================================================================= INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-0.78% AES Trust VII-$3.00 Conv. Pfd 12,190 591,215 ======================================================================= INTEGRATED TELECOMMUNICATION SERVICES-0.00% McLeodUSA Inc.-Wts., expiring 04/16/07(h) 8,399 42 - ----------------------------------------------------------------------- NTELOS Inc.-Wts., expiring 08/15/10 (Acquired 07/21-00-11/15/00; Cost $9,735)(b)(j)(k) 1,050 0 ======================================================================= 42 ======================================================================= </Table> AIM V.I. HIGH YIELD FUND <Table> <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES-0.99% Alamosa Holdings, Inc.-Series B, $18.75 Conv. Pfd.(a) 349 $ 369,071 - ----------------------------------------------------------------------- American Tower Corp.-Wts., expiring 08/01/08 (Acquired 01/22/03-04/29/03; Cost $46,375)(a)(b)(h) 735 217,744 - ----------------------------------------------------------------------- Horizon PCS, Inc.-Class A(i) 1,984 50,592 - ----------------------------------------------------------------------- iPCS, Inc.(i) 3,704 119,454 ======================================================================= 756,861 ======================================================================= Total Common Stocks & Other Equity Interests (Cost $1,263,819) 1,862,270 ======================================================================= <Caption> PRINCIPAL AMOUNT BUNDLED SECURITIES-1.02% Targeted Return Index Securities Trust-Series HY 2004-I, Sec. Bonds, 8.21%, 08/01/05 (Acquired 02/16/05; Cost $804,407) (Cost $802,790)(a)(b) $ 738,353 781,228 ======================================================================= </Table> <Table> - ----------------------------------------------------------------------- <Caption> PRINCIPAL MARKET AMOUNT VALUE <Caption> MARKET SHARES VALUE - ----------------------------------------------------------------------- MONEY MARKET FUNDS-4.28% Liquid Assets Portfolio-Institutional Class(l) 1,632,176 1,632,176 - ----------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(l) 1,632,176 1,632,176 ======================================================================= Total Money Market Funds (Cost $3,264,352) 3,264,352 ======================================================================= TOTAL INVESTMENTS-95.83% (Cost $70,578,557) 73,144,074 ======================================================================= OTHER ASSETS LESS LIABILITIES-4.17% 3,184,549 ======================================================================= NET ASSETS-100.00% $76,328,623 _______________________________________________________________________ ======================================================================= </Table> Investment Abbreviations: <Table> Conv. - Convertible Ctfs. - Certificates Deb. - Debentures Disc. - Discounted Gtd. - Guaranteed PIK - Payment In Kind Pfd. - Preferred 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 June 30, 2005 was $68,539,472, which represented 93.70% 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 June 30, 2005 was $10,852,523, which represented 14.22% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (c) 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 June 30, 2005 was $1,218,587, which represented 1.67% of the Fund's Total Investments. (d) Interest rate is redetermined semi-annually. Rate shown is the rate in effect on June 30, 2005. (e) Interest rate is redetermined quarterly. Rate shown is the rate in effect on June 30, 2005. (f) Discounted note at issue. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (g) Interest rate is redetermined monthly. Rate shown is the rate in effect on June 30, 2005. (h) Non-income producing security acquired as part of a unit with or in exchange for other securities. (i) Non-income producing security. (j) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The market value of this security at June 30, 2005 represented 0.00% of the Fund's Total Investments. See Note 1A. (k) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities. The market value of this security considered illiquid at June 30, 2005 represented 0.00% of the Fund's Net Assets. (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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $67,314,205) $ 69,879,722 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $3,264,352) 3,264,352 ============================================================= Total investments (cost $70,578,557) 73,144,074 ============================================================= Receivables for: Investments sold 722,931 - ------------------------------------------------------------- Fund shares sold 1,017,468 - ------------------------------------------------------------- Dividends and interest 1,374,041 - ------------------------------------------------------------- Investments matured (Note 8) 742,275 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 33,366 - ------------------------------------------------------------- Other assets 8,176 ============================================================= Total assets 77,042,331 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 549,370 - ------------------------------------------------------------- Fund shares reacquired 14,586 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 36,142 - ------------------------------------------------------------- Accrued administrative services fees 90,121 - ------------------------------------------------------------- Accrued distribution fees -- Series II 526 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 116 - ------------------------------------------------------------- Accrued transfer agent fees 1,007 - ------------------------------------------------------------- Accrued operating expenses 21,840 ============================================================= Total liabilities 713,708 ============================================================= Net assets applicable to shares outstanding $ 76,328,623 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $102,428,496 - ------------------------------------------------------------- Undistributed net investment income 7,774,221 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities (36,439,611) - ------------------------------------------------------------- Unrealized appreciation of investment securities 2,565,517 ============================================================= $ 76,328,623 _____________________________________________________________ ============================================================= NET ASSETS: Series I $ 74,725,299 _____________________________________________________________ ============================================================= Series II $ 1,603,324 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 11,431,529 _____________________________________________________________ ============================================================= Series II 246,346 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 6.54 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 6.51 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Interest $ 3,028,263 - ------------------------------------------------------------- Dividends 33,097 - ------------------------------------------------------------- Dividends from affiliated money market funds 46,829 ============================================================= Total investment income 3,108,189 ============================================================= EXPENSES: Advisory fees 255,722 - ------------------------------------------------------------- Administrative services fees 121,154 - ------------------------------------------------------------- Custodian fees 15,546 - ------------------------------------------------------------- Distribution fees -- Series II 1,519 - ------------------------------------------------------------- Interest 4,550 - ------------------------------------------------------------- Transfer agent fees 9,571 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 7,813 - ------------------------------------------------------------- Professional services fees 30,411 - ------------------------------------------------------------- Other 26,336 ============================================================= Total expenses 472,622 ============================================================= Less: Fees waived (37,659) - ------------------------------------------------------------- Net expenses 434,963 ============================================================= Net investment income 2,673,226 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain from investment securities (includes gains from securities sold to affiliates of $131,412) 2,139,547 - ------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities (3,653,509) - ------------------------------------------------------------- Net gain (loss) from investment securities (1,513,962) ============================================================= Net increase in net assets resulting from operations $ 1,159,264 _____________________________________________________________ ============================================================= </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 2,673,226 $ 5,091,281 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and foreign currencies 2,139,547 2,133,221 - ------------------------------------------------------------------------------------------ Net increase from payments by affiliates -- 181,288 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities (3,653,509) 1,307,985 ========================================================================================== Net increase in net assets resulting from operations 1,159,264 8,713,775 ========================================================================================== Distributions to shareholders from net investment income: Series I -- (2,776,287) - ------------------------------------------------------------------------------------------ Series II -- (29,451) ========================================================================================== Decrease in net assets resulting from distributions -- (2,805,738) ========================================================================================== Share transactions-net: Series I (23,007,584) 53,510,274 - ------------------------------------------------------------------------------------------ Series II 503,629 (263,138) ========================================================================================== Net increase (decrease) in net assets resulting from share transactions (22,503,955) 53,247,136 ========================================================================================== Net increase (decrease) in net assets (21,344,691) 59,155,173 ========================================================================================== NET ASSETS: Beginning of period 97,673,314 38,518,141 ========================================================================================== End of period (including undistributed net investment income of $7,774,221 and $5,100,995, respectively) $ 76,328,623 $97,673,314 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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. 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 including estimates and assumptions related to taxation. 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 AIM V.I. HIGH YIELD FUND 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 and domestic and foreign index futures. 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. LOWER-RATED SECURITIES -- The Fund may invest 80% of its net assets in lower-quality debt securities, i.e., "junk bonds". Investments in lower- rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors claims. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $200 million 0.625% - -------------------------------------------------------------------- Next $300 million 0.55% - -------------------------------------------------------------------- Next $500 million 0.50% - -------------------------------------------------------------------- Over $1 billion 0.45% ____________________________________________________________________ ==================================================================== </Table> AIM V.I. HIGH YIELD FUND Effective July 1, 2005, AIM has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding item (i) through (vi) discussed below) of Series I shares to 0.95% and Series II shares to 1.20% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, 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 below and Rule 12b-1 plan fees) of each Series to 1.05% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $37,064. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses; financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $96,359 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $9,571. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Through June 30, 2005, ADI had 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 (i) through (vi) discussed above) of Series II shares to 1.20% of average daily net assets. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $924 after ADI waived Plan fees of $595. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $3,812,208 $14,015,046 $(16,195,078) $ -- $1,632,176 $23,195 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 3,812,208 14,015,046 (16,195,078) -- 1,632,176 23,634 -- ================================================================================================================================== Total $7,624,416 $28,030,092 $(32,390,156) $ -- $3,264,352 $46,829 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </Table> AIM V.I. HIGH YIELD 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 six months ended June 30, 2005, the Fund engaged in securities purchases of $623,457 and sales of $2,813,026, which resulted in net realized gains of $131,412. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,145 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--BORROWINGS Pursuant to an exemptive order from the SEC, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. During the six months ended June 30, 2005, the interfund average borrowings for the 21 days the borrowings were outstanding, was $2,966,921 with a weighted average interest rate of 2.67% and interest expense of $4,550. 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. The Fund did not borrow under the facility during the six months ended June 30, 2005. 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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. AIM V.I. HIGH YIELD 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 six months ended June 30, 2005 was $22,941,540 and $40,457,029, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. 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 and $600,000 par value, Senior Unsecured Notes, 9.50%, which was due March 1, 2005. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees. Unrealized appreciation (depreciation) at June 30, 2005 was $(46,494). <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 3,739,447 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (1,315,971) =============================================================================== Net unrealized appreciation of investment securities $ 2,423,476 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $70,720,598. </Table> NOTE 9--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 6,444,023 $ 41,779,421 5,704,960 $ 34,991,504 - ---------------------------------------------------------------------------------------------------------------------- Series II 217,402 1,390,649 124,654 756,371 ====================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 431,771 2,776,287 - ---------------------------------------------------------------------------------------------------------------------- Series II -- -- 4,595 29,451 ====================================================================================================================== Issued in connection with acquisitions:(b) Series I -- -- 8,775,266 53,609,175 ====================================================================================================================== Reacquired: Series I (9,985,640) (64,787,005) (6,180,602) (37,866,692) - ---------------------------------------------------------------------------------------------------------------------- Series II (137,768) (887,020) (172,631) (1,048,960) ====================================================================================================================== (3,461,983) $(22,503,955) 8,688,013 $ 53,247,136 ______________________________________________________________________________________________________________________ ====================================================================================================================== </Table> (a) There are six entities that are the record owners of more than 5% of the outstanding shares of the Fund and in aggregate they own 76% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with 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 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.45 $ 5.97 $ 5.00 $ 5.31 $ 6.35 $ 9.02 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.21(a) 0.42(a) 0.49(a) 0.51(a) 0.70(b) 0.91 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.12) 0.23 0.91 (0.82) (1.01) (2.64) - --------------------------------------------------------------------------------------------------------------------------------- Net increase from payments by affiliates -- 0.02 -- -- -- -- ================================================================================================================================= Total from investment operations 0.09 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 $ 6.54 $ 6.45 $ 5.97 $ 5.00 $ 5.31 $ 6.35 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) 1.40% 11.25%(d) 28.04% (5.84)% (4.85)% (19.14)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $74,725 $96,602 $37,267 $24,984 $28,799 $26,151 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.06%(e) 1.04% 1.20% 1.30% 1.21% 1.13% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.15%(e) 1.04% 1.20% 1.30% 1.29% 1.19% ================================================================================================================================= Ratio of net investment income to average net assets 6.54%(e) 6.79% 8.54% 10.20% 11.39%(b) 11.44% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 30% 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 premiums 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 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) 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 annualized and based on average daily net assets of $81,283,975. (f) Not annualized for periods less than one year. AIM V.I. HIGH YIELD FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------------------------------- MARCH 26, 2002 SIX MONTHS YEAR ENDED (DATE SALES ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------- DECEMBER 31, 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.43 $ 5.95 $ 4.99 $ 5.27 - ----------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.20(a) 0.41(a) 0.49(a) 0.38(a) - ----------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.12) 0.24 0.90 (0.66) - ----------------------------------------------------------------------------------------------------------------------- Net increase from payments by affiliates -- 0.01 -- -- ======================================================================================================================= Total from investment operations 0.08 0.66 1.39 (0.28) ======================================================================================================================= Less dividends from net investment income -- (0.18) (0.43) -- ======================================================================================================================= Net asset value, end of period $ 6.51 $ 6.43 $ 5.95 $ 4.99 _______________________________________________________________________________________________________________________ ======================================================================================================================= Total return(b) 1.24% 11.14%(c) 27.89% (5.31)% _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,603 $1,072 $1,251 $ 142 _______________________________________________________________________________________________________________________ ======================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.21%(d) 1.24% 1.45% 1.45%(e) - ----------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.40%(d) 1.29% 1.45% 1.55%(e) ======================================================================================================================= Ratio of net investment income to average net assets 6.39%(d) 6.59% 8.29% 10.05%(e) _______________________________________________________________________________________________________________________ ======================================================================================================================= Portfolio turnover rate(f) 30% 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 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) 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%. (d) Ratios are annualized and based on average daily net assets of $1,225,168. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. NOTE 12--SUBSEQUENT EVENT A significant shareholder of the Fund has filed an application for an SEC substitution order and notified AIM of their intent to substitute their investment selection in the Fund with another fund. It is anticipated that this substitution will occur in September 2005 and will result in a significant redemption of Fund shares. The market value of the accounts anticipated to be redeemed were 21% of the Fund's net assets as of June 30, 2005. To the extent that the redemption occurs, AIM currently intends to settle the transaction with a pro rata redemption-in-kind. AIM V.I. HIGH YIELD 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, AIM V.I. HIGH YIELD FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. HIGH YIELD FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley Vice President J. Philip Ferguson Vice President Mark D. Greenberg Vice President William R. Keithler Vice President Karen Dunn Kelley Vice President COUNSEL TO THE FUND Foley & Lardner LLP 3000 K N.W., Suite 500 Washington, D.C. 20007-5111 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 DISTRIBUTOR A I M Distributors, Inc. 11 Greenway Plaza Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. HIGH YIELD FUND AIM V.I. INTERNATIONAL GROWTH FUND Semiannual Report to Shareholders o June 30, 2005 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. INTERNATIONAL GROWTH FUND <Table> MANAGEMENT'S DISCUSSION posts disappointing earnings OF FUND PERFORMANCE o a stock's price seems overvalued ====================================================================================== o a more attractive opportunity is PERFORMANCE SUMMARY ========================================= presented FUND VS. INDEXES Despite a strong U.S. dollar, which MARKET CONDITIONS AND YOUR FUND produced a currency headwind for the TOTAL RETURNS, 12/31/04-6/30/05, FUND, we were pleased to provide EXCLUDING VARIABLE PRODUCT ISSUER International markets rallied through the shareholders with positive returns for CHARGES. IF VARIABLE PRODUCT ISSUER first half of 2005--some posting the first six months of 2005. In CHARGES WERE INCLUDED, RETURNS WOULD BE double-digit returns--when calculated in addition, the Fund outperformed its LOWER. LOCAL currency (euros, yen, etc.) terms. benchmarks for the reporting period. We However, a strong U.S. dollar, driven by attribute the Fund's higher return to Series I Shares 0.86% interest rate hikes and the rejection of several factors including strong stock the European Union (EU) constitution in selection and our exposure to stocks in Series II Shares 0.82 France and the Netherlands, diminished Canada and Latin America, countries/ some of those gains for U.S.-based regions not represented in our broad MSCI Europe, Australasia and the investors. market or style-specific benchmarks. Far East Index (the MSCI EAFE Index) (Broad Market Index) -1.17 As mentioned earlier, we do not hedge currencies. We buy stocks in local MSCI EAFE Growth Index currency (euros, yen, etc.) then translate (Style-specific Index) -1.72 that value back into the Fund in U.S. dollars. Weaker foreign currencies--the Lipper International euro and yen lost approximately 10% and Multi-Cap Growth Fund Index 7%, respectively, to the U.S. dollar (Peer Group Index) 0.06 during the reporting period--proved a drag on Fund performance. Despite this, we are SOURCE: LIPPER, INC. pleased to provide shareholders with ========================================= modest gains--a testament, we believe, to our strategy of focusing on the strength ====================================================================================== of companies, not macroeconomic trends. HOW WE INVEST companies, rather than sector or country We believe there is often a disconnect trends. Our goal is a well-diversified, between macroeconomic events and micro We believe earnings drive stock prices reasonably priced, quality portfolio. We (stock) returns. To illustrate, despite and that companies generating adhere to our investment process slow economic growth in France, many of substantial, repeatable, above average regardless of the macroeconomic our French holdings contributed strongly earnings growth should provide long-term environment. to Fund performance, including VINCI. growth of capital. We do not hedge currencies because we One of the world's largest Therefore, when selecting stocks for believe currency exposure increases the construction and concession companies, your Fund, we look for large- and mid-cap diversification benefit of international Vinci appreciated more than 30% during foreign companies with the following investing. the first half of 2005 amid growth in the attributes: construction industry within We seek to minimize stock-specific o accelerating earnings and revenues risk by building a diversified portfolio with companies that have high earnings o strong cash flow generation (dividends, quality and reasonable valuations. share buybacks) We consider selling a stock if: o high return on invested capital o a company's fundamentals deteriorate or it o reasonable prices with low valuations We focus on strengths of individual ========================================= ========================================= ========================================= TOP 5 COUNTRIES* PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* 1. Japan 15.0% By sector 1. Total S.A. (France) 2.1% 2. United Kingdom 13.6 1. Financials 18.3% 2. Eni S.p.A. (Italy) 2.0 3. France 11.9 2. Consumer Discretionary 16.8 3. Vinci S.A. (France) 2.0 4. Canada 6.8 3. Industrials 11.3 4. Infosys Technologies Ltd. (India) 1.9 5. Switzerland 6.5 4. Consumer Staples 10.3 5. Imperial Tobacco Group PLC TOTAL NET ASSETS $390.3 MILLION 5. Information Technology 9.2 (United Kingdom) 1.8 TOTAL NUMBER OF HOLDINGS* 113 6. Energy 8.0 6. Anglo Irish Bank Corp. PLC (Ireland) 1.8 The Fund's holdings are subject to 7. Materials 6.8 change, and there is no assurance that 7. Tesco PLC (United Kingdom) 1.7 the Fund will continue to hold any 8. Health Care 6.7 particular security. 8. Syngenta A.G. (Switzerland) 1.7 9. Telecommunication Services 4.9 *Excluding money market fund holdings. 9. BNP Paribas S.A. (France) 1.5 10. Utilities 1.2 10. UBS A.G. (Switzerland) 1.5 Money Market Funds Plus Other Assets Less Liabilities 6.5 ========================================= ========================================= ========================================= </Table> 2 AIM V.I. INTERNATIONAL GROWTH FUND <Table> France. The company, which recently While foreign currency depreciation CLAS G. OLSSON, senior reported strong earnings growth, is also remained the primary drag on performance [OLSSON portfolio manager and head involved with road construction and during the reporting period, individual PHOTO] of AIM's International concessions (such as toll ways and pockets of weakness were also experienced Investment Management parking garages). Vinci is a good fit at the stock level. Unit, is lead manager of with our investment strategy as it is AIM V.I. International Growth Fund with highly cash generative and we believe it British retailer, NEXT PLC--one of our respect to the Fund's investments in will participate in further road best investments over the last few Europe and Canada. Mr. Olsson joined AIM privatization and consolidation in years--declined due to slower retail in 1994. Mr. Olsson became a commissioned Europe. growth in the U.K. as consumers responded naval officer at the Royal Swedish Naval to a number of rate hikes by the Bank of Academy in 1988. He also received a ... strong returns from England last year. The company's historic B.B.A. from The University of Texas at our holdings in Canada, five year growth rate of 25% slowed to Austin. Brazil and Mexico-- high single digits this year. Although countries which are not analyst consensus earnings estimates have BARRETT K. SIDES, senior part of the Fund's MSCI not changed and valuations remain [SIDES portfolio manager, is lead EAFE benchmarks-- attractive, we have trimmed our exposure PHOTO] manager of AIM V.I. provided the Fund with due to subdued growth prospects. We International Growth Fund a competitive edge. believe, however, that Next is one of the with respect to the Fund's highest quality companies in Europe and investments in Asia Pacific and Latin Although European stocks constitute therefore continue to own the stock. America. He joined AIM in 1990. Mr. Sides the largest regional allocation in the graduated with a B.S. in economics from Fund, we have less exposure to this Japanese automaker TOYOTA lost Bucknell University. He also received a region than our style-specific benchmark. momentum earlier this year. We continued master's in international business from Our underweight position is not to own the stock, however, as the company the University of St. Thomas. indicative of our lack of faith in the reported increased profits for the fiscal region. Rather, we continue to find year and an increase in its dividend. SHUXIN CAO, Chartered attractive opportunities in other Amid slowing exports and higher oil [CAO Financial Analyst, countries. prices, Japanese stocks--approximately PHOTO] portfolio manager,is half of the Fund's Asian assets as of manager of AIM V.I. For example, strong returns from our June 30, 2005--proved a drag on Fund International Growth Fund. holdings in Canada, Brazil and Mexico-- performance. He joined AIM in 1997. Mr. Cao graduated countries which are not part of the from Tianjin Foreign Language Institute Fund's MSCI EAFE benchmarks-- provided IN CLOSING with a B.A. in English. He also received the Fund with a competitive edge. Higher an M.B.A. from Texas A&M University and commodity prices helped boost economies Given strong cash inflows into is a Certified Public Accountant. and stock markets in these countries. international funds in 2005, investors are recognizing the merits of the asset MATTHEW W. DENNIS, On a sector basis, industrial, class and its diversification benefits. [DENNIS Chartered Financial consumer staple and energy stocks Foreign equities can offer an attractive PHOTO] Analyst, portfolio contributed the most to Fund performance. alternative to U.S. stocks: lower manager, is manager of AIM Our willingness to move into companies in valuations and often higher dividend V.I. International Growth countries outside our benchmark was yields. Despite the currency headwind Fund. He has been in the investment particularly relevant in the energy thus far in 2005, we are pleased to business since 1994. Mr. Dennis received sector. Three of our strongest energy provide shareholders with positive Fund a B.A. in economics from The University holdings were Canadian companies, returns for the reporting period. We of Texas at Austin. He also earned an including: thank you for your continued investment M.S. in finance from Texas A&M in AIM V.I. International Growth Fund. University. o Canadian Natural Resources Ltd. The views and opinions expressed in JASON T. HOLZER, Chartered o Suncor Energy, Inc. management's discussion of Fund [HOLZER Financial Analyst, senior performance are those of AI M Advisors, PHOTO] portfolio manager, is o EnCana Corp. Inc. These views and opinions are subject portfolio manager of AIM to change at any time based on factors V.I. International Growth Given record-high energy prices, these such as market and economic conditions. Fund. Mr. Holzer joined AIM in 1996. He oil and natural gas companies appreciated These views and opinions may not be received a B.A. in quantitative economics significantly during the reporting relied upon as investment advice or and an M.S. in engineering-economic period, enabling the Fund to outperform recommendations, or as an offer for a systems from Stanford University. the energy sector return of the MSCI EAFE particular security. The information is Growth Index. not a complete analysis of every aspect Assisted by Asia Pacific/Latin America of any market, country, industry, Team and Europe/Canada Team security or the Fund. Statements of fact are from sources considered reliable, but [RIGHT ARROW GRAPHIC] AI M Advisors, Inc. makes no representation or warranty as to their FOR A DISCUSSION OF RISKS OF INVESTING IN completeness or accuracy. Although YOUR FUND, INDEXES USED IN THIS REPORT historical performance is no guarantee of AND YOUR FUND'S LONG-TERM PERFORMANCE, future results, these insights may help PLEASE TURN THE PAGE. you understand our investment management philosophy. </Table> 3 AIM V.I. INTERNATIONAL GROWTH FUND YOUR FUND'S LONG-TERM PERFORMANCE <Table> ======================================== AVERAGE ANNUAL TOTAL RETURNS shares invest in the same portfolio of the Fund and are not intended to reflect As of 6/30/05 securities and will have substantially actual variable product values. They do similar performance, except to the not reflect sales charges, expenses and SERIES I SHARES extent that expenses borne by each class fees assessed in connection with a Inception (5/5/93) 7.52% differ. variable product. Sales charges, 10 Years 6.66 expenses and fees, which are determined 5 Years -2.99 The performance data quoted represent by the variable product issuers, will 1 Year 17.73 past performance and cannot guarantee vary and will lower the total return. comparable future results; current SERIES II SHARES performance may be lower or higher. Per NASD requirements, the most 10 Years 6.39% Please contact your variable product recent month-end performance data at the 5 Years -3.23 issuer or financial advisor for the most Fund level, excluding variable product 1 Year 17.50 recent month-end variable product charges, is available on this AIM performance. Performance figures reflect automated information line, ======================================== Fund expenses, reinvested distributions 866-702-4402. As mentioned above, for and changes in net asset value. the most recent month-end performance Returns since the inception date of Investment return and principal value including variable product charges, Series II shares are historical. All will fluctuate so that you may have a please contact your variable product other returns are the blended returns of gain or loss when you sell shares. issuer or financial advisor. the historical performance of Series II shares since their inception and the AIM V.I. International Growth Fund, a restated historical performance of series portfolio of AIM Variable Series I shares (for periods prior to Insurance Funds, is currently offered inception of Series II shares) adjusted through insurance companies issuing to reflect the higher Rule 12b-1 fees variable products. You cannot purchase applicable to Series II shares. The shares of the Fund directly. Performance inception date of Series II shares is figures given represent September 19, 2001. Series I and Series II PRINCIPAL RISKS OF INVESTING IN THE FUND Index, which represents the performance OTHER INFORMATION of foreign stocks tracked by Morgan International investing presents certain Stanley Capital International. The The returns shown in management's risks not associated with investing Growth portion measures performance of discussion of Fund performance are based solely in the United States. These companies with higher price/earnings on net asset values calculated for include risks relating to fluctuations ratios and higher forecasted growth shareholder transactions. Generally in the value of the U.S. dollar relative values. accepted accounting principles require to the values of other currencies, the adjustments to be made to the net assets custody arrangements made for the Fund's The unmanaged LIPPER INTERNATIONAL of the Fund at period end for financial foreign holdings, differences in MULTI-CAP GROWTH FUND INDEX represents reporting purposes, and as such, the net accounting, political risks and the an average of multi-cap international asset values for shareholder lesser degree of public information growth funds tracked by Lipper, Inc., an transactions and the returns based on required to be provided by non-U.S. independent mutual fund performance those net asset values may differ from companies. monitor, and is considered the net asset values and returns representative of international stocks. reported in the Financial Highlights. Investing in emerging markets involves Additionally, the returns and net asset greater risk and potential reward than The Fund is not managed to track the values shown throughout this report are investing in more established markets. performance of any particular index, at the Fund level only and do not including the indexes defined here, and include variable product issuer charges. ABOUT INDEXES USED IN THIS REPORT consequently, the performance of the If such charges were included, the total Fund may deviate significantly from the returns would be lower. The unmanaged MSCI Europe, Australasia performance of the indexes. and the Far East Index (the MSCI EAFE Industry classifications used in this - --Registered Trademark-- Index) is a A direct investment cannot be made in report are generally according to the group of foreign securities tracked by an index. Unless otherwise indicated, Global Industry Classification Standard, Morgan Stanley Capital International. 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 The unmanaged MSCI Europe, Australasia charges. Performance of an index of Morgan Stanley Capital International and the Far East Growth Index (the MSCI funds reflects fund expenses; Inc. and Standard & Poor's. EAFE--Registered Trademark-- Growth performance of a market index does not. Index) is a subset of the unmanaged MSCI EAFE </Table> 4 AIM V.I. INTERNATIONAL GROWTH FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate the As a shareholder of the Fund, you incur invested, to estimate the expenses that actual ending account balance or ongoing costs, including management you paid over the period. Simply divide expenses you paid for the period. You fees, distribution and/or service fees your account value by $1,000 (for may use this information to compare the (12b-1); and other Fund expenses. This example, an $8,600 account value divided ongoing costs of investing in the Fund example is intended to help you by $1,000 = 8.6), then multiply the and other funds. To do so, compare this understand your ongoing costs (in result by the number in the table under 5% hypothetical example with the 5% dollars) of investing in the Fund and to the heading entitled "Actual Expenses hypothetical examples that appear in the compare these costs with ongoing costs Paid During Period" to estimate the shareholder reports of the other funds. of investing in other mutual funds. The expenses you paid on your account during example is based on an investment of this period. Please note that the expenses shown $1,000 invested at the beginning of the in the table are meant to highlight your period and held for the entire period HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the January 1, 2005, through June 30, 2005. PURPOSES hypothetical information is useful in comparing ongoing costs, and will not The actual and hypothetical expenses The table below also provides help you determine the relative total in the examples below do not represent information about hypothetical account costs of owning different funds. the effect of any fees or other expenses values and hypothetical expenses based assessed in connection with a variable on the Fund's actual expense ratio and product; if they did, the expenses shown an assumed rate of return of 5% per year would be higher while the ending account before expenses, which is not the Fund's values shown would be lower. actual return. The Fund's actual cumulative total returns at net asset ACTUAL EXPENSES value after expenses for the six months ended June 30, 2005, appear in the table The table below provides information "Fund vs. Indexes" on the first page of about actual account values and actual management's discussion of Fund expenses. performance. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $1,000.00 $1,008.60 $5.48 $1,019.34 $5.51 Series II 1,000.00 1,008.20 6.72 1,018.10 6.76 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. INTERNATIONAL GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Fees relative to those of clients of Insurance Funds (the "Board") oversees by AIM. The Board reviewed the AIM with comparable investment the management of AIM V.I. International credentials and experience of the strategies. The Board reviewed the Growth Fund (the "Fund") and, as officers and employees of AIM who will advisory fee rate for the Fund under the required by law, determines annually provide investment advisory services to Advisory Agreement. The Board noted that whether to approve the continuance of the Fund. In reviewing the this rate (i) was lower than the the Fund's advisory agreement with AI M qualifications of AIM to provide advisory fee rates for a mutual fund Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board advised by AIM with investment recommendation of the Investments reviewed the qualifications of AIM's strategies comparable to those of the Committee of the Board, which is investment personnel and considered such Fund; and (ii) was higher than the comprised solely of independent issues as AIM's portfolio and product advisory fee rates for nine separately trustees, at a meeting held on June 30, review process, various back office managed wrap accounts managed by an AIM 2005, the Board, including all of the support functions provided by AIM and affiliate with investment strategies independent trustees, approved the AIM's equity and fixed income trading comparable to those of the Fund. The continuance of the advisory agreement operation. Based on the review of these Board noted that AIM has agreed to waive (the "Advisory Agreement") between the and other factors, the Board concluded advisory fees of the Fund and to limit Fund and AIM for another year, effective that the quality of services to be the Fund's total operating expenses, as July 1, 2005. provided by AIM was appropriate and that discussed below. Based on this review, AIM currently is providing satisfactory the Board concluded that the advisory The Board considered the factors services in accordance with the terms of fee rate for the Fund under the Advisory discussed below in evaluating the the Advisory Agreement. Agreement was fair and reasonable. fairness and reasonableness of the Advisory Agreement at the meeting on o The performance of the Fund relative o Fees relative to those of comparable June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed funds with other advisors. The Board ongoing oversight of the Fund. In their the performance of the Fund during the reviewed the advisory fee rate for the deliberations, the Board and the past one, three and five calendar years Fund under the Advisory Agreement. The independent trustees did not identify against the performance of funds advised Board compared effective contractual any particular factor that was by other advisors with investment advisory fee rates at a common asset controlling, and each trustee attributed strategies comparable to those of the level and noted that the Fund's rate was different weights to the various Fund. The Board noted that the Fund's above the median rate of the funds factors. performance for the one, three and five advised by other advisors with year periods was above the median investment strategies comparable to One of the responsibilities of the performance of such comparable funds. those of the Fund that the Board Senior Officer of the Fund, who is Based on this review, the Board reviewed. The Board noted that AIM has independent of AIM and AIM's affiliates, concluded that no changes should be made agreed to waive advisory fees of the is to manage the process by which the to the Fund and that it was not Fund and to limit the Fund's total Fund's proposed management fees are necessary to change the Fund's portfolio operating expenses, as discussed below. negotiated to ensure that they are management team at this time. Based on this review, the Board negotiated in a manner which is at arm's concluded that the advisory fee rate for length and reasonable. To that end, the o The performance of the Fund relative the Fund under the Advisory Agreement Senior Officer must either supervise a to indices. The Board reviewed the was fair and reasonable. competitive bidding process or prepare performance of the Fund during the past an independent written evaluation. The one, three and five calendar years o Expense limitations and fee waivers. Senior Officer has recommended an against the performance of the Lipper The Board noted that AIM has independent written evaluation in lieu International Multi-Cap Growth Fund contractually agreed to waive advisory of a competitive bidding process and, Index. The Board noted that the Fund's fees of the Fund through June 30, 2006 upon the direction of the Board, has performance was above the performance of to the extent necessary so that the prepared such an independent written such Index for the one and three year advisory fees payable by the Fund do not evaluation. Such written evaluation also periods and below the Index performance exceed a specified maximum advisory fee considered certain of the factors for the five year period. Based on this rate, which maximum rate includes discussed below. In addition, as review, the Board concluded that no breakpoints and is based on net asset discussed below, the Senior Officer made changes should be made to the Fund and levels. The Board considered the certain recommendations to the Board in that it was not necessary to change the contractual nature of this fee waiver connection with such written evaluation. Fund's portfolio management team at this and noted that it remains in effect time. until June 30, 2006. The Board noted The discussion below serves as a that AIM has contractually agreed to summary of the Senior Officer's o Meeting with the Fund's portfolio waive fees and/or limit expenses of the independent written evaluation and managers and investment personnel. With Fund through April 30, 2006 in an amount recommendations to the Board in respect to the Fund, the Board is necessary to limit total annual connection therewith, as well as a meeting periodically with such Fund's operating expenses to a specified discussion of the material factors and portfolio managers and/or other percentage of average daily net assets the conclusions with respect thereto investment personnel and believes that for each class of the Fund. The Board that formed the basis for the Board's such individuals are competent and able considered the contractual nature of approval of the Advisory Agreement. to continue to carry out their this fee waiver/expense limitation and After consideration of all of the responsibilities under the Advisory noted that it remains in effect until factors below and based on its informed Agreement. April 30, 2006. The Board considered the business judgment, the Board determined effect these fee waivers/expense that the Advisory Agreement is in the o Overall performance of AIM. The Board limitations would have on the Fund's best interests of the Fund and its considered the overall performance of estimated expenses and concluded that shareholders and that the compensation AIM in providing investment advisory and the levels of fee waivers/expense to AIM under the Advisory Agreement is portfolio administrative services to the limitations for the Fund were fair and fair and reasonable and would have been Fund and concluded that such performance reasonable. obtained through arm's length was satisfactory. negotiations. (continued) o The nature and extent of the advisory services to be provided by AIM. The Board reviewed the services to be provided by AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. </Table> 6 AIM V.I. INTERNATIONAL GROWTH FUND <Table> o Breakpoints and economies of scale. o Independent written evaluation and o Historical relationship between the The Board reviewed the structure of the recommendations of the Fund's Senior Fund and AIM. In determining whether to Fund's advisory fee under the Advisory Officer. The Board noted that, upon continue the Advisory Agreement for the Agreement, noting that it includes one their direction, the Senior Officer of Fund, the Board also considered the breakpoint. The Board reviewed the level the Fund had prepared an independent prior relationship between AIM and the of the Fund's advisory fees, and noted written evaluation in order to assist Fund, as well as the Board's knowledge that such fees, as a percentage of the the Board in determining the of AIM's operations, and concluded that Fund's net assets, have decreased as net reasonableness of the proposed it was beneficial to maintain the assets increased because the Advisory management fees of the AIM Funds, current relationship, in part, because Agreement includes a breakpoint. The including the Fund. The Board noted that of such knowledge. The Board also Board noted that AIM has contractually the Senior Officer's written evaluation reviewed the general nature of the agreed to waive advisory fees of the had been relied upon by the Board in this non-investment advisory services Fund through June 30, 2006 to the extent regard in lieu of a competitive bidding currently performed by AIM and its necessary so that the advisory fees process. In determining whether to affiliates, such as administrative, payable by the Fund do not exceed a continue the Advisory Agreement for the transfer agency and distribution specified maximum advisory fee rate, Fund, the Board considered the Senior services, and the fees received by AIM which maximum rate includes breakpoints Officer's written evaluation and the and its affiliates for performing such and is based on net asset levels. The recommendation made by the Senior services. In addition to reviewing such Board concluded that the Fund's fee Officer to the Board that the Board services, the trustees also considered levels under the Advisory Agreement consider implementing a process to the organizational structure employed by therefore reflect economies of scale and assist them in more closely monitoring AIM and its affiliates to provide those that it was not necessary to change the the performance of the AIM Funds. The services. Based on the review of these advisory fee breakpoints in the Fund's Board concluded that it would be and other factors, the Board concluded advisory fee schedule. advisable to implement such a process as that AIM and its affiliates were soon as reasonably practicable. qualified to continue to provide o Investments in affiliated money market non-investment advisory services to the funds. The Board also took into account o Profitability of AIM and its Fund, including administrative, transfer the fact that uninvested cash and cash affiliates. The Board reviewed agency and distribution services, and collateral from securities lending information concerning the profitability that AIM and its affiliates currently arrangements (collectively, "cash of AIM's (and its affiliates') are providing satisfactory balances") of the Fund may be invested investment advisory and other activities non-investment advisory services. in money market funds advised by AIM and its financial condition. The Board pursuant to the terms of an SEC considered the overall profitability of o Other factors and current trends. In exemptive order. The Board found that AIM, as well as the profitability of AIM determining whether to continue the the Fund may realize certain benefits in connection with managing the Fund. Advisory Agreement for the Fund, the upon investing cash balances in AIM The Board noted that AIM's operations Board considered the fact that AIM, advised money market funds, including a remain profitable, although increased along with others in the mutual fund higher net return, increased liquidity, expenses in recent years have reduced industry, is subject to regulatory increased diversification or decreased AIM's profitability. Based on the review inquiries and litigation related to a transaction costs. The Board also found of the profitability of AIM's and its wide range of issues. The Board also that the Fund will not receive reduced affiliates' investment advisory and other considered the governance and compliance services if it invests its cash balances activities and its financial condition, reforms being undertaken by AIM and its in such money market funds. The Board the Board concluded that the affiliates, including maintaining an noted that, to the extent the Fund compensation to be paid by the Fund to internal controls committee and invests in affiliated money market AIM under its Advisory Agreement was not retaining an independent compliance funds, AIM has voluntarily agreed to excessive. consultant, and the fact that AIM has waive a portion of the advisory fees it undertaken to cause the Fund to operate receives from the Fund attributable to o Benefits of soft dollars to AIM. The in accordance with certain governance such investment. The Board further Board considered the benefits realized policies and practices. The Board determined that the proposed securities by AIM as a result of brokerage concluded that these actions indicated a lending program and related procedures transactions executed through "soft good faith effort on the part of AIM to with respect to the lending Fund is in dollar" arrangements. Under these adhere to the highest ethical standards, the best interests of the lending Fund arrangements, brokerage commissions paid and determined that the current and its respective shareholders. The by the Fund and/or other funds advised regulatory and litigation environment to Board therefore concluded that the by AIM are used to pay for research and which AIM is subject should not prevent investment of cash collateral received execution services. This research is the Board from continuing the Advisory in connection with the securities used by AIM in making investment Agreement for the Fund. lending program in the money market decisions for the Fund. The Board funds according to the procedures is in concluded that such arrangements were the best interests of the lending Fund appropriate. and its respective shareholders. o AIM's financial soundness in light of the Fund's needs. The Board considered whether AIM is financially sound and has the resources necessary to perform its obligations under the Advisory Agreement, and concluded that AIM has the financial resources necessary to fulfill its obligations under the Advisory Agreement. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS-93.49% AUSTRALIA-3.66% BHP Billiton Ltd. (Diversified Metals & Mining)(a) 433,700 $ 5,925,620 - ------------------------------------------------------------------------ Brambles Industries Ltd. (Diversified Commercial & Professional Services)(a)(b) 339,100 2,100,853 - ------------------------------------------------------------------------ Coca-Cola Amatil Ltd. (Soft Drinks)(a)(b) 337,100 2,022,319 - ------------------------------------------------------------------------ Promina Group Ltd. (Property & Casualty Insurance)(a)(b) 523,900 1,871,569 - ------------------------------------------------------------------------ QBE Insurance Group Ltd. (Property & Casualty Insurance)(a)(b) 194,100 2,361,661 ======================================================================== 14,282,022 ======================================================================== BELGIUM-1.23% KBC Group N.V. (Diversified Banks)(a) 60,985 4,810,722 ======================================================================== BERMUDA-0.72% Esprit Holdings Ltd. (Apparel Retail)(a) 391,500 2,823,113 ======================================================================== BRAZIL-0.93% Companhia de Bebidas das Americas-ADR (Brewers) 18,460 469,992 - ------------------------------------------------------------------------ Companhia de Bebidas das Americas-Pfd.-ADR (Brewers) 102,600 3,170,340 ======================================================================== 3,640,332 ======================================================================== CANADA-6.76% Canadian National Railway Co. (Railroads) 66,550 3,839,016 - ------------------------------------------------------------------------ Canadian Natural Resources Ltd. (Oil & Gas Exploration & Production) 93,500 3,388,206 - ------------------------------------------------------------------------ EnCana Corp. (Oil & Gas Exploration & Production) 84,800 3,349,782 - ------------------------------------------------------------------------ Manulife Financial Corp. (Life & Health Insurance) 111,400 5,319,742 - ------------------------------------------------------------------------ Power Corp. of Canada (Other Diversified Financial Services) 87,900 2,203,867 - ------------------------------------------------------------------------ Shoppers Drug Mart Corp. (Drug Retail) 77,400 2,684,758 - ------------------------------------------------------------------------ Shoppers Drug Mart Corp. (Drug Retail)(c) 25,000 867,170 - ------------------------------------------------------------------------ Suncor Energy, Inc. (Integrated Oil & Gas) 100,200 4,736,653 ======================================================================== 26,389,194 ======================================================================== FRANCE-11.89% BNP Paribas S.A. (Diversified Banks)(a) 87,890 6,003,104 - ------------------------------------------------------------------------ Bouygues S.A. (Wireless Telecommunication Services)(a) 89,300 3,691,707 - ------------------------------------------------------------------------ Lafarge S.A. (Construction Materials)(a) 24,824 2,256,449 - ------------------------------------------------------------------------ Pernod Ricard S.A. (Distillers & Vintners)(a)(b) 26,697 4,261,935 - ------------------------------------------------------------------------ Sanofi-Aventis (Pharmaceuticals)(a) 38,700 3,169,575 - ------------------------------------------------------------------------ Societe Generale (Diversified Banks)(a) 45,300 4,593,755 - ------------------------------------------------------------------------ </Table> <Table> MARKET SHARES VALUE - ------------------------------------------------------------------------ <Caption> FRANCE-(CONTINUED) Technip S.A. (Oil & Gas Equipment & Services) (Acquired 12/16/04-12/20/04; Cost $1,816,177)(a)(b)(d) 40,800 $ 1,892,965 - ------------------------------------------------------------------------ Total S.A. (Integrated Oil & Gas)(a) 35,405 8,284,965 - ------------------------------------------------------------------------ Veolia Environnement (Multi-Utilities)(a) 48,450 1,813,671 - ------------------------------------------------------------------------ Vinci S.A. (Construction & Engineering)(a)(b) 91,720 7,622,585 - ------------------------------------------------------------------------ Vivendi Universal S.A. (Movies & Entertainment)(a) 90,100 2,823,703 ======================================================================== 46,414,414 ======================================================================== GERMANY-4.93% Adidas-Salomon A.G. (Apparel, Accessories & Luxury Goods)(a) 30,150 5,029,411 - ------------------------------------------------------------------------ Continental A.G. (Tires & Rubber)(a) 29,900 2,144,012 - ------------------------------------------------------------------------ Henkel KGaA-Pfd. (Household Products)(a)(b) 20,100 1,795,611 - ------------------------------------------------------------------------ MAN A.G. (Industrial Machinery)(a)(b) 43,000 1,777,584 - ------------------------------------------------------------------------ Merck KGaA (Pharmaceuticals)(a) 28,000 2,223,695 - ------------------------------------------------------------------------ Porsche A.G.-Pfd. (Automobile Manufacturers)(a)(b) 2,680 2,007,868 - ------------------------------------------------------------------------ Puma A.G. Rudolf Dassler Sport (Footwear)(a) 17,179 4,245,214 ======================================================================== 19,223,395 ======================================================================== GREECE-1.94% Alpha Bank A.E. (Diversified Banks)(a) 32,680 869,429 - ------------------------------------------------------------------------ EFG Eurobank Ergasias (Diversified Banks)(a) 61,300 1,885,853 - ------------------------------------------------------------------------ OPAP S.A. (Casinos & Gaming)(a) 167,000 4,824,948 ======================================================================== 7,580,230 ======================================================================== HONG KONG-1.99% Cheung Kong (Holdings) Ltd. (Real Estate Management & Development)(a) 294,000 2,851,558 - ------------------------------------------------------------------------ Hutchison Whampoa Ltd. (Industrial Conglomerates)(a) 305,000 2,745,137 - ------------------------------------------------------------------------ Sun Hung Kai Properties Ltd. (Real Estate Management & Development)(a) 222,000 2,183,483 ======================================================================== 7,780,178 ======================================================================== HUNGARY-1.23% OTP Bank Rt. (Diversified Banks)(a) 142,300 4,815,161 ======================================================================== INDIA-2.49% Housing Development Finance Corp. Ltd. (Thrifts & Mortgage Finance)(a) 118,364 2,400,209 - ------------------------------------------------------------------------ Infosys Technologies Ltd. (IT Consulting & Other Services)(a) 135,180 7,321,516 ======================================================================== 9,721,725 ======================================================================== </Table> AIM V.I. INTERNATIONAL GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ INDONESIA-0.01% PT Lippo Bank Tbk (Diversified Banks)(a)(e) 228,137 $ 27,474 ======================================================================== IRELAND-2.67% Anglo Irish Bank Corp. PLC (Diversified Banks)(a) 555,742 6,880,359 - ------------------------------------------------------------------------ CRH PLC (Construction Materials)(a) 134,630 3,540,159 ======================================================================== 10,420,518 ======================================================================== ISRAEL-0.70% Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals)(b) 88,200 2,746,548 ======================================================================== ITALY-3.64% Banca Intesa S.p.A. (Diversified Banks)(a) 422,800 1,930,230 - ------------------------------------------------------------------------ Eni S.p.A. (Integrated Oil & Gas)(a) 301,300 7,742,112 - ------------------------------------------------------------------------ Mediaset S.p.A. (Broadcasting & Cable TV)(a) 383,900 4,515,312 ======================================================================== 14,187,654 ======================================================================== JAPAN-15.00% Astellas Pharma Inc. (Pharmaceuticals)(a) 124,000 4,223,358 - ------------------------------------------------------------------------ Canon Inc. (Office Electronics)(a)(b) 74,800 3,920,607 - ------------------------------------------------------------------------ Daiwa House Industry Co., Ltd. (Homebuilding)(a) 211,000 2,403,987 - ------------------------------------------------------------------------ Fanuc Ltd. (Industrial Machinery)(a) 53,800 3,403,294 - ------------------------------------------------------------------------ Hoya Corp. (Electronic Equipment Manufacturers)(a) 46,000 5,284,807 - ------------------------------------------------------------------------ JSR Corp. (Specialty Chemicals)(a)(b) 125,000 2,615,678 - ------------------------------------------------------------------------ Keyence Corp. (Electronic Equipment Manufacturers)(a) 20,300 4,525,441 - ------------------------------------------------------------------------ Nidec Corp. (Electronic Equipment Manufacturers)(a) 21,900 2,308,520 - ------------------------------------------------------------------------ Nissan Motor Co., Ltd. (Automobile Manufacturers)(a) 187,100 1,849,678 - ------------------------------------------------------------------------ Nitto Denko Corp. (Specialty Chemicals)(a)(b) 49,400 2,814,743 - ------------------------------------------------------------------------ OMRON Corp. (Electronic Equipment Manufacturers)(a) 82,800 1,819,945 - ------------------------------------------------------------------------ Orix Corp. (Consumer Finance)(a) 16,100 2,404,049 - ------------------------------------------------------------------------ Sekisui Chemical Co., Ltd. (Homebuilding)(a) 435,000 2,981,659 - ------------------------------------------------------------------------ SMC Corp. (Industrial Machinery)(a) 16,900 1,832,185 - ------------------------------------------------------------------------ Suzuki Motor Corp. (Automobile Manufacturers)(a) 104,800 1,641,386 - ------------------------------------------------------------------------ Takeda Pharmaceutical Co. Ltd. (Pharmaceuticals)(a) 90,200 4,460,193 - ------------------------------------------------------------------------ Toyota Motor Corp. (Automobile Manufacturers)(a) 126,600 4,517,821 - ------------------------------------------------------------------------ Trend Micro Inc. (Application Software)(a) 62,300 2,210,742 - ------------------------------------------------------------------------ Yamaha Motor Co., Ltd. (Motorcycle Manufacturers)(a) 181,500 3,318,685 ======================================================================== 58,536,778 ======================================================================== MEXICO-2.37% America Movil S.A. de C.V.-Series L-ADR (Wireless Telecommunication Services) 72,236 4,305,988 - ------------------------------------------------------------------------ Grupo Televisa S.A.-ADR (Broadcasting & Cable TV) 27,500 1,707,475 - ------------------------------------------------------------------------ Wal-Mart de Mexico S.A. de C.V.-Series V (Hypermarkets & Super Centers) 799,300 3,253,039 ======================================================================== 9,266,502 ======================================================================== </Table> <Table> MARKET SHARES VALUE - ------------------------------------------------------------------------ <Caption> NETHERLANDS-1.89% DSM N.V. (Specialty Chemicals)(a) 39,000 $ 2,666,225 - ------------------------------------------------------------------------ Royal Numico N.V. (Packaged Foods & Meats)(a)(e) 55,100 2,200,126 - ------------------------------------------------------------------------ TNT N.V. (Air Freight & Logistics)(a) 98,700 2,496,666 ======================================================================== 7,363,017 ======================================================================== NORWAY-0.24% Telenor A.S.A. (Integrated Telecommunication Services)(a) 117,600 935,152 ======================================================================== SINGAPORE-2.22% DBS Group Holdings Ltd. (Diversified Banks)(a) 212,000 1,793,652 - ------------------------------------------------------------------------ Keppel Corp. Ltd. (Industrial Conglomerates)(a) 432,000 3,191,668 - ------------------------------------------------------------------------ Singapore Airlines Ltd. (Airlines)(a) 229,000 1,518,962 - ------------------------------------------------------------------------ United Overseas Bank Ltd. (Diversified Banks)(a) 253,001 2,127,721 - ------------------------------------------------------------------------ United Overseas Land Ltd. (Real Estate Management & Development)(a) 25,300 34,160 ======================================================================== 8,666,163 ======================================================================== SOUTH AFRICA-0.54% Standard Bank Group Ltd. (Diversified Banks)(a) 216,281 2,094,356 ======================================================================== SOUTH KOREA-0.80% Samsung Electronics Co., Ltd. (Semiconductors)(a) 6,560 3,106,786 ======================================================================== SPAIN-2.70% ACS, Actividades de Construccion y Servicios, S.A. (Construction & Engineering)(a) 112,000 3,128,744 - ------------------------------------------------------------------------ Grupo Ferrovial, S.A. (Construction & Engineering)(a) 45,100 2,902,063 - ------------------------------------------------------------------------ Industria de Diseno Textil, S.A. (Apparel Retail)(a) 111,075 2,854,274 - ------------------------------------------------------------------------ Telefonica, S.A. (Integrated Telecommunication Services)(a) 101,400 1,654,271 ======================================================================== 10,539,352 ======================================================================== SWEDEN-1.44% Assa Abloy A.B.-Class B (Building Products)(a)(b) 112,850 1,448,113 - ------------------------------------------------------------------------ Volvo A.B.-Class B (Construction & Farm Machinery & Heavy Trucks)(a) 103,080 4,184,619 ======================================================================== 5,632,732 ======================================================================== SWITZERLAND-6.46% Compagnie Financiere Richemont A.G.-Class A (Apparel, Accessories & Luxury Goods)(a)(f) 148,300 4,971,778 - ------------------------------------------------------------------------ Roche Holding A.G. (Pharmaceuticals)(a) 45,810 5,779,268 - ------------------------------------------------------------------------ Swatch Group A.G. (The)-Class B (Apparel, Accessories & Luxury Goods)(a) 13,270 1,858,145 - ------------------------------------------------------------------------ Syngenta A.G. (Fertilizers & Agricultural Chemicals)(a)(e) 64,685 6,617,188 - ------------------------------------------------------------------------ UBS A.G. (Diversified Capital Markets)(a) 76,900 5,993,816 ======================================================================== 25,220,195 ======================================================================== </Table> AIM V.I. INTERNATIONAL GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ TAIWAN-1.41% Hon Hai Precision Industry Co., Ltd. (Computer Storage & Peripherals)(a) 599,649 $ 3,108,169 - ------------------------------------------------------------------------ Taiwan Semiconductor Manufacturing Co. Ltd.-ADR (Semiconductors) 260,339 2,374,292 ======================================================================== 5,482,461 ======================================================================== THAILAND-0.01% Siam Commercial Bank PCL (Diversified Banks)(a) 32,800 37,148 ======================================================================== UNITED KINGDOM-13.62% Aviva PLC (Multi-Line Insurance)(a) 342,783 3,806,206 - ------------------------------------------------------------------------ BP PLC (Integrated Oil & Gas)(a) 181,800 1,890,667 - ------------------------------------------------------------------------ Capita Group PLC (Human Resource & Employment Services)(a) 276,000 1,814,717 - ------------------------------------------------------------------------ Enterprise Inns PLC (Restaurants)(a) 225,900 3,369,106 - ------------------------------------------------------------------------ GUS PLC (Catalog Retail)(a) 50,900 800,825 - ------------------------------------------------------------------------ Imperial Tobacco Group PLC (Tobacco)(a) 261,720 7,033,152 - ------------------------------------------------------------------------ International Power PLC (Independent Power Producers & Energy Traders)(a) 808,000 2,975,568 - ------------------------------------------------------------------------ Next PLC (Department Stores)(a) 135,650 3,655,944 - ------------------------------------------------------------------------ O2 PLC (Wireless Telecommunication Services)(e) 1,568,900 3,829,985 - ------------------------------------------------------------------------ Reckitt Benckiser PLC (Household Products)(a) 189,870 5,577,441 - ------------------------------------------------------------------------ Royal Bank of Scotland Group PLC (Diversified Banks)(a) 75,490 2,272,921 - ------------------------------------------------------------------------ Shire Pharmaceuticals Group PLC (Pharmaceuticals)(a) 329,100 3,593,578 - ------------------------------------------------------------------------ </Table> <Table> MARKET SHARES VALUE - ------------------------------------------------------------------------ <Caption> UNITED KINGDOM-(CONTINUED) Tesco PLC (Food Retail)(a) 1,176,921 $ 6,704,958 - ------------------------------------------------------------------------ Vodafone Group PLC (Wireless Telecommunication Services)(a) 1,855,760 4,511,840 - ------------------------------------------------------------------------ William Hill PLC (Casinos & Gaming)(a) 139,080 1,339,076 ======================================================================== 53,175,984 ======================================================================== Total Foreign Stocks & Other Equity Interests (Cost $263,339,687) 364,919,306 ======================================================================== MONEY MARKET FUNDS-6.06% Liquid Assets Portfolio-Institutional Class(g) 11,817,722 11,817,722 - ------------------------------------------------------------------------ STIC Prime Portfolio-Institutional Class(g) 11,817,722 11,817,722 ======================================================================== Total Money Market Funds (Cost $23,635,444) 23,635,444 ======================================================================== TOTAL INVESTMENTS-99.55% (excluding investments purchased with cash collateral from securities loaned) (Cost $286,975,131) 388,554,750 ======================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED MONEY MARKET FUNDS-6.09% Liquid Assets Portfolio-Institutional Class(g)(h) 11,893,753 11,893,753 - ------------------------------------------------------------------------ STIC Prime Portfolio-Institutional Class(g)(h) 11,893,752 11,893,752 ======================================================================== Total Money Market Funds (purchased with cash collateral from securities loaned) (Cost $23,787,505) 23,787,505 ======================================================================== TOTAL INVESTMENTS-105.64% (Cost $310,762,636) 412,342,255 ======================================================================== OTHER ASSETS LESS LIABILITIES-(5.64%) (22,026,039) ======================================================================== NET ASSETS-100.00% $390,316,216 ________________________________________________________________________ ======================================================================== </Table> Investment Abbreviations: <Table> ADR - American Depositary Receipt Pfd. - Preferred </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 June 30, 2005 was $316,672,453, which represented 76.80% 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 June 30, 2005. (c) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The market value of this security at June 30, 2005 represented 0.21% of the Fund's Total Investments. See Note 1A. (d) Security not registered under the Securities Act of 1933, as amended (e.g., the security was purchased in a Rule 144A transaction or a Regulation D transaction). The security may be resold only pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The Fund has no rights to demand registration of these securities. The market value of this security at June 30, 2005 represented 0.48% of the Fund's Net Assets. This security is not considered to be illiquid. (e) Non-income producing security. (f) Each unit represents one A bearer share in the company and one bearer share participation certificate in Richemont S.A. (g) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. (h) The security has been segregated to satisfy the forward commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 6. See accompanying notes which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $263,339,687)* $364,919,306 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $47,422,949) 47,422,949 ============================================================= Total investments (cost $310,762,636) 412,342,255 ============================================================= Foreign currencies, at market value (cost $685,844) 707,683 - ------------------------------------------------------------- Receivables for: Investments sold 846,648 - ------------------------------------------------------------- Fund shares sold 440,320 - ------------------------------------------------------------- Dividends 962,440 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 48,145 - ------------------------------------------------------------- Other assets 3,918 ============================================================= Total assets 415,351,409 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Fund shares reacquired 689,720 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 67,461 - ------------------------------------------------------------- Collateral upon return of securities loaned 23,787,505 - ------------------------------------------------------------- Accrued administrative services fees 405,851 - ------------------------------------------------------------- Accrued distribution fees -- Series II 18,468 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 143 - ------------------------------------------------------------- Accrued transfer agent fees 1,711 - ------------------------------------------------------------- Accrued operating expenses 64,334 ============================================================= Total liabilities 25,035,193 ============================================================= Net assets applicable to shares outstanding $390,316,216 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $353,832,778 - ------------------------------------------------------------- Undistributed net investment income 6,254,166 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (71,360,783) - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 101,590,055 ============================================================= $390,316,216 _____________________________________________________________ ============================================================= NET ASSETS: Series I $357,978,609 _____________________________________________________________ ============================================================= Series II $ 32,337,607 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 17,948,431 _____________________________________________________________ ============================================================= Series II 1,632,704 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 19.94 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 19.81 _____________________________________________________________ ============================================================= </Table> * At June 30, 2005, securities with an aggregate market value of $22,664,386 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $610,114) $ 5,337,478 - ------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $71,760 after compensation to counterparties of $285,595) 405,545 - ------------------------------------------------------------- Interest 2,929 ============================================================= Total investment income 5,745,952 ============================================================= EXPENSES: Advisory fees 1,370,786 - ------------------------------------------------------------- Administrative services fees 452,427 - ------------------------------------------------------------- Custodian fees 171,112 - ------------------------------------------------------------- Distribution fees -- Series II 33,155 - ------------------------------------------------------------- Transfer agent fees 16,646 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 11,540 - ------------------------------------------------------------- Other 31,297 ============================================================= Total expenses 2,086,963 ============================================================= Less: Fees waived (3,169) ============================================================= Net expenses 2,083,794 ============================================================= Net investment income 3,662,158 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities 15,266,006 - ------------------------------------------------------------- Foreign currencies (151,331) ============================================================= 15,114,675 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (15,305,084) - ------------------------------------------------------------- Foreign currencies (75,240) ============================================================= (15,380,324) ============================================================= Net gain (loss) from investment securities and foreign currencies (265,649) ============================================================= Net increase in net assets resulting from operations $ 3,396,509 _____________________________________________________________ ============================================================= </Table> 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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 3,662,158 $ 2,817,044 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and foreign currencies 15,114,675 21,621,475 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (15,380,324) 46,235,227 ========================================================================================== Net increase in net assets resulting from operations 3,396,509 70,673,746 ========================================================================================== Distributions to shareholders from net investment income: Series I -- (2,025,065) - ------------------------------------------------------------------------------------------ Series II -- (98,282) ========================================================================================== Decrease in net assets resulting from distributions -- (2,123,347) ========================================================================================== Share transactions-net: Series I 8,218,226 (9,205,473) - ------------------------------------------------------------------------------------------ Series II 10,599,606 7,105,347 ========================================================================================== Net increase (decrease) in net assets resulting from share transactions 18,817,832 (2,100,126) ========================================================================================== Net increase in net assets 22,214,341 66,450,273 ========================================================================================== NET ASSETS: Beginning of period 368,101,875 301,651,602 ========================================================================================== End of period (including undistributed net investment income of $6,254,166 and $2,592,008, respectively) $390,316,216 $368,101,875 __________________________________________________________________________________________ ========================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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 AIM V.I. INTERNATIONAL GROWTH FUND 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 and domestic and foreign index futures. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - --------------------------------------------------------------------- First $250 million 0.75% - --------------------------------------------------------------------- Over $250 million 0.70% _____________________________________________________________________ ===================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described AIM V.I. INTERNATIONAL GROWTH FUND more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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). AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $3,169. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $47,962 for accounting and fund administrative services and reimbursed $404,465 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $16,646. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $33,155. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $13,314,230 $26,212,391 $(27,708,899) $ -- $11,817,722 $166,078 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 13,314,230 26,212,391 (27,708,899) -- 11,817,722 167,707 -- ================================================================================================================================== Subtotal $26,628,460 $52,424,782 $(55,417,798) $ -- $23,635,444 $333,785 $ -- ================================================================================================================================== </Table> AIM V.I. INTERNATIONAL GROWTH FUND INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME* - -------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $18,094,922 $ 70,239,182 $ (76,440,351) $ -- 11,893,753 $ 35,634 - -------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 18,094,922 69,371,217 (75,572,387) -- 11,893,752 36,126 ========================================================================================================================== Subtotal $36,189,844 $139,610,399 $(152,012,738) $ -- $23,787,505 $ 71,760 ========================================================================================================================== Total $62,818,304 $192,035,181 $(207,430,536) $ -- $47,422,949 $405,545 __________________________________________________________________________________________________________________________ ========================================================================================================================== <Caption> REALIZED FUND GAIN (LOSS) - --------------- Liquid Assets Portfolio- Institutional Class $ -- - --------------- STIC Prime Portfolio- Institutional Class -- =============== Subtotal $ -- =============== Total $ -- _______________ =============== </Table> * Net of compensation to counterparties. NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,652 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 six months ended June 30, 2005, 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--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 June 30, 2005, securities with an aggregate value of $22,664,386 were on loan to brokers. The loans were secured by cash collateral of $23,787,505 received by the Fund and subsequently invested in affiliated money market funds. For the six months ended June 30, 2005, the Fund received dividends on cash collateral of $71,760 for securities lending transactions, which are net of compensation to counterparties. AIM V.I. INTERNATIONAL GROWTH FUND NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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. The Fund had 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 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 six months ended June 30, 2005 was $88,563,927 and $63,873,815, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $102,666,162 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (2,530,557) ============================================================================== Net unrealized appreciation of investment securities $100,135,605 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $312,206,650. </Table> AIM V.I. INTERNATIONAL GROWTH FUND NOTE 9--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING (a) - -------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------- Sold: Series I 4,525,479 $88,519,203 3,454,168 $59,721,271 - -------------------------------------------------------------------------------------------------------------------- Series II 833,427 16,373,395 794,058 13,743,254 ==================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 99,666 1,901,625 - -------------------------------------------------------------------------------------------------------------------- Series II -- -- 5,179 98,282 ==================================================================================================================== Reacquired: Series I (4,111,294) (80,300,977) (4,143,506) (70,828,369) - -------------------------------------------------------------------------------------------------------------------- Series II (294,450) (5,773,789) (392,698) (6,736,189) ==================================================================================================================== 953,162 $18,817,832 (183,133) $(2,100,126) ____________________________________________________________________________________________________________________ ==================================================================================================================== </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 55% 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 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.77 $ 16.04 $ 12.49 $ 14.91 $ 20.12 $ 29.29 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.19(a) 0.15(a) 0.09(a) 0.06(a) 0.08(a) 0.18 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.02) 3.70 3.54 (2.40) (4.83) (7.88) ================================================================================================================================= Total from investment operations 0.17 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 $ 19.94 $ 19.77 $ 16.04 $ 12.49 $ 14.91 $ 20.12 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 0.86% 24.00% 29.06% (15.67)% (23.53)% (26.40)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $357,979 $346,605 $290,680 $247,580 $347,528 $437,336 ================================================================================================================================= Ratio of expenses to average net assets 1.10%(c) 1.14% 1.10% 1.09% 1.05% 1.02% ================================================================================================================================= Ratio of net investment income to average net assets 1.97%(c) 0.90% 0.69% 0.41% 0.46% 0.83% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(d) 18% 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 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 $350,297,341. (d) Not annualized for periods less than one year. AIM V.I. INTERNATIONAL GROWTH FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ---------------------------------------------------------------------------- SEPTEMBER 19, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ---------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.65 $ 15.97 $ 12.45 $14.90 $14.42 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.17(a) 0.11(a) 0.06(a) 0.03(a) 0.01(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.01) 3.66 3.51 (2.40) 0.93 ================================================================================================================================= Total from investment operations 0.16 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 $ 19.81 $ 19.65 $ 15.97 $12.45 $14.90 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 0.82% 23.63% 28.68% (15.89)% 6.63% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $32,338 $21,497 $10,972 $4,751 $ 374 ================================================================================================================================= Ratio of expenses to average net assets 1.35%(c) 1.39% 1.35% 1.31%(d) 1.30%(e) ================================================================================================================================= Ratio of net investment income to average net assets 1.72%(c) 0.65% 0.44% 0.19% 0.22%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 18% 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 annualized and based on average daily net assets of $26,744,310. (d) After fee waivers and/or reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.34% for the year ended December 31, 2002. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and AIM V.I. INTERNATIONAL GROWTH FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. INTERNATIONAL GROWTH FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley COUNSEL TO THE FUND Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 J. Philip Ferguson Washington, D.C. 20007-5111 Vice President COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Vice President 1177 Avenue of the Americas New York, NY 10036-2714 William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. INTERNATIONAL GROWTH FUND AIM V.I. LARGE CAP GROWTH FUND Semiannual Report to Shareholders o June 30,2005 AIM V.I. LARGE CAP GROWTH FUND seeks to provide long-term growth of capital. UNLESS OTHERWISE STATED,INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site,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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. LARGE CAP GROWTH FUND <Table> MANAGEMENT'S DISCUSSION o valuation--compare a stock's price to OF FUND PERFORMANCE its cash flow and earnings measures ===================================================================================== o risk assessment--avoid "high risk" companies, as defined below PERFORMANCE SUMMARY ======================================== Our fundamental analysis entails For the six months ended June 30, 2005, examining financial statements to AIM V.I. Large Cap Growth Fund delivered FUND VS. INDEXES understand the drivers of earnings. Our negative returns, performing generally in team meets with company management to line with the S&P 500 Index in a TOTAL RETURNS, 12/31/04-6/30/05, evaluate proprietary products and the difficult market--one that was EXCLUDING VARIABLE PRODUCT ISSUER quality of management. We also analyze particularly difficult for large-cap CHARGES. IF VARIABLE PRODUCT ISSUER trends, growth rates and the competitive growth stocks, such as the type in which CHARGES WERE INCLUDED, RETURNS WOULD BE landscape. We believe stocks that pass the Fund invests. Nonetheless, the Fund LOWER. our quantitative and fundamental screens fared somewhat better than its are less likely to underperform. style-specific index,which also was Series I Shares -1.10% negative. We construct the portfolio using a Series II Shares -1.10 bottom-up strategy, focusing on stocks The Fund held up better than its rather than industries or sectors. While style-specific index because the Fund Standard & Poor's Composite Index there are no formal sector guidelines or had a larger percentage of its assets of 500 Stocks (S&P 500 Index) constraints, internal controls and invested in energy holdings than did the (Broad Market Index) -0.81 proprietary software help us monitor index, and because the average return of risk levels and sector concentration. the Fund's energy holdings exceeded that Russell 1000 Growth Index of the index. Also, as a group, the Fund's (Style-specific Index) -1.72 We employ an active, unemotional sell health care process designed to avoid "high risk" Lipper Large-Cap Growth Fund Index situations that we believe lead to (Peer Group Index) -1.28 underperformance. Examples of "high risk" situations include: SOURCE: LIPPER,INC. o deteriorating business prospects ======================================== o extended valuations holdings significantly outperformed those of the style-specific index. o unsustainable earnings growth ===================================================================================== o weakened balance sheets HOW WE INVEST growth that is not yet reflected in o risks of earnings disappointments investor expectations or equity We believe growth investors succeed when valuations. MARKET CONDITIONS AND YOUR FUND the market underestimates the pace, persistence and implications of positive Our quantitative model ranks The market rally that began in late 2004 change--new products, breakthrough companies based on factors we have found faded during the early months of 2005. technologies, an upgraded management to be highly correlated with During the first half of 2005, the team. We believe such changes often lead outperformance in the large-cap growth market lost ground and then gained to higher growth rates, cash flow and universe, including: ground, finally closing not far from profit margins. Our investment process where it began. The market's indecision combines quantitative and fundamental o earnings revisions--breadth and was the result of record-high energy analysis to uncover companies exhibiting magnitude of positive earnings prices and rising short-term interest long-term, sustainable earnings and cash rates, among other flow o earnings sustainability and capital use--review a company's financial statements to determine the sustainability of growth and long-term profit potential ======================================== ======================================== ======================================== PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $2.2 MILLION TOTAL NUMBER OF HOLDINGS* 75 By sector 1. Dell Inc. 4.5% The Fund's holdings are subject to Health Care 26.3% 2. Johnson & Johnson 4.0 change, and there is no assurance that the Fund will continue to hold any Consumer Discretionary 21.0 3. UnitedHealth Group, Inc. 3.5 particular security. Information Technology 17.6 4. Alcon, Inc. (Switzerland) 2.9 *Excluding U.S. government agency securities Financials 10.7 5. Gillette Co. (The) 2.6 Energy 7.9 6. Aetna Inc. 2.6 Industrials 7.8 7. Valero Energy Corp. 2.3 Consumer Staples 6.0 8. HCA Inc. 2.3 Materials 1.9 9. Yum! Brands, Inc. 2.2 U.S.Government Agency Securities 10. ConocoPhillips 2.1 Plus Other Assets Less Liabilities 0.8 ======================================== ======================================== ======================================== </Table> 2 AIM V.I. LARGE CAP GROWTH FUND <Table> factors. In contrast with the stock its benchmark indexes. Also, the Fund's ings in the stock before the close of market, U.S. gross domestic product, the energy holdings, as a group, delivered the reporting period because we were broadest measure of the nation's overall returns that exceeded the returns of the uncertain about the company's ability to economic activity, expanded strongly indexes' energy holdings. We added to sustain its earnings. throughout the first half of 2005. the Fund's energy holdings in recent months as we saw evidence that the IN CLOSING For the reporting period, returns of sector may be experiencing a period of indexes representing small- and sustained growth. Large-cap growth stocks seemed well large-cap stocks were similar, returning positioned at the close of the reporting less than 1%. Mid-cap stocks performed Though the Fund was underweight in period. In our view, several factors significantly better, returning almost information technology stocks relative favored such stocks, including: 4% for the period. Value stocks to its benchmark indexes, that sector consistently outperformed growth stocks was the most significant drag on Fund o reasonable valuations, particularly across all capitalization levels for the performance for the reporting period. relative to expected growth rates six months ended June 30, 2005. The Fund Information technology stocks as a group invests the bulk of its assets in stocks were weak during the reporting period, o a moderately strong, growing economy of large-cap growth companies, and that and the Fund's holdings in the sector strategy had a negative effect on significantly underperformed those of o significant cash reserves on many performance for the reporting period. its indexes. While some of this weakness companies' balance sheets, which could was seasonal, much of it was due to the lead to share buybacks, dividend Remember that in choosing stocks for fact that companies generally remained increases or strategic acquisitions your Fund, we look for companies hesitant to commit to major information exhibiting long-term, sustainable technology improvements until economic We thank you for your continued earnings and cash flow growth not yet and industry trends became clearer. investment in AIM V.I. Large Cap Growth reflected in investor expectations or Fund. equity valuations. We build the Fund's Holdings that contributed to your portfolio stock by stock and do not Fund's performance included UNITEDHEALTH The views and opinions expressed in attempt to match its indexes' sector GROUP and VALERO ENERGY. management's discussion of fund weightings. However, sector performance performance are those of A I M Advisors, is a part of the market conditions that o Health benefit provider UnitedHealth Inc. These views and opinions are affect short-term performance of Group has reported strong and consistent subject to change at any time based on individual stocks and your Fund, so it earnings growth in recent years by factors such as market and economic can be helpful to recount some raising premiums, adding new members and conditions. These views and opinions may generalizations about sector performance holding down costs. Because we believe not be relied upon as investment advice during the reporting period. management can continue such trends, we or recommendations, or as an offer for a held the stock. particular security. The information is We added to the Fund's not a complete analysis of every aspect energy holdings in o VALERO has grown from one refinery in of any market, country, industry, recent months as we 1997 to 15 today. It is a leading security or the fund. Statements of fact saw evidence that the refiner of grades of oil that are are from sources considered reliable, sector may be experi- heavier and higher in sulfur. These but A I M Advisors, Inc. makes no encing a period of sus- grades cost somewhat more to refine, but representation or warranty as to their tained growth. cost much less to buy, giving Valero a completeness or accuracy. Although cost advantage over its competitors. historical performance is no guarantee Health care stocks as a group of future results, these insights may performed relatively well in a generally Stocks that hindered Fund performance help you understand our investment weak market. Investors favored health included EBAY and HARMAN INTERNATIONAL. management philosophy. care stocks, many of which paid dividends and were viewed as trading at o eBay is the largest online market for GEOFFREY V. KEELING, low valuations relative to the market as the sale of goods and services by [KEELING Chartered Financial a whole. Health care services and consumers and small businesses. PHOTO] Analyst, senior equipment stocks were the top performers Investors reacted negatively to the portfolio manager, is within the sector, while biotechnology company's year-over-year U.S. earnings co-manager of AIM V.I. stocks declined significantly during the growth figures, announced in January, Large Cap Growth Fund. period. Pharmaceutical stocks did well which caused the stock to decline for He joined AIM in 1995 and assumed his in the second quarter. much of the reporting period. Because we present responsibilities in 1999. Mr. had little confidence that the company's Keeling received a B.B.A in finance from Record-high energy prices contributed earnings would beat estimates, and The University of Texas at Austin. to strength throughout the energy sector because we considered the stock to be during the reporting period, and your relatively expensively valued, we sold ROBERT L. SHOSS, senior Fund benefited from being overweight in eBay before the close of the reporting [SHOSS portfolio manager, is the sector relative to period. PHOTO] co-manager of AIM V.I. Large Cap Growth Fund. o Harman International manufactures He joined AIM in 1995 high-end audio equipment for consumers and assumed his present and professionals. The company's largest responsibilities in 1999. Mr. Shoss markets are in automotive sound systems received a B.A from The University of and vehicle dashboard systems. Both Texas at Austin and an M.B.A. and a J.D. markets have become more competitive as from the University of Houston. automotive manufacturers have become more price-sensitive. We sold our hold- Assisted by the Large Cap Growth Team [RIGHT ARROW GRAPHIC] For a discussion of risks of investing in your fund, indexes used in this report and your fund's long-term performance, please turn the page. </Table> 3 AIM V.I. LARGE CAP GROWTH FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ======================================== your variable product issuer or connection with a variable product. AVERAGE ANNUAL TOTAL RETURNS financial advisor for the most recent Sales charges, expenses and fees, which month-end variable product performance. are determined by the variable product As of 6/30/05 Performance figures reflect Fund issuers, will vary and will lower the expenses, reinvested distributions and total return. SERIES I SHARES changes in net asset value. Investment Inception (8/29/03) 9.30% return and principal value will Per NASD requirements, the most 1 Year 2.79 fluctuate so that you may have a gain or recent month-end performance data at the loss when you sell shares. Fund level, excluding variable product SERIES II SHARES charges, is available on this AIM Inception (8/29/03) 9.17% AIM V.I. Large Cap Growth Fund, a automated information line, 1 Year 2.70 series portfolio of AIM Variable 866-702-4402. As mentioned above, for ======================================== Insurance Funds, is currently offered the most recent month-end performance through insurance companies issuing including variable product charges, Series I and Series II shares invest in variable products. You cannot purchase please contact your variable product the same portfolio of securities and shares of the Fund directly. Performance issuer or financial advisor. will have substantially similar figures given represent the Fund and are performance, except to the extent that not intended to reflect actual variable Had the advisor not waived fees expenses borne by each class differ. product values. They do not reflect and/or reimbursed expenses, performance sales charges, expenses and fees would have been lower. The performance data quoted represent assessed in past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact PRINCIPAL RISKS OF INVESTING IN THE FUND formance of the 30 largest OTHER INFORMATION large-capitalization growth funds The Fund may invest a portion of its tracked by Lipper, Inc., an independent The returns shown in management's assets in synthetic instruments, such as mutual fund performance monitor. discussion of Fund performance are based warrants, futures, options, exchange on net asset values calculated for traded funds and American Depositary The unmanaged RUSSELL 1000 shareholder transactions. Generally Receipts, the value of which may not --Registered Trademark-- GROWTH INDEX is accepted accounting principles require correlate perfectly with the overall a subset of the unmanaged RUSSELL 1000 adjustments to be made to the net assets securities market. Risks associated with --Registered Trademark-- INDEX, which of the Fund at period end for financial synthetic instruments may include represents the performance of the stocks reporting purposes, and as such, the net counter party risk and sensitivity to of large-capitalization companies; the asset values for shareholder interest rate changes and market price Growth subset measures the performance transactions and the returns based on fluctuations. See the prospectus for of Russell 1000 companies with higher those net asset values may differ from more details. price/book ratios and higher forecasted the net asset values and returns growth values. reported in the Financial Highlights. The Fund may invest up to 25% of its Additionally, the returns and net asset assets in the securities of non-U.S. The unmanaged Standard & Poor's values shown throughout this report are issuers. International investing Composite Index of 500 Stocks (the S&P at the Fund level only and do not presents certain risks not associated 500--Registered Trademark-- INDEX) is include variable product issuer charges. with investing solely in the United an index of common stocks frequently If such charges were included, the total States. These include risks relating to used as a general measure of U.S. stock returns would be lower. fluctuations in the value of the U.S. market performance. dollar relative to the values of other Industry classifications used in this currencies, the custody arrangements The Fund is not managed to track the report are generally according to the made for the Fund's foreign holdings, performance of any particular index, Global Industry Classification Standard, differences in accounting, political including the indexes defined here, and which was developed by and is the risks and the lesser degree of public consequently, the performance of the exclusive property and a service mark of information required to be provided by Fund may deviate significantly from the Morgan Stanley Capital International non-U.S. companies. performance of the indexes. Inc. and Standard & Poor's. ABOUT INDEXES USED IN THIS REPORT A direct investment cannot be made in an index. Unless otherwise indicated, The unmanaged LIPPER LARGE-CAP GROWTH index results include reinvested FUND INDEX represents an average of the dividends, and they do not reflect sales per- charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. </Table> 4 AIM V.I. LARGE CAP GROWTH FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE You may use the information in this The hypothetical account values and table, together with the amount you expenses may not be used to estimate the As a shareholder of the Fund, you incur invested, to estimate the expenses that actual ending account balance or ongoing costs, including management you paid over the period. Simply divide expenses you paid for the period. You fees; distribution and/or service fees your account value by $1,000 (for may use this information to compare the (12b-1); and other Fund expenses. This example, an $8,600 account value divided ongoing costs of investing in the Fund example is intended to help you by $1,000 = 8.6), then multiply the and other funds. To do so, compare this understand your ongoing costs (in result by the number in the table under 5% hypothetical example with the 5% dollars) of investing in the Fund and to the heading entitled "Actual Expenses hypothetical examples that appear in the compare these costs with ongoing costs Paid During Period" to estimate the shareholder reports of the other funds. of investing in other mutual funds. The expenses you paid on your account during example is based on an investment of this period. Please note that the expenses shown $1,000 invested at the beginning of the in the table are meant to highlight your period and held for the entire period HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the January 1, 2005, through June 30, 2005. PURPOSES hypothetical information is useful in comparing ongoing costs, and will not The actual and hypothetical expenses The table below also provides help you determine the relative total in the examples below do not represent information about hypothetical account costs of owning different funds. the effect of any fees or other expenses values and hypothetical expenses based assessed in connection with a variable on the Fund's actual expense ratio and product; if they did, the expenses shown an assumed rate of return of 5% per year would be higher while the ending account before expenses, which is not the Fund's values shown would be lower. actual return. The Fund's actual cumulative total returns at net asset ACTUAL EXPENSES value after expenses for the six months ended June 30, 2005, appear in the table The table below provides information "Fund vs. Indexes" on the first page of about actual account values and actual management's discussion of Fund expenses. performance. </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 (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $ 1,000.00 $ 989.00 $ 6.61 $ 1,018.51 $ 6.71 Series II 1,000.00 989.00 7.35 1,017.41 7.45 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 1.01% and 1.26% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.05% and 1.30% 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 most recent fiscal half year are $5.18 and $6.41 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 most recent fiscal half year are $5.26 and $6.51 for Series I and Series II shares, respectively. ================================================================================================================================== </Table> 5 AIM V.I. LARGE CAP GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided although the total management fees paid Insurance Funds (the "Board") oversees by AIM. The Board reviewed the by one of these unaffiliated mutual the management of AIM V.I. Large Cap credentials and experience of the funds were higher than the advisory fee Growth Fund (the "Fund") and, as officers and employees of AIM who will rate for the Fund (data on the total required by law, determines annually provide investment advisory services to management fees paid by the other whether to approve the continuance of the Fund. In reviewing the unaffiliated mutual fund was the Fund's advisory agreement with A I M qualifications of AIM to provide unavailable); (iii) was lower than the Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board advisory fee rates for an offshore fund recommendation of the Investments reviewed the qualifications of AIM's for which an AIM affiliate serves as Committee of the Board, which is investment personnel and considered such advisor with investment strategies comprised solely of independent issues as AIM's portfolio and product comparable to those of the Fund; and trustees, at a meeting held on June 30, review process, various back office (iv) was higher than the advisory fee 2005, the Board, including all of the support functions provided by AIM and rates for six separately managed wrap independent trustees, approved the AIM's equity and fixed income trading accounts managed by an AIM affiliate continuance of the advisory agreement operations. Based on the review of these with investment strategies comparable to (the "Advisory Agreement") between the and other factors, the Board concluded those of the Fund. The Board noted that Fund and AIM for another year, effective that the quality of services to be AIM has agreed to waive advisory fees of July 1, 2005. provided by AIM was appropriate and that the Fund and to limit the Fund's total AIM currently is providing satisfactory operating expenses, as discussed below. The Board considered the factors services in accordance with the terms of Based on this review, the Board discussed below in evaluating the the Advisory Agreement. concluded that the advisory fee rate for fairness and reasonableness of the the Fund under the Advisory Agreement Advisory Agreement at the meeting on o The performance of the Fund relative was fair and reasonable. June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed ongoing oversight of the Fund. In their the performance of the Fund during the o Fees relative to those of comparable deliberations, the Board and the past calendar year against the funds with other advisors. The Board independent trustees did not identify performance of funds advised by other reviewed the advisory fee rate for the any particular factor that was advisors with investment strategies Fund under the Advisory Agreement. The controlling, and each trustee attributed comparable to those of the Fund. The Board compared effective contractual different weights to the various Board noted that the Fund's performance advisory fee rates at a common asset factors. was above the median performance of such level and noted that the Fund's rate was comparable funds for the one year above the median rate of the funds One of the responsibilities of the period. Based on this review, the Board advised by other advisors with Senior Officer of the Fund, who is concluded that no changes should be made investment strategies comparable to independent of AIM and AIM's affiliates, to the Fund and that it was not those of the Fund that the Board is to manage the process by which the necessary to change the Fund's portfolio reviewed. The Board noted that AIM has Fund's proposed management fees are management team at this time. agreed to waive advisory fees of the negotiated to ensure that they are Fund and to limit the Fund's total negotiated in a manner which is at arm's o The performance of the Fund relative operating expenses, as discussed below. length and reasonable. To that end, the to indices. The Board reviewed the Based on this review, the Board Senior Officer must either supervise a performance of the Fund during the past concluded that the advisory fee rate for competitive bidding process or prepare calendar year against the performance of the Fund under the Advisory Agreement an independent written evaluation. The the Lipper Large-Cap Growth Fund Index. was fair and reasonable. Senior Officer has recommended an The Board noted that the Fund's independent written evaluation in lieu performance was above the performance of o Expense limitations and fee waivers. of a competitive bidding process and, such Index for the one year period. The Board noted that AIM has upon the direction of the Board, has Based on this review, the Board contractually agreed to waive advisory prepared such an independent written concluded that no changes should be made fees of the Fund through June 30, 2006 evaluation. Such written evaluation also to the Fund and that it was not to the extent necessary so that the considered certain of the factors necessary to change the Fund's portfolio advisory fees payable by the Fund do not discussed below. In addition, as management team at this time. exceed a specified maximum advisory fee discussed below, the Senior Officer made rate, which maximum rate includes certain recommendations to the Board in o Meeting with the Fund's portfolio breakpoints and is based on net asset connection with such written evaluation. managers and investment personnel. With levels. The Board considered the respect to the Fund, the Board is contractual nature of this fee waiver The discussion below serves as a meeting periodically with such Fund's and noted that it remains in effect summary of the Senior Officer's portfolio managers and/or other until June 30, 2006. The Board noted independent written evaluation and investment personnel and believes that that AIM has contractually agreed to recommendations to the Board in such individuals are competent and able waive fees and/or limit expenses of the connection therewith, as well as a to continue to carry out their Fund through June 30, 2006 in an amount discussion of the material factors and responsibilities under the Advisory necessary to limit total annual the conclusions with respect thereto Agreement. operating expenses to a specified that formed the basis for the Board's percentage of average daily net assets approval of the Advisory Agreement. o Overall performance of AIM. The Board for each class of the Fund. The Board After consideration of all of the considered the overall performance of considered the contractual nature of factors below and based on its informed AIM in providing investment advisory and this fee waiver/expense limitation and business judgment, the Board determined portfolio administrative services to the noted that it remains in effect until that the Advisory Agreement is in the Fund and concluded that such performance June 30, 2006. The Board considered the best interests of the Fund and its was satisfactory. effect these fee waivers/expense shareholders and that the compensation limitations would have on the Fund's to AIM under the Advisory Agreement is o Fees relative to those of clients of estimated expenses and concluded that fair and reasonable and would have been AIM with comparable investment the levels of fee waivers/expense obtained through arm's length strategies. The Board reviewed the limitations for the Fund were fair and negotiations. advisory fee rate for the Fund under the reasonable. Advisory Agreement. The Board noted that o The nature and extent of the advisory this rate (i) was the same as the services to be provided by AIM. The advisory fee rates for a mutual fund Board reviewed the services to be advised by AIM with investment provided by AIM under the Advisory strategies comparable to those of the Agreement. Based on such review, the Fund; (ii) was higher than the Board concluded that the range of sub-advisory fee rates for two services to be provided by AIM under the unaffiliated mutual funds for which an Advisory Agreement was appropriate and AIM affiliate serves as sub-advisor, that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 6 AIM V.I. LARGE CAP GROWTH FUND <Table> o Breakpoints and economies of scale. o Independent written evaluation and o Historical relationship between the The Board reviewed the structure of the recommendations of the Fund's Senior Fund and AIM. In determining whether to Fund's advisory fee under the Advisory Officer. The Board noted that, upon continue the Advisory Agreement for the Agreement, noting that it includes two their direction, the Senior Officer of Fund, the Board also considered the breakpoints. The Board reviewed the the Fund had prepared an independent prior relationship between AIM and the level of the Fund's advisory fees, and written evaluation in order to assist Fund, as well as the Board's knowledge noted that such fees, as a percentage of the Board in determining the of AIM's operations, and concluded that the Fund's net assets, would decrease as reasonableness of the proposed it was beneficial to maintain the net assets increase because the Advisory management fees of the AIM Funds, current relationship, in part, because Agreement includes breakpoints. The including the Fund. The Board noted that of such knowledge. The Board also Board noted that, due to the Fund's the Senior Officer's written evaluation reviewed the general nature of the current asset levels and the way in had been relied upon by the Board in non-investment advisory services which the advisory fee breakpoints have this regard in lieu of a competitive currently performed by AIM and its been structured, the Fund has yet to bidding process. In determining whether affiliates, such as administrative, benefit from the breakpoints. The Board to continue the Advisory Agreement for transfer agency and distribution noted that AIM has contractually agreed the Fund, the Board considered the services, and the fees received by AIM to waive advisory fees of the Fund Senior Officer's written evaluation and and its affiliates for performing such through June 30, 2006 to the extent the recommendation made by the Senior services. In addition to reviewing such necessary so that the advisory fees Officer to the Board that the Board services, the trustees also considered payable by the Fund do not exceed a consider implementing a process to the organizational structure employed by specified maximum advisory fee rate, assist them in more closely monitoring AIM and its affiliates to provide those which maximum rate includes breakpoints the performance of the AIM Funds. The services. Based on the review of these and is based on net asset levels. The Board concluded that it would be and other factors, the Board concluded Board concluded that the Fund's fee advisable to implement such a process as that AIM and its affiliates were levels under the Advisory Agreement soon as reasonably practicable. qualified to continue to provide therefore would reflect economies of non-investment advisory services to the scale at higher asset levels and that it o Profitability of AIM and its Fund, including administrative, transfer was not necessary to change the advisory affiliates. The Board reviewed agency and distribution services, and fee breakpoints in the Fund's advisory information concerning the profitability that AIM and its affiliates currently fee schedule. of AIM's (and its affiliates') are providing satisfactory investment advisory and other activities non-investment advisory services. o Investments in affiliated money market and its financial condition. The Board funds. The Board also took into account considered the overall profitability of o Other factors and current trends. In the fact that uninvested cash and cash AIM, as well as the profitability of AIM determining whether to continue the collateral from securities lending in connection with managing the Fund. Advisory Agreement for the Fund, the arrangements (collectively, "cash The Board noted that AIM's operations Board considered the fact that AIM, balances") of the Fund may be invested remain profitable, although increased along with others in the mutual fund in money market funds advised by AIM expenses in recent years have reduced industry, is subject to regulatory pursuant to the terms of an SEC AIM's profitability. Based on the review inquiries and litigation related to a exemptive order. The Board found that of the profitability of AIM's and its wide range of issues. The Board also the Fund may realize certain benefits affiliates' investment advisory and considered the governance and compliance upon investing cash balances in AIM other activities and its financial reforms being undertaken by AIM and its advised money market funds, including a condition, the Board concluded that the affiliates, including maintaining an higher net return, increased liquidity, compensation to be paid by the Fund to internal controls committee and increased diversification or decreased AIM under its Advisory Agreement was not retaining an independent compliance transaction costs. The Board also found excessive. consultant, and the fact that AIM has that the Fund will not receive reduced undertaken to cause the Fund to operate services if it invests its cash balances o Benefits of soft dollars to AIM. The in accordance with certain governance in such money market funds. The Board Board considered the benefits realized policies and practices. The Board noted that, to the extent the Fund by AIM as a result of brokerage concluded that these actions indicated a invests in affiliated money market transactions executed through "soft good faith effort on the part of AIM to funds, AIM has voluntarily agreed to dollar" arrangements. Under these adhere to the highest ethical standards, waive a portion of the advisory fees it arrangements, brokerage commissions paid and determined that the current receives from the Fund attributable to by the Fund and/or other funds advised regulatory and litigation environment to such investment. The Board further by AIM are used to pay for research and which AIM is subject should not prevent determined that the proposed securities execution services. This research is the Board from continuing the Advisory lending program and related procedures used by AIM in making investment Agreement for the Fund. with respect to the lending Fund is in decisions for the Fund. The Board the best interests of the lending Fund concluded that such arrangements were and its respective shareholders. The appropriate. Board therefore concluded that the investment of cash collateral received o AIM's financial soundness in light of in connection with the securities the Fund's needs. The Board considered lending program in the money market whether AIM is financially sound and has funds according to the procedures is in the resources necessary to perform its the best interests of the lending Fund obligations under the Advisory and its respective shareholders. Agreement, and concluded that AIM has the financial resources necessary to fulfill its obligations under the Advisory Agreement. </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-99.10% AEROSPACE & DEFENSE-6.22% Boeing Co. (The) 400 $ 26,400 - --------------------------------------------------------------------- General Dynamics Corp. 150 16,431 - --------------------------------------------------------------------- Lockheed Martin Corp. 530 34,381 - --------------------------------------------------------------------- Precision Castparts Corp. 290 22,591 - --------------------------------------------------------------------- Rockwell Collins, Inc. 470 22,410 - --------------------------------------------------------------------- United Technologies Corp. 310 15,918 ===================================================================== 138,131 ===================================================================== APPAREL RETAIL-2.35% Abercrombie & Fitch Co.-Class A 470 32,289 - --------------------------------------------------------------------- Chico's FAS, Inc.(a) 580 19,882 ===================================================================== 52,171 ===================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.83% Coach, Inc.(a) 550 18,463 ===================================================================== APPLICATION SOFTWARE-1.13% Autodesk, Inc. 730 25,090 ===================================================================== BIOTECHNOLOGY-1.01% Genentech, Inc.(a) 280 22,478 ===================================================================== COMMUNICATIONS EQUIPMENT-1.77% Cisco Systems, Inc.(a) 1,370 26,181 - --------------------------------------------------------------------- Motorola, Inc. 720 13,147 ===================================================================== 39,328 ===================================================================== COMPUTER & ELECTRONICS RETAIL-0.77% Best Buy Co., Inc. 250 17,138 ===================================================================== COMPUTER HARDWARE-6.35% Apple Computer, Inc.(a) 720 26,503 - --------------------------------------------------------------------- Dell Inc.(a) 2,500 98,775 - --------------------------------------------------------------------- NCR Corp.(a) 450 15,804 ===================================================================== 141,082 ===================================================================== COMPUTER STORAGE & PERIPHERALS-0.95% Seagate Technology (Cayman Islands)(a) 1,200 21,060 ===================================================================== CONSUMER FINANCE-1.88% SLM Corp. 820 41,656 ===================================================================== DEPARTMENT STORES-4.30% Federated Department Stores, Inc. 240 17,587 - --------------------------------------------------------------------- J.C. Penney Co., Inc. 350 18,403 - --------------------------------------------------------------------- Nordstrom, Inc. 620 42,141 - --------------------------------------------------------------------- Sears Holdings Corp.(a) 115 17,235 ===================================================================== 95,366 ===================================================================== </Table> <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- ELECTRICAL COMPONENTS & EQUIPMENT-0.83% Rockwell Automation, Inc. 380 $ 18,510 ===================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-1.85% Monsanto Co. 655 41,180 ===================================================================== FOOTWEAR-1.99% NIKE, Inc.-Class B 510 44,166 ===================================================================== HEALTH CARE EQUIPMENT-1.78% Bard (C.R.), Inc. 230 15,297 - --------------------------------------------------------------------- Becton, Dickinson & Co. 460 24,136 ===================================================================== 39,433 ===================================================================== HEALTH CARE FACILITIES-2.25% HCA Inc. 880 49,870 ===================================================================== HEALTH CARE SERVICES-3.86% Caremark Rx, Inc.(a) 360 16,027 - --------------------------------------------------------------------- Express Scripts, Inc.(a) 350 17,493 - --------------------------------------------------------------------- Medco Health Solutions, Inc.(a) 450 24,012 - --------------------------------------------------------------------- Quest Diagnostics Inc. 530 28,233 ===================================================================== 85,765 ===================================================================== HEALTH CARE SUPPLIES-2.91% Alcon, Inc. (Switzerland) 590 64,517 ===================================================================== HOME IMPROVEMENT RETAIL-0.75% Home Depot, Inc. (The) 430 16,727 ===================================================================== HOMEBUILDING-2.02% D.R. Horton, Inc. 673 25,312 - --------------------------------------------------------------------- NVR, Inc.(a) 24 19,440 ===================================================================== 44,752 ===================================================================== HOTELS, RESORTS & CRUISE LINES-0.71% Marriott International, Inc.-Class A 230 15,691 ===================================================================== HOUSEHOLD PRODUCTS-1.40% Procter & Gamble Co. (The) 590 31,123 ===================================================================== HOUSEWARES & SPECIALTIES-1.16% Fortune Brands, Inc. 290 25,752 ===================================================================== INTEGRATED OIL & GAS-3.71% Chevron Corp. 620 34,670 - --------------------------------------------------------------------- ConocoPhillips 830 47,717 ===================================================================== 82,387 ===================================================================== INTERNET SOFTWARE & SERVICES-0.97% VeriSign, Inc.(a) 750 21,570 ===================================================================== </Table> AIM V.I. LARGE CAP GROWTH FUND <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- INVESTMENT BANKING & BROKERAGE-3.60% Bear Stearns Cos. Inc. (The) 200 $ 20,788 - --------------------------------------------------------------------- Goldman Sachs Group, Inc. (The) 230 23,465 - --------------------------------------------------------------------- Lehman Brothers Holdings Inc. 360 35,741 ===================================================================== 79,994 ===================================================================== IT CONSULTING & OTHER SERVICES-0.74% Accenture Ltd.-Class A (Bermuda)(a) 720 16,322 ===================================================================== LIFE & HEALTH INSURANCE-1.05% MetLife, Inc. 520 23,369 ===================================================================== MANAGED HEALTH CARE-8.19% Aetna Inc. 692 57,311 - --------------------------------------------------------------------- CIGNA Corp. 165 17,660 - --------------------------------------------------------------------- UnitedHealth Group Inc. 1,490 77,689 - --------------------------------------------------------------------- WellPoint, Inc.(a) 420 29,249 ===================================================================== 181,909 ===================================================================== OIL & GAS EXPLORATION & PRODUCTION-1.93% Apache Corp. 280 18,088 - --------------------------------------------------------------------- Devon Energy Corp. 490 24,833 ===================================================================== 42,921 ===================================================================== OIL & GAS REFINING & MARKETING-2.28% Valero Energy Corp. 640 50,630 ===================================================================== PACKAGED FOODS & MEATS-1.01% Hershey Co. (The) 360 22,356 ===================================================================== PERSONAL PRODUCTS-2.60% Gillette Co. (The) 1,140 57,718 ===================================================================== PHARMACEUTICALS-6.29% GlaxoSmithKline PLC-ADR (United Kingdom) 360 17,464 - --------------------------------------------------------------------- Johnson & Johnson 1,370 89,050 - --------------------------------------------------------------------- Sanofi-Aventis-ADR (France) 360 14,756 - --------------------------------------------------------------------- Shire Pharmaceuticals Group PLC-ADR (United Kingdom) 560 18,368 ===================================================================== 139,638 ===================================================================== PROPERTY & CASUALTY INSURANCE-2.28% Allstate Corp. (The) 560 33,460 - --------------------------------------------------------------------- Chubb Corp. (The) 200 17,122 ===================================================================== 50,582 ===================================================================== </Table> <Table> <Caption> MARKET SHARES VALUE - --------------------------------------------------------------------- RAILROADS-0.70% Burlington Northern Santa Fe Corp. 330 $ 15,536 ===================================================================== RESTAURANTS-3.30% Darden Restaurants, Inc. 740 24,405 - --------------------------------------------------------------------- Yum! Brands, Inc. 940 48,955 ===================================================================== 73,360 ===================================================================== SEMICONDUCTORS-2.15% Intel Corp. 410 10,685 - --------------------------------------------------------------------- National Semiconductor Corp. 790 17,404 - --------------------------------------------------------------------- Texas Instruments Inc. 700 19,649 ===================================================================== 47,738 ===================================================================== SOFT DRINKS-1.00% PepsiCo, Inc. 410 22,111 ===================================================================== SPECIALTY STORES-2.78% Michaels Stores, Inc. 430 17,789 - --------------------------------------------------------------------- Staples, Inc. 2,065 44,026 ===================================================================== 61,815 ===================================================================== SYSTEMS SOFTWARE-3.57% Adobe Systems Inc. 1,230 35,203 - --------------------------------------------------------------------- Microsoft Corp. 1,200 29,808 - --------------------------------------------------------------------- Oracle Corp.(a) 1,080 14,256 ===================================================================== 79,267 ===================================================================== THRIFTS & MORTGAGE FINANCE-1.88% Countrywide Financial Corp. 1,080 41,699 ===================================================================== Total Common Stocks & Other Equity Interests (Cost $2,036,082) 2,200,371 ===================================================================== <Caption> PRINCIPAL AMOUNT U.S. GOVERNMENT AGENCY SECURITIES-7.57% FEDERAL HOME LOAN BANK (FHLB)-7.57% Unsec. Disc. Notes, 2.65%, 07/01/05 (Cost $168,000) $168,000 168,000 ===================================================================== TOTAL INVESTMENTS-106.67% (Cost $2,204,082) 2,368,371 ===================================================================== OTHER ASSETS LESS LIABILITIES-(6.67%) (148,129) ===================================================================== NET ASSETS-100.00% $2,220,242 _____________________________________________________________________ ===================================================================== </Table> Investment Abbreviations: <Table> ADR - American Depositary Receipt Disc. - Discounted Unsec. - Unsecured </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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $2,204,082) $2,368,371 - ------------------------------------------------------------ Receivables for: Investments sold 17,085 - ------------------------------------------------------------ Fund shares sold 9,286 - ------------------------------------------------------------ Dividends 754 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 3,153 - ------------------------------------------------------------ Other assets 6,571 ============================================================ Total assets 2,405,220 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 158,473 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 3,152 - ------------------------------------------------------------ Accrued distribution fees -- Series II 92 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 108 - ------------------------------------------------------------ Accrued transfer agent fees 45 - ------------------------------------------------------------ Accrued operating expenses 23,108 ============================================================ Total liabilities 184,978 ============================================================ Net assets applicable to shares outstanding $2,220,242 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $2,043,694 - ------------------------------------------------------------ Undistributed net investment income (loss) (5,297) - ------------------------------------------------------------ Undistributed net realized gain from investment securities 17,556 - ------------------------------------------------------------ Unrealized appreciation of investment securities 164,289 ============================================================ $2,220,242 ____________________________________________________________ ============================================================ NET ASSETS: Series I $1,632,950 ____________________________________________________________ ============================================================ Series II $ 587,292 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 139,190 ____________________________________________________________ ============================================================ Series II 50,174 ____________________________________________________________ ============================================================ Series I: Net asset value per share $ 11.73 ____________________________________________________________ ============================================================ Series II: Net asset value per share $ 11.71 ____________________________________________________________ ============================================================ </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $136) $ 7,029 =========================================================== EXPENSES: Advisory fees 4,718 - ----------------------------------------------------------- Administrative services fees 24,795 - ----------------------------------------------------------- Custodian fees 2,776 - ----------------------------------------------------------- Distribution fees -- Series II 715 - ----------------------------------------------------------- Transfer agent fees 13 - ----------------------------------------------------------- Trustees' and officer's fees and benefits 6,593 - ----------------------------------------------------------- Reports to shareholders 6,547 - ----------------------------------------------------------- Professional services fees 13,557 - ----------------------------------------------------------- Other 207 =========================================================== Total expenses 59,921 =========================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement (51,295) =========================================================== Net expenses 8,626 =========================================================== Net investment income (loss) (1,597) =========================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain from investment securities 11,421 - ----------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities (21,892) - ----------------------------------------------------------- Net gain (loss) from investment securities (10,471) =========================================================== Net increase (decrease) in net assets resulting from operations $(12,068) ___________________________________________________________ =========================================================== </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ---------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (1,597) $ (4,699) - ---------------------------------------------------------------------------------------- Net realized gain from investment securities 11,421 23,921 - ---------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities (21,892) 79,217 ======================================================================================== Net increase (decrease) in net assets resulting from operations (12,068) 98,439 ======================================================================================== Distributions to shareholders from net realized gains: Series I -- (1,457) - ---------------------------------------------------------------------------------------- Series II -- (1,457) ======================================================================================== Decrease in net assets resulting from distributions -- (2,914) ======================================================================================== Share transactions-net: Series I 1,042,496 1,457 - ---------------------------------------------------------------------------------------- Series II -- 1,457 ======================================================================================== Net increase in net assets resulting from share transactions 1,042,496 2,914 ======================================================================================== Net increase in net assets 1,030,428 98,439 ======================================================================================== NET ASSETS: Beginning of period 1,189,814 1,091,375 ======================================================================================== End of period (including undistributed net investment income (loss) of $(5,297) and $(3,700), respectively) $2,220,242 $1,189,814 ________________________________________________________________________________________ ======================================================================================== </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 provide 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 including estimates and assumptions related to taxation. 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 AIM V.I. LARGE CAP GROWTH FUND 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 and domestic and foreign index futures. 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. AIM V.I. LARGE CAP 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $1 billion 0.75% - ---------------------------------------------------------------------- Next $1 billion 0.70% - ---------------------------------------------------------------------- Over $2 billion 0.625% ______________________________________________________________________ ====================================================================== </Table> 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $250 million 0.695% - ---------------------------------------------------------------------- Next $250 million 0.67% - ---------------------------------------------------------------------- Next $500 million 0.645% - ---------------------------------------------------------------------- Next $1.5 billion 0.62% - ---------------------------------------------------------------------- Next $2.5 billion 0.595% - ---------------------------------------------------------------------- Next $2.5 billion 0.57% - ---------------------------------------------------------------------- Next $2.5 billion 0.545% - ---------------------------------------------------------------------- Over $10 billion 0.52% ______________________________________________________________________ ====================================================================== </Table> Effective July 1, 2005, 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 Series I shares to 1.01% and Series II shares to 1.26% of average daily net assets, through June 30, 2006. Prior to July 1, 2005, AIM had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses (excluding items (i) through (vi) discussed below and Rule 12b-1 plan fees) of each Series to 1.30% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. For the six months ended June 30, 2005, AIM waived fees of $4,718 and reimbursed expenses of $46,070. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services. 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 six months ended June 30, 2005, the Fund paid AISI $13. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Through June 30, 2005, ADI had contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan fees to the extent AIM V.I. LARGE CAP GROWTH FUND necessary to limit total annual fund operating expenses (excluding items (i) through (vi) discussed above) of Series II shares to 1.45% of average daily net assets. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $429 after ADI waived Plan fees of $286. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $221. NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $1,973 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 six months ended June 30, 2005, 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2004. AIM V.I. LARGE CAP GROWTH FUND NOTE 7--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended June 30, 2005 was $1,625,244 and $587,532, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 174,030 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (9,741) =============================================================================== Net unrealized appreciation of investment securities $ 164,289 _______________________________________________________________________________ =============================================================================== Investments have the same cost for tax and financial statement purposes. </Table> NOTE 8--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------ YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 2005 2004 -------------------- ---------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------ Sold: Series I 89,107 $1,043,850 -- $ -- ====================================================================================================== Issued as reinvestment of dividends: Series I -- -- 124 1,457 - ------------------------------------------------------------------------------------------------------ Series II -- -- 124 1,457 ====================================================================================================== Reacquired: Series I (116) (1,354) -- -- ====================================================================================================== 88,991 $1,042,496 248 $2,914 ______________________________________________________________________________________________________ ====================================================================================================== </Table> (a) Purchased for the purpose of initial capitalization of the Fund, AIM owns 53% of the outstanding shares of the Fund. In addition, there is one entity that is a record owner of more than 5% of the outstanding shares of the Fund and it owns 46% 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 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 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 this shareholder are also owned beneficially. AIM V.I. LARGE CAP GROWTH FUND NOTE 9--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 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED COMMENCED) TO JUNE 30, DECEMBER 31, DECEMBER 31, 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.86 $10.90 $10.00 - --------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01)(a) (0.04)(b) (0.03) - --------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.12) 1.03 0.95 =============================================================================================================== Total from investment operations (0.13) 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 $11.73 $11.86 $10.90 _______________________________________________________________________________________________________________ =============================================================================================================== Total return(c) (1.10)% 9.08% 9.16% _______________________________________________________________________________________________________________ =============================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $1,633 $ 596 $ 546 _______________________________________________________________________________________________________________ =============================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.34%(d) 1.33% 1.33%(e) - --------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 9.41%(d) 9.88% 14.54%(e) =============================================================================================================== Ratio of net investment income (loss) to average net assets (0.19)%(d) (0.35)%(b) (0.73)%(e) _______________________________________________________________________________________________________________ =============================================================================================================== Portfolio turnover rate(f) 44% 104% 37% _______________________________________________________________________________________________________________ =============================================================================================================== </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 income (loss) to average net assets excluding the special dividend were $(0.06) and (0.51)%, respectively. (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 annualized and based on average net assets of $691,462. (e) Annualized. (f) Not annualized for periods less than one year. AIM V.I. LARGE CAP GROWTH FUND NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ------------------------------------------------- AUGUST 29, 2003 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED COMMENCED) TO JUNE 30, DECEMBER 31, DECEMBER 31, 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.84 $10.90 $10.00 - --------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02)(a) (0.06)(b) (0.03) - --------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.11) 1.03 0.94 =============================================================================================================== Total from investment operations (0.13) 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 $11.71 $11.84 $10.90 _______________________________________________________________________________________________________________ =============================================================================================================== Total return(c) (1.10)% 8.89% 9.11% _______________________________________________________________________________________________________________ =============================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 587 $ 594 $ 546 _______________________________________________________________________________________________________________ =============================================================================================================== Ratio of expenses to average net assets: With fee waivers 1.49%(d) 1.48% 1.48%(e) - --------------------------------------------------------------------------------------------------------------- Without fee waivers 9.66%(d) 10.13% 14.79%(e) =============================================================================================================== Ratio of net investment income (loss) to average net assets (0.34)%(d) (0.50)%(b) (0.88)%(e) _______________________________________________________________________________________________________________ =============================================================================================================== Portfolio turnover rate(f) 44% 104% 37% _______________________________________________________________________________________________________________ =============================================================================================================== </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 income (loss) to average net assets excluding the special dividend were $(0.08) and (0.66)%, respectively. (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 annualized and based on average daily net assets of $577,028. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil AIM V.I. LARGE CAP GROWTH FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. LARGE CAP GROWTH FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley COUNSEL TO THE FUND Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 J. Philip Ferguson Washington, D.C. 20007-5111 Vice President COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Vice President 1177 Avenue of the Americas New York, NY 10036-2714 William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. LARGE CAP GROWTH FUND AIM V.I. MID CAP CORE EQUITY FUND Semiannual Report to Shareholders o June 30, 2005 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. MID CAP CORE EQUITY FUND <Table> MANAGEMENT'S DISCUSSION We target a well-diversified, mid-cap OF FUND PERFORMANCE core portfolio and attempt to protect against volatility through the size of ====================================================================================== individual holdings and sector weightings. Sector exposure is consistent PERFORMANCE SUMMARY ========================================= with a core investment to complement value and growth investments. We may also For the six-month period, mid-cap stocks FUND VS. INDEXES maintain a significant cash position to outperformed the rest of the equity limit volatility in certain market market. The Fund outperformed the broad Total returns,12/31/04-6/30/05,excluding environments. market as represented by the S&P 500 variable product issuer charges. If Index because that index contains a variable product issuer charges were We consider selling a stock when preponderance of large-cap stocks. included, returns would be lower. o it exceeds our target price As illustrated by the table, returns Series I Shares 1.83% for the period were muted. In the broad o we have not seen a demonstrable market, diminished returns resulted from Series II Shares 1.69 improvement in fundamentals during an 18- low or negative returns in a number of to 24-month time horizon sectors. Standard & Poor's Composite Index of 500 Stocks o the company's fundamentals deteriorate The underperformance of the Fund's (S&P 500 Index) stocks in four sectors--materials, health (Broad Market Index) -0.81 o more compelling investment care, consumer discretionary and opportunities exist financials--accounted for almost all of Russell Midcap Index the difference between the Fund's return (Style-specific Index) 3.92 MARKET CONDITIONS AND YOUR FUND and that of the Russell Midcap Index. Lipper Mid-Cap Core Fund During the first three months of 2005, Index (Peer Group Index) 1.88 domestic equity markets failed to gain consistent traction despite continued SOURCE: LIPPER, INC. growth in the U.S gross domestic product. Investors worried that rising energy ========================================= prices and interest rates would have a negative impact on economic growth and ====================================================================================== inflation. HOW WE INVEST positioned to weather temporary setbacks Crude oil prices remained high during and therefore provide the potential for the second quarter, but stocks performed We manage this Fund as a core fund, both long-term capital appreciation and relatively well--although not well enough seeking to provide upside potential and a lower downside risk. to overcome the poor performance of the measure of protection in difficult first quarter. Accordingly, major markets to complement more aggressive We conduct quantitative research to domestic equity indexes produced either value and growth investments. identify growing companies whose stock low single-digit or negative returns for prices may be experiencing some near-term the six-month period. In both your Fund We believe a portfolio of attractively distress. By applying fundamental and its benchmark index, the Russell valued companies with consistent free research, including analysis of company cash flow and management teams that financial statements with a special focus allocate excess cash to the benefit of on cash flow, we assess the prospects for shareholders can outperform the market each business and its appreciation over the long term. We believe these potential. companies are best ========================================= ========================================= ========================================= PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Industrial Machinery 4.9% 1. Williams Cos., Inc. (The) 2.3% Energy 15.7% 2. Oil & Gas Equipment & Services 4.8 2. BJ Services Co. 2.0 Consumer discretionary 15.6 3. Specialty Chemicals 4.0 3. Mattel, Inc. 1.9 Information Technology 15.2 4. Oil & Gas Exploration & 4. Kroger Co. (The) 1.9 Production 3.9 Materials 8.8 5. Xerox Corp. 1.8 5. Regional Banks 3.1 Industrials 8.2 6. Southwestern Energy Co. 1.8 6. Electronic Equipment Financials 8.1 Manufacturers 3.0 7. Dover Corp. 1.8 Consumer staples 5.8 7. Semiconductors 2.9 8. Sigma-Aldrich Corp. 1.7 Health Care 5.6 8. Publishing 2.7 9. Heineken N.V. (Netherlands) 1.6 Utilities 1.1 9. Specialized Consumer 10. Lexmark International Inc. Services 2.6 -Class A 1.6 Money Market Funds Plus Other Assets Less 10. Integrated Oil & Gas 2.5 Liabilities 15.9 TOTAL NET ASSETS $584.1 MILLION TOTAL NUMBER OF HOLDINGS* 72 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. MID CAP CORE EQUITY FUND <Table> Midcap Index, only energy and utilities equity valuations had little room to IN CLOSING produced double-digit returns. grow. This was borne out by our company-by-company research. Our research As has been true for some time, at The most significant contribution to showed that energy was one of the few period-end we held muted expectations for Fund performance came from energy sectors with the business economics to equity market performance over the near holdings. Our overweight position and the support long-term earnings growth that term. We have positioned the portfolio to strong returns of our stocks in the also might be able to withstand the navigate such an environment, and we sector compensated in part for various pressures of the current market. believe it can provide a better store of disappointing returns in other sectors. value going forward. We urge you to focus At period-end, our weighting in energy Individual stocks that detracted from on the long-term, wherein our goal is to was the highest weighting in the Fund performance for the period included provide competitive returns with less portfolio, more than double the weighting International Flavors and Fragrances and volatility to complement more aggressive of the sector in the Russell Midcap Xerox. investments. Thank you for investing in Index. We have maintained our overweight AIM V.I. Mid Cap Core Equity Fund. position in energy because we believe o International Flavors and Fragrances, opportunities for growth continue to global maker of food additives and the The views and opinions expressed in exist. scents found in myriad consumer products, management's discussion of Fund preannounced that it would miss its performance are those of A I M Advisors, SOUTHWESTERN ENERGY COMPANY was the second-quarter earnings expectations. Its Inc. These views and opinions are subject top contributor to performance for the stock sold off heavily on the news. The to change at any time based on factors period. Southwestern is an integrated "miss" was primarily caused by a quality such as market and economic conditions. energy company primarily focused on the control issue at a single plant. We These views and opinions may not be exploration and production of natural believe investors overreacted and that relied upon as investment advice or gas, though it also conducts oil the stock price should recover. recommendations, or as an offer for a exploration and natural gas marketing and particular security. The information is distribution. Guided by a strong o Xerox has long been a leader in office not a complete analysis of every aspect management team, the company announced a equipment. We took advantage of its of any market, country, industry, 33% first-quarter earnings increase over distressed share price several years ago security or the Fund. Statements of fact the same quarter of last year. In and purchased it for the portfolio. Since are from sources considered reliable, but addition, in May the company announced a then, Xerox has paid down debt, A I M Advisors, Inc. makes no two-for-one stock split. maintained its leadership in color print representation or warranty as to their production and enjoyed escalating share completeness or accuracy. Although Another energy-sector holding, AMERADA prices for two years. However, while its historical performance is no guarantee of HESS, illustrates our strategy of April 2005 earnings report announced a future results, these insights may help carefully studying management teams' past 15% increase in color equipment sales, you understand our investment management performance and strengths. The company declining sales in older products philosophy. suffered while under family management, disappointed investors. We believe its but when a new management team with robust new product introduction can still RONALD S. SLOAN, specialized financial savvy was enable it to reach its appreciation [SLOAN Chartered Financial installed, we became interested in the potential. PHOTO] Analyst, senior stock. We added the stock to the portfolio manager, is portfolio when we found strong indicators We continue to seek opportunities to lead portfolio manager that the team would turn the business purchase select undervalued companies of AIM V.I. Mid Cap Core Equity around. Thus far, the stock has provided with strong long-term prospects. As our Fund. Mr. Sloan has 34 years of significant benefit. sell discipline requires, during the experience in the investment industry. He period we sold several holdings that had joined AIM in 1998. Mr. Sloan attended The Fund's consumer discretionary, exceeded the price targets we had set for the University of Missouri, where he financials, and health care stocks them. As a result, at period-end the Fund received both a B.S. in business disappointed for the period. As compared held the cash proceeds of those sales administration and an M.B.A. to the Russell Midcap Index, we were while we sought companies that met our significantly underweight in these three selection criteria. Therefore the cash Assisted by the Mid/Large Cap Core Team sectors. Our underweight position in component of the portfolio was more a these sectors resulted from our market reflection of difficulty in finding observations and our investigation of undervalued stocks that met our selection [RIGHT ARROW GRAPHIC] company fundamentals. Throughout the criteria than bearishness on our part. period, we anticipated that higher commodity prices, higher interest rates FOR A DISCUSSION OF RISKS OF INVESTING IN and fewer avenues for companies to YOUR FUND, INDEXES USED IN THIS REPORT AND increase productivity could create an YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE environment in which earnings and TURN THE PAGE. </Table> 3 AIM V.I. MID CAP CORE EQUITY FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ========================================= AVERAGE ANNUAL TOTAL RETURNS comparable future results; current actual variable product values. They do performance may be lower or higher. not reflect sales charges, expenses and As of 6/30/05 Please contact your product issuer or fees assessed in connection with a financial advisor for the most recent variable product. Sales charges, expenses SERIES I SHARES month-end performance. Performance and fees, which are determined by the figures reflect Fund expenses, reinvested variable product issuers, will vary and Inception (9/10/01) 9.42% distributions and changes in net asset will lower the total return. 1 Year 7.19 value. Investment return and principal value will fluctuate so that you may have Per NASD requirements, the most recent SERIES II SHARES a gain or loss when you sell shares. month-end performance data at the Fund Inception (9/10/01) 9.19% level, excluding variable product 1 Year 6.94 AIM V.I. Mid Cap Core Equity Fund, a charges, is available on this AIM series portfolio of AIM Variable automated information line, 866-702-4402. ========================================= Insurance Funds, is currently offered As mentioned above, the most recent through insurance companies issuing month-end performance including variable Series I and Series II shares invest in variable products. You cannot purchase product charges, please contact your the same portfolio of securities and will shares of the Fund directly. Performance variable product issuer or financial have substantially similar performance, figures given represent the Fund and are advisor. except to the extent that expenses borne not intended to reflect by each class differ. The performance data quoted represent past performance and cannot guarantee PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION Investing in small and mid-size companies The unmanaged Standard & Poor's Composite The returns shown in management's involves risks not associated with Index of 500 Stocks (the S&P 500 discussion of Fund performance are based investing in more established companies, --Registered Trademark-- Index) is an on net asset values calculated for including business risk, significant index of common stocks frequently used as shareholder transactions. Generally stock price fluctuations and illiquidity. a general measure of U.S. stock market accepted accounting principles require performance. adjustments to be made to the net assets The Fund may invest up to 25% of its of the Fund at period end for financial assets in the securities of non-U.S. The unmanaged RUSSELL MIDCAP reporting purposes, and as such, the net issuers. International investing presents --Registered Trademark-- INDEX represents asset values for shareholder transactions certain risks not associated with the performance of the stocks of domestic and the returns based on those net asset investing solely in the United States. mid-capitalization companies. values may differ from the net asset These include risks relating to values and returns reported in the fluctuations in the value of the U.S. The unmanaged LIPPER MID-CAP Financial Highlights. Additionally, the dollar relative to the values of other --Registered Trademark-- CORE FUND INDEX returns and net asset values shown currencies, the custody arrangements made represents an average of the performance throughout this report are at the Fund for the Fund's foreign holdings, of the 30 largest mid-capitalization core level only and do not include variable differences in accounting, political funds tracked by Lipper, Inc., an product issuer charges. If such charges risks and the lesser degree of public independent mutual fund performance were included, the total returns would be information required to be provided by monitor. lower. non-U.S. companies. The Fund is not managed to track the Industry classifications used in this The Fund may not reach its objective performance of any particular index, report are generally according to the if the manager chooses to maintain a including the indexes defined here, and Global Industry Classification Standard, significant amount of cash in a rising consequently, the performance of the Fund which was developed by and is the market. may deviate significantly from the exclusive property and a service mark of performance of the index. Morgan Stanley Capital International Inc. and Standard & Poor's. 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. </Table> 4 AIM V.I. MID CAP CORE EQUITY FUND <Table> CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management fees; about actual account values and actual ended June 30, 2005, appear in the table distribution and/or service fees (12b-1); expenses. You may use the information in "Fund vs. Indexes" on the first page of and other Fund expenses. This example is this table, together with the amount you management's discussion of Fund intended to help you understand your invested, to estimate the expenses that performance. ongoing costs (in dollars) of investing you paid over the period. Simply divide in the Fund and to compare these costs your account value by $1,000 (for The hypothetical account values and with ongoing costs of investing in other example, an $8,600 account value divided expenses may not be used to estimate the mutual funds. The example is based on an by $1,000 = 8.6), then multiply the actual ending account balance or expenses investment of $1,000 invested at the result by the number in the table under you paid for the period. You may use this beginning of the period and held for the the heading entitled "Actual Expenses information to compare the ongoing costs entire period January 1, 2005, through Paid During Period" to estimate the of investing in the Fund and other funds. June 30, 2005. expenses you paid on your account during To do so, compare this 5% hypothetical this period. example with the 5% hypothetical examples The actual and hypothetical expenses that appear in the shareholder reports of in the examples below do not represent HYPOTHETICAL EXAMPLE FOR the other funds. the effect of any fees or other expenses COMPARISON PURPOSES assessed in connection with a variable Please note that the expenses shown in product; if they did, the expenses shown The table below also provides information the table are meant to highlight your would be higher while the ending account about hypothetical account values and ongoing costs. Therefore, the values shown would be lower. hypothetical expenses based on the Fund's hypothetical information is useful in actual expense ratio and an assumed rate comparing ongoing costs, and will not of return of 5% per year before expenses, help you determine the relative total which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 1,018.30 $ 5.10 $ 1,019.74 $ 5.11 Series II 1,000.00 1,016.90 6.35 1,018.50 6.36 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 5 AIM V.I. MID CAP CORE EQUITY FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided o Meeting with the Fund's portfolio Insurance Funds (the "Board") oversees by AIM. The Board reviewed the managers and investment personnel. With the management of AIM V.I. Mid Cap Core credentials and experience of the respect to the Fund, the Board is meeting Equity Fund (the "Fund") and, as required officers and employees of AIM who will periodically with such Fund's portfolio by law, determines annually whether to provide investment advisory services to managers and/or other investment approve the continuance of the Fund's the Fund. In reviewing the qualifications personnel and believes that such advisory agreement with A I M Advisors, of AIM to provide investment advisory individuals are competent and able to Inc. ("AIM"). Based upon the services, the Board reviewed the continue to carry out their recommendation of the Investments qualifications of AIM's investment responsibilities under the Advisory Committee of the Board, which is personnel and considered such issues as Agreement. comprised solely of independent trustees, AIM's portfolio and product review at a meeting held on June 30, 2005, the process, various back office support o Overall performance of AIM. The Board Board, including all of the independent functions provided by AIM and AIM's considered the overall performance of AIM trustees, approved the continuance of the equity and fixed income trading in providing investment advisory and advisory agreement (the "Advisory operations. Based on the review of these portfolio administrative services to the Agreement") between the Fund and AIM for and other factors, the Board concluded Fund and concluded that such performance another year, effective July 1, 2005. that the quality of services to be was satisfactory. provided by AIM was appropriate and that The Board considered the factors AIM currently is providing satisfactory o Fees relative to those of clients of discussed below in evaluating the services in accordance with the terms of AIM with comparable investment fairness and reasonableness of the the Advisory Agreement. strategies. The Board reviewed the Advisory Agreement at the meeting on June advisory fee rate for the Fund under the 30, 2005 and as part of the Board's o The performance of the Fund relative to Advisory Agreement. The Board noted that ongoing oversight of the Fund. In their comparable funds. The Board reviewed the this rate (i) was the same as the deliberations, the Board and the performance of the Fund during the past advisory fee rates for a mutual fund independent trustees did not identify any one and three calendar years against the advised by AIM with investment strategies particular factor that was controlling, performance of funds advised by other comparable to those of the Fund; (ii) was and each trustee attributed different advisors with investment strategies higher than the sub-advisory fee rates weights to the various factors. comparable to those of the Fund. The for three unaffiliated mutual funds for Board noted that the Fund's performance which an AIM affiliate serves as One of the responsibilities of the in such periods was below the median sub-advisor, although the total Senior Officer of the Fund, who is performance of such comparable funds. management fees paid by such unaffiliated independent of AIM and AIM's affiliates, Based on this review and after taking mutual funds were comparable to or higher is to manage the process by which the account of all of the other factors that than the advisory fee rate for the Fund; Fund's proposed management fees are the Board considered in determining and (iii) was higher than the advisory negotiated to ensure that they are whether to continue the Advisory fee rates for 24 separately managed wrap negotiated in a manner which is at arm's Agreement for the Fund, the Board accounts managed by an AIM affiliate with length and reasonable. To that end, the concluded that no changes should be made investment strategies comparable to those Senior Officer must either supervise a to the Fund and that it was not necessary of the Fund, comparable to the advisory competitive bidding process or prepare an to change the Fund's portfolio management fee rates for one such wrap account, and independent written evaluation. The team at this time. However, due to the lower than the advisory fee rates for two Senior Officer has recommended an Fund's under-performance, the Board also such wrap accounts. The Board noted that independent written evaluation in lieu of concluded that it would be appropriate AIM has agreed to waive advisory fees of a competitive bidding process and, upon for management and the Board to continue the Fund and to limit the Fund's total the direction of the Board, has prepared to closely monitor the performance of the operating expenses, as discussed below. such an independent written evaluation. Fund. Based on this review, the Board concluded Such written evaluation also considered that the advisory fee rate for the Fund certain of the factors discussed below. o The performance of the Fund relative to under the Advisory Agreement was fair and In addition, as discussed below, the indices. The Board reviewed the reasonable. Senior Officer made certain performance of the Fund during the past recommendations to the Board in one and three calendar years against the o Fees relative to those of comparable connection with such written evaluation. performance of the Lipper Mid-Cap Core funds with other advisors. The Board Fund Index. The Board noted that the reviewed the advisory fee rate for the The discussion below serves as a Fund's performance was below the Fund under the Advisory Agreement. The summary of the Senior Officer's performance of such Index for the one Board compared effective contractual independent written evaluation and year period and comparable to such Index advisory fee rates at a common asset recommendations to the Board in for the three year period. Based on this level and noted that the Fund's rate was connection therewith, as well as a review and after taking account of all of above the median rate of the funds discussion of the material factors and the other factors that the Board advised by other advisors with investment the conclusions with respect thereto that considered in determining whether to strategies comparable to those of the formed the basis for the Board's approval continue the Advisory Agreement for the Fund that the Board reviewed. The Board of the Advisory Agreement. After Fund, the Board concluded that no changes noted that AIM has agreed to waive consideration of all of the factors below should be made to the Fund and that it advisory fees of the Fund and to limit and based on its informed business was not necessary to change the Fund's the Fund's total operating expenses, as judgment, the Board determined that the portfolio management team at this time. discussed below. Based on this review, Advisory Agreement is in the best However, due to the Fund's the Board concluded that the advisory fee interests of the Fund and its under-performance, the Board also rate for the Fund under the Advisory shareholders and that the compensation to concluded that it would be appropriate Agreement was fair and reasonable. AIM under the Advisory Agreement is fair for management and the Board to continue and reasonable and would have been to closely monitor the performance of the obtained through arm's length Fund. negotiations. o The nature and extent of the advisory services to be provided by AIM. The Board reviewed the services to be provided by AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 6 AIM V.I. MID CAP CORE EQUITY FUND <Table> o Expense limitations and fee waivers. from the Fund attributable to such o Benefits of soft dollars to AIM. The The Board noted that AIM has investment. The Board further determined Board considered the benefits realized by contractually agreed to waive advisory that the proposed securities lending AIM as a result of brokerage transactions fees of the Fund through June 30, 2006 to program and related procedures with executed through "soft dollar" the extent necessary so that the advisory respect to the lending Fund is in the arrangements. Under these arrangements, fees payable by the Fund do not exceed a best interests of the lending Fund and brokerage commissions paid by the Fund specified maximum advisory fee rate, its respective shareholders. The Board and/or other funds advised by AIM are which maximum rate includes breakpoints therefore concluded that the investment used to pay for research and execution and is based on net asset levels. The of cash collateral received in connection services. This research is used by AIM in Board considered the contractual nature with the securities lending program in making investment decisions for the Fund. of this fee waiver and noted that it the money market funds according to the The Board concluded that such remains in effect until June 30, 2006. procedures is in the best interests of arrangements were appropriate. The Board noted that AIM has the lending Fund and its respective contractually agreed to waive fees and/or shareholders. o AIM's financial soundness in light of limit expenses of the Fund through April the Fund's needs. The Board considered 30, 2006 in an amount necessary to limit o Independent written evaluation and whether AIM is financially sound and has total annual operating expenses to a recommendations of the Fund's Senior the resources necessary to perform its specified percentage of average daily net Officer. The Board noted that, upon their obligations under the Advisory Agreement, assets for each class of the Fund. The direction, the Senior Officer of the Fund and concluded that AIM has the financial Board considered the contractual nature had prepared an independent written resources necessary to fulfill its of this fee waiver/expense limitation and evaluation in order to assist the Board obligations under the Advisory Agreement. noted that it remains in effect until in determining the reasonableness of the April 30, 2006. The Board considered the proposed management fees of the AIM o Historical relationship between the effect these fee waivers/expense Funds, including the Fund. The Board Fund and AIM. In determining whether to limitations would have on the Fund's noted that the Senior Officer's written continue the Advisory Agreement for the estimated expenses and concluded that the evaluation had been relied upon by the Fund, the Board also considered the prior levels of fee waivers/expense limitations Board in this regard in lieu of a relationship between AIM and the Fund, as for the Fund were fair and reasonable. competitive bidding process. In well as the Board's knowledge of AIM's determining whether to continue the operations, and concluded that it was o Breakpoints and economies of scale. The Advisory Agreement for the Fund, the beneficial to maintain the current Board reviewed the structure of the Board considered the Senior Officer's relationship, in part, because of such Fund's advisory fee under the Advisory written evaluation and the recommendation knowledge. The Board also reviewed the Agreement, noting that it includes three made by the Senior Officer to the Board general nature of the non-investment breakpoints. The Board reviewed the level that the Board consider implementing a advisory services currently performed by of the Fund's advisory fees, and noted process to assist them in more closely AIM and its affiliates, such as that such fees, as a percentage of the monitoring the performance of the AIM administrative, transfer agency and Fund's net assets, have decreased as net Funds. The Board concluded that it would distribution services, and the fees assets increased because the Advisory be advisable to implement such a process received by AIM and its affiliates for Agreement includes breakpoints. The Board as soon as reasonably practicable. The performing such services. In addition to noted that, due to the Fund's current Board also considered the Senior reviewing such services, the trustees asset levels and the way in which the Officer's recommendation that the Board also considered the organizational advisory fee breakpoints have been consider an additional fee waiver for the structure employed by AIM and its structured, the Fund has yet to fully Fund due to the Fund's under-performance affiliates to provide those services. benefit from the breakpoints. The Board and relatively high historic cash Based on the review of these and other noted that AIM has contractually agreed position. The Board concluded that such a factors, the Board concluded that AIM and to waive advisory fees of the Fund fee waiver was not appropriate for the its affiliates were qualified to continue through June 30, 2006 to the extent Fund at this time and that, rather than to provide non-investment advisory necessary so that the advisory fees requesting such a fee waiver from AIM, services to the Fund, including payable by the Fund do not exceed a the Board should receive from AIM (i) administrative, transfer agency and specified maximum advisory fee rate, additional information regarding the use distribution services, and that AIM and which maximum rate includes breakpoints of cash in the Fund's overall investment its affiliates currently are providing and is based on net asset levels. The strategy and (ii) an analysis of how the satisfactory non-investment advisory Board concluded that the Fund's fee use of cash by the Fund's portfolio services. levels under the Advisory Agreement manager has contributed to the Fund's therefore reflect economies of scale and performance. o Other factors and current trends. In that it was not necessary to change the determining whether to continue the advisory fee breakpoints in the Fund's o Profitability of AIM and its Advisory Agreement for the Fund, the advisory fee schedule. affiliates. The Board reviewed Board considered the fact that AIM, along information concerning the profitability with others in the mutual fund industry, o Investments in affiliated money market of AIM's (and its affiliates') investment is subject to regulatory inquiries and funds. The Board also took into account advisory and other activities and its litigation related to a wide range of the fact that uninvested cash and cash financial condition. The Board considered issues. The Board also considered the collateral from securities lending the overall profitability of AIM, as well governance and compliance reforms being arrangements (collectively, "cash as the profitability of AIM in connection undertaken by AIM and its affiliates, balances") of the Fund may be invested in with managing the Fund. The Board noted including maintaining an internal money market funds advised by AIM that AIM's operations remain profitable, controls committee and retaining an pursuant to the terms of an SEC exemptive although increased expenses in recent independent compliance consultant, and order. The Board found that the Fund may years have reduced AIM's profitability. the fact that AIM has undertaken to cause realize certain benefits upon investing Based on the review of the profitability the Fund to operate in accordance with cash balances in AIM advised money market of AIM's and its affiliates' investment certain governance policies and funds, including a higher net return, advisory and other activities and its practices. The Board concluded that these increased liquidity, increased financial condition, the Board concluded actions indicated a good faith effort on diversification or decreased transaction that the compensation to be paid by the the part of AIM to adhere to the highest costs. The Board also found that the Fund Fund to AIM under its Advisory Agreement ethical standards, and determined that will not receive reduced services if it was not excessive. the current regulatory and litigation invests its cash balances in such money environment to which AIM is subject market funds. The Board noted that, to should not prevent the Board from the extent the Fund invests in affiliated continuing the Advisory Agreement for the money market funds, AIM has voluntarily Fund. agreed to waive a portion of the advisory fees it receives </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-84.08% ADVERTISING-1.28% Valassis Communications, Inc.(a) 202,500 $ 7,502,625 ======================================================================== APPLICATION SOFTWARE-1.94% Fair Isaac Corp. 151,200 5,518,800 - ------------------------------------------------------------------------ Reynolds & Reynolds Co. (The)-Class A 215,000 5,811,450 ======================================================================== 11,330,250 ======================================================================== BIOTECHNOLOGY-1.05% Techne Corp.(a) 133,266 6,118,242 ======================================================================== BREWERS-1.61% Heineken N.V. (Netherlands)(b) 305,049 9,411,290 ======================================================================== CASINOS & GAMING-1.22% GTECH Holdings Corp. 243,100 7,108,244 ======================================================================== COMPUTER HARDWARE-1.34% Diebold, Inc. 173,800 7,840,118 ======================================================================== COMPUTER STORAGE & PERIPHERALS-1.58% Lexmark International, Inc.-Class A(a) 142,700 9,251,241 ======================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.46% Ceridian Corp.(a) 295,750 5,761,210 - ------------------------------------------------------------------------ Sabre Holdings Corp.-Class A 140,000 2,793,000 ======================================================================== 8,554,210 ======================================================================== DISTRIBUTORS-0.92% Genuine Parts Co. 131,000 5,382,790 ======================================================================== DIVERSIFIED CHEMICALS-0.90% Engelhard Corp. 185,300 5,290,315 ======================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-2.98% Agilent Technologies, Inc.(a) 262,200 6,035,844 - ------------------------------------------------------------------------ Amphenol Corp.-Class A 138,500 5,563,545 - ------------------------------------------------------------------------ Mettler-Toledo International Inc.(a) 125,100 5,827,158 ======================================================================== 17,426,547 ======================================================================== ENVIRONMENTAL & FACILITIES SERVICES-2.36% Rentokil Initial PLC (United Kingdom) 2,786,889 7,976,747 - ------------------------------------------------------------------------ Republic Services, Inc. 161,500 5,815,615 ======================================================================== 13,792,362 ======================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-1.00% Scotts Miracle-Gro Co. (The)-Class A(a) 81,900 5,832,099 ======================================================================== </Table> <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ FOOD RETAIL-1.86% Kroger Co. (The)(a) 570,200 $ 10,850,906 ======================================================================== GENERAL MERCHANDISE STORES-0.64% Family Dollar Stores, Inc. 144,000 3,758,400 ======================================================================== HEALTH CARE EQUIPMENT-1.31% Waters Corp.(a) 205,550 7,640,293 ======================================================================== HEALTH CARE SERVICES-1.03% IMS Health Inc. 244,000 6,043,880 ======================================================================== HOME FURNISHINGS-2.39% Ethan Allen Interiors Inc. 190,000 6,366,900 - ------------------------------------------------------------------------ Mohawk Industries, Inc.(a) 91,750 7,569,375 ======================================================================== 13,936,275 ======================================================================== HOME IMPROVEMENT RETAIL-1.04% Sherwin-Williams Co. (The) 129,100 6,079,319 ======================================================================== INDUSTRIAL MACHINERY-4.94% Briggs & Stratton Corp. 228,600 7,914,132 - ------------------------------------------------------------------------ Dover Corp. 281,900 10,255,522 - ------------------------------------------------------------------------ ITT Industries, Inc. 62,000 6,053,060 - ------------------------------------------------------------------------ Pall Corp. 153,000 4,645,080 ======================================================================== 28,867,794 ======================================================================== INTEGRATED OIL & GAS-2.47% Amerada Hess Corp. 53,375 5,684,971 - ------------------------------------------------------------------------ Murphy Oil Corp. 167,050 8,725,022 ======================================================================== 14,409,993 ======================================================================== LEISURE PRODUCTS-1.87% Mattel, Inc. 596,150 10,909,545 ======================================================================== METAL & GLASS CONTAINERS-1.72% Ball Corp. 129,300 4,649,628 - ------------------------------------------------------------------------ Pactiv Corp.(a) 249,500 5,384,210 ======================================================================== 10,033,838 ======================================================================== MULTI-UTILITIES-1.07% Wisconsin Energy Corp. 159,700 6,228,300 ======================================================================== OFFICE ELECTRONICS-1.78% Xerox Corp.(a) 755,000 10,411,450 ======================================================================== OFFICE SERVICES & SUPPLIES-0.90% Pitney Bowes Inc. 121,000 5,269,550 ======================================================================== OIL & GAS DRILLING-2.26% Nabors Industries, Ltd. (Bermuda)(a) 109,700 6,650,014 - ------------------------------------------------------------------------ Noble Corp. (Cayman Islands) 106,300 6,538,513 ======================================================================== 13,188,527 ======================================================================== </Table> AIM V.I. MID CAP CORE EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ OIL & GAS EQUIPMENT & SERVICES-4.75% BJ Services Co. 218,300 $ 11,456,384 - ------------------------------------------------------------------------ FMC Technologies, Inc.(a) 256,450 8,198,707 - ------------------------------------------------------------------------ Smith International, Inc. 126,800 8,077,160 ======================================================================== 27,732,251 ======================================================================== OIL & GAS EXPLORATION & PRODUCTION-3.94% Newfield Exploration Co.(a) 146,700 5,851,863 - ------------------------------------------------------------------------ Plains Exploration & Production Co.(a) 194,600 6,914,138 - ------------------------------------------------------------------------ Southwestern Energy Co.(a) 218,400 10,260,432 ======================================================================== 23,026,433 ======================================================================== OIL & GAS STORAGE & TRANSPORTATION-2.31% Williams Cos., Inc. (The) 709,500 13,480,500 ======================================================================== PACKAGED FOODS & MEATS-2.34% Campbell Soup Co. 189,100 5,818,607 - ------------------------------------------------------------------------ Tate & Lyle PLC (United Kingdom)(b) 922,600 7,867,441 ======================================================================== 13,686,048 ======================================================================== PAPER PRODUCTS-1.15% Georgia-Pacific Corp. 211,100 6,712,980 ======================================================================== PHARMACEUTICALS-2.26% Forest Laboratories, Inc.(a) 197,300 7,665,105 - ------------------------------------------------------------------------ Teva Pharmaceutical Industries Ltd.-ADR (Israel) 177,400 5,524,236 ======================================================================== 13,189,341 ======================================================================== PROPERTY & CASUALTY INSURANCE-2.02% ACE Ltd. (Cayman Islands) 131,900 5,915,715 - ------------------------------------------------------------------------ Axis Capital Holdings Ltd. (Bermuda) 208,100 5,889,230 ======================================================================== 11,804,945 ======================================================================== PUBLISHING-2.66% Belo Corp.-Class A 317,900 7,620,063 - ------------------------------------------------------------------------ Knight-Ridder, Inc. 128,680 7,893,231 ======================================================================== 15,513,294 ======================================================================== REGIONAL BANKS-3.08% City National Corp. 64,350 4,614,539 - ------------------------------------------------------------------------ Compass Bancshares, Inc. 92,700 4,171,500 - ------------------------------------------------------------------------ Marshall & Ilsley Corp. 104,400 4,640,580 - ------------------------------------------------------------------------ </Table> <Table> <Caption> MARKET SHARES VALUE - ------------------------------------------------------------------------ REGIONAL BANKS-(CONTINUED) TCF Financial Corp. 176,600 $ 4,570,408 ======================================================================== 17,997,027 ======================================================================== REINSURANCE-1.93% Montpelier Re Holdings Ltd. (Bermuda) 165,500 5,722,990 - ------------------------------------------------------------------------ RenaissanceRe Holdings Ltd. (Bermuda) 112,200 5,524,728 ======================================================================== 11,247,718 ======================================================================== RESTAURANTS-0.97% Outback Steakhouse, Inc. 124,900 5,650,476 ======================================================================== SEMICONDUCTORS-2.93% International Rectifier Corp.(a) 127,200 6,069,984 - ------------------------------------------------------------------------ National Semiconductor Corp. 280,000 6,168,400 - ------------------------------------------------------------------------ Xilinx, Inc. 190,400 4,855,200 ======================================================================== 17,093,584 ======================================================================== SPECIALIZED CONSUMER SERVICES-2.56% H&R Block, Inc. 112,000 6,535,200 - ------------------------------------------------------------------------ Service Corp. International 1,047,200 8,398,544 ======================================================================== 14,933,744 ======================================================================== SPECIALTY CHEMICALS-4.00% International Flavors & Fragrances Inc. 211,700 7,667,774 - ------------------------------------------------------------------------ Rohm & Haas Co. 128,600 5,959,324 - ------------------------------------------------------------------------ Sigma-Aldrich Corp. 173,700 9,734,148 ======================================================================== 23,361,246 ======================================================================== SYSTEMS SOFTWARE-1.24% Computer Associates International, Inc. 263,100 7,229,988 ======================================================================== THRIFTS & MORTGAGE FINANCE-1.02% New York Community Bancorp, Inc. 329,100 5,963,292 ======================================================================== Total Common Stocks & Other Equity Interests (Cost $432,628,635) 491,091,270 ======================================================================== MONEY MARKET FUNDS-16.18% Liquid Assets Portfolio-Institutional Class(c) 47,237,187 47,237,187 - ------------------------------------------------------------------------ STIC Prime Portfolio-Institutional Class(c) 47,237,187 47,237,187 ======================================================================== Total Money Market Funds (Cost $94,474,374) 94,474,374 ======================================================================== TOTAL INVESTMENTS-100.26% (Cost $527,103,009) 585,565,644 ======================================================================== OTHER ASSETS LESS LIABILITIES-(0.26%) (1,509,250) ======================================================================== NET ASSETS-100.00% $584,056,394 ________________________________________________________________________ ======================================================================== </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 June 30, 2005 was $17,278,731, which represented 2.95% 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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $432,628,635) $491,091,270 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $94,474,374) 94,474,374 ============================================================= Total investments (cost $527,103,009) 585,565,644 ============================================================= Foreign currencies, at market value (cost $6,212) 6,230 - ------------------------------------------------------------- Receivables for: Fund shares sold 259,328 - ------------------------------------------------------------- Dividends 597,494 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 16,387 - ------------------------------------------------------------- Other assets 6,385 ============================================================= Total assets 586,451,468 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 192,332 - ------------------------------------------------------------- Fund shares reacquired 1,472,442 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 27,101 - ------------------------------------------------------------- Accrued administrative services fees 661,522 - ------------------------------------------------------------- Accrued distribution fees-Series II 26,592 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 157 - ------------------------------------------------------------- Accrued operating expenses 14,928 ============================================================= Total liabilities 2,395,074 ============================================================= Net assets applicable to shares outstanding $584,056,394 _____________________________________________________________ ============================================================= Net assets consist of: Shares of beneficial interest $500,817,394 - ------------------------------------------------------------- Undistributed net investment income 1,514,283 - ------------------------------------------------------------- Undistributed net realized gain from investment securities and foreign currencies 23,262,062 - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 58,462,655 ============================================================= $584,056,394 _____________________________________________________________ ============================================================= NET ASSETS: Series I $538,600,738 _____________________________________________________________ ============================================================= Series II $ 45,455,656 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 40,333,385 _____________________________________________________________ ============================================================= Series II 3,427,877 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 13.35 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 13.26 _____________________________________________________________ ============================================================= </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $15,721) $ 2,853,586 - ------------------------------------------------------------ Dividends from affiliated money market funds 1,200,362 - ------------------------------------------------------------ Interest 32,385 ============================================================ Total investment income 4,086,333 ============================================================ EXPENSES: Advisory fees 1,983,401 - ------------------------------------------------------------ Administrative services fees 742,176 - ------------------------------------------------------------ Custodian fees 19,295 - ------------------------------------------------------------ Distribution fees-Series II 48,733 - ------------------------------------------------------------ Transfer agent fees 8,770 - ------------------------------------------------------------ Trustees' and officer's fees and benefits 13,725 - ------------------------------------------------------------ Other 31,206 ============================================================ Total expenses 2,847,306 ============================================================ Less: Fees waived (11,271) ============================================================ Net expenses 2,836,035 ============================================================ Net investment income 1,250,298 ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $1,054,794) 14,272,551 - ------------------------------------------------------------ Foreign currencies 21,408 ============================================================ 14,293,959 ============================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (5,090,892) - ------------------------------------------------------------ Foreign currencies (343) ============================================================ (5,091,235) ============================================================ Net gain from investment securities and foreign currencies 9,202,724 ============================================================ Net increase in net assets resulting from operations $10,453,022 ____________________________________________________________ ============================================================ </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 1,250,298 $ 955,702 - ------------------------------------------------------------------------------------------ Net realized gain from investment securities and foreign currencies 14,293,959 31,859,203 - ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (5,091,235) 22,026,997 ========================================================================================== Net increase in net assets resulting from operations 10,453,022 54,841,902 ========================================================================================== 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) - ------------------------------------------------------------------------------------------ Series II -- (1,381,970) ========================================================================================== Total distributions from net realized gains -- (22,580,364) ========================================================================================== Decrease in net assets resulting from distributions -- (23,305,378) ========================================================================================== Share transactions-net: Series I 32,308,048 173,142,571 - ------------------------------------------------------------------------------------------ Series II 11,194,301 27,385,946 ========================================================================================== Net increase in net assets resulting from share transactions 43,502,349 200,528,517 ========================================================================================== Net increase in net assets 53,955,371 232,065,041 __________________________________________________________________________________________ ========================================================================================== NET ASSETS: Beginning of period 530,101,023 298,035,982 ========================================================================================== End of period (including undistributed net investment income of $1,514,283 and $263,985, respectively) $584,056,394 $530,101,023 __________________________________________________________________________________________ ========================================================================================== </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 AIM V.I. MID CAP CORE EQUITY FUND of revenues and expenses during the reporting period including estimates and assumptions related to taxation. 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 and domestic and foreign index futures. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for AIM V.I. MID CAP CORE EQUITY FUND 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 procedures approved by the Board of Trustees, 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $500 million 0.725% - ---------------------------------------------------------------------- Next $500 million 0.70% - ---------------------------------------------------------------------- Next $500 million 0.675% - ---------------------------------------------------------------------- Over $1.5 billion 0.65% ______________________________________________________________________ ====================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $11,271. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expense. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to AIM V.I. MID CAP CORE EQUITY FUND provide administrative services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $68,091 for accounting and fund administrative services and reimbursed $674,085 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $8,770. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $48,733. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> PROCEEDS UNREALIZED MARKET MARKET VALUE PURCHASES FROM APPRECIATION VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - -------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $29,925,367 $ 52,917,765 $(35,605,945) $ -- $47,237,187 $ 597,164 $ -- - -------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 29,925,367 52,917,765 (35,605,945) -- 47,237,187 603,198 -- ================================================================================================================================ Total $59,850,734 $105,835,530 $(71,211,890) $ -- $94,474,374 $1,200,362 $ -- ________________________________________________________________________________________________________________________________ ================================================================================================================================ </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $2,683,439 and sales of $6,734,832, which resulted in net realized gains of $1,054,794. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,950 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 six months ended June 30, 2005, 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 six months ended June 30, 2005 was $165,995,278 and $154,632,788, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 64,117,099 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (6,041,805) =============================================================================== Net unrealized appreciation of investment securities $ 58,075,294 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $527,490,350. </Table> AIM V.I. MID CAP CORE EQUITY FUND NOTE 9--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING (a) - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Sold: Series I 6,577,407 $ 85,611,604 12,423,728 $157,026,231 - ---------------------------------------------------------------------------------------------------------------------- Series II 1,469,369 19,037,818 2,804,689 35,484,099 ====================================================================================================================== 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 (4,117,237) (53,303,556) (1,883,158) (23,910,481) - ---------------------------------------------------------------------------------------------------------------------- Series II (610,817) (7,843,517) (748,758) (9,486,913) ====================================================================================================================== 3,318,722 $ 43,502,349 15,738,131 $200,528,517 ______________________________________________________________________________________________________________________ ====================================================================================================================== </Table> (a) There is one entity that is a record owner of more than 5% of the outstanding shares of the Fund and owns 77% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with this entity whereby this entity sells 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 this shareholder are 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-Mid Cap Equity Fund outstanding as of the close of business on December 3, 2004. Phoenix-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. 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 ------------------------------------------------------------------------ SEPTEMBER 10, 2001 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, --------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.11 $ 12.06 $ 9.53 $ 10.72 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.03 0.03(a) 0.00(a) (0.02)(a) (0.00) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.21 1.63 2.60 (1.17) 0.74 ================================================================================================================================= Total from investment operations 0.24 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 $ 13.35 $ 13.11 $ 12.06 $ 9.53 $ 10.72 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 1.83% 13.82% 27.31% (11.10)% 7.37% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $538,601 $496,606 $293,162 $ 68,271 $ 9,500 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.02%(c) 1.04% 1.07% 1.30% 1.27%(d)(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.47%(c) 0.25% 0.01% (0.22)% (0.08)%(d) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 33% 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 annualized and based on average daily net assets of $514,215,259. (d) Annualized. (e) After fee waivers and/or expense reimbursements. Ratio expenses to average net assets prior to fee waivers and/or expense reimbursements was 5.16% (annualized). (f) Not annualized for periods less than one year. AIM V.I. MID CAP CORE EQUITY FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ------------------------------------------------------------------------------ SEPTEMBER 10, 2001 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ------------------------------------ DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.04 $ 12.01 $ 9.51 $ 10.71 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.01 (0.00)(a) (0.03)(a) (0.04)(a) (0.01) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.21 1.62 2.60 (1.16) 0.73 ================================================================================================================================= Total from investment operations 0.22 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 $ 13.26 $ 13.04 $ 12.01 $ 9.51 $ 10.71 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 1.69% 13.57% 27.05% (11.20)% 7.22% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $ 45,456 $ 33,495 $ 4,874 $ 1,214 $ 536 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.27%(c) 1.29% 1.32% 1.45%(d) 1.44%(d)(e) ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.22%(c) (0.00)% (0.24)% (0.37)% (0.25)%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 33% 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 annualized and based on average daily net assets of $39,309,821. (d) After fee waivers and/or expense reimbursements. Ratio expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.55% and 5.44% (annualized), for the year ended December 31, 2002 and the period September 10, 2001 (Date operations commenced) to December 31, 2001, respectively. (e) Annualized. (f) Not annualized for periods less than one year. NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be AIM V.I. MID CAP CORE EQUITY FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. MID CAP CORE EQUITY FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. MID CAP CORE EQUITY FUND AIM V.I. MONEY MARKET FUND Semiannual Report to Shareholders o June 30, 2005 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 JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. MONEY MARKET FUND <Table> MANAGEMENT'S DISCUSSION raising rates. As mentioned above, should OF FUND PERFORMANCE short-term rates rise again, that would soon be reflected in the yields on your ====================================================================================== Fund. PERFORMANCE SUMMARY YOUR FUND As a result of Federal Reserve (the Fed) period closed. As of June 30, 2005, the Regardless of Fed policy or economic interest rate policy, yields on shares of federal funds rate stood at 3.25%, its conditions, your Fund continues to focus AIM V.I. Money Market Fund improved highest level since 2001. on three objectives: safety of principal, during the six months covered by this liquidity and the highest possible yield report. Such rate hikes are reflected fairly consistent with safety of principal. It rapidly in the yields on short-term invests only in high-quality U.S. In mid-2004, responding to evidence of securities such as money market funds. At dollar-denominated short-term an expanding economy with inflationary the close of the reporting period, the fixed-income obligations. The Fund potential, the Fed began to increase the yield on AIM V.I. Money Market Fund maintains a short weighted average overnight federal funds interest rate, Series I shares was 2.47%; on Series II maturity (WAM). During the reporting the rate the Fed most directly controls. shares, it was 2.22%; up from 1.52% and period, the Fund's WAM ranged from 13 The Fed raised that rate four times 1.27%, respectively, six months earlier. days to 27 days. As the period closed, during the six months covered by this the WAM stood at 23 days, up from 19 days report; the last increase occurred on the six months earlier. Although a money day the reporting market fund seeks to maintain the value of your investment at $1.00 per share, it ====================================================================================== is possible to lose money investing in the Fund. MARKET CONDITIONS o Gross domestic product (GDP) advanced at a 3.8% annualized level during the Thank you for your continued Markets were fairly lackluster for the first quarter of 2005, and the advance participation in AIM V.I. Money Market first half of 2005. Popular stock market estimate for second-quarter GDP was 3.4%. Fund. benchmarks such as the Dow Jones Industrial Average and the Standard & o The Institute for Supply Management's The views and opinions expressed here are Poor's Composite Index of 500 Stocks indexes indicated growth in both those of A I M Advisors, Inc. These views produced negative returns for the manufacturing and services every month of and opinions are subject to change at any six-month reporting period. the reporting period. The institute's time based on factors such as market and Investment-grade corporate and government indexes are based on surveys of economic conditions. These views and bonds, as represented by the Lehman U.S. purchasing managers in industries that opinions may not be relied upon as Aggregate Bond Index, produced a positive together cover more than 70% of the U.S. investment advice or recommendations, or but undramatic return of 2.51% for the economy. as an offer for a particular security. same period. The information is not a complete o Inflation continued to be restrained. analysis of every aspect of any market, Nevertheless, despite lingering The core Personal Consumption Expenditure country, industry, security or the Fund. concerns about rising interest rates and inflation, reportedly a favorite measure Statements of fact are from sources persistently high oil prices dampening of Alan Greenspan's, was up just 1.9% considered reliable, but A I M Advisors, economic growth, the economic statistics year-over-year as of the end of June. Inc. makes no representation or warranty were solid as the reporting period as to their completeness or accuracy. closed. As the reporting period closed, Although historical performance is no opinion was divided as to whether the Fed guarantee of future results, these would continue insights may help you understand our investment management philosophy. Team managed by A I M Advisors, Inc. ==================================================================================================================================== ========================================= PORTFOLIO COMPOSITION BY MATURITY uct performance. Performance figures recent month-end performance including reflect fund expenses, reinvested variable product charges, please contact Maturity distribution of Fund holdings distributions and changes in net asset your variable product issuer or financial In days, as of 6/30/05 value. Investment return and principal advisor. value will fluctuate so that you may have 1-7 62.2% a gain or loss when you sell shares. The unmanaged Standard & Poor's 8-30 19.7 Composite Index of 500 Stocks (the S&P 31-90 12.7 AIM V.I. Money Market Fund, a series 500--Registered Trademark-- INDEX) is an 91-120 0.0 portfolio of AIM Variable Insurance index of common stocks frequently used as 121-180 3.6 Funds, is currently offered through a general measure of U.S. stock market 181+ 1.8 insurance companies issuing variable performance. products. You cannot purchase shares of The number of days to maturity of each the Fund directly. Performance figures The DOW JONES INDUSTRIAL AVERAGE is an holding is determined in accordance with given represent the Fund and are not unmanaged index of 30 stocks widely the provisions of Rule 2a-7 under the intended to reflect actual variable regarded as a general measure of Investment Company Act of 1940 as product values. They do not reflect sales large-capitalization U.S. stocks. amended. charges, expenses and fees assessed in connection with a variable product. Sales The unmanaged LEHMAN U.S. AGGREGATE ========================================= charges, expenses and fees, which are BOND INDEX, which represents the U.S. determined by the variable product investment-grade fixed-rate bond market The performance data quoted represent issuers, will vary and will lower the (including government and corporate past performance and cannot guarantee total return. Per NASD requirements, the securities, mortgage pass-through comparable future results; current most recent month-end performance data at securities and asset-backed securities), performance may be lower or higher. the Fund level, excluding variable is compiled by Lehman Brothers, a global Please see your variable product issuer product charges, is available on this AIM investment bank. or financial advisor for the most recent automated information line, 866-702-4402. month-end variable prod- As mentioned above, for the most Weighted average maturity is the weighted average of the remaining terms to maturity of the securities underlying the collateral pool at the date of issue, using the balances of the securities as of the issue date as the weighting factor. </Table> 2 AIM V.I. MONEY MARKET FUND <Table> CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not the Fund's actual return. As a shareholder of the Fund, you The table below provides information incur ongoing costs, including management about actual account values and actual The hypothetical account values and fees; distribution and/or service fees expenses. You may use the information in expenses may not be used to estimate the (12b-1); and other Fund expenses. This this table, together with the amount you actual ending account balance or expenses example is intended to help you invested, to estimate the expenses that you paid for the period. You may use this understand your ongoing costs (in you paid over the period. Simply divide information to compare the ongoing costs dollars) of investing in the Fund and to your account value by $1,000 (for of investing in the Fund and other funds. compare these costs with ongoing costs of example, an $8,600 account value divided To do so, compare this 5% hypothetical investing in other mutual funds. The by $1,000 = 8.6), then multiply the example with the 5% hypothetical examples example is based on an investment of result by the number in the table under that appear in the shareholder reports of $1,000 invested at the beginning of the the heading entitled "Actual Expenses the other funds. period and held for the entire period Paid During Period" to estimate the January 1, 2005, through June 30, 2005. expenses you paid on your account during Please note that the expenses shown in this period. the table are meant to highlight your The actual and hypothetical expenses 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 actual expense ratio and an assumed rate of return of ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 1,009.90 $ 3.99 $ 1,020.83 $ 4.01 Series II 1,000.00 1,008.70 5.23 1,019.59 5.26 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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. (2) Expenses are equal to the Fund's annualized expense ratio (0.80% and 1.05% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). ==================================================================================================================================== </Table> 3 AIM V.I. MONEY MARKET FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided o Meeting with the Fund's portfolio Insurance Funds (the "Board") oversees by AIM. The Board reviewed the managers and investment personnel. With the management of AIM V.I. Money Market credentials and experience of the respect to the Fund, the Board is meeting Fund (the "Fund") and, as required by officers and employees of AIM who will periodically with such Fund's portfolio law, determines annually whether to provide investment advisory services to managers and/or other investment approve the continuance of the Fund's the Fund. In reviewing the qualifications personnel and believes that such advisory agreement with A I M Advisors, of AIM to provide investment advisory individuals are competent and able to Inc. ("AIM"). Based upon the services, the Board reviewed the continue to carry out their recommendation of the Investments qualifications of AIM's investment responsibilities under the Advisory Committee of the Board, which is personnel and considered such issues as Agreement. comprised solely of independent trustees, AIM's portfolio and product review at a meeting held on June 30, 2005, the process, AIM's legal and compliance o Overall performance of AIM. The Board Board, including all of the independent function, AIM's use of technology, AIM's considered the overall performance of AIM trustees, approved the continuance of the portfolio administration function and the in providing investment advisory and advisory agreement (the "Advisory quality of AIM's investment research. portfolio administrative services to the Agreement") between the Fund) and AIM for Based on the review of these and other Fund and concluded that such performance another year, effective July 1, 2005. factors, the Board concluded that the was satisfactory. quality of services to be provided by AIM The Board considered the factors was appropriate and that AIM currently is o Fees relative to those of clients of discussed below in evaluating the providing satisfactory services in AIM with comparable investment fairness and reasonableness of the accordance with the terms of the Advisory strategies. The Board reviewed the Advisory Agreement at the meeting on June Agreement. advisory fee rate for the Fund under the 30, 2005 and as part of the Board's Advisory Agreement. The Board noted that ongoing oversight of the Fund. In their o The performance of the Fund relative to this rate (i) was comparable to the deliberations, the Board and the comparable funds. The Board reviewed the advisory fee rate for a retail money independent trustees did not identify any performance of the Fund during the past market fund, and higher than the advisory particular factor that was controlling, one, three and five calendar years fee rates for four institutional money and each trustee attributed different against the performance of funds advised market funds (one of which has an weights to the various factors. by other advisors with investment "all-in" fee structure whereby AIM pays strategies comparable to those of the all of the fund's ordinary operating One of the responsibilities of the Fund. The Board noted that the Fund's expenses), advised by AIM with investment Senior Officer of the Fund, who is performance in such periods was below the strategies comparable to those of the independent of AIM and AIM's affiliates, median performance of such comparable Fund; (ii) was lower than the advisory is to manage the process by which the funds. Based on this review and after fee rate for an offshore fund for which Fund's proposed management fees are taking account of all of the other an AIM affiliate serves as advisor with negotiated to ensure that they are factors that the Board considered in investment strategies comparable to those negotiated in a manner which is at arm's determining whether to continue the of the Fund; and (iii) was higher than length and reasonable. To that end, the Advisory Agreement for the Fund, the the advisory fee rates for three Senior Officer must either supervise a Board concluded that no changes should be unregistered pooled investment vehicles competitive bidding process or prepare an made to the Fund and that it was not for which an AIM affiliate serves as independent written evaluation. The necessary to change the Fund's portfolio advisor with investment strategies Senior Officer has recommended an management team at this time. However, comparable to those of the Fund. The independent written evaluation in lieu of due to the Fund's under-performance, the Board noted that AIM has agreed to limit a competitive bidding process and, upon Board also concluded that it would be the Fund's total operating expenses, as the direction of the Board, has prepared appropriate for management and the Board discussed below. Based on this review, such an independent written evaluation. to continue to closely monitor the the Board concluded that the advisory fee Such written evaluation also considered performance of the Fund. rate for the Fund under the Advisory certain of the factors discussed below. Agreement was fair and reasonable. In addition, as discussed below, the o The performance of the Fund relative to Senior Officer made certain indices. The Board reviewed the o Fees relative to those of comparable recommendations to the Board in performance of the Fund during the past funds with other advisors. The Board connection with such written evaluation. one, three and five calendar years reviewed the advisory fee rate for the against the performance of the Lipper Fund under the Advisory Agreement. The The discussion below serves as a Money Market Fund Index. The Board noted Board compared effective contractual summary of the Senior Officer's that the Fund's performance for the three advisory fee rates at a common asset independent written evaluation and and five year periods was comparable to level and noted that the Fund's rate was recommendations to the Board in the performance of such Index and below above the median rate of the funds connection therewith, as well as a such Index for the one year period. Based advised by other advisors with investment discussion of the material factors and on this review and after taking account strategies comparable to those of the the conclusions with respect thereto that of all of the other factors that the Fund that the Board reviewed. The Board formed the basis for the Board's approval Board considered in determining whether noted that AIM has agreed to limit the of the Advisory Agreement. After to continue the Advisory Agreement for Fund's total operating expenses, as consideration of all of the factors below the Fund, the Board concluded that no discussed below. Based on this review, and based on its informed business changes should be made to the Fund and the Board concluded that the advisory fee judgment, the Board determined that the that it was not necessary to change the rate for the Fund under the Advisory Advisory Agreement is in the best Fund's portfolio management team at this Agreement was fair and reasonable. interests of the Fund and its time. However, due to the Fund's shareholders and that the compensation to under-performance, the Board also o Expense limitations and fee waivers. AIM under the Advisory Agreement is fair concluded that it would be appropriate The Board noted that AIM has and reasonable and would have been for management and the Board to continue contractually agreed to waive fees and/or obtained through arm's length to closely monitor the performance of the limit expenses of the Fund through April negotiations. Fund. 30, 2006 so that total annual operating expenses are limited to a specified o The nature and extent of the advisory percentage of average daily net assets services to be provided by AIM. The Board for each class of the Fund. The Board reviewed the services to be provided by considered the contractual nature of this AIM under the Advisory Agreement. Based fee waiver and noted that it remains in on such review, the Board concluded that effect until April 30, 2006. The Board the range of services to be provided by considered the effect this fee AIM under the Advisory Agreement was waiver/expense limitation would have on appropriate and that AIM currently is the Fund's estimated expenses and con- providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> 4 AIM V.I. MONEY MARKET FUND <Table> cluded that the levels of fee o Independent written evaluation and o Historical relationship between the waivers/expense limitations for the Fund recommendations of the Fund's Senior Fund and AIM. In determining whether to were fair and reasonable. Officer. The Board noted that, upon their continue the Advisory Agreement for the direction, the Senior Officer of the Fund Fund, the Board also considered the prior o Breakpoints and economies of scale. The had prepared an independent written relationship between AIM and the Fund, as Board reviewed the structure of the evaluation in order to assist the Board well as the Board's knowledge of AIM's Fund's advisory fee under the Advisory in determining the reasonableness of the operations, and concluded that it was Agreement, noting that it includes one proposed management fees of the AIM beneficial to maintain the current breakpoint. The Board reviewed the level Funds, including the Fund. The Board relationship, in part, because of such of the Fund's advisory fees, and noted noted that the Senior Officer's written knowledge. The Board also reviewed the that such fees, as a percentage of the evaluation had been relied upon by the general nature of the non-investment Fund's net assets, would decrease as net Board in this regard in lieu of a advisory services currently performed by assets increase because the Advisory competitive bidding process. In AIM and its affiliates, such as Agreement includes a breakpoint. The determining whether to continue the administrative, transfer agency and Board noted that, due to the Fund's Advisory Agreement for the Fund, the distribution services, and the fees current asset levels and the way in which Board considered the Senior Officer's received by AIM and its affiliates for the advisory fee breakpoints have been written evaluation and the recommendation performing such services. In addition to structured, the Fund has yet to benefit made by the Senior Officer to the Board reviewing such services, the trustees from the breakpoint. The Board concluded that the Board consider implementing a also considered the organizational that the Fund's fee levels under the process to assist them in more closely structure employed by AIM and its Advisory Agreement therefore would monitoring the performance of the AIM affiliates to provide those services. reflect economies of scale at higher Funds. The Board concluded that it would Based on the review of these and other asset levels and that it was not be advisable to implement such a process factors, the Board concluded that AIM and necessary to change the advisory fee as soon as reasonably practicable. its affiliates were qualified to continue breakpoints in the Fund's advisory fee to provide non-investment advisory schedule. o Profitability of AIM and its services to the Fund, including affiliates. The Board reviewed administrative, transfer agency and o Investments in affiliated money market information concerning the profitability distribution services, and that AIM and funds. The Board also took into account of AIM's (and its affiliates') investment its affiliates currently are providing the fact that uninvested cash and cash advisory and other activities and its satisfactory non-investment advisory collateral from securities lending financial condition. The Board considered services. arrangements (collectively, "cash the overall profitability of AIM, as well balances") of the Fund may be invested in as the profitability of AIM in connection o Other factors and current trends. In money market funds advised by AIM with managing the Fund. The Board noted determining whether to continue the pursuant to the terms of an SEC exemptive that AIM's operations remain profitable, Advisory Agreement for the Fund, the order. The Board found that the Fund may although increased expenses in recent Board considered the fact that AIM, along realize certain benefits upon investing years have reduced AIM's profitability. with others in the mutual fund industry, cash balances in AIM advised money market Based on the review of the profitability is subject to regulatory inquiries and funds, including a higher net return, of AIM's and its affiliates' investment litigation related to a wide range of increased liquidity, increased advisory and other activities and its issues. The Board also considered the diversification or decreased transaction financial condition, the Board concluded governance and compliance reforms being costs. The Board also found that the Fund that the compensation to be paid by the undertaken by AIM and its affiliates, will not receive reduced services if it Fund to AIM under its Advisory Agreement including maintaining an internal invests its cash balances in such money was not excessive. controls committee and retaining an market funds. The Board noted that, to independent compliance consultant, and the extent the Fund invests in affiliated o Benefits of soft dollars to AIM. The the fact that AIM has undertaken to cause money market funds, AIM has voluntarily Board considered the benefits realized by the Fund to operate in accordance with agreed to waive a portion of the advisory AIM as a result of brokerage transactions certain governance policies and fees it receives from the Fund executed through "soft dollar" practices. The Board concluded that these attributable to such investment. The arrangements. Under these arrangements, actions indicated a good faith effort on Board further determined that the brokerage commissions paid by other funds the part of AIM to adhere to the highest proposed securities lending program and advised by AIM are used to pay for ethical standards, and determined that related procedures with respect to the research and execution services. This the current regulatory and litigation lending Fund is in the best interests of research may be used by AIM in making environment to which AIM is subject the lending Fund and its respective investment decisions for the Fund. The should not prevent the Board from shareholders. The Board therefore Board concluded that such arrangements continuing the Advisory Agreement for the concluded that the investment of cash were appropriate. Fund. collateral received in connection with the securities lending program in the o AIM's financial soundness in light of money market funds according to the the Fund's needs. The Board considered procedures is in the best interests of whether AIM is financially sound and has the lending Fund and its respective the resources necessary to perform its shareholders. obligations under the Advisory Agreement, and concluded that AIM has the financial resources necessary to fulfill its obligations under the Advisory Agreement. </Table> 5 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> PAR MATURITY (000) VALUE - ------------------------------------------------------------------------------ COMMERCIAL PAPER-34.84%(A) ASSET-BACKED SECURITIES -- COMMERCIAL LOANS/ LEASES-3.72% Atlantis One Funding Corp. 3.15% (Acquired 06/02/05; Cost $2,014,082)(b) 07/28/05 $2,024 $ 2,019,218 ============================================================================== ASSET-BACKED SECURITIES -- FULLY BACKED-16.29% Blue Spice LLC (CEP-Deutsche Bank A.G.) 3.22% (Acquired 05/25/04; Cost $991,674)(b) 08/26/05 1,000 994,986 - ------------------------------------------------------------------------------ Concord Minutemen Capitol Co., LLC-Series A (Multi CEP's-Liberty Hampshire Co., LLC; agent) 3.33% (Acquired 06/30/05; Cost $2,400,996)(b) 07/18/05 2,405 2,401,218 - ------------------------------------------------------------------------------ Crown Point Capital Co., LLC-Series A (Multi CEP's-Liberty Hampshire Co., LLC; agent) 3.19% (Acquired 05/18/05; Cost $1,983,721)(b) 08/18/05 2,000 1,991,507 - ------------------------------------------------------------------------------ Legacy Capital Co., LLC (Multi CEP's-Liberty Hampshire Co., LLC; agent) 3.27% (Acquired 06/07/05; Cost $1,886,278)(b) 09/06/05 1,902 1,890,425 - ------------------------------------------------------------------------------ 3.05% (Acquired 06/03/05; Cost $592,591)(b) 07/01/05 594 594,000 - ------------------------------------------------------------------------------ Picaros Funding LLC (CEP-KBC Bank N.V.) 3.42% (Acquired 06/03/05; Cost $974,350)(b) 02/28/06 1,000 977,010 ============================================================================== 8,849,146 ============================================================================== ASSET-BACKED SECURITIES -- MULTI-PURPOSE-5.69% Edison Asset Securitization, LLC 3.22% (Acquired 05/10/05; Cost $2,011,179)(b) 09/07/05 2,033 2,020,635 - ------------------------------------------------------------------------------ Sheffield Receivables Corp. 3.15% (Acquired 06/03/05; Cost $1,064,757)(b) 07/29/05 1,070 1,067,379 ============================================================================== 3,088,014 ============================================================================== ASSET-BACKED SECURITIES -- STRUCTURED INVESTMENT VEHICLES/SECURITY ARBITRAGE-7.30% Grampian Funding Ltd./LLC 3.47% (Acquired 06/16/05; Cost $984,771)(b) 11/21/05 1,000 986,216 - ------------------------------------------------------------------------------ 3.49% (Acquired 06/13/05; Cost $982,647)(b) 12/09/05 1,000 984,392 - ------------------------------------------------------------------------------ </Table> <Table> PAR MATURITY (000) VALUE - ------------------------------------------------------------------------------ <Caption> ASSET-BACKED SECURITIES -- STRUCTURED INVESTMENT VEHICLES/SECURITY ARBITRAGE-(CONTINUED) Klio II Funding Ltd/Corp. 3.23% (Acquired 06/17/05; Cost $1,994,617)(b) 07/20/05 $2,000 $1,996,591 ============================================================================== 3,967,199 ============================================================================== INVESTMENT BANKING & BROKERAGE-1.84% Morgan Stanley, Floating Rate 3.30%(c) 10/12/05 1,000 1,000,000 ============================================================================== Total Commercial Paper (Cost $18,923,577) 18,923,577 ============================================================================== VARIABLE RATE DEMAND NOTES-15.08%(D) INSURED-2.82% Omaha (City of), Nebraska; Special Tax Redevelopment Taxable Series 2002 B RB, 3.43%(e)(f) 02/01/13 1,530 1,530,000 ============================================================================== LETTER OF CREDIT-12.26%(G) Albuquerque (City of), New Mexico (Ktech Corp. Project); Taxable Series 2002 IDR (LOC-Wells Fargo Bank N.A.), 3.37%(f) 11/01/22 1,500 1,500,000 - ------------------------------------------------------------------------------ Corp. Finance Managers Inc.; Floating Rate Notes (LOC-Wells Fargo Bank N.A.) 3.37%(f) 02/02/43 1,825 1,825,000 - ------------------------------------------------------------------------------ Dome Corp.; Floating Rate Notes (LOC- Wachovia Bank, N.A.) 3.35% (Acquired 12/20/02; Cost $665,000)(b)(f) 08/31/16 665 665,000 - ------------------------------------------------------------------------------ Folk Financial Services Inc.-Series A; Floating Rate Loan Program Notes (LOC-National City Bank) 3.46%(f) 10/15/27 85 85,000 - ------------------------------------------------------------------------------ Moon (City of), Pennsylvania Industrial Development Authority (One Thorn Run Assoc. Project); Taxable Series 1995 B IDR (LOC-National City Bank) 3.42%(f) 11/01/15 1,385 1,385,000 - ------------------------------------------------------------------------------ </Table> AIM V.I. MONEY MARKET FUND <Table> <Caption> PAR MATURITY (000) VALUE - ------------------------------------------------------------------------------ LETTER OF CREDIT-(CONTINUED) North Carolina (State of) Roman Catholic Diocese of Charlotte; Series 2002 Floating Rate Bonds (LOC-Wachovia Bank, N.A.) 3.34%(f) 05/01/14 $1,200 $ 1,200,000 ============================================================================== 6,660,000 ============================================================================== Total Variable Rate Demand Notes (Cost $8,190,000) 8,190,000 ============================================================================== ASSET-BACKED SECURITIES-4.62% FULLY BACKED-1.84% Racers Trust-Series 2004-6-MM, Floating Rate Notes (CEP-Lehman Brothers Holdings Inc.) 3.28% (Acquired 04/13/04; Cost $1,000,000)(b)(h) 11/22/05 1,000 1,000,000 ============================================================================== STRUCTURED-2.78% Residential Mortgage Securities (United Kingdom)-Series 17A, Class A-1, Floating Rate Bonds 3.22% (Acquired 02/10/05; Cost $1,509,795)(b)(h) 02/14/06 1,510 1,509,795 ============================================================================== Total Asset-Backed Securities (Cost $2,509,795) 2,509,795 ============================================================================== FUNDING AGREEMENTS-3.68% New York Life Insurance Co. 3.19% (Acquired 04/06/05; Cost $2,000,000)(b)(h)(i) 04/05/06 2,000 2,000,000 ============================================================================== MASTER NOTE AGREEMENTS-3.68% Merrill Lynch Mortgage Capital, Inc. 3.58% (Acquired 04/21/05; Cost $2,000,000)(b)(c)(j)(k)(l) -- 2,000 2,000,000 ============================================================================== MEDIUM-TERM NOTES-1.29% MetLife Global Funding I, Floating Rate Global MTN (Cost $700,429) 3.39% (Acquired 11/10/04; Cost $700,525)(b)(h) 07/28/06 700 700,429 ============================================================================== Total Investments (excluding Repurchase Agreements) (Cost $34,323,801) 34,323,801 ============================================================================== </Table> <Table> PAR MATURITY (000) VALUE - ------------------------------------------------------------------------------ <Caption> REPURCHASE AGREEMENTS-36.87% Banc of America Securities LLC 3.42%(m) 07/01/05 $2,000 $ 2,000,000 - ------------------------------------------------------------------------------ Bank of Nova Scotia (The)-New York Branch (Canada) 3.38%(n) 07/01/05 $2,000 2,000,000 - ------------------------------------------------------------------------------ Barclays Capital Inc.-New York Branch (United Kingdom) 3.35%(o) 07/01/05 2,028 2,027,507 - ------------------------------------------------------------------------------ Citigroup Global Markets Inc. 3.42%(p) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Credit Suisse First Boston LLC-New York Branch (Switzerland) 3.35%(q) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Deutsche Bank Securities Inc.-New York Branch (Germany) 3.45%(r) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Goldman, Sachs & Co. 3.43%(s) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Greenwich Capital Markets, Inc.-New York Branch (United Kingdom) 3.42%(t) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Morgan Stanley & Co., Inc. 3.42%(u) 07/01/05 2,000 2,000,000 - ------------------------------------------------------------------------------ Wachovia Securities, Inc. 3.40%(v) 07/01/05 2,000 2,000,000 ============================================================================== Total Repurchase Agreements (Cost $20,027,507) 20,027,507 ============================================================================== TOTAL INVESTMENTS-100.06% (Cost $54,351,308)(w) 54,351,308 ============================================================================== OTHER ASSETS LESS LIABILITIES-(0.06%) (30,605) ============================================================================== NET ASSETS-100.00% $54,320,703 ______________________________________________________________________________ ============================================================================== </Table> Investment Abbreviations: <Table> ABS - Asset Backed Security CEP - Credit Enhancement Provider IDR - Industrial Development Revenue Bonds LOC - Letter of Credit MTN - Medium Term Notes RB - Revenue Bonds Unsec. - Unsecured </Table> AIM V.I. MONEY MARKET FUND 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 June 30, 2005 was $25,798,801, which represented 47.49% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (c) Interest rate is redetermined daily. Rate shown is the rate in effect on June 30, 2005. (d) Demand security; payable upon demand by the Fund with usually no more than seven calendar days' notice. (e) Principal and/or interest payments are secured by bond insurance provided by Ambac Assurance Corp. (f) Interest rate is redetermined weekly. Rate shown is the rate in effect on June 30, 2005. (g) Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. (h) Interest rate is redetermined monthly. Rate shown is the rate in effect on June 30, 2005. (i) Security considered to be illiquid. The Fund is limited to investing 10% of net assets in illiquid securities. The market value of this security considered illiquid at June 30, 2005 represented 3.68% of the Fund's Net Assets. (j) The Investments 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. (k) 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. (l) Open master note agreement with no specified maturity date. Either party may terminate the agreement upon thirty days prior written notice provided the last maturing advances under the note is paid in full, whether at maturity or on demand. (m) Joint repurchase agreement entered into 06/30/05 with a maturing value of $1,000,095,000. Collateralized by $1,025,759,775 U.S. Government obligations, 5.00% due 05/01/35 with a market value at 06/30/05 of $1,020,000,000. The amount to be received upon repurchase by the Fund is $2,000,190. (n) Joint repurchase agreement entered into 06/30/05 with a maturing value of $250,023,438. Collateralized by $251,760,000 U.S. Government obligations, 2.38% to 5.25% due 04/05/06 to 10/15/14 with an aggregate market value at 06/30/05 of $255,000,062. The amount to be received upon repurchase by the Fund is $2,000,188. (o) Joint repurchase agreement entered into 06/30/05 with a maturing value of $1,000,094,444. Collateralized by $1,034,591,997 U.S. Government obligations, 0% to 6.50% due 02/01/20 to 05/01/38 with an aggregate market value at 06/30/05 of $1,020,000,000. The amount to be received upon repurchase by the Fund is $2,027,698. (p) Joint repurchase agreement entered into 06/30/05 with a maturing value of $500,047,500. Collateralized by $504,386,971 U.S. Government obligations, 3.10% to 7.50% due 12/01/09 to 06/01/35 with an aggregate market value at 06/30/05 of $510,000,000. The amount to be received upon repurchase by the Fund is $2,000,190. (q) Joint repurchase agreement entered into 06/30/05 with a maturing value of $250,023,264. Collateralized by $425,080,000 U.S. Government obligations, 0% due 11/01/05 to 06/23/33 with an aggregate market value at 06/30/05 of $255,004,545. The amount to be received upon repurchase by the Fund is $2,000,186. (r) Joint repurchase agreement entered into 06/30/05 with a maturing value of $1,000,095,833. Collateralized by $1,000,455,599 U.S. Government obligations, 2.81% to 7.50% due 02/01/08 to 12/15/44 with an aggregate market value at 06/30/05 of $1,020,000,000. The amount to be received upon repurchase by the Fund is $2,000,192. (s) Joint repurchase agreement entered into 06/30/05 with a maturing value of $500,047,639. Collateralized by $504,818,776 U.S. Government obligations, 4.50% to 6.00% due 02/01/13 to 06/01/35 with an aggregate market value at 06/30/05 of $510,000,001. The amount to be received upon repurchase by the Fund is $2,000,191. (t) Joint repurchase agreement entered into 06/30/05 with a maturing value of $500,047,500. Collateralized by $501,740,555 U.S. Government obligations, 2.65% to 5.90% due 06/01/18 to 07/01/35 with an aggregate market value at 06/30/05 of $510,003,198. The amount to be received upon repurchase by the Fund is $2,000,190. (u) Joint repurchase agreement entered into 06/30/05 with a maturing value of $500,047,500. Collateralized by $500,346,640 U.S. Government obligations, 3.34% to 11.00% due 12/01/05 to 01/01/41 with an aggregate market value at 06/30/05 of $513,540,500. The amount to be received upon repurchase by the Fund is $2,000,190. (v) Joint repurchase agreement entered into 06/30/05 with a maturing value of $500,047,222. Collateralized by $501,504,139 U.S. Government obligations, 3.51% to 6.26% due 06/15/11 to 10/15/44 with an aggregate market value at 06/30/05 of $510,003,875. The amount to be received upon repurchase by the Fund is $2,000,189. (w) 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 June 30, 2005 (Unaudited) <Table> ASSETS: Investments, excluding repurchase agreements, at value (cost $34,323,801) $34,323,801 - ------------------------------------------------------------ Repurchase agreements (cost $20,027,507) 20,027,507 ============================================================ Total investments (cost $54,351,308) 54,351,308 ============================================================ Receivables for: Fund shares sold 478 - ------------------------------------------------------------ Interest 53,879 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 40,240 - ------------------------------------------------------------ Other assets 2,535 ____________________________________________________________ ============================================================ Total assets 54,448,440 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Fund shares reacquired 22,822 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 45,529 - ------------------------------------------------------------ Accrued administrative services fees 46,232 - ------------------------------------------------------------ Accrued distribution fees--Series II 3,079 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 114 - ------------------------------------------------------------ Accrued operating expenses 9,961 ============================================================ Total liabilities 127,737 ============================================================ Net assets applicable to shares outstanding $54,320,703 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $54,314,359 ============================================================ Undistributed net investment income 6,344 ____________________________________________________________ ============================================================ $54,320,703 ____________________________________________________________ ============================================================ NET ASSETS: Series I $50,306,770 ____________________________________________________________ ============================================================ Series II $ 4,013,933 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 50,305,376 ____________________________________________________________ ============================================================ Series II 4,013,901 ____________________________________________________________ ============================================================ Series I: Net asset value per share $ 1.00 ____________________________________________________________ ============================================================ Series II: Net asset value per share $ 1.00 ____________________________________________________________ ============================================================ </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Interest $789,966 =========================================================== EXPENSES: Advisory fees 113,530 - ----------------------------------------------------------- Administrative services fees 77,355 - ----------------------------------------------------------- Custodian fees 1,862 - ----------------------------------------------------------- Distribution fees--Series II 6,413 - ----------------------------------------------------------- Transfer agent fees 2,629 - ----------------------------------------------------------- Trustees' and officer's fees and benefits 7,416 - ----------------------------------------------------------- Professional services fees 16,236 - ----------------------------------------------------------- Other 6,650 =========================================================== Total expenses 232,091 =========================================================== Net investment income 557,875 =========================================================== Net increase in net assets resulting from operations $557,875 ___________________________________________________________ =========================================================== </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 557,875 $ 461,065 ========================================================================================= Distributions to shareholders from net investment income: Series I (513,547) (436,246) - ----------------------------------------------------------------------------------------- Series II (44,328) (24,819) ========================================================================================= Decrease in net assets resulting from distributions (557,875) (461,065) ========================================================================================= Share transactions-net: Series I (3,700,445) (23,498,214) - ----------------------------------------------------------------------------------------- Series II (2,062,227) 3,693,695 ========================================================================================= Net increase (decrease) in net assets resulting from share transactions (5,762,672) (19,804,519) ========================================================================================= Net increase (decrease) in net assets (5,762,672) (19,804,519) ========================================================================================= NET ASSETS: Beginning of period 60,083,375 79,887,894 ========================================================================================= End of period (including undistributed net investment income of $6,344 and $6,344, respectively) $54,320,703 $ 60,083,375 _________________________________________________________________________________________ ========================================================================================= </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 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 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 including estimates and assumptions related to taxation. 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 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 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 procedures approved by the Board of Trustees, 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. AIM V.I. MONEY MARKET 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - -------------------------------------------------------------------- First $250 million 0.40% - -------------------------------------------------------------------- Over $250 million 0.35% ____________________________________________________________________ ==================================================================== </Table> 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. AIM did not waive fees and/or reimburse expenses during the period under this expense limitation. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund 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. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $52,560 services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $2,629. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $6,413. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. NOTE 3--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,067 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 six months ended June 30, 2005. AIM V.I. MONEY MARKET FUND 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2004. NOTE 6--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(A) - ----------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2005 2004 -------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------------- Sold: Series I 44,521,449 $44,521,449 30,161,445 $ 30,161,445 - ----------------------------------------------------------------------------------------------------------------------- Series II 5,887,234 5,887,234 13,875,916 13,875,916 ======================================================================================================================= Issued as reinvestment of dividends: Series I 513,562 513,562 436,232 436,232 - ----------------------------------------------------------------------------------------------------------------------- Series II 44,329 44,329 24,822 24,822 ======================================================================================================================= Reacquired: Series I (48,735,456) (48,735,456) (54,095,891) (54,095,891) - ----------------------------------------------------------------------------------------------------------------------- Series II (7,993,790) (7,993,790) (10,207,043) (10,207,043) ======================================================================================================================= (5,762,672) $(5,762,672) (19,804,519) $(19,804,519) _______________________________________________________________________________________________________________________ ======================================================================================================================= </Table> (a) There are two entities that are record owners of more than 5% of the outstanding shares of the Fund and in aggregate they own 90% 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 or any portion of the shares owned of record by these shareholders are also owned beneficially. AIM V.I. MONEY MARKET FUND NOTE 7--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------- 2005 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.04 0.06 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions from net investment income (0.01) (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 $ 1.00 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(a) 0.99% 0.69% 0.58% 1.19% 3.61% 5.83% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $50,307 $54,008 $77,505 $119,536 $128,277 $73,864 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.80%(b) 0.75% 0.66% 0.67% 0.64% 0.71% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of net investment income to average net assets 1.99%(b) 0.67% 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 annualized and based on average daily net assets of $52,061,967. <Table> <Caption> SERIES II ---------------------------------------------------------------- DECEMBER 16, 2001 SIX MONTHS (DATE SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, -------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------ 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 0.00 0.00 0.01 0.00 - ------------------------------------------------------------------------------------------------------------------------------ Less distributions from net investment income (0.01) (0.00) (0.00) (0.01) (0.00) ============================================================================================================================== Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(a) 0.87% 0.44% 0.33% 0.93% 0.05% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $4,014 $6,076 $2,382 $7,831 $ 997 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets 1.05%(b) 1.00% 0.91% 0.92% 0.89%(c) ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of net investment income to average net assets 1.74%(b) 0.42% 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 annualized and based on average daily net assets of $5,173,293. (c) Annualized. NOTE 8--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was reviewed and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. on May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. AIM V.I. MONEY MARKET FUND 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec.. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. AIM V.I. MONEY MARKET FUND NOTE 9--LEGAL PROCEEDINGS (CONTINUED) These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. MONEY MARKET FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN The Bank of New York Robert H. Graham Sidney M. Dilgren 2 Hanson Place Vice President and Treasurer Brooklyn, NY 11217-1431 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. MONEY MARKET FUND AIM V.I. PREMIER EQUITY FUND Semiannual Report to Shareholders o June 30,2005 AIM V.I. PREMIER EQUITY FUND seeks to achieve long-term growth of capital. Income is a secondary objective. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,2005,AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30,2005,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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. PREMIER EQUITY FUND <Table> MANAGEMENT'S DISCUSSION The growth team uses quantitative and OF FUND PERFORMANCE fundamental analysis to identify ===================================================================================== companies generating sustainable, above-average earnings and cash flow PERFORMANCE SUMMARY ======================================== growth that is not fully reflected in investor expectations or equity Large-cap stocks either gave up ground FUND VS. INDEXES valuations. Quantitative analysis or were virtually stalled for the six focuses on the level, growth rate and months ended June 30, 2005. For the broad TOTAL RETURNS,12/31/04-6/30/05,EXCLUDING sustainability of earnings, revenue and equity market, the period was comprised VARIABLE PRODUCT ISSUER CHARGES. IF cash flow. Fundamental analysis seeks to of one quarter of negative returns and VARIABLE PRODUCT ISSUER CHARGES WERE understand a company's drivers of one quarter of positive returns, INCLUDED, RETURNS WOULD BE LOWER. success and to assess their durability. resulting in little or no progress. The growth team's sell process seeks to Series I Shares -0.52% identify deterioration in the underlying The Fund's performance was in line with reasons a stock was initially purchased. the performance of the S&P 500 Index, Series II Shares -0.66 Conditions that may cause us to sell a the index that is both its broad market stock include deteriorating business index and its style-specific index. Standard & Poor's Composite Index prospects, slowing earnings growth, an of 500 Stocks (S&P 500 Index) extended valuation or a more attractive (Broad Market Index and opportunity in another security. Style-specific Index) -0.81 Our portfolio is a well-diversified, Lipper Large-Cap Core Fund Index large-cap core fund of 125 to 200 stocks (Peer Group Index) -1.01 with the majority of holdings allocated to core holdings and lesser amounts SOURCE: LIPPER, INC. allocated to value and growth holdings. We strive to manage risk through the ======================================== large number of holdings and our ===================================================================================== diversified exposure to a broad variety of industries across the value-to-growth HOW WE INVEST The value team capitalizes on the continuum. fact that stock prices are more volatile We combine core, value and growth than business values and seeks to invest MARKET CONDITIONS AND YOUR FUND disciplines to provide return potential when a significant difference exists in a variety of markets. Each team between a stock's market price and their During the first three months of 2005, manages its respective discipline estimate of the company's intrinsic domestic equity markets failed to gain independently. value. (Estimated intrinsic value is a consistent traction despite continued value determined by the business's growth in the U.S gross domestic The core team identifies growing estimated future cash flows and is product. Investors worried that rising companies whose stock prices may be independent of the stock market.) The energy prices and interest rates would experiencing some near-term distress. team considers selling a stock to have a negative impact on economic Applying rigorous fundamental research capitalize on a more attractive growth and inflation. focusing on cash flow analysis, the team opportunity, if a stock is trading identifies companies with management significantly above estimated intrinsic teams capable of weathering any value, or if there is a permanent, near-term challenges while successfully fundamental deterioration resulting in generating improving levels of free cash reduced intrinsic value with inadequate flow. The team considers selling a stock upside potential or unexpected when a price target is exceeded, there deterioration in financial strength. is deterioration in fundamentals or a more compelling opportunity exists. ======================================== ======================================== ======================================== PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS* By sector 1. Pharmaceuticals 9.2% 1. Tyco International Ltd. (Bermuda) 2.9% 1. Health Care 18.4% 2. Oil & Gas Equipment & Services 4.4 2. Microsoft Corp. 1.9 2. Information Technology 18.0 3. Systems Software 4.2 3. Waste Management, Inc. 1.9 3. Financials 14.1 4. Industrial Conglomerates 4.2 4. Kroger Co. (The) 1.6 4. Industrials 10.8 5. Property & Casualty Insurance 3.9 5. Computer Associates International, Inc. 1.6 5. Consumer Discretionary 10.8 6. Integrated Oil & Gas 3.9 6. Citigroup Inc. 1.4 6. Energy 10.5 7. Packaged Foods & Meats 3.5 7. Merck & Co. Inc. 1.4 7. Consumer Staples 8.8 8. Semiconductors 3.1 8. BJ Services Co. 1.3 8. Materials 1.7 9. Managed Health Care 2.9 9. HCA Inc. 1.3 9. Utilities 1.1 10. Investment Banking & Brokerage 2.9 10. First Data Corp. 1.3 10. Telecommunication Services 0.9 TOTAL NET ASSETS $1.55 BILLION Money Market Funds Plus Other Assets Less Liabilities 4.9 TOTAL NUMBER OF HOLDINGS* 142 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. PREMIER EQUITY FUND <Table> Crude oil prices remained high during in the S&P 500 and other major indexes. investment disciplines in one core fund, the second quarter, but stocks performed Disappointments in key holdings, as well we can provide return potential in a relatively well--although not well as the negative performance of the variety of markets. Thank you for your enough to overcome the poor performance sector in general, detracted from Fund investment in AIM V.I. Premier Equity of the first quarter. Accordingly, major performance for the period. Fund. domestic equity indexes produced either low single-digit or negative returns for IT holding IBM has steered its future The views and opinions expressed in the six-month period. direction to focus on software management's discussion of Fund integration and outsourcing. The performance are those of A I M Advisors, This reporting period provided a company's experience in working with Inc. These views and opinions are clear example of the Fund benefiting multiple platforms enables it to compete subject to change at any time based on from the inclusion of the growth and for projects involving virtually all factors such as market and economic value disciplines. This occurred in the types of software. Even so, because of conditions. These views and opinions may health care sector, which was our disappointing capital expenditures in IT not be relied upon as investment advice largest sector weighting and provided and IBM's difficulty in closing deals in or recommendations, or as an offer for a the largest contribution to Fund countries with soft economic conditions, particular security. The information is performance. The Fund's health care the company's earnings announcement in not a complete analysis of every aspect stocks outperformed the health care April disappointed investors. As we of any market, country, industry, sector in the benchmark. Several health believe the market overreacted to IBM's security or the Fund. Statements of fact care stocks in particular, namely HCA, announcement, we continued to hold this are from sources considered reliable, Wellpoint and Alcon, all owned at stock at period-end. but A I M Advisors, Inc. makes no period-end, were top contributors to representation or warranty as to their Fund performance. Each of these stocks After a strong showing in 2004, completeness or accuracy. Although was selected by either the growth team industrials stocks generally suffered historical performance is no guarantee or the value team, so our diversified during the period. This was primarily of future results, these insights may investment styles worked well in because investors fled to other sectors, help you understand our investment enhancing performance. fearing that the industrial expansion of management philosophy. the last two years might be running out The improving job market during the of steam. However, capital spending is RONALD S. SLOAN, period helped performance for HCA and expected to gain momentum in the second Chartered Financial Wellpoint. Additional jobs mean more half of the year as companies deploy [SLOAN Analyst, senior employers providing health care cash from profit growth. We believe that PHOTO] portfolio manager, is benefits, enlarging the pool of insured companies in the sector remain lead portfolio manager patients in general and increasing the attractive because of their ability to of AIM V.I. Premier number of patients willing to undergo generate cash flow, the weakness of the Equity Fund. Mr. Sloan has 34 years of elective surgery. HCA, one of the top dollar and their leverage to U.S. experience in the investment industry. hospital operators in the U.S., economic growth. He joined AIM in 1998. Mr. Sloan benefited from increased admissions and attended the University of Missouri, surgeries. After experiencing In its earnings report in May, where he received both a B.S. in better-than-expected first-quarter industrials holding Tyco noted that it business administration and an M.B.A. results, HCA revised earnings estimates had used $1.5 billion of its cash to upward for the remainder of 2005. repurchase convertible debt securities. LANNY H. SACHNOWITZ, This generated a one-time charge that senior portfolio Health benefits company Wellpoint adversely affected earnings. Since Tyco [SACHNOWITZ manager, is portfolio operates the Blue Cross and Blue Shield began repurchasing its convertible PHOTO] manager of AIM V.I. plans. An increase in insured patients securities late in 2004, it has reduced Premier Equity Fund. benefited Wellpoint's performance. Also diluted shares outstanding by 76 million Mr. Sachnowitz joined of benefit was Wellpoint's ability to shares. We believe that this represents AIM in 1987. He received a B.S. in negotiate a lower rate of industry cost good stewardship of cash, and at finance from the University of Southern increases. In addition to reporting period-end, we remained confident in the California and he received his M.B.A strong financial results for group of large-market-share businesses from the University of Houston. first-quarter 2005, the company declared that comprise Tyco. a two-for-one stock split. BRET W. STANLEY, IN CLOSING Chartered Financial The energy sector also contributed to [STANLEY Analyst, senior performance. Our overweight position and We have positioned the Fund in a way we PHOTO] portfolio manager, is your Fund's strong, double-digit returns believe can provide a better store of portfolio manager of in the sector helped compensate for value during difficult periods. This AIM V.I. Premier disappointing returns in other sectors. difference may be small in a six-month Equity Fund. Mr. Stanley has 16 years of period, but we work earnestly to provide experience in the investment industry. The Fund's second-largest sector more stable, consistent results over He joined AIM in 1998. Mr. Stanley weighting was in information technology time to help investors offset the attended the University of Texas, where (IT). Largely because corporations volatility of their more aggressive he received his B.B.A in finance and the failed to deploy the capital investments. We believe that by University of Houston, where he earned expenditures in IT that had been incorporating three his M.S. in finance. expected in 2005, the sector produced negative returns Assisted by the Mid/Large Cap Core Team, Large Cap Growth Team and Basic Value Team [RIGHT ARROW GRAPHIC] FOR A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. PREMIER EQUITY FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ======================================== Series II shares invest in the same Fund and are not intended to reflect AVERAGE ANNUAL TOTAL RETURNS portfolio of securities and will have actual variable product values. They do As of 6/30/05 substantially similar performance, not reflect sales charges, expenses and except to the extent that expenses borne fees assessed in connection with a SERIES I SHARES by each class differ. variable product. Sales charges, Inception (5/5/93) 8.61% expenses and fees, which are determined 10 Years 6.30 The performance data quoted represent by the variable product issuers, will 5 Years -7.24 past performance and cannot guarantee vary and will lower the total return. 1 Year 3.99 comparable future results; current performance may be lower or higher. Per NASD requirements, the most SERIES II SHARES Please contact your variable product recent month-end performance data at the 10 Years 6.04% issuer or financial advisor for the most Fund level, excluding variable product 5 Years -7.46 recent month-end variable product charges, is available on this AIM 1 Year 3.77 performance. Performance figures reflect automated information line, ======================================== Fund expenses, reinvested distributions 866-702-4402. As mentioned above, for and changes in net asset value. the most recent month-end performance Returns since the inception date of Investment return and principal value including variable product charges, Series II shares are historical. All will fluctuate so that you may have a please contact your variable product other returns are the blended returns of gain or loss when you sell shares. issuer or financial advisor. the historical performance of Series II shares since their inception and the AIM V.I. Premier Equity Fund, a restated historical performance of series portfolio of AIM Variable Series I shares (for periods prior to Insurance Funds, is currently offered inception of Series II shares) adjusted through insurance companies issuing to reflect the higher Rule 12b-1 fees variable products. You cannot purchase applicable to the Series II shares. The shares of the Fund directly. Performance inception date of Series II shares is figures given represent the September 19, 2001. Series I and PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION The Fund may invest up to 25% of its The unmanaged Standard & Poor's The returns shown in the management's assets in the securities of non-U.S. Composite Index of 500 Stocks (the S&P discussion of Fund performance are based issuers. International investing 500--Registered Trademark-- INDEX) is an on net asset values calculated for presents certain risks not associated index of common stocks frequently used shareholder transactions. Generally with investing solely in the United as a general measure of U.S. stock accepted accounting principles require States. These include risks relating to market performance. adjustments to be made to the net assets fluctuations in the value of the U.S. of the Fund at period end for financial dollar relative to the values of other The unmanaged LIPPER LARGE-CAP CORE reporting purposes, and as such, the net currencies, the custody arrangements FUND INDEX represents an average of the asset values for shareholder made for the Fund's foreign holdings, performance of the 30 largest transactions and the returns based on differences in accounting, political large-capitalization core equity funds those net asset values may differ from risks and the lesser degree of public tracked by Lipper, Inc., an independent the net asset values and returns information required to be provided by mutual fund performance monitor. reported in the Financial Highlights. non-U.S. companies. Additionally, the returns and net asset The Fund is not managed to track the values shown throughout this report are The Fund's investments in different, performance of any particular index, at the Fund level only and do not independently managed investment including the indexes defined here, and include variable product issuer charges. disciplines create allocation risk, consequently, the performance of the If such charges were included, the total which is the risk that the allocation of Fund may deviate significantly from the returns would be lower. investments among core, growth and value performance of the indexes. companies may have a more significant Industry classifications used in this effect on the Fund's net asset value A direct investment cannot be made in report are generally according to the when one of these disciplines is an index. Unless otherwise indicated, Global Industry Classification Standard, performing more poorly than the others. index results include reinvested which was developed by and is the The active rebalancing of the Fund among dividends, and they do not reflect sales exclusive property and a service mark of these investment disciplines may result charges. Performance of an index of Morgan Stanley Capital International in increased transaction costs. funds reflects fund expenses; Inc. and Standard & Poor's. performance of a market index does not. The independent management of the three discipline sections may also result in adverse tax consequences if the portfolio managers responsible for the Fund's three investment disciplines effect transactions in the same security on or about the same time. </Table> 4 AIM V.I. PREMIER EQUITY FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management about actual account values and actual ended June 30, 2005, appear in the table fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on the first page of (12b-1); and other Fund expenses. This this table, together with the amount you management's discussion of Fund example is intended to help you invested, to estimate the expenses that performance. understand your ongoing costs (in you paid over the period. Simply divide dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or example is based on an investment of result by the number in the table under expenses you paid for the period. You $1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund January 1, 2005, through June 30, 2005. expenses you paid on your account during and other funds. To do so, compare this this period. 5% hypothetical example with the 5% The actual and hypothetical expenses hypothetical examples that appear in the in the examples below do not represent HYPOTHETICAL EXAMPLE FOR shareholder reports of the other funds. the effect of any fees or other expenses COMPARISON PURPOSES assessed in connection with a variable Please note that the expenses shown product; if they did, the expenses shown The table below also provides in the table are meant to highlight your would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the values shown would be lower. values and hypothetical expenses based hypothetical information is useful in on the Fund's actual expense ratio and comparing ongoing costs, and will not an assumed rate of return of 5% per year help you determine the relative total before expenses, which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/01/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $1,000.00 $994.80 $4.35 $1,020.43 $4.41 Series II 1,000.00 993.40 5.59 1,019.19 5.66 (1)The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2)Expenses are equal to the Fund's annualized expense ratio (0.88% and 1.13% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to waive advisory fees in an amount equal to 0.02% of average daily net assets annualized. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.86% and 1.11% 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 most recent fiscal half year are $4.25 and $5.49 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 most recent fiscal half year are $4.31 and $5.56 for Series I and Series II shares, respectively. ==================================================================================================================================== </Table> 5 AIM V.I. PREMIER EQUITY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable o The quality of services to be provided o Overall performance of AIM. The Board Insurance Funds (the "Board") oversees by AIM. The Board reviewed the considered the overall performance of the management of AIM V.I. Premier credentials and experience of the AIM in providing investment advisory and Equity Fund (the "Fund") and, as officers and employees of AIM who will portfolio administrative services to the required by law, determines annually provide investment advisory services to Fund and concluded that such performance whether to approve the continuance of the Fund. In reviewing the was satisfactory. the Fund's advisory agreement with A I M qualifications of AIM to provide Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board o Fees relative to those of clients of recommendation of the Investments reviewed the qualifications of AIM's AIM with comparable investment Committee of the Board, which is investment personnel and considered such strategies. The Board reviewed the comprised solely of independent issues as AIM's portfolio and product advisory fee rate for the Fund under the trustees, at a meeting held on June 30, review process, various back office Advisory Agreement. The Board noted that 2005, the Board, including all of the support functions provided by AIM and this rate (i) was comparable to the independent trustees, approved the AIM's equity and fixed income trading advisory fee rates for a mutual fund continuance of the advisory agreement operations. Based on the review of these advised by AIM with investment (the "Advisory Agreement") between the and other factors, the Board concluded strategies comparable to those of the Fund and AIM for another year, effective that the quality of services to be Fund; and (ii) was lower than the July 1, 2005. provided by AIM was appropriate and that advisory fee rates for three offshore AIM currently is providing satisfactory funds for which an AIM affiliate serves The Board considered the factors services in accordance with the terms of as advisor with investment strategies discussed below in evaluating the the Advisory Agreement. comparable to those of the Fund. The fairness and reasonableness of the Board noted that AIM has agreed to waive Advisory Agreement at the meeting on o The performance of the Fund relative advisory fees of the Fund and to limit June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed the Fund's total operating expenses, as ongoing oversight of the Fund. In their the performance of the Fund during the discussed below. Based on this review, deliberations, the Board and the past one, three and five calendar years the Board concluded that the advisory independent trustees did not identify against the performance of funds advised fee rate for the Fund under the Advisory any particular factor that was by other advisors with investment Agreement was fair and reasonable. controlling, and each trustee attributed strategies comparable to those of the different weights to the various Fund. The Board noted that the Fund's o Fees relative to those of comparable factors. performance in such periods was below funds with other advisors. The Board the median performance of such reviewed the advisory fee rate for the One of the responsibilities of the comparable funds. The Board noted that Fund under the Advisory Agreement. The Senior Officer of the Fund, who is AIM has acknowledged that the Fund Board compared effective contractual independent of AIM and AIM's affiliates, continues to require a long-term advisory fee rates at a common asset is to manage the process by which the solution to its under-performance, and level and noted that the Fund's rate was Fund's proposed management fees are that management is continuing to closely above the median rate of the funds negotiated to ensure that they are monitor the performance of the Fund and advised by other advisors with negotiated in a manner which is at arm's analyze various possible long-term investment strategies comparable to length and reasonable. To that end, the solutions. Based on this review, the those of the Fund that the Board Senior Officer must either supervise a Board concluded that no changes should reviewed. The Board noted that AIM has competitive bidding process or prepare be made to the Fund and that it was not agreed to waive advisory fees of the an independent written evaluation. The necessary to change the Fund's portfolio Fund and to limit the Fund's total Senior Officer has recommended an management team at this time. operating expenses, as discussed below. independent written evaluation in lieu Based on this review, the Board of a competitive bidding process and, o The performance of the Fund relative concluded that the advisory fee rate for upon the direction of the Board, has to indices. The Board reviewed the the Fund under the Advisory Agreement prepared such an independent written performance of the Fund during the past was fair and reasonable. evaluation. Such written evaluation also one, three and five calendar years considered certain of the factors against the performance of the Lipper o Expense limitations and fee waivers. discussed below. In addition, as Large-Cap Core Fund Index. The Board The Board noted that AIM has discussed below, the Senior Officer made noted that the Fund's performance in contractually agreed to waive advisory certain recommendations to the Board in such periods was below the performance fees of the Fund through June 30, 2006 connection with such written evaluation. of such Index. The Board noted that AIM to the extent necessary so that the has acknowledged that the Fund continues advisory fees payable by the Fund do not The discussion below serves as a to require a long-term solution to its exceed a specified maximum advisory fee summary of the Senior Officer's under-performance, and that management rate, which maximum rate includes independent written evaluation and is continuing to closely monitor the breakpoints and is based on net asset recommendations to the Board in performance of the Fund and analyze levels. The Board noted that AIM also connection therewith, as well as a various possible long-term solutions. has contractually agreed to waive an discussion of the material factors and Based on this review, the Board additional 0.02% of the Fund's advisory the conclusions with respect thereto concluded that no changes should be made fees through June 30, 2006. The Board that formed the basis for the Board's to the Fund and that it was not considered the contractual nature of approval of the Advisory Agreement. necessary to change the Fund's portfolio these fee waivers and noted that they After consideration of all of the management team at this time. remain in effect until June 30, 2006. factors below and based on its informed The Board noted that AIM has business judgment, the Board determined o Meeting with the Fund's portfolio contractually agreed to waive fees that the Advisory Agreement is in the managers and investment personnel. With and/or limit expenses of the Fund best interests of the Fund and its respect to the Fund, the Board is through April 30, 2006 in an amount shareholders and that the compensation meeting periodically with such Fund's necessary to limit total annual to AIM under the Advisory Agreement is portfolio managers and/or other operating expenses to a specified fair and reasonable and would have been investment personnel and believes that percentage of average daily net assets obtained through arm's length such individuals are competent and able for each class of the Fund. The Board negotiations. to continue to carry out their considered the contractual nature of responsibilities under the Advisory this fee waiver/expense limitation and o The nature and extent of the advisory Agreement. noted that it remains in effect through services to be provided by AIM. The April 30, 2006. The Board considered the Board reviewed the services to be effect these fee waivers/expense provided by AIM under the Advisory limitations would have on the Fund's Agreement. Based on such review, the estimated expenses and concluded that Board concluded that the range of the levels of fee waivers/expense services to be provided by AIM under the limitations for the Fund were fair and Advisory Agreement was appropriate and reasonable. that AIM currently is providing services (continued) in accordance with the terms of the Advisory Agreement. </Table> 6 AIM V.I. PREMIER EQUITY FUND <Table> o Breakpoints and economies of scale. the Board that the Board consider such services, the trustees also The Board reviewed the structure of the implementing a process to assist them in considered the organizational structure Fund's advisory fee under the Advisory more closely monitoring the performance employed by AIM and its affiliates to Agreement, noting that it includes one of the AIM Funds. The Board concluded provide those services. Based on the breakpoint. The Board reviewed the level that it would be advisable to implement review of these and other factors, the of the Fund's advisory fees, and noted such a process as soon as reasonably Board concluded that AIM and its that such fees, as a percentage of the practicable. The Board also considered affiliates were qualified to continue to Fund's net assets, have decreased as net the Senior Officer's recommendation that provide non-investment advisory services assets increased because the Advisory the Board consider an additional fee to the Fund, including administrative, Agreement includes a breakpoint. The waiver for the Fund due to the Fund's transfer agency and distribution Board noted that AIM has contractually under-performance. The Board concluded services, and that AIM and its agreed to waive advisory fees of the that such a fee waiver in the amount of affiliates currently are providing Fund through June 30, 2006 to the extent 0.02% of the Fund's advisory fees was satisfactory non-investment advisory necessary so that the advisory fees appropriate for the Fund and requested services. payable by the Fund do not exceed a such a fee waiver from AIM. The Board specified maximum advisory fee rate, noted that AIM has agreed to this fee o Other factors and current trends. In which maximum rate includes breakpoints waiver, as discussed above. determining whether to continue the and is based on net asset levels. The Advisory Agreement for the Fund, the Board concluded that the Fund's fee o Profitability of AIM and its Board considered the fact that AIM, levels under the Advisory Agreement affiliates. The Board reviewed along with others in the mutual fund therefore reflect economies of scale and information concerning the profitability industry, is subject to regulatory that it was not necessary to change the of AIM's (and its affiliates') inquiries and litigation related to a advisory fee breakpoints in the Fund's investment advisory and other activities wide range of issues. The Board also advisory fee schedule. and its financial condition. The Board considered the governance and compliance considered the overall profitability of reforms being undertaken by AIM and its o Investments in affiliated money market AIM, as well as the profitability of AIM affiliates, including maintaining an funds. The Board also took into account in connection with managing the Fund. internal controls committee and the fact that uninvested cash and cash The Board noted that AIM's operations retaining an independent compliance collateral from securities lending remain profitable, although increased consultant, and the fact that AIM has arrangements (collectively, "cash expenses in recent years have reduced undertaken to cause the Fund to operate balances") of the Fund may be invested AIM's profitability. Based on the review in accordance with certain governance in money market funds advised by AIM of the profitability of AIM's and its policies and practices. The Board pursuant to the terms of an SEC affiliates' investment advisory and concluded that these actions indicated a exemptive order. The Board found that other activities and its financial good faith effort on the part of AIM to the Fund may realize certain benefits condition, the Board concluded that the adhere to the highest ethical standards, upon investing cash balances in AIM compensation to be paid by the Fund to and determined that the current advised money market funds, including a AIM under its Advisory Agreement was not regulatory and litigation environment to higher net return, increased liquidity, excessive. which AIM is subject should not prevent increased diversification or decreased the Board from continuing the Advisory transaction costs. The Board also found o Benefits of soft dollars to AIM. The Agreement for the Fund. that the Fund will not receive reduced Board considered the benefits realized services if it invests its cash balances by AIM as a result of brokerage in such money market funds. The Board transactions executed through "soft noted that, to the extent the Fund dollar" arrangements. Under these invests in affiliated money market arrangements, brokerage commissions paid funds, AIM has voluntarily agreed to by the Fund and/or other funds advised waive a portion of the advisory fees it by AIM are used to pay for research and receives from the Fund attributable to execution services. This research is such investment. The Board further used by AIM in making investment determined that the proposed securities decisions for the Fund. The Board lending program and related procedures concluded that such arrangements were with respect to the lending Fund is in appropriate. the best interests of the lending Fund and its respective shareholders. The o AIM's financial soundness in light of Board therefore concluded that the the Fund's needs. The Board considered investment of cash collateral received whether AIM is financially sound and has in connection with the securities the resources necessary to perform its lending program in the money market obligations under the Advisory funds according to the procedures is in Agreement, and concluded that AIM has the best interests of the lending Fund the financial resources necessary to and its respective shareholders. fulfill its obligations under the Advisory Agreement. o Independent written evaluation and recommendations of the Fund's Senior o Historical relationship between the Officer. The Board noted that, upon Fund and AIM. In determining whether to their direction, the Senior Officer of continue the Advisory Agreement for the the Fund had prepared an independent Fund, the Board also considered the written evaluation in order to assist prior relationship between AIM and the the Board in determining the Fund, as well as the Board's knowledge reasonableness of the proposed of AIM's operations, and concluded that management fees of the AIM Funds, it was beneficial to maintain the including the Fund. The Board noted that current relationship, in part, because the Senior Officer's written evaluation of such knowledge. The Board also had been relied upon by the Board in reviewed the general nature of the this regard in lieu of a competitive non-investment advisory services bidding process. In determining whether currently performed by AIM and its to continue the Advisory Agreement for affiliates, such as administrative, the Fund, the Board considered the transfer agency and distribution Senior Officer's written evaluation and services, and the fees received by AIM the recommendation made by the Senior and its affiliates for performing such Officer to services. In addition to reviewing </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-95.06% ADVERTISING-0.99% Interpublic Group of Cos., Inc. (The)(a) 343,800 $ 4,187,484 - -------------------------------------------------------------------------- Omnicom Group Inc. 140,800 11,244,288 ========================================================================== 15,431,772 ========================================================================== AEROSPACE & DEFENSE-1.42% Boeing Co. (The) 60,000 3,960,000 - -------------------------------------------------------------------------- Honeywell International Inc. 174,200 6,380,946 - -------------------------------------------------------------------------- Lockheed Martin Corp. 65,000 4,216,550 - -------------------------------------------------------------------------- Northrop Grumman Corp. 136,800 7,558,200 ========================================================================== 22,115,696 ========================================================================== AIR FREIGHT & LOGISTICS-0.13% FedEx Corp. 25,000 2,025,250 ========================================================================== ALUMINUM-0.27% Alcoa Inc. 161,700 4,225,221 ========================================================================== APPAREL RETAIL-0.72% Chico's FAS, Inc.(a) 125,000 4,285,000 - -------------------------------------------------------------------------- Gap, Inc. (The) 352,300 6,957,925 ========================================================================== 11,242,925 ========================================================================== APPLICATION SOFTWARE-0.39% Amdocs Ltd. (United Kingdom)(a) 230,000 6,078,900 ========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.18% Bank of New York Co., Inc. (The) 638,100 18,364,518 ========================================================================== BIOTECHNOLOGY-0.86% Amgen Inc.(a) 127,000 7,678,420 - -------------------------------------------------------------------------- Gilead Sciences, Inc.(a) 130,000 5,718,700 ========================================================================== 13,397,120 ========================================================================== BREWERS-0.78% Heineken N.V. (Netherlands)(b) 392,881 12,121,059 ========================================================================== BUILDING PRODUCTS-0.53% Masco Corp.(c) 258,100 8,197,256 ========================================================================== COMMUNICATIONS EQUIPMENT-1.99% Cisco Systems, Inc.(a) 694,000 13,262,340 - -------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 561,100 9,336,704 - -------------------------------------------------------------------------- QUALCOMM Inc. 250,000 8,252,500 ========================================================================== 30,851,544 ========================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> COMPUTER HARDWARE-2.56% Apple Computer, Inc.(a) 182,000 $ 6,699,420 - -------------------------------------------------------------------------- Dell Inc.(a) 490,000 19,359,900 - -------------------------------------------------------------------------- International Business Machines Corp. 185,100 13,734,420 ========================================================================== 39,793,740 ========================================================================== COMPUTER STORAGE & PERIPHERALS-1.04% EMC Corp.(a) 265,000 3,633,150 - -------------------------------------------------------------------------- Lexmark International, Inc.-Class A(a) 192,400 12,473,292 ========================================================================== 16,106,442 ========================================================================== CONSUMER ELECTRONICS-1.33% Koninklijke (Royal) Philips Electronics N.V. (Netherlands)(b) 536,600 13,516,537 - -------------------------------------------------------------------------- Sony Corp.-ADR (Japan) 209,900 7,228,956 ========================================================================== 20,745,493 ========================================================================== CONSUMER FINANCE-0.57% American Express Co. 70,000 3,726,100 - -------------------------------------------------------------------------- SLM Corp. 100,000 5,080,000 ========================================================================== 8,806,100 ========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.39% First Data Corp. 511,400 20,527,596 - -------------------------------------------------------------------------- Sabre Holdings Corp.-Class A 52,300 1,043,385 ========================================================================== 21,570,981 ========================================================================== DEPARTMENT STORES-1.53% Federated Department Stores, Inc. 40,000 2,931,200 - -------------------------------------------------------------------------- J.C. Penney Co., Inc. 105,000 5,520,900 - -------------------------------------------------------------------------- Kohl's Corp.(a) 135,400 7,570,214 - -------------------------------------------------------------------------- Nordstrom, Inc. 115,000 7,816,550 ========================================================================== 23,838,864 ========================================================================== DIVERSIFIED BANKS-0.69% Bank of America Corp. 235,300 10,732,033 ========================================================================== DIVERSIFIED CHEMICALS-0.17% Dow Chemical Co. (The) 60,500 2,694,065 ========================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.70% Cendant Corp. 483,400 10,813,658 ========================================================================== ELECTRIC UTILITIES-0.50% FPL Group, Inc. 185,000 7,781,100 ========================================================================== </Table> AIM V.I. PREMIER EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- ELECTRICAL COMPONENTS & EQUIPMENT-0.19% Rockwell Automation, Inc. 60,000 $ 2,922,600 ========================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.88% Waste Management, Inc. 1,030,500 29,204,370 ========================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-0.20% Monsanto Co. 50,000 3,143,500 ========================================================================== FOOD RETAIL-2.05% Kroger Co. (The)(a) 1,293,700 24,619,111 - -------------------------------------------------------------------------- Safeway Inc. 319,100 7,208,469 ========================================================================== 31,827,580 ========================================================================== FOOTWEAR-0.56% NIKE, Inc.-Class B 100,000 8,660,000 ========================================================================== GENERAL MERCHANDISE STORES-0.90% Target Corp. 256,300 13,945,283 ========================================================================== HEALTH CARE DISTRIBUTORS-1.77% Cardinal Health, Inc.(c) 279,800 16,110,884 - -------------------------------------------------------------------------- McKesson Corp. 254,100 11,381,139 ========================================================================== 27,492,023 ========================================================================== HEALTH CARE EQUIPMENT-0.85% Baxter International Inc. 213,700 7,928,270 - -------------------------------------------------------------------------- Becton, Dickinson & Co. 100,000 5,247,000 ========================================================================== 13,175,270 ========================================================================== HEALTH CARE FACILITIES-1.32% HCA Inc. 363,200 20,582,544 ========================================================================== HEALTH CARE SERVICES-0.81% Caremark Rx, Inc.(a) 85,000 3,784,200 - -------------------------------------------------------------------------- Medco Health Solutions, Inc.(a) 60,000 3,201,600 - -------------------------------------------------------------------------- Quest Diagnostics Inc. 106,000 5,646,620 ========================================================================== 12,632,420 ========================================================================== HEALTH CARE SUPPLIES-0.74% Alcon, Inc. (Switzerland) 105,000 11,481,750 ========================================================================== HOMEBUILDING-0.25% D.R. Horton, Inc. 105,000 3,949,050 ========================================================================== HOTELS, RESORTS & CRUISE LINES-0.22% Hilton Hotels Corp. 145,000 3,458,250 ========================================================================== HOUSEHOLD PRODUCTS-0.92% Clorox Co. (The) 52,000 2,897,440 - -------------------------------------------------------------------------- Kimberly-Clark Corp. 149,600 9,363,464 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> HOUSEHOLD PRODUCTS-(CONTINUED) Procter & Gamble Co. (The) 40,000 $ 2,110,000 ========================================================================== 14,370,904 ========================================================================== HOUSEWARES & SPECIALTIES-0.43% Fortune Brands, Inc. 75,000 6,660,000 ========================================================================== INDUSTRIAL CONGLOMERATES-4.15% General Electric Co. 477,700 16,552,305 - -------------------------------------------------------------------------- Textron Inc. 40,000 3,034,000 - -------------------------------------------------------------------------- Tyco International Ltd. (Bermuda) 1,538,300 44,918,360 ========================================================================== 64,504,665 ========================================================================== INDUSTRIAL MACHINERY-1.29% Dover Corp. 382,600 13,918,988 - -------------------------------------------------------------------------- Illinois Tool Works Inc. 76,700 6,111,456 ========================================================================== 20,030,444 ========================================================================== INTEGRATED OIL & GAS-3.86% Amerada Hess Corp.(c) 69,750 7,429,073 - -------------------------------------------------------------------------- BP PLC-ADR (United Kingdom) 128,600 8,022,068 - -------------------------------------------------------------------------- ConocoPhillips 144,000 8,278,560 - -------------------------------------------------------------------------- Exxon Mobil Corp. 176,000 10,114,720 - -------------------------------------------------------------------------- Murphy Oil Corp. 226,000 11,803,980 - -------------------------------------------------------------------------- TOTAL S.A. (France)(b) 61,200 14,321,137 ========================================================================== 59,969,538 ========================================================================== INTEGRATED TELECOMMUNICATION SERVICES-0.91% SBC Communications Inc. 595,500 14,143,125 ========================================================================== INTERNET SOFTWARE & SERVICES-0.97% Google Inc.-Class A(a) 15,000 4,412,250 - -------------------------------------------------------------------------- VeriSign, Inc.(a) 170,000 4,889,200 - -------------------------------------------------------------------------- Yahoo! Inc.(a) 165,000 5,717,250 ========================================================================== 15,018,700 ========================================================================== INVESTMENT BANKING & BROKERAGE-2.88% Goldman Sachs Group, Inc. (The)(c) 112,000 11,426,240 - -------------------------------------------------------------------------- Lehman Brothers Holdings Inc. 65,000 6,453,200 - -------------------------------------------------------------------------- Merrill Lynch & Co., Inc. 142,800 7,855,428 - -------------------------------------------------------------------------- Morgan Stanley 361,700 18,978,399 ========================================================================== 44,713,267 ========================================================================== IT CONSULTING & OTHER SERVICES-0.98% Accenture Ltd.-Class A (Bermuda)(a) 673,800 15,275,046 ========================================================================== MANAGED HEALTH CARE-2.88% Aetna Inc. 145,000 12,008,900 - -------------------------------------------------------------------------- UnitedHealth Group Inc. 260,000 13,556,400 - -------------------------------------------------------------------------- </Table> AIM V.I. PREMIER EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- MANAGED HEALTH CARE-(CONTINUED) WellPoint, Inc.(a) 276,400 $ 19,248,496 ========================================================================== 44,813,796 ========================================================================== MOVIES & ENTERTAINMENT-1.38% News Corp.-Class A 495,800 8,022,044 - -------------------------------------------------------------------------- Walt Disney Co. (The) 532,900 13,418,422 ========================================================================== 21,440,466 ========================================================================== MULTI-LINE INSURANCE-0.99% American International Group, Inc. 139,000 8,075,900 - -------------------------------------------------------------------------- Hartford Financial Services Group, Inc. (The) 98,300 7,350,874 ========================================================================== 15,426,774 ========================================================================== MULTI-UTILITIES-0.61% Dominion Resources, Inc. 129,800 9,526,022 ========================================================================== OFFICE ELECTRONICS-0.91% Xerox Corp.(a) 1,019,900 14,064,421 ========================================================================== OIL & GAS DRILLING-1.15% Nabors Industries, Ltd. (Bermuda)(a) 146,200 8,862,644 - -------------------------------------------------------------------------- Transocean Inc. (Cayman Islands)(a) 167,500 9,039,975 ========================================================================== 17,902,619 ========================================================================== OIL & GAS EQUIPMENT & SERVICES-4.36% Baker Hughes Inc. 186,100 9,520,876 - -------------------------------------------------------------------------- BJ Services Co. 399,500 20,965,760 - -------------------------------------------------------------------------- Halliburton Co.(c) 275,700 13,183,974 - -------------------------------------------------------------------------- National-Oilwell Varco Inc.(a) 85,000 4,040,900 - -------------------------------------------------------------------------- Schlumberger Ltd. (Netherlands) 119,500 9,074,830 - -------------------------------------------------------------------------- Smith International, Inc. 171,800 10,943,660 ========================================================================== 67,730,000 ========================================================================== OIL & GAS EXPLORATION & PRODUCTION-0.54% Apache Corp. 129,000 8,333,400 ========================================================================== OIL & GAS REFINING & MARKETING-0.56% Valero Energy Corp.(c) 110,000 8,702,100 ========================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.14% Citigroup Inc. 482,000 22,282,860 - -------------------------------------------------------------------------- JPMorgan Chase & Co. 311,000 10,984,520 ========================================================================== 33,267,380 ========================================================================== PACKAGED FOODS & MEATS-3.45% Campbell Soup Co. 247,000 7,600,190 - -------------------------------------------------------------------------- General Mills, Inc. 304,900 14,266,271 - -------------------------------------------------------------------------- Kraft Foods Inc.-Class A 539,700 17,167,857 - -------------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> PACKAGED FOODS & MEATS-(CONTINUED) Unilever N.V. (Netherlands)(b) 224,000 $ 14,507,819 ========================================================================== 53,542,137 ========================================================================== PAPER PRODUCTS-0.65% Georgia-Pacific Corp. 317,000 10,080,600 ========================================================================== PERSONAL PRODUCTS-0.94% Gillette Co. (The) 290,000 14,682,700 ========================================================================== PHARMACEUTICALS-9.24% Bristol-Myers Squibb Co. 476,800 11,910,464 - -------------------------------------------------------------------------- Forest Laboratories, Inc.(a) 257,800 10,015,530 - -------------------------------------------------------------------------- GlaxoSmithKline PLC-ADR (United Kingdom) 417,000 20,228,670 - -------------------------------------------------------------------------- Johnson & Johnson 260,000 16,900,000 - -------------------------------------------------------------------------- Merck & Co. Inc. 705,700 21,735,560 - -------------------------------------------------------------------------- Pfizer Inc. 341,100 9,407,538 - -------------------------------------------------------------------------- Sanofi-Aventis (France)(b) 203,200 16,642,315 - -------------------------------------------------------------------------- Shire Pharmaceuticals Group PLC-ADR (United Kingdom) 95,000 3,116,000 - -------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 442,700 13,785,678 - -------------------------------------------------------------------------- Wyeth 446,900 19,887,050 ========================================================================== 143,628,805 ========================================================================== PROPERTY & CASUALTY INSURANCE-3.91% ACE Ltd. (Cayman Islands) 417,100 18,706,935 - -------------------------------------------------------------------------- Allstate Corp. (The) 70,000 4,182,500 - -------------------------------------------------------------------------- Berkshire Hathaway Inc.-Class A(a) 220 18,370,000 - -------------------------------------------------------------------------- Chubb Corp. (The) 116,100 9,939,321 - -------------------------------------------------------------------------- St. Paul Travelers Cos., Inc. (The) 241,500 9,546,495 ========================================================================== 60,745,251 ========================================================================== PUBLISHING-1.47% Gannett Co., Inc. 191,500 13,621,395 - -------------------------------------------------------------------------- Tribune Co. 262,500 9,234,750 ========================================================================== 22,856,145 ========================================================================== RAILROADS-0.48% Union Pacific Corp. 115,800 7,503,840 ========================================================================== REGIONAL BANKS-0.49% Fifth Third Bancorp 184,100 7,586,761 ========================================================================== RESTAURANTS-0.52% Yum! Brands, Inc. 155,000 8,072,400 ========================================================================== SEMICONDUCTOR EQUIPMENT-0.46% Applied Materials, Inc. 441,100 7,136,998 ========================================================================== SEMICONDUCTORS-3.08% Analog Devices, Inc. 449,000 16,752,190 - -------------------------------------------------------------------------- Intel Corp. 383,900 10,004,434 - -------------------------------------------------------------------------- </Table> AIM V.I. PREMIER EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------------- SEMICONDUCTORS-(CONTINUED) National Semiconductor Corp. 650,900 $ 14,339,327 - -------------------------------------------------------------------------- Xilinx, Inc.(c) 266,800 6,803,400 ========================================================================== 47,899,351 ========================================================================== SOFT DRINKS-0.71% Coca-Cola Co. (The) 265,400 11,080,450 ========================================================================== SPECIALTY CHEMICALS-0.20% Ecolab Inc. 95,000 3,074,200 ========================================================================== SPECIALTY STORES-0.47% Staples, Inc. 345,000 7,355,400 ========================================================================== STEEL-0.18% Nucor Corp. 60,000 2,737,200 ========================================================================== SYSTEMS SOFTWARE-4.20% Adobe Systems Inc. 105,000 3,005,100 - -------------------------------------------------------------------------- Computer Associates International, Inc. 886,800 24,369,264 - -------------------------------------------------------------------------- Microsoft Corp. 1,198,600 29,773,224 - -------------------------------------------------------------------------- Oracle Corp.(a) 620,000 8,184,000 ========================================================================== 65,331,588 ========================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------------- <Caption> THRIFTS & MORTGAGE FINANCE-1.22% Countrywide Financial Corp. 165,000 $ 6,370,650 - -------------------------------------------------------------------------- Fannie Mae 215,400 12,579,360 ========================================================================== 18,950,010 ========================================================================== Total Common Stocks & Other Equity Interests (Cost $1,319,521,772) 1,477,564,880 ========================================================================== MONEY MARKET FUNDS-4.52% Liquid Assets Portfolio-Institutional Class(d) 35,155,350 35,155,350 - -------------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(d) 35,155,350 35,155,350 ========================================================================== Total Money Market Funds (Cost $70,310,700) 70,310,700 ========================================================================== TOTAL INVESTMENTS-99.58% (excluding investments purchased with cash collateral from securities loaned) (Cost $1,389,832,472) 1,547,875,580 ========================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED MONEY MARKET FUNDS-2.08% STIC Prime Portfolio-Institutional Class(d)(e) 32,304,575 32,304,575 ========================================================================== Total Money Market Funds (purchased with cash collateral from securities loaned) (Cost $32,304,575) 32,304,575 ========================================================================== TOTAL INVESTMENTS-101.66% (Cost $1,422,137,047) 1,580,180,155 ========================================================================== OTHER ASSETS LESS LIABILITIES-(1.66%) (25,867,731) ========================================================================== NET ASSETS-100.00% $1,554,312,424 __________________________________________________________________________ ========================================================================== </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 June 30, 2005 was $71,108,867, which represented 4.50% 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 June 30, 2005. (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 7. See accompanying notes which are an integral part of the financial statements. AIM V.I. PREMIER EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $1,319,521,772)* $1,477,564,880 - ------------------------------------------------------------- Investments in affiliated money market funds (cost $102,615,275) 102,615,275 ============================================================= Total investments (cost $1,422,137,047) 1,580,180,155 ============================================================= Foreign currencies, at market value (cost $11,765) 11,763 - ------------------------------------------------------------- Receivables for: Investments sold 6,548,745 - ------------------------------------------------------------- Fund shares sold 704,938 - ------------------------------------------------------------- Dividends 2,095,833 - ------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 91,139 - ------------------------------------------------------------- Other assets 13,252 ============================================================= Total assets 1,589,645,825 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Fund shares reacquired 768,282 - ------------------------------------------------------------- Trustee deferred compensation and retirement plans 179,184 - ------------------------------------------------------------- Collateral upon return of securities loaned 32,304,575 - ------------------------------------------------------------- Accrued administrative services fees 2,031,107 - ------------------------------------------------------------- Accrued distribution fees -- Series II 16,798 - ------------------------------------------------------------- Accrued trustees' and officer's fees and benefits 272 - ------------------------------------------------------------- Accrued transfer agent fees 1,182 - ------------------------------------------------------------- Accrued operating expenses 32,001 ============================================================= Total liabilities 35,333,401 ============================================================= Net assets applicable to shares outstanding $1,554,312,424 _____________________________________________________________ ============================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $2,088,193,391 - ------------------------------------------------------------- Undistributed net investment income 18,840,216 - ------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (710,756,456) - ------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 158,035,273 ============================================================= $1,554,312,424 _____________________________________________________________ ============================================================= NET ASSETS: Series I $1,526,974,625 _____________________________________________________________ ============================================================= Series II $ 27,337,799 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 72,074,776 _____________________________________________________________ ============================================================= Series II 1,299,492 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 21.19 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 21.04 _____________________________________________________________ ============================================================= </Table> * At June 30, 2005, securities with an aggregate market value of $31,459,032 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $268,901) $ 12,164,623 - ------------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $46,668 after compensation to counterparties of $376,102) 1,059,968 ============================================================= Total investment income 13,224,591 ============================================================= EXPENSES: Advisory fees 4,899,677 - ------------------------------------------------------------- Administrative services fees 2,068,796 - ------------------------------------------------------------- Custodian fees 68,008 - ------------------------------------------------------------- Distribution fees -- Series II 33,325 - ------------------------------------------------------------- Transfer agent fees 23,477 - ------------------------------------------------------------- Trustees' and officer's fees and benefits 29,169 - ------------------------------------------------------------- Other 42,739 ============================================================= Total expenses 7,165,191 ============================================================= Less: Fees waived (11,573) ============================================================= Net expenses 7,153,618 ============================================================= Net investment income 6,070,973 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains (losses) from securities sold to affiliates of $(899,946)) 41,780,719 - ------------------------------------------------------------- Foreign currencies 8,680 ============================================================= 41,789,399 ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (60,590,099) - ------------------------------------------------------------- Foreign currencies (7,857) ============================================================= (60,597,956) ============================================================= Net gain (loss) from investment securities and foreign currencies (18,808,557) ============================================================= Net increase (decrease) in net assets resulting from operations $(12,737,584) _____________________________________________________________ ============================================================= </Table> 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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 6,070,973 $ 13,039,069 - ---------------------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies and futures contracts 41,789,399 89,944,183 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies and futures contracts (60,597,956) (11,122,088) ============================================================================================== Net increase (decrease) in net assets resulting from operations (12,737,584) 91,861,164 ============================================================================================== Distributions to shareholders from net investment income: Series I -- (7,604,614) - ---------------------------------------------------------------------------------------------- Series II -- (82,296) ============================================================================================== Decrease in net assets resulting from distributions -- (7,686,910) ============================================================================================== Share transactions-net: Series I (141,755,200) (150,562,508) - ---------------------------------------------------------------------------------------------- Series II 764,446 3,053,911 ============================================================================================== Net increase (decrease) in net assets resulting from share transactions (140,990,754) (147,508,597) ============================================================================================== Net increase (decrease) in net assets (153,728,338) (63,334,343) ============================================================================================== NET ASSETS: Beginning of period 1,708,040,762 1,771,375,105 ============================================================================================== End of period (including undistributed net investment income of $18,840,216 and $12,769,243, respectively). $1,554,312,424 $1,708,040,762 ______________________________________________________________________________________________ ============================================================================================== </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. PREMIER EQUITY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 including estimates and assumptions related to taxation. 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 AIM V.I. PREMIER EQUITY FUND 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 and domestic and foreign index futures. 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. 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. I. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to substitute such collateral no later than the next business day. This practice does not apply to securities pledged as collateral for securities lending transactions. 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 based on the annual rate of the Fund's average daily net assets as follows: <Table> <Caption> AVERAGE NET ASSETS RATE - --------------------------------------------------------------------- First $250 million 0.65% - --------------------------------------------------------------------- Over $250 million 0.60% _____________________________________________________________________ ===================================================================== </Table> Effective July 1, 2005, AIM has contractually agreed to waive advisory fees equal to 0.02% of the Fund's average daily net assets, through June 30, 2006. AIM has also 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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). AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $11,573. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $184,159 for accounting and fund administrative services and reimbursed $1,884,637 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $23,477. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $33,325. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. 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 six months ended June 30, 2005. INVESTMENTS OF DAILY AVAILABLE CASH BALANCES: <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ----------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ 57,924,372 $158,319,561 $(181,088,583) $ -- $35,155,350 $ 503,250 $ -- - ----------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class 57,924,371 158,319,561 (181,088,582) -- 35,155,350 510,050 -- =================================================================================================================================== Subtotal $115,848,743 $316,639,122 $(362,177,165) $ -- $70,310,700 $1,013,300 $ -- ___________________________________________________________________________________________________________________________________ =================================================================================================================================== </Table> INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS: <Table> <Caption> PROCEEDS UNREALIZED MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST SALES (DEPRECIATION) 06/30/05 INCOME* GAIN (LOSS) - ----------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class $ 5,027,000 $332,503,144 $(305,225,569) $ -- $ 32,304,575 $ 46,668 $ -- =================================================================================================================================== Total $120,875,743 $649,142,266 $(667,402,734) $ -- $102,615,275 $1,059,968 $ -- ___________________________________________________________________________________________________________________________________ =================================================================================================================================== </Table> * Net of compensation to 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 six months ended June 30, 2005, the Fund engaged in securities purchases of $12,558,808 and sales of $4,193,445, which resulted in net realized gains (losses) of $(899,946). NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $5,110 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 AIM V.I. PREMIER EQUITY FUND 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 six months ended June 30, 2005, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. NOTE 7--PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities having a market value up to one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to a loss on the collateral invested. At June 30, 2005, securities with an aggregate value of $31,459,032 were on loan to brokers. The loans were secured by cash collateral of $32,304,575 received by the Fund and subsequently invested in affiliated money market funds. For the six months ended June 30, 2005, the Fund received dividends on cash collateral of $46,668 for securities lending transactions, which are net of compensation to counterparties. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 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 six months ended June 30, 2005 was $432,559,986 and $537,130,271, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $197,292,254 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (48,356,350) ============================================================================== Net unrealized appreciation of investment securities $148,935,904 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $1,431,244,251. </Table> AIM V.I. PREMIER EQUITY FUND NOTE 10--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - -------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Series I 11,072,404 $ 231,622,789 11,417,183 $ 230,676,416 - -------------------------------------------------------------------------------------------------------------------------- Series II 140,752 2,933,005 399,900 8,036,658 ========================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 316,128 6,667,145 - -------------------------------------------------------------------------------------------------------------------------- Series II -- -- 3,924 82,294 ========================================================================================================================== Reacquired: Series I (17,915,334) (373,377,989) (19,262,043) (387,906,069) - -------------------------------------------------------------------------------------------------------------------------- Series II (104,117) (2,168,559) (254,102) (5,065,041) ========================================================================================================================== (6,806,295) $(140,990,754) (7,379,010) $(147,508,597) __________________________________________________________________________________________________________________________ ========================================================================================================================== </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 50% 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. PREMIER 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 ------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------------------ 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 21.30 $ 20.23 $ 16.22 $ 23.35 $ 27.30 $ 33.50 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.08(a) 0.17(b) 0.09(a) 0.05(a) 0.06(a) 0.04(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.19) 1.00 3.98 (7.11) (3.50) (4.94) ================================================================================================================================= Total from investment operations (0.11) 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 $ 21.19 $ 21.30 $ 20.23 $ 16.22 $ 23.35 $ 27.30 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.52)% 5.77% 25.08% (30.26)% (12.53)% (14.68)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,526,975 $1,681,292 $1,748,961 $1,519,525 $2,558,120 $2,746,161 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.88%(d) 0.90%(e) 0.85% 0.85% 0.85% 0.84% ================================================================================================================================= Ratio of net investment income to average net assets 0.76%(d) 0.78%(b) 0.48% 0.24% 0.24% 0.12% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(f) 28% 92% 50% 46% 40% 62% _________________________________________________________________________________________________________________________________ ================================================================================================================================= </Table> (a) Calculated using average shares outstanding. (b) 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 $0.14 and 0.62%, respectively. (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 annualized and based on average daily net assets of $1,599,046,670. (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%. (f) Not annualized for periods less than one year. AIM V.I. PREMIER EQUITY FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ----------------------------------------------------------------------------- SEPTEMBER 19, 2001 SIX MONTHS (DATES SALES ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO JUNE 30, ----------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 21.18 $ 20.14 $ 16.17 $ 23.34 $ 21.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.05(a) 0.09(b) 0.04(a) (0.00)(a) (0.00)(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.19) 1.02 3.97 (7.10) 2.85 ================================================================================================================================= Total from investment operations (0.14) 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 $ 21.04 $ 21.18 $ 20.14 $ 16.17 $ 23.34 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (0.66)% 5.49% 24.83% (30.44)% 13.66% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $27,338 $26,749 $22,414 $10,834 $ 687 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 1.13%(d) 1.15%(e) 1.10% 1.10% 1.10%(f) ================================================================================================================================= Ratio of net investment income (loss) to average net assets 0.51%(d) 0.53%(b) 0.23% (0.01)% (0.01)%(f) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(g) 28% 92% 50% 46% 40% _________________________________________________________________________________________________________________________________ ================================================================================================================================= </Table> (a) Calculated using average shares outstanding. (b) 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 $0.06 and 0.37%, respectively. (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 annualized based on average daily net assets of $26,880,679. (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 12--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004, the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005. Such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil AIM V.I. PREMIER EQUITY FUND NOTE 13--LEGAL PROCEEDINGS--(CONTINUED) penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. PREMIER EQUITY FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza President Suite 100 Frank S. Bayley Houston, TX 77046-1173 Mark H. Williamson James T. Bunch Executive Vice President INVESTMENT ADVISOR A I M Advisors, Inc. Bruce L. Crockett Lisa O. Brinkley 11 Greenway Plaza Chair Senior Vice President and Chief Compliance Suite 100 Officer Houston, TX 77046-1173 Albert R. Dowden Russell C. Burk TRANSFER AGENT Edward K. Dunn Jr. Senior Vice President (Senior Officer) AIM Investment Services, Inc. P.O. Box 4739 Jack M. Fields Kevin M. Carome Houston, TX 77210-4739 Senior Vice President, Secretary and Chief Carl Frischling Legal Officer CUSTODIAN State Street Bank and Trust Company Robert H. Graham Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Gerald J. Lewis Robert G. Alley COUNSEL TO THE FUND Prema Mathai-Davis Vice President Foley & Lardner LLP 3000 K N.W., Suite 500 Lewis F. Pennock J. Philip Ferguson Washington, D.C. 20007-5111 Vice President Ruth H. Quigley COUNSEL TO THE INDEPENDENT TRUSTEES Mark D. Greenberg Kramer, Levin, Naftalis & Frankel LLP Larry Soll Vice President 1177 Avenue of the Americas New York, NY 10036-2714 Mark H. Williamson William R. Keithler Vice President DISTRIBUTOR A I M Distributors, Inc. Karen Dunn Kelley 11 Greenway Plaza Vice President Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. PREMIER EQUITY FUND AIM V.I. REAL ESTATE FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. REAL ESTATE FUND seeks to achieve high total return. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. REALESTATE FUND <Table> MANAGEMENT'S DISCUSSION We will consider selling a holding when: OF FUND PERFORMANCE ==================================================================================== o relative valuation falls below desired levels PERFORMANCE SUMMARY ======================================= o risk/return relationships change The Real Estate Investment Trust (REIT) significantly market proved resilient for the first FUND VS. INDEXES half of 2005, staging a recovery in the o company fundamentals change (property second quarter to post positive returns TOTAL RETURNS, 12/31/04 6/30/05, type, geography or management changes) for the reporting period as a whole. EXCLUDING VARIABLE PRODUCT ISSUER The Fund outperformed its broad market CHARGES. IF VARIABLE PRODUCT ISSUER o a more attractive investment index (S&P 500 Index) as REITs posted CHARGES WERE INCLUDED, RETURNS WOULD BE opportunity is identified higher returns than the general stock LOWER. market. MARKET CONDITIONS AND YOUR FUND Series I Shares 5.44% We are pleased AIM V.I. Real Estate On the heels of a positive real estate Fund once again provided shareholders Series II Shares 5.28 market in 2004, REITs once again proved with positive returns for the reporting resilient in the first half of 2005. period. On a comparative basis, Standard & Poor's Composite Index After five years of price appreciation, however, the Fund trailed the of 500 Stocks (S&P 500 Index) the REIT market experienced a performance of the MSCI US REIT Index. (Broad Market Index) -0.81 correction in January as investors took Our efforts to diversify the Fund profits. Although REIT fundamentals are through foreign investments proved a MSCI US REIT Index not directly linked to interest rates, slight drag as the strengthening U.S. (Style-specific Index) 6.35 REIT prices also dipped in the early dollar diminished gains during the part of the year amid rising interest first half of 2005. Also, we did not Lipper Real Estate Fund Index rates. own a key stock that (Peer Group Index) 6.16 The REIT market recovered in the SOURCE: LIPPER, INC. second quarter of the year, offsetting earlier-year losses and driving the ======================================= asset class to positive returns for the reporting period. Supporting the market appreciated significantly during the were continued cash inflows from both reporting period and was heavily individuals and institutions, increased weighted in the index. merger and acquisition activity and faster earnings growth brought about by ==================================================================================== recovering property market fundamentals (occupancy and rental rate HOW WE INVEST o high quality underlying properties improvements). Your Fund holds primarily real o strong management teams Retail REITs, led by regional malls estate-oriented securities. We focus on and shopping centers, contributed the public companies whose value is driven o attractive valuations relative to most to Fund performance during the by tangible assets. Our goal is to similar properties and geographical reporting period. Our largest property create a Fund focused on total return location type weighting is regional malls. that will perform at or above index Although they lagged other property levels with a comparable level of risk. We attempt to control risk by types during the first quarter, strong We use a fundamentals-driven diversification of property types, recovery in investment process, including property geographic location and limiting the market cycle analysis, property size of any one holding. evaluation, and management review to identify securities with: =============================================================== =============================================================== PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* By property type 1. Simon Property Group, Inc. 7.4% 1. Regional Malls 20.9% 2. General Growth Properties, Inc. 6.9 2. Office Properties 17.8 3. ProLogis 5.5 3. Apartments 15.0 4. Equity Residential 4.1 4. Lodging-Resorts 10.8 5. Boston Properties, Inc. 4.1 5. Industrial Properties 10.5 6. Vornado Realty Trust 4.1 6. Shopping Centers 9.2 7. Macerich Co. (The) 3.8 7. Diversified 7.5 8. Host Marriott Corp. 3.7 8. Self Storage Facilities 2.5 9. SL Green Realty Corp. 3.3 9. Specialty Properties 1.5 10. Archstone-Smith Trust 3.2 10. Healthcare 0.8 TOTAL NET ASSETS $86.0 MILLION Money Market Funds Plus Other Assets Less Liabilities 3.5 TOTAL NUMBER OF HOLDINGS* 83 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. REAL ESTATE FUND <Table> <Caption> the second quarter made them one of the related to their concentration in JOE V. RODRIGUEZ, JR., best performing property types for the lagging markets, dividend coverage and [RODRIGUEZ Director of Securities first half of 2005. We continue to relative valuation. PHOTO] Management, INVESCO Real overweight this property type compared Estate, is lead manager to the MSCI US REIT Index as we believe Though a small weighting in the of AIM V.I. Real Estate that the underlying fundamentals of Fund, foreign real estate companies Fund and the head of real regional malls will remain among the proved a slight drag on performance. We estate securities for INVESCO. In best within the REIT sector. For have held a small position in foreign addition to portfolio management, he instance, occupancies at malls continue companies as we believe they often offer oversees all phases of the unit to improve. Rent spreads--the difference attractive valuations compared to some including securities research and between what new leases pay compared to opportunities in the U.S. Although administration. Mr. Rodriguez, who expiring leases--also continue to show foreign holdings appreciated during the joined INVESCO in 1990, has served on strong growth. reporting period, those gains were the editorial boards of the National offset by a strong U.S. dollar, as we Association of Real Estate Investment Many of our top contributors were are not currently hedging currencies. Trusts and the Institutional Real Estate regional malls including GENERAL GROWTH Securities Newsletter. A contributing PROPERTIES. This Chicago-based company, During the reporting period, there author for the book Real Estate the second-largest owner/operator of were no major changes to the portfolio. Investment Trusts: Structure Analysis malls in the U.S., We remained well diversified both by and Strategy, Mr. Rodriguez has served property type and geographic location. as adjunct professor of economics at the ...investors continued University of Texas at Dallas. He is a to express a preference IN CLOSING member of the National Association of for securities backed by Business Economists, The American Real tangible assets. We are encouraged by the recovery staged Estate Society and The Institute of by REITs following the correction in the Certified Financial Planners. Mr. exhibits long and stable lease first few months of 2005. During the Rodriguez received his B.B.A. in patterns--qualities that make it an reporting period, we believe REIT prices economics and finance as well as his attractive investment for the Fund. The largely reflected fair levels relative M.B.A. from Baylor University. company's first quarter 2005 funds from to the value of their underlying operation--a measure often used to gauge holdings. Although REIT prices have MARK D. BLACKBURN, a REIT's performance--increased 20% from increased, we believe occupancy and [BLACKBURN Chartered Financial the comparable period in 2004. rental rates are supporting that growth PHOTO] Analyst, Director of and that REIT fundamentals continued to Securities Research, Apartment REITs also performed well, improve. INVESCO Real Estate, is a particularly those names focused more on manager of AIM V.I. Real providing total return as compared to During the reporting period, Estate Fund. Prior to joining INVESCO in high current yield. Given our focus on investors continued to express a 1998, he was an associate director of total return, this trend proved preference for securities backed by the research department at a brokerage favorable for the Fund. tangible assets. We appreciate your firm. He has approximately 18 years of continued participation in AIM V.I. Real experience in institutional investing Despite the recovery in the REIT Estate Fund. and risk management. Mr. Blackburn market in the second quarter, a few received a B.S. in accounting from holdings detracted from Fund THE VIEWS AND OPINIONS EXPRESSED IN Louisiana State University and an M.B.A. performance. MULTIPLEX GROUP, a MANAGEMENT'S DISCUSSION OF FUND from Southern Methodist University. He diversified Australian LPT (the PERFORMANCE ARE THOSE OF A I M ADVISORS, is a Certified Public Accountant and a Australian equivalent to a U.S. REIT), INC. THESE VIEWS AND OPINIONS ARE member of the National Association of is building Wembley National Stadium in SUBJECT TO CHANGE AT ANY TIME BASED ON Real Estate Investment Trusts. the United Kingdom. Cost overruns on the FACTORS SUCH AS MARKET AND ECONOMIC project, however, have had a significant CONDITIONS. THESE VIEWS AND OPINIONS MAY JAMES W. TROWBRIDGE, impact on the stock. We continue to NOT BE RELIED UPON AS INVESTMENT ADVICE [TROWBRIDGE portfolio manager, monitor this position. OR RECOMMENDATIONS, OR AS AN OFFER FOR A PHOTO] INVESCO Real Estate, is a PARTICULAR SECURITY. THE INFORMATION IS manager of AIM V.I. Real Our lack of exposure to EQUITY NOT A COMPLETE ANALYSIS OF EVERY ASPECT Estate Fund. OFFICE PROPERTIES--a stock which is OF ANY MARKET, COUNTRY, INDUSTRY, Mr. Trowbridge, who joined heavily weighted in the MSCI US REIT SECURITY OR THE FUND. STATEMENTS OF FACT INVESCO in 1989, is responsible for Index--proved a drag on the Fund's ARE FROM SOURCES CONSIDERED RELIABLE, integrating his knowledge into INVESCO's comparative performance as the stock BUT A I M ADVISORS, INC. MAKES NO publicly traded real estate securities appreciated significantly over the REPRESENTATION OR WARRANTY AS TO THEIR investments. He specializes in analyzing reporting period. We do not own the COMPLETENESS OR ACCURACY. ALTHOUGH markets and property level stock given concerns HISTORICAL PERFORMANCE IS NO GUARANTEE supply-and-demand relationships and OF FUTURE RESULTS, THESE INSIGHTS MAY evaluating REIT company strategic HELP YOU UNDERSTAND OUR INVESTMENT direction and management. Prior to MANAGEMENT PHILOSOPHY. joining INVESCO, Mr. Trowbridge spent five years as a senior real estate officer. He holds a 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 A DISCUSSION OF RISKS OF INVESTING IN YOUR FUND, INDEXES USED IN THIS REPORT AND YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE TURN THE PAGE. </Table> 3 AIM V.I. REAL ESTATE FUND <Table> <Caption> YOUR FUND'S LONG-TERM PERFORMANCE ============================ Series II shares invest in Fund and are not intended to reflect AVERAGE ANNUAL TOTAL RETURNS the same portfolio of securities and actual variable product values. They do will have substantially similar not reflect sales charges, expenses and As of 6/30/05 performance, except to the extent that fees assessed in connection with a expenses borne by each class differ. variable product. Sales charges, SERIES I SHARES expenses and fees, which are determined Inception (3/31/98) 12.12% The performance data quoted by the variable product issuers, will 5 Years 18.60 represent past performance and cannot vary and will lower the total return. 1 Year 34.01 guarantee comparable future results; current performance may be lower or Per NASD requirements, the most SERIES II SHARES higher. Please contact your variable recent month-end performance data at the Inception 11.85% product issuer or financial advisor for Fund level, excluding variable product 5 Years 18.33 the most recent month-end variable charges, is available on this AIM 1 Year 33.74 product performance. Performance figures automated information line, ============================ reflect Fund expenses, reinvested 866-702-4402. As mentioned above, for distributions and changes in net asset the most recent month-end performance value. Investment return and principal including variable product charges, Returns since the inception date of value will fluctuate so that you may please contact your variable product Series II shares are historical. All have a gain or loss when you sell issuer or financial advisor. other returns are the blended returns of shares. the historical performance of Series II Had the advisor not waived fees shares since their inception and the AIM V.I. Real Estate Fund, a series and/or reimbursed expenses, performance restated historical performance of portfolio of AIM Variable Insurance would have been lower. Series I shares (for periods prior to Funds, is currently offered through inception of Series II shares) adjusted insurance companies issuing variable to reflect the higher Rule 12b-1 fees products. You cannot purchase shares of applicable to Series II shares. The the Fund directly. Performance figures inception date of Series I shares is given represent the March 31, 1998. The inception date of Series II shares is April 30, 2004. The Series I and PRINCIPAL RISKS OF INVESTING IN THE FUND assurance that the Fund will have performance of the Fund may deviate favorable IPO investment opportunities. significantly from the performance of Investing in a single-sector or the indexes. single-region mutual fund involves ABOUT INDEXES USED IN THIS REPORT greater risk and potential reward than A direct investment cannot be made investing in a more diversified fund. The unmanaged Standard & Poor's in an index. Unless otherwise indicated, Composite Index of 500 Stocks (the index results include reinvested The Fund may invest up to 25% of its S&P 500--Registered Trademark-- INDEX) is dividends, and they do not reflect sales assets in the securities of non-U.S. an index of common stocks frequently charges. Performance of an index of issuers. International investing used as a general measure of U.S. stock funds reflects fund expenses; presents certain risks not associated market performance. performance of a market index does not. with investing solely in the United States. These include risks relating to The unmanaged Morgan Stanley Capital OTHER INFORMATION fluctuations in the value of the U.S. International Index of United States dollar relative to the values of other REITs (MSCIUS REIT INDEX) formerly known The returns shown in management's currencies, the custody arrangements as the MORGAN STANLEY REIT INDEX is a discussion of Fund performance are based made for the Fund's foreign holdings, total-return index composed of the most on net asset values calculated for differences in accounting, political actively traded real estate investment shareholder transactions. Generally risks and the lesser degree of public trusts and is designed to be a measure accepted accounting principles require information required to be provided by of real estate equity performance. The adjustments to be made to the net assets non-U.S. companies. index was developed with a base value of of the Fund at period end for financial 200 as of December 31, 1994. reporting purposes, and as such, the net The Fund invests substantial assets asset values for shareholder in REITs, which present risks not The unmanaged LIPPER REAL ESTATE transactions and the returns based on associated with investing in stocks. FUND INDEX represents an average of the those net asset values may differ from performance of the 30 largest real the net asset values and returns The prices of IPO securities may go estate funds tracked by Lipper, Inc., an reported in the Financial Highlights. up and down more than prices of equity independent mutual fund performance Additionally, the returns and net asset securities of companies with longer monitor. values shown throughout this report are trading histories. In addition, at the Fund level only and do not companies offering securities in IPOs The Fund is not managed to track the include variable product issuer charges. may have less experienced management or performance of any particular index, If such charges were included, the total limited operating histories. There can including the indexes defined here, and returns would be lower. be no consequently, the </Table> 4 AIM V.I. REAL ESTATE FUND CALCULATING YOUR ONGOING FUND EXPENSES <Table> <Caption> EXAMPLE You may use the information in this Indexes" on the first page of table, together with the amount you management's discussion of Fund As a shareholder of the Fund, you incur invested, to estimate the expenses that performance. ongoing costs, including management you paid over the period. Simply divide fees; distribution and/or service fees your account value by $1,000 (for The hypothetical account values and (12b-1); and other Fund expenses. This example, an $8,600 account value divided expenses may not be used to estimate the example is intended to help you by $1,000 = 8.6), then multiply the actual ending account balance or understand your ongoing costs (in result by the number in the table under expenses you paid for the period. You dollars) of investing in the Fund and to the heading entitled "Actual Expenses may use this information to compare the compare these costs with ongoing costs Paid During Period" to estimate the ongoing costs of investing in the Fund of investing in other mutual funds. The expenses you paid on your account during and other funds. To do so, compare this example is based on an investment of this period. 5% hypothetical example with the 5% $1,000 invested at the beginning of the hypothetical examples that appear in the period and held for the entire period HYPOTHETICAL EXAMPLE FOR shareholder reports of the other funds. January 1, 2005, through June 30, 2005. COMPARISON PURPOSES Please note that the expenses shown The actual and hypothetical expenses The table below also provides in the table are meant to highlight your in the examples below do not represent information about hypothetical account ongoing costs. Therefore, the the effect of any fees or other expenses values and hypothetical expenses based hypothetical information is useful in assessed in connection with a variable on the Fund's actual expense ratio and comparing ongoing costs, and will not product; if they did, the expenses shown an assumed rate of return of 5% per year help you determine the relative total would be higher while the ending account before expenses, which is not the Fund's costs of owning different funds. values shown would be lower. actual return. The Fund's actual cumulative total returns at net asset ACTUAL EXPENSES value after expenses for the six months ended June 30, 2005, appear in the table The table below provides information "Fund vs. 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 (1/1/05) (6/30/05)(1) PERIOD(2) (6/30/05) PERIOD(2) Series I $ 1,000.00 $ 1,054.40 $ 6.06 $ 1,018.89 $ 5.96 Series II 1,000.00 1,052.80 7.33 1,017.65 7.20 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (2) Expenses are equal to the Fund's annualized expense ratio (1.19% and 1.44% for Series I and Series II shares, respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). ============================================================================================================= </Table> 5 AIM V.I. REAL ESTATE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION <Table> The Board of Trustees of AIM Variable functions provided by AIM and AIM's that the advisory fee rate for the Fund Insurance Funds (the "Board") oversees equity and fixed income trading under the Advisory Agreement was fair the management of AIM V.I. Real Estate operations. Based on the review of these and reasonable. Fund (the "Fund") and, as required by and other factors, the Board concluded law, determines annually whether to that the quality of services to be o Expense limitations and fee waivers. approve the continuance of the Fund's provided by AIM was appropriate and that The Board noted that AIM has advisory agreement with A I M Advisors, AIM currently is providing satisfactory contractually agreed to waive advisory Inc. ("AIM"). Based upon the services in accordance with the terms of fees of the Fund through June 30, 2006 recommendation of the Investments the Advisory Agreement. to the extent necessary so that the Committee of the Board, which is advisory fees payable by the Fund do not comprised solely of independent o The performance of the Fund relative exceed a specified maximum advisory fee trustees, at a meeting held on June 30, to comparable funds. The Board reviewed rate, which maximum rate includes 2005, the Board, including all of the the performance of the Fund during the breakpoints and is based on net asset independent trustees, approved the past one, three and five calendar years levels. The Board considered the continuance of the advisory agreement against the performance of funds advised contractual nature of this fee waiver (the "Advisory Agreement") between the by other advisors with investment and noted that it remains in effect Fund and AIM for another year, effective strategies comparable to those of the until June 30, 2006. The Board also July 1, 2005. Fund. The Board noted that the Fund's noted that AIM has contractually agreed performance for the one and three year to waive fees and/or limit expenses of The Board considered the factors periods was above the median performance the Fund through April 30, 2006 so that discussed below in evaluating the of such comparable funds and below such total annual operating expenses are fairness and reasonableness of the median performance for the five year limited to a specified percentage of Advisory Agreement at the meeting on period. The Board also noted that AIM average daily net assets for each class June 30, 2005 and as part of the Board's began serving as investment advisor to of the Fund. The Board considered the ongoing oversight of the Fund. In their the Fund in April 2004. Based on this contractual nature of this fee deliberations, the Board and the review, the Board concluded that no waiver/expense limitation and noted it independent trustees did not identify changes should be made to the Fund and remains in effect until April 30, 2006. any particular factor that was that it was not necessary to change the The Board considered the effect these controlling, and each trustee attributed Fund's portfolio management team at this fee waivers/expense reimbursements would different weights to the various time. have on the Fund's estimated expenses factors. and concluded that the levels of fee o The performance of the Fund relative waivers/expense reimbursements for the One of the responsibilities of the to indices. The Board reviewed the Fund were fair and reasonable. Senior Officer of the Fund, who is performance of the Fund during the past independent of AIM and AIM's affiliates, one, three and five calendar years o Breakpoints and economies of scale. is to manage the process by which the against the performance of the Lipper The Board reviewed the structure of the Fund's proposed management fees are Real Estate Fund Index. The Board noted Fund's advisory fee under the Advisory negotiated to ensure that they are that the Fund's performance in such Agreement, noting that it does not negotiated in a manner which is at arm's periods was above or comparable to the include any breakpoints. The Board length and reasonable. To that end, the performance of such Index. The Board considered whether it would be Senior Officer must either supervise a also noted that AIM began serving as appropriate to add advisory fee competitive bidding process or prepare investment advisor to the Fund in April breakpoints for the Fund or whether, due an independent written evaluation. The 2004. Based on this review, the Board to the nature of the Fund and the Senior Officer has recommended an concluded that no changes should be made advisory fee structures of comparable independent written evaluation in lieu to the Fund and that it was not funds, it was reasonable to structure of a competitive bidding process and, necessary to change the Fund's portfolio the advisory fee without breakpoints. upon the direction of the Board, has management team at this time. Based on this review, the Board prepared such an independent written concluded that it was not necessary to evaluation. Such written evaluation also o Meeting with the Fund's portfolio add advisory fee breakpoints to the considered certain of the factors managers and investment personnel. With Fund's advisory fee schedule. The Board discussed below. In addition, as respect to the Fund, the Board is reviewed the level of the Fund's discussed below, the Senior Officer made meeting periodically with such Fund's advisory fees, and noted that such fees, certain recommendations to the Board in portfolio managers and/or other as a percentage of the Fund's net connection with such written evaluation. investment personnel and believes that assets, would remain constant under the such individuals are competent and able Advisory Agreement because the Advisory The discussion below serves as a to continue to carry out their Agreement does not include any summary of the Senior Officers responsibilities under the Advisory breakpoints. The Board noted that AIM independent written evaluation and Agreement. has contractually agreed to waive recommendations to the Board in advisory fees of the Fund through June connection therewith, as well as a o Overall performance of AIM. The Board 30, 2006 to the extent necessary so that discussion of the material factors and considered the overall performance of the advisory fees payable by the Fund do the conclusions with respect thereto AIM in providing investment advisory and not exceed a specified maximum advisory that formed the basis for the Board's portfolio administrative services to the fee rate, which maximum rate includes approval of the Advisory Agreement. Fund and concluded that such performance breakpoints and is based on net asset After consideration of all of the was satisfactory. levels. The Board concluded that the factors below and based on its informed Fund's fee levels under the Advisory business judgment, the Board determined o Fees relative to those of clients of Agreement therefore would not reflect that the Advisory Agreement is in the AIM with comparable investment economies of scale, although the best interests of the Fund and its strategies. The Board reviewed the advisory fee waiver reflects economies shareholders and that the compensation advisory fee rate for the Fund under the of scale. to AIM under the Advisory Agreement is Advisory Agreement. The Board noted that fair and reasonable and would have been this rate was the same as the advisory o Investments in affiliated money market obtained through arm's length fee rate for one mutual fund advised by funds. The Board also took into account negotiations. AIM with investment strategies the fact that uninvested cash and cash comparable to those of the Fund. The collateral from securities lending o The nature and extent of the advisory Board noted that AIM has agreed to waive arrangements (collectively, "cash services to be provided by AIM. The advisory fees of the Fund and to limit balances") of the Fund may be invested Board reviewed the services to be the Fund's total operating expenses, as in money market funds advised by AIM provided by AIM under the Advisory discussed below. Based on this review, pursuant to the terms of an SEC Agreement. Based on such review, the the Board concluded that the advisory exemptive order. The Board found that Board concluded that the range of fee rate for the Fund under the Advisory the Fund may realize certain benefits services to be provided by AIM under the Agreement was fair and reasonable. upon investing cash balances in AIM Advisory Agreement was appropriate and advised money market funds, including a that AIM currently is providing services o Fees relative to those of comparable higher net return, increased liquidity, in accordance with the terms of the funds with other advisors. The Board increased diversification or decreased Advisory Agreement. reviewed the advisory fee rate for the transaction costs. The Board also found Fund under the Advisory Agreement. The that the Fund will not receive reduced o The quality of services to be provided Board compared effective contractual services if it invests its cash balances by AIM. The Board reviewed the advisory fee rates at a common asset in such money market funds. The Board credentials and experience of the level and noted that the Fund's rate was noted that, to the extent the Fund officers and employees of AIM who will above the median rate of the funds invests in affiliated money market provide investment advisory services to advised by other advisors with funds, AIM has voluntarily agreed to the Fund. In reviewing the investment strategies comparable to waive a portion of the advisory fees it qualifications of AIM to provide those of the Fund that the Board receives from the Fund attributable to investment advisory services, the Board reviewed. The Board noted that AIM has such investment. The Board further reviewed the qualifications of AIM's agreed to waive advisory fees of the determined that the proposed securities investment personnel and considered such Fund and to limit the Fund's total lending program and related issues as AIM's portfolio and product operating expenses, as discussed below. review process, various back office Based on this review, the Board support concluded (continued) </Table> 6 AIM V.I. REAL ESTATE FUND <Table> procedures with respect to the lending services to the Fund, including o The performance of the Fund relative Fund is in the best interests of the administrative, transfer agency and to comparable funds. The Board reviewed lending Fund and its respective distribution services, and that AIM and the performance of the Fund during the shareholders. The Board therefore its affiliates currently are providing past one, three and five calendar years concluded that the investment of cash satisfactory non-investment advisory against the performance of funds advised collateral received in connection with services. by other advisors with investment the securities lending program in the strategies comparable to those of the money market funds according to the o Other factors and current trends. In Fund. The Board noted that the Fund's procedures is in the best interests of determining whether to continue the performance for the one and three year the lending Fund and its respective Advisory Agreement for the Fund, the periods was above the median performance shareholders. Board considered the fact that AIM, of such comparable funds and below such along with others in the mutual fund median performance for the five year o Independent written evaluation and industry, is subject to regulatory period. The Board also noted that AIM recommendations of the Fund's Senior inquiries and litigation related to a began serving as investment advisor to Officer. The Board noted that, upon wide range of issues. The Board also the Fund in April 2004. Based on this their direction, the Senior Officer of considered the governance and compliance review, the Board concluded that no the Fund had prepared an independent reforms being undertaken by AIM and its changes should be made to the Fund and written evaluation in order to assist affiliates, including maintaining an that it was not necessary to change the the Board in determining the internal controls committee and Fund's portfolio management team at this reasonableness of the proposed retaining an independent compliance time. management fees of the AIM Funds, consultant, and the fact that AIM has including the Fund. The Board noted that undertaken to cause the Fund to operate o The performance of the Fund relative the Senior Officer's written evaluation in accordance with certain governance to indices. The Board reviewed the had been relied upon by the Board in policies and practices. The Board performance of the Fund during the past this regard in lieu of a competitive concluded that these actions indicated a one, three and five calendar years bidding process. In determining whether good faith effort on the part of AIM to against the performance of the Lipper to continue the Advisory Agreement for adhere to the highest ethical standards, Real Estate Fund Index. The Board noted the Fund, the Board considered the and determined that the current that the Fund's performance in such Senior Officer's written evaluation and regulatory and litigation environment to periods was above or comparable to the the recommendation made by the Senior which AIM is subject should not prevent performance of such Index. The Board Officer to the Board that the Board the Board from continuing the Advisory also noted that AIM began serving as consider implementing a process to Agreement for the Fund. investment advisor to the Fund in April assist them in more closely monitoring 2004. Based on this review, the Board the performance of the AIM Funds. The APPROVAL OF SUB-ADVISORY AGREEMENT concluded that no changes should be made Board concluded that it would be to the Fund and that it was not advisable to implement such a process as The Board oversees the management of the necessary to change the Fund's portfolio soon as reasonably practicable. Fund and, as required by law, determines management team at this time. annually whether to approve the continuance of the Fund's sub-advisory o Meeting with the Fund's portfolio o Profitability of AIM and its agreement. Based upon the recommendation managers and investment personnel. The affiliates. The Board reviewed of the Investments Committee of the Board is meeting periodically with the information concerning the profitability Board, which is comprised solely of Fund's portfolio managers and/or other of AIM's (and its affiliates') independent trustees, at a meeting held investment personnel and believes that investment advisory and other activities on June 30, 2005, the Board, including such individuals are competent and able and its financial condition. The Board all of the independent trustees, to continue to carry out their considered the overall profitability of approved the continuance of the responsibilities under the Sub-Advisory AIM, as well as the profitability of AIM sub-advisory agreement (the Agreement. in connection with managing the Fund. "Sub-Advisory Agreement") between The Board noted that AIM's operations INVESCO Institutional (N.A.), Inc. (the o Overall performance of the remain profitable, although increased "Sub-Advisor") and AIM with respect to Sub-Advisor. The Board considered the expenses in recent years have reduced the Fund for another year,effective July overall performance of the Sub-Advisor AIM's profitability. Based on the review 1, 2005. in providing investment advisory of the profitability of AIM's and its services to the Fund and concluded that affiliates' investment advisory and other The Board considered the factors such performance was satisfactory. activities and its financial condition, discussed below in evaluating the the Board concluded that the fairness and reasonableness of the o Advisory fees, expense limitations and compensation to be paid by the Fund to Sub-Advisory Agreement at the meeting on fee waivers, and breakpoints and AIM under its Advisory Agreement was not June 30, 2005 and as part of the Board's economies of scale. In reviewing these excessive. ongoing oversight of the Fund. In their factors, the Board considered only the deliberations, the Board and the advisory fees charged to the Fund by AIM o Benefits of soft dollars to AIM. The independent trustees did not identify and did not consider the sub-advisory Board considered the benefits realized any particular factor that was fees paid by AIM to the Sub-Advisor. The by AIM as a result of brokerage controlling, and each trustee attributed Board believes that this approach is transactions executed through "soft different weights to the various appropriate because the sub-advisory dollar" arrangements. Under these factors. fees have no effect on the Fund or its arrangements, brokerage commissions paid shareholders, as they are paid by AIM by the Fund and/or other funds advised The discussion below serves as a rather than the Fund. Furthermore, AIM by AIM are used to pay for research and discussion of the material factors and and the Sub-Advisor are affiliates and execution services. This research is the conclusions with respect thereto the Board believes that the allocation used by AIM in making investment that formed the basis for the Board's of fees between them is a business decisions for the Fund. The Board approval of the Sub-Advisory Agreement. matter, provided that the advisory fees concluded that such arrangements were After consideration of all of the charged to the Fund are fair and appropriate. factors below and based on its informed reasonable. business judgment, the Board determined o AIM's financial soundness in light of that the Sub-Advisory Agreement is in o Profitability of AIM and its the Fund's needs. The Board considered the best interests of the Fund and its affiliates. The Board reviewed whether AIM is financially sound and has shareholders. information concerning the profitability the resources necessary to perform its of AIM's (and its affiliates') obligations under the Advisory o The nature and extent of the advisory investment advisory and other activities Agreement, and concluded that AIM has services to be provided by the and its financial condition. The Board the financial resources necessary to Sub-Advisor. The Board reviewed the considered the overall profitability of fulfill its obligations under the services to be provided by the AIM, as well as the profitability of AIM Advisory Agreement. Sub-Advisor under the Sub-Advisory in connection with managing the Fund. Agreement. Based on such review, the The Board noted that AIM's operations o Historical relationship between the Board concluded that the range of remain profitable, although increased Fund and AIM. In determining whether to services to be provided by the expenses in recent years have reduced continue the Advisory Agreement for the Sub-Advisor under the Sub-Advisory AIM's profitability. Based on the review Fund, the Board also considered the Agreement was appropriate and that the of the profitability of AIM's and its prior relationship between AIM and the Sub-Advisor currently is providing affiliates' investment advisory and other Fund, as well as the Board's knowledge services in accordance with the terms of activities and its financial condition, of AIM's operations, and concluded that the Sub-Advisory Agreement. the Board concluded that the it was beneficial to maintain the compensation to be paid by the Fund to current relationship, in part, because o The quality of services to be provided AIM under its Advisory Agreement was not of such knowledge. The Board also by the Sub-Advisor. The Board reviewed excessive. reviewed the general nature of the the credentials and experience of the non-investment advisory services officers and employees of the o The Sub-Advisor's financial soundness currently performed by AIM and its Sub-Advisor who will provide investment in light of the Fund's needs. The Board affiliates, such as administrative, advisory services to the Fund. Based on considered whether the Sub-Advisor is transfer agency and distribution the review of these and other factors, financially sound and has the resources services, and the fees received by AIM the Board concluded that the quality of necessary to perform its obligations and its affiliates for performing such services to be provided by the under the Sub-Advisory Agreement, and services. In addition to reviewing such Sub-Advisor was appropriate, and that concluded that the Sub-Advisor has the services, the trustees also considered the Sub-Advisor currently is providing financial resources necessary to fulfill the organizational structure employed by satisfactory services in accordance with its obligations under the Sub-Advisory AIM and its affiliates to provide those the terms of the Sub-Advisory Agreement. Agreement. services. Based on the review of these and other factors, the Board concluded that AIM and its affiliates were qualified to continue to provide non-investment advisory </Table> 7 SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS & OTHER EQUITY INTERESTS-96.66% APARTMENTS-15.03% American Campus Communities, Inc. 17,700 $ 401,436 - ---------------------------------------------------------------------- Archstone-Smith Trust 71,200 2,749,744 - ---------------------------------------------------------------------- AvalonBay Communities, Inc. 31,700 2,561,360 - ---------------------------------------------------------------------- BRE Properties, Inc.-Class A 1,000 41,850 - ---------------------------------------------------------------------- Camden Property Trust 10,100 542,875 - ---------------------------------------------------------------------- Canadian Apartment Properties Real Estate Investment Trust (Canada) 30,300 366,741 - ---------------------------------------------------------------------- Education Realty Trust, Inc. 15,200 278,160 - ---------------------------------------------------------------------- Equity Residential 96,900 3,567,858 - ---------------------------------------------------------------------- Essex Property Trust, Inc. 20,000 1,661,200 - ---------------------------------------------------------------------- GMH Communities Trust 8,500 117,725 - ---------------------------------------------------------------------- Post Properties, Inc. 6,100 220,271 - ---------------------------------------------------------------------- United Dominion Realty Trust, Inc. 17,600 423,280 ====================================================================== 12,932,500 ====================================================================== DIVERSIFIED-7.49% CapitaCommercial Trust (Singapore)(a) 69,900 62,553 - ---------------------------------------------------------------------- Capital & Regional PLC (United Kingdom)(a) 18,000 260,250 - ---------------------------------------------------------------------- CapitaLand Ltd. (Singapore)(a) 55,000 77,448 - ---------------------------------------------------------------------- Colonial Properties Trust 7,700 338,800 - ---------------------------------------------------------------------- Cominar Real Estate Investment Trust (Canada) 8,900 137,068 - ---------------------------------------------------------------------- Cousins Properties Inc.-Series B, 7.50% Pfd 5,900 149,565 - ---------------------------------------------------------------------- Hang Lung Properties Ltd. (Hong Kong)(a) 86,000 126,109 - ---------------------------------------------------------------------- Hongkong Land Holdings Ltd. (Bermuda)(a) 98,000 272,973 - ---------------------------------------------------------------------- Hysan Development Co. Ltd. (Hong Kong)(a) 72,000 149,113 - ---------------------------------------------------------------------- Land Securities Group PLC (United Kingdom)(a) 10,800 268,177 - ---------------------------------------------------------------------- Mitsui Fudosan Co., Ltd. (Japan)(a) 21,000 234,201 - ---------------------------------------------------------------------- Multiplex Group (Australia)(a) 142,900 313,662 - ---------------------------------------------------------------------- Singapore Land Ltd. (Singapore)(a) 28,000 93,572 - ---------------------------------------------------------------------- Sino Land Co. Ltd. (Hong Kong)(a) 74,594 79,207 - ---------------------------------------------------------------------- TOKYU REIT, Inc. (Japan)(a) 46 333,859 - ---------------------------------------------------------------------- Vornado Realty Trust 44,100 3,545,640 ====================================================================== 6,442,197 ====================================================================== HEALTHCARE-0.83% Ventas, Inc. 23,500 709,700 ====================================================================== INDUSTRIAL PROPERTIES-10.53% AMB Property Corp. 10,300 447,329 - ---------------------------------------------------------------------- Ascendas Real Estate Investment Trust (Singapore)(a) 91,200 119,409 - ---------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - ---------------------------------------------------------------------- <Caption> INDUSTRIAL PROPERTIES-(CONTINUED) Catellus Development Corp. 20,247 $ 664,102 - ---------------------------------------------------------------------- CenterPoint Properties Trust 61,300 2,592,990 - ---------------------------------------------------------------------- First Potomac Realty Trust 6,300 156,240 - ---------------------------------------------------------------------- Macquarie Goodman Group (Australia) 51,600 160,338 - ---------------------------------------------------------------------- ProLogis 118,114 4,752,907 - ---------------------------------------------------------------------- Summit Real Estate Investment Trust (Canada) 9,800 164,047 ====================================================================== 9,057,362 ====================================================================== LODGING-RESORTS-10.83% Eagle Hospitality Properties Trust, Inc.-Series A, 8.25% Pfd.(b) 5,000 126,719 - ---------------------------------------------------------------------- Equity Inns Inc. 26,100 347,130 - ---------------------------------------------------------------------- Fairmont Hotels & Resorts Inc. (Canada) 12,100 421,443 - ---------------------------------------------------------------------- Hilton Hotels Corp. 106,000 2,528,100 - ---------------------------------------------------------------------- Host Marriott Corp. 182,600 3,195,500 - ---------------------------------------------------------------------- La Quinta Corp.(c) 18,600 173,538 - ---------------------------------------------------------------------- LaSalle Hotel Properties 11,900 390,439 - ---------------------------------------------------------------------- Orient-Express Hotels Ltd.-Class A (Bermuda) 7,300 231,191 - ---------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc.(d) 32,500 1,903,525 ====================================================================== 9,317,585 ====================================================================== OFFICE PROPERTIES-17.82% Alexandria Real Estate Equities, Inc. 16,400 1,204,580 - ---------------------------------------------------------------------- Alexandria Real Estate Equities, Inc.-Series C, 8.38% Pfd. 1,800 47,502 - ---------------------------------------------------------------------- American Financial Realty Trust 40,000 615,200 - ---------------------------------------------------------------------- Arden Realty, Inc. 18,000 647,640 - ---------------------------------------------------------------------- Boston Properties, Inc. 50,800 3,556,000 - ---------------------------------------------------------------------- Brandywine Realty Trust 24,200 741,730 - ---------------------------------------------------------------------- Brookfield Properties Corp. (Canada) 41,750 1,202,400 - ---------------------------------------------------------------------- CarrAmerica Realty Corp. 23,600 853,848 - ---------------------------------------------------------------------- Derwent Valley Holdings PLC (United Kingdom)(a) 19,700 419,348 - ---------------------------------------------------------------------- Digital Realty Trust, Inc.-Series A, 8.50% Pfd 2,900 74,907 - ---------------------------------------------------------------------- Kilroy Realty Corp. 8,800 417,912 - ---------------------------------------------------------------------- Reckson Associates Realty Corp. 17,900 600,545 - ---------------------------------------------------------------------- SL Green Realty Corp. 44,400 2,863,800 - ---------------------------------------------------------------------- Trizec Properties, Inc. 101,100 2,079,627 ====================================================================== 15,325,039 ====================================================================== REGIONAL MALLS-20.93% CapitaMall Trust (Singapore)(a) 52,700 74,338 - ---------------------------------------------------------------------- CBL & Associates Properties, Inc.-Series D, 7.38% Pfd. 3,100 78,523 - ---------------------------------------------------------------------- General Growth Properties, Inc. 143,600 5,900,524 - ---------------------------------------------------------------------- </Table> AIM V.I. REAL ESTATE FUND <Table> <Caption> MARKET SHARES VALUE - ---------------------------------------------------------------------- REGIONAL MALLS-(CONTINUED) Liberty International PLC (United Kingdom)(a) 18,500 $ 320,501 - ---------------------------------------------------------------------- Macerich Co. (The) 48,600 3,258,630 - ---------------------------------------------------------------------- Mills Corp. (The) 28,700 1,744,673 - ---------------------------------------------------------------------- Simon Property Group, Inc. 87,400 6,335,626 - ---------------------------------------------------------------------- Taubman Centers, Inc.-Series G, 8.00% Pfd 3,100 79,515 - ---------------------------------------------------------------------- Westfield Group (Australia)(a) 15,700 211,631 ====================================================================== 18,003,961 ====================================================================== SELF STORAGE FACILITIES-2.52% Extra Space Storage Inc. 15,200 217,816 - ---------------------------------------------------------------------- Public Storage, Inc. 25,800 1,631,850 - ---------------------------------------------------------------------- U-Store-It Trust 16,800 320,040 ====================================================================== 2,169,706 ====================================================================== SHOPPING CENTERS-9.14% Citycon Oyj (Finland)(a) 29,600 109,288 - ---------------------------------------------------------------------- Developers Diversified Realty Corp. 57,500 2,642,700 - ---------------------------------------------------------------------- Federal Realty Investment Trust 15,900 938,100 - ---------------------------------------------------------------------- New Plan Excel Realty Trust 7,500 203,775 - ---------------------------------------------------------------------- Pan Pacific Retail Properties, Inc. 12,100 803,198 - ---------------------------------------------------------------------- </Table> <Table> MARKET SHARES VALUE - ---------------------------------------------------------------------- <Caption> SHOPPING CENTERS-(CONTINUED) Regency Centers Corp. 44,000 $ 2,516,800 - ---------------------------------------------------------------------- Urstadt Biddle Properties-Class A 37,400 647,768 ====================================================================== 7,861,629 ====================================================================== SPECIALTY PROPERTIES-1.54% Capital Automotive REIT 16,800 641,256 - ---------------------------------------------------------------------- Entertainment Properties Trust 8,800 404,800 - ---------------------------------------------------------------------- Entertainment Properties Trust-Series B, 7.75% Pfd. 2,800 71,008 - ---------------------------------------------------------------------- Spirit Finance Corp. 18,000 211,500 ====================================================================== 1,328,564 ====================================================================== Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $66,572,992) 83,148,243 ====================================================================== MONEY MARKET FUNDS-2.68% Premier Portfolio-Institutional Class (Cost $2,305,238)(e) 2,305,238 2,305,238 ====================================================================== TOTAL INVESTMENTS-99.34% (Cost $68,878,230) 85,453,481 ====================================================================== OTHER ASSETS LESS LIABILITIES-0.66% 570,455 ====================================================================== NET ASSETS-100.00% $86,023,936 ______________________________________________________________________ ====================================================================== </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 June 30, 2005 was $3,525,639, which represented 4.13% of the Fund's Total Investments. See Note 1A. (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 June 30, 2005 represented 0.15% of the Fund's Total Investments. See Note 1A. (c) Non-income producing security. (d) Each unit represents one common share and one Class B share. (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. REAL ESTATE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $66,572,992) $83,148,243 - ------------------------------------------------------------ Investments in affiliated money market funds (cost $2,305,238) 2,305,238 ============================================================ Total investments (cost $68,878,230) 85,453,481 ============================================================ Foreign currencies, at market value (cost $1,916) 1,911 - ------------------------------------------------------------ Receivables for: Fund shares sold 514,791 - ------------------------------------------------------------ Dividends 325,335 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 5,017 - ------------------------------------------------------------ Other assets 9,551 ============================================================ Total assets 86,310,086 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 45,035 - ------------------------------------------------------------ Fund shares reacquired 138,664 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 5,896 - ------------------------------------------------------------ Accrued administrative services fees 71,193 - ------------------------------------------------------------ Accrued distribution fees -- Series II 9 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 114 - ------------------------------------------------------------ Accrued transfer agent fees 448 - ------------------------------------------------------------ Accrued operating expenses 24,791 ============================================================ Total liabilities 286,150 ============================================================ Net assets applicable to shares outstanding $86,023,936 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $61,561,373 - ------------------------------------------------------------ Undistributed net investment income 1,646,855 - ------------------------------------------------------------ Undistributed net realized gain from investment securities and foreign currencies 6,240,945 - ------------------------------------------------------------ Unrealized appreciation of investment securities and foreign currencies 16,574,763 ============================================================ $86,023,936 ____________________________________________________________ ============================================================ NET ASSETS: Series I $86,009,172 ____________________________________________________________ ============================================================ Series II $ 14,764 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 4,263,532 ____________________________________________________________ ============================================================ Series II 733.4 ____________________________________________________________ ============================================================ Series I: Net asset value per share $ 20.17 ____________________________________________________________ ============================================================ Series II: Net asset value per share $ 20.13 ____________________________________________________________ ============================================================ </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $16,755) $1,173,247 - ------------------------------------------------------------ Dividends from affiliated money market funds 36,228 ============================================================ Total investment income 1,209,475 ============================================================ EXPENSES: Advisory fees 351,766 - ------------------------------------------------------------ Administrative services fees 103,827 - ------------------------------------------------------------ Custodian fees 14,358 - ------------------------------------------------------------ Distribution fees -- Series II 17 - ------------------------------------------------------------ Transfer agent fees 5,339 - ------------------------------------------------------------ Trustees' and officer's fees and benefits 7,604 - ------------------------------------------------------------ Other 42,365 ============================================================ Total expenses 525,276 ============================================================ Less: Fees waived (60,156) ============================================================ Net expenses 465,120 ============================================================ Net investment income 744,355 ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities 3,681,359 - ------------------------------------------------------------ Foreign currencies (8,068) ============================================================ 3,673,291 ============================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (158,871) - ------------------------------------------------------------ Foreign currencies (793) ============================================================ (159,664) ============================================================ Net gain from investment securities and foreign currencies 3,513,627 ============================================================ Net increase in net assets resulting from operations $4,257,982 ____________________________________________________________ ============================================================ </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 744,355 $ 896,234 - ----------------------------------------------------------------------------------------- Net realized gain from investment securities and foreign currencies 3,673,291 2,617,646 - ----------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (159,664) 12,603,568 ========================================================================================= Net increase in net assets resulting from operations 4,257,982 16,117,448 ========================================================================================= Distributions to shareholders from net investment income: Series I -- (553,411) - ----------------------------------------------------------------------------------------- Series II -- (100) ========================================================================================= Total distributions from net investment income -- (553,511) ========================================================================================= 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) ========================================================================================= Share transactions-net: Series I 2,361,271 38,957,318 - ----------------------------------------------------------------------------------------- Series II -- 10,318 ========================================================================================= Net increase in net assets resulting from share transactions 2,361,271 38,967,636 ========================================================================================= Net increase in net assets 6,619,253 53,317,909 ========================================================================================= NET ASSETS: Beginning of period 79,404,683 26,086,774 ========================================================================================= End of period (including undistributed net investment income of $1,646,855 and $902,500, respectively) $86,023,936 $79,404,683 _________________________________________________________________________________________ ========================================================================================= </Table> NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Real Estate 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 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 including estimates and assumptions related to taxation. 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 and domestic and foreign index futures. 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. 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. AIM V.I. REAL ESTATE FUND 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 0.90% of the Fund's average daily net assets. 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.75% - ------------------------------------------------------------------- Next $250 million 0.74% - ------------------------------------------------------------------- Next $500 million 0.73% - ------------------------------------------------------------------- Next $1.5 billion 0.72% - ------------------------------------------------------------------- Next $2.5 billion 0.71% - ------------------------------------------------------------------- Next $2.5 billion 0.70% - ------------------------------------------------------------------- Next $2.5 billion 0.69% - ------------------------------------------------------------------- Over $10 billion 0.68% ___________________________________________________________________ =================================================================== </Table> Under the terms of a master sub-advisory agreement between AIM and INVESCO Institutional (N.A.), Inc. ("INVESCO"), AIM pays INVESCO 40% of the amount of AIM's compensation on the sub-advised assets. AIM has also 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 Series I shares to 1.30% and Series II shares to 1.45% 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. AIM did not waive fees and/or reimburse expenses during the period under this expense limitation. AIM V.I. REAL ESTATE 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees of $60,156. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $79,032 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $5,339. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $17. Certain officers and trustees of the Trust are also officers and directors of AIM, AISI, INVESCO and/or ADI. 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 six months ended June 30, 2005. <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ----------------------------------------------------------------------------------------------------------------------------- Premier Portfolio- Institutional Class $6,720,218 $16,209,764 $(20,624,744) $ -- $2,305,238 $36,228 $ -- _____________________________________________________________________________________________________________________________ ============================================================================================================================= </Table> NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,089 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. AIM V.I. REAL ESTATE FUND NOTE 5--BORROWINGS Pursuant to an exemptive order from the SEC, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the six months ended June 30, 2005, 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--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 six months ended June 30, 2005 was $27,468,149 and $20,395,457, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 16,733,588 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (180,009) =============================================================================== Net unrealized appreciation of investment securities $ 16,553,579 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $68,899,902. </Table> NOTE 8--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING(a) - ------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------- Sold: Series I 998,760 $ 18,551,576 3,115,355 $ 50,705,698 - ------------------------------------------------------------------------------------------------------------------- Series II(b) -- -- 716 10,000 =================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 94,788 1,766,857 - ------------------------------------------------------------------------------------------------------------------- Series II(b) -- -- 17 318 =================================================================================================================== Reacquired: Series I (884,828) (16,190,305) (879,455) (13,515,237) =================================================================================================================== 113,932 $ 2,361,271 2,331,421 $ 38,967,636 ___________________________________________________________________________________________________________________ =================================================================================================================== </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 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 and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these shareholders are also owned beneficially. (b) Series II shares commenced sales on April 30, 2004. AIM V.I. REAL ESTATE FUND NOTE 9--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated. <Table> <Caption> SERIES I ------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------- 2005 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.13 $ 14.34 $ 10.49 $ 9.97 $10.15 $ 7.91 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.18(a) 0.32(a) 0.20 0.14 0.20 0.15 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.86 4.92 3.87 0.50 (0.28) 2.11 ================================================================================================================================= Total from investment operations 1.04 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 $ 20.17 $ 19.13 $ 14.34 $ 10.49 $ 9.97 $10.15 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) 5.44% 36.58% 38.82% 6.37% (0.76)% 28.63% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $86,009 $79,391 $26,087 $12,869 $4,723 $2,456 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.19%(c) 1.31% 1.35% 1.36% 1.38% 1.73% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.34%(c) 1.42% 1.62% 1.89% 2.70% 5.28% ================================================================================================================================= Ratio of net investment income to average net assets 1.90%(c) 1.96% 3.02% 4.53% 4.35% 3.96% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(d) 27% 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 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 $78,804,414. (d) Not annualized for periods less than one year. AIM V.I. REAL ESTATE FUND NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II --------------------------------- APRIL 30, 2004 SIX MONTHS (DATE SALES ENDED COMMENCED) TO JUNE 30, DECEMBER 31, 2005 2004 - ----------------------------------------------------------------------------------------------- Net asset value, beginning of period $19.12 $13.96 - ----------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.15(a) 0.20(a) - ----------------------------------------------------------------------------------------------- Net gains on securities (both realized and unrealized) 0.86 5.41 =============================================================================================== Total from investment operations 1.01 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 $20.13 $19.12 _______________________________________________________________________________________________ =============================================================================================== Total return(b) 5.28% 40.23% _______________________________________________________________________________________________ =============================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 15 $ 14 _______________________________________________________________________________________________ =============================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.44%(c) 1.45%(d) - ----------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.59%(c) 1.66%(d) =============================================================================================== Ratio of net investment income to average net assets 1.65%(c) 1.82%(d) _______________________________________________________________________________________________ =============================================================================================== Portfolio turnover rate(e) 27% 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 $13,622. (d) Annualized. (e) Not annualized for periods less than one year. NOTE 10--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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. AIM V.I. REAL ESTATE FUND NOTE 10--LEGAL PROCEEDINGS--(CONTINUED) REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. REAL ESTATE FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk SUB-ADVISOR Prema Mathai-Davis Senior Vice President (Senior Officer) INVESCO Institutional (N.A.), Inc. Lewis F. Pennock INVESCO Realty Advisors Division Ruth H. Quigley Kevin M. Carome Three Galleria Tower, Suite 500 Larry Soll Senior Vice President, Secretary and Chief 13155 Noel Road Mark H. Williamson Legal Officer Dallas, TX 75240 Sidney M. Dilgren TRANSFER AGENT Vice President and Treasurer AIM Investment Services, Inc. P.O. Box 4739 Robert G. Alley Houston, TX 77210-4739 Vice President CUSTODIAN J. Philip Ferguson State Street Bank and Trust Company Vice President 225 Franklin Street Boston, MA 02110-2801 Mark D. Greenberg Vice President COUNSEL TO THE FUND Foley & Lardner LLP William R. Keithler 3000 K N.W., Suite 500 Vice President Washington, D.C. 20007-5111 Karen Dunn Kelley COUNSEL TO THE INDEPENDENT TRUSTEES Vice President Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 DISTRIBUTOR A I M Distributors, Inc. 11 Greenway Plaza Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. REAL ESTATE FUND AIM V.I. SMALL CAP EQUITY FUND Semiannual Report to Shareholders o June 30, 2005 AIM V.I. SMALL CAP EQUITY FUND seeks long-term growth of capital. UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30, 2005, AND IS BASED ON TOTAL NET ASSETS. ================================================================================ The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC's Web site, 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 1-800-732-0330, 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 1-800-410-4246 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 SEC Web site, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2005, 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 the Fund from the drop-down menu. The information is also available on the SEC Web site, sec.gov. ================================================================================ 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] --Registered Trademark-- --Registered Trademark-- NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIM V.I. SMALL CAP EQUITY FUND <Table> MANAGEMENT'S DISCUSSION OF We consider selling or trimming a FUND PERFORMANCE stock when: ======================================================================================= o the company's fundamental business prospects deteriorate PERFORMANCE SUMMARY ========================================== o a stock hits its target price Despite a market rally at the close of FUND VS. INDEXES the reporting period, stock indexes o the company's technical profile generally posted lackluster returns for TOTAL RETURNS, 12/31/04-6/30/05, EXCLUDING deteriorates the half year, amid investor concerns VARIABLE PRODUCT ISSUER CHARGES. IF about higher oil prices and rising VARIABLE PRODUCT ISSUER CHARGES WERE MARKET CONDITIONS AND YOUR FUND interest rates. These trends also muted INCLUDED, RETURNS WOULD BE LOWER. the Fund's performance. The S&P 500 Index declined at the Series I Shares 0.32% beginning of reporting period amid Small-cap stocks led a market rally concerns about increasing oil prices and toward the end of the reporting period, Series II Shares 0.24 rising interest rates. The Federal enabling the Fund to outperform the Reserve (the Fed) continued raising large-cap oriented S&P 500 Index. The Standard & Poor's Composite Index interest rates to slow economic growth Fund's holdings in consumer discretionary of 500 Stocks (the S&P 500 Index) and curb potential inflation. The market and health care helped it outperform the (Broad Market Index) -0.81 generally rebounded in the last two Russell 2000 Index. months of the period as oil prices fell Russell 2000 Index in May--before rising again in June--and (Style-specific Index) -1.25 many companies in the S&P 500 Index reported strong earnings. Lipper Small-Cap Core Fund Index (Peer Group Index) -0.16 Value stocks generally outperformed growth stocks over the period. In this SOURCE: LIPPER, INC. environment, the Fund's focus on the attractively priced stocks of companies ========================================== with solid earnings records boosted performance. ======================================================================================= Over the reporting period, we HOW WE INVEST 1. Fundamental analysis: building positioned the portfolio more financial models and conducting in-depth defensively, trimming our holdings in We focus on small-cap companies with interviews with company management. more cyclical sectors such as information visible and long-term growth technology and materials while increasing opportunities, as demonstrated by 2. Valuation analysis: identifying our weightings in more defensive sectors consistent and accelerating earnings attractively valued stocks given their such as health care and energy. Cyclical growth. growth potential over a one- to two-year sectors tend to be more sensitive to horizon. economic and market trends while We align the Fund with the benchmark defensive sectors tend to be less we believe represents the small-cap-core 3. Technical analysis: identifying the sensitive. We also increased the Fund's asset class. We seek to control risk by "timeliness" of a stock purchase. We exposure to consumer discretionary, which keeping the Fund's sector weightings in review trading volume characteristics and benefited from healthy line with the benchmark by staying fully trend analysis to make sure there are no diversified in all those sectors. signs of the stock deteriorating. This also serves as a risk management measure We select stocks based on analysis of that helps us confirm our high conviction individual companies. Our three-step candidates. selection process includes: ========================================= ========================================= ========================================= TOP 10 EQUITY HOLDINGS* TOP 5 INDUSTRIES* PORTFOLIO COMPOSITION 1. Flowers Foods, Inc. 1.4% 1. Apparel Retail 7.0% By sector 2. Plains Exploration & 2. Regional Banks 6.5 Consumer Discretionary 18.1% Production Co. 1.4 3. Oil & Gas Exploration & Financials 17.0 3. Kindred Healthcare, Inc. 1.3 Production 4.6 Health Care 14.7 4. Assured Guaranty Ltd. (Bermuda) 1.3 4. Restaurants 4.2 Information Technology 14.5 5. Sybron Dental Specialties, Inc. 1.3 5. Real Estate 3.7 Industrials 13.9 6. VCA Antech, Inc. 1.3 The Fund's holdings are subject to Materials 7.4 7. Waste Connections, Inc. 1.3 change, and there is no assurance that the Fund will continue to hold any Energy 7.0 8. Penn Virginia Corp. 1.3 particular security. Consumer Staples 2.3 9. Wabtec Corp. 1.2 *Excluding money market fund holdings. Utilities 2.1 10. Affiliated Managers Group, Inc. 1.2 Money Market Funds TOTAL NET ASSETS $31.4 MILLION Plus Other Assets Less Liabilities 3.0 TOTAL NUMBER OF HOLDINGS* 112 ========================================= ========================================= ========================================= </Table> 2 AIM V.I. SMALL CAP EQUITY FUND <Table> consumer spending, and financials, where for its products. Wausau Paper, which JULIET ELLIS, Chartered we found attractive stock valuations. produces paper for printing and writing [ELLIS Financial Analyst and and for disposable towels and tissues, PHOTO] senior portfolio manager, For the reporting period, consumer reported a sharp decline in earnings for is lead portfolio manager discretionary was the best-performing the first quarter of 2005, compared to of AIM V.I. Small Cap sector for the Fund and MEN'S WEARHOUSE the same period for the previous year. Equity Fund. Ms. Ellis joined AIM in was the portfolios' best-performing The company attributed the decline 2004. She previously served as senior stock. Men's Wearhouse sells business partially to costs associated with the portfolio manager of two small-cap funds clothing at approximately 700 stores in reopening of a mill, acquired late in for another company and was responsible the U.S. and Canada. The company's sales 2004, that had been idle for three years. for the management of more than $2 growth accelerated in 2004 as a result of We continued to hold the stock as the billion in assets. Ms. Ellis began her new product introductions, improved company is a leader in its industry. investment career in 1981 as a financial merchandising and the continued sale of consultant. She is a Cum Laude and Phi new suits as there was a trend toward a IN CLOSING Beta Kappa graduate of Indiana University less casual environment in the workplace. with a B.A. in economics and political Increased sales growth caused the company We remain committed to our bottom-up science. to raise its earnings guidance for the investment process of identifying the year. attractively valued stocks of small-cap MICHAEL CHAPMAN, Chartered companies with visible and long-term [CHAPMAN Financial Analyst and Health care was the second-best growth opportunities while striving to PHOTO] portfolio manager, began performing sector for the Fund as demand avoid high-risk stocks. We believe our his investment career in for medical products and services tends disciplined investment strategy has the 1995. He joined AIM in to remain constant regardless of economic potential to provide shareholders with 2001 and was promoted to his current conditions. A stock in this sector that reliable, long-term, risk-adjusted position as portfolio manager of AIM V.I. enhanced performance was KINDRED performance consistent with a small-cap Capital Development Fund in 2002. Mr. HEALTHCARE, one of the largest long-term core-stock fund, complementing their more Chapman has a B.S. in petroleum health care providers in the U.S. and one aggressive equity investments. As always, engineering and an M.A. in energy and of our top holdings. The company, which we thank you for your continuing mineral resources from the University of operates more than 70 long-term acute investment in AIM V.I. Small Cap Equity Texas. care hospitals in 24 states, reported a Fund. 95% increase in earnings for the quarter Assisted by the Small Cap Core/Growth ended March 31, 2005, compared to the The views and opinions expressed in Team same period for the previous year. The management's discussion of Fund company has also increased its 2005 performance are those of A I M Advisors, earnings estimates. Inc. These views and opinions are subject to change at any time based on factors Energy also benefited Fund performance such as market and economic conditions. as rising oil prices boosted stocks in These views and opinions may not be this sector. PLAINS EXPLORATION & relied upon as investment advice or PRODUCTION, which is involved in on- and recommendations, or as an offer for a off-shore oil and gas exploration particular security. The information is operations and is also one of our top not a complete analysis of every aspect holdings, contributed positively to of any market, country, industry, performance as the company has been security or the Fund. Statements of fact involved in acquisitions that have are from sources considered reliable, but increased its market presence. A I M Advisors, Inc. makes no representation or warranty as to their Information technology detracted the completeness or accuracy. Although most from Fund performance as economic historical performance is no guarantee of uncertainties adversely affected stocks future results, these insights may help in this sector. RSA SECURITY, a you understand our investment management technology company that develops security philosophy. software to help organizations protect their information, saw its stock decline due to increased competition and a disappointing earnings report. We sold [RIGHT ARROW GRAPHIC] the stock. The Fund's materials holdings, FOR A DISCUSSION OF RISKS OF INVESTING IN including WAUSAU PAPER, also collectively YOUR FUND, INDEXES USED IN THIS REPORT posted losses as this sector was affected AND YOUR FUND'S LONG-TERM PERFORMANCE, by lackluster demand PLEASE TURN THE PAGE. </Table> 3 AIM V.I. SMALL CAP EQUITY FUND <Table> YOUR FUND'S LONG-TERM PERFORMANCE ========================================= AVERAGE ANNUAL TOTAL RETURNS your variable product issuer or financial connection with a variable product. Sales advisor for the most recent month-end charges, expenses and fees, which are As of 6/30/05 variable product performance. Performance determined by the variable product figures reflect Fund expenses, reinvested issuers, will vary and will lower the SERIES I SHARES distributions and changes in net asset total return. Inception (8/29/03) 12.89% value. Investment return and principal 1 Year 3.91 value will fluctuate so that you may have Per NASD requirements, the most recent a gain or loss when you sell shares. month-end performance data at the Fund SERIES II SHARES level, excluding variable product Inception (8/29/03) 12.72% AIM V.I. Small Cap Equity Fund, a charges, is available on this AIM 1 Year 3.75 series portfolio of AIM Variable automated information line, 866-702-4402. Insurance Funds, is currently offered As mentioned above, for the most recent ========================================= through insurance companies issuing month-end performance including variable variable products. You cannot purchase product charges, please contact your Series I and Series II shares invest in shares of the Fund directly. Performance variable product issuer or financial the same portfolio of securities and will figures given represent the Fund and are advisor. have substantially similar performance, not intended to reflect actual variable except to the extent that expenses borne product values. They do not reflect sales Had the advisor not waived fees/and or by each class differ. charges, expenses and fees assessed in reimbursed expenses, performance would have been lower The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact PRINCIPAL RISKS OF INVESTING IN THE FUND Moreover, the prices of IPO securities include reinvested dividends, and they do may go up and down more than prices of not reflect sales charges. Performance of Investing in small and mid-size companies equity securities of companies with an index of funds reflects fund expenses; involves risks not associated with longer trading histories. In addition, performance of a market index does not. investing in more established companies, companies offering securities in IPOs may including business risk, significant have less experienced management or OTHER INFORMATION stock price fluctuations and illiquidity. limited operating histories. For additional information regarding the The returns shown in the management's The fund may invest up to 25% of its Fund's performance, please see the Fund's discussion of Fund performance are based assets in the securities of non-U.S. prospectus. on net asset values calculated for issuers. International investing presents shareholder transactions. Generally certain risks not associated with ABOUT INDEXES USED IN THIS REPORT accepted accounting principles require investing solely in the United States. adjustments to be made to the net assets These include risks relating to The unmanaged Standard & Poor's Composite of the fund at period end for financial fluctuations in the value of the U.S. Index of 500 Stocks (the S&P 500 reporting purposes, and as such, the net dollar relative to the values of other --Registered Trademark-- INDEX) is an asset value for shareholder transactions currencies, the custody arrangements made index of common stocks frequently used as and the returns based on those net asset for the fund's foreign holdings, a general measure of U.S. stock market values may differ from the net asset differences in accounting, political performance. values and returns reported in the risks and the lesser degree of public Financial Highlights. information required to be provided by The unmanaged LIPPER SMALL-CAP CORE Additionally, the returns and net asset non-U.S. companies. FUND INDEX represents an average of the values shown throughout this report are performance of the 30 largest at the fund level only and do not include The Fund may invest a portion of its small-capitalization core funds tracked variable product issuer charges. If such assets in synthetic instruments, such as by Lipper, Inc., an independent mutual charges were included, the total returns warrants, futures, options, exchange fund performance monitor. would be lower. traded funds and American Depository Receipts, the value of which may not The unmanaged RUSSELL 2000 Industry classifications used in this correlate perfectly with the overall --Registered Trademark-- INDEX represents report are generally according to the securities market. Risks associated with the performance of the stocks of domestic Global Industry Classification Standard, synthetic instruments may include counter small-capitalization companies. which was developed by and is the party risk and sensitivity to interest exclusive property and a service mark of rate changes and market price The Fund is not managed to track the Morgan Stanley Capital International Inc. fluctuations. See the prospectus for more performance of any particular index, and Standard & Poor's. details. including the indexes defined here, and consequently, the performance of the Fund The Fund's return during certain may deviate significantly from the periods was positively impacted by its performance of the indexes. investments in initial public offerings (IPOs). There can be no assurance that A direct investment cannot be made in the Fund will have favorable IPO an index. Unless otherwise indicated, investment opportunities in the future. index results </Table> 4 AIM V.I. SMALL CAP EQUITY FUND <Table> CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual cumulative total returns at net asset As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months ongoing costs, including management fees; about actual account values and actual ended June 30, 2005, appear in the table distribution and/or service fees (12b-1); expenses. You may use the information in "Fund vs. Indexes" on the first page of and other Fund expenses. This example is this table, together with the amount you management's discussion of Fund intended to help you understand your invested, to estimate the expenses that performance. ongoing costs (in dollars) of investing you paid over the period. Simply divide in the Fund and to compare these costs your account value by $1,000 (for The hypothetical account values and with ongoing costs of investing in other example, an $8,600 account value divided expenses may not be used to estimate the mutual funds. The example is based on an by $1,000 = 8.6), then multiply the actual ending account balance or expenses investment of $1,000 invested at the result by the number in the table under you paid for the period. You may use this beginning of the period and held for the the heading entitled "Actual Expenses information to compare the ongoing costs entire period January 1, 2005, through Paid During Period" to estimate the of investing in the Fund and other funds. June 30, 2005. expenses you paid on your account during To do so, compare this 5% hypothetical this period. example with the 5% hypothetical examples The actual and hypothetical expenses that appear in the shareholder reports of in the examples below do not represent HYPOTHETICAL EXAMPLE FOR the other funds. the effect of any fees or other expenses COMPARISON PURPOSES assessed in connection with a variable Please note that the expenses shown in product; if they did, the expenses shown The table below also provides information the table are meant to highlight your would be higher while the ending account about hypothetical account values and ongoing costs. Therefore, the values shown would be lower. hypothetical expenses based on the Fund's hypothetical information is useful in actual expense ratio and an assumed rate comparing ongoing costs, and will not of return of 5% per year before expenses, help you determine the relative total which is not the Fund's costs of owning different funds. ==================================================================================================================================== ACTUAL HYPOTHETICAL (5% ANNUAL RETURN BEFORE EXPENSES) BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES SHARE VALUE VALUE PAID DURING VALUE PAID DURING CLASS (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4) Series I $ 1,000.00 $ 1,003.20 $ 6.46 $ 1,018.35 $ 6.51 Series II 1,000.00 1,002.40 7.20 1,017.60 7.25 (1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30, 2005, 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 Fund's actual cumulative total returns at net asset value after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on the first page of management's discussion of Fund performance. (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 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the advisor contractually agreed to limit operating expenses to 1.15% and 1.40% for Series I and Series II shares, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.15% and 1.40% 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 most recent fiscal half year are $5.71 and $6.95 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 most recent fiscal half year are $5.76 and $7.00 for Series I and Series II shares, respectively. ==================================================================================================================================== </Table> 5 AIM V.I. SMALL CAP EQUITY FUND <Table> APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION The Board of Trustees of AIM Variable o The quality of services to be provided o Overall performance of AIM. The Board Insurance Funds (the "Board") oversees by AIM. The Board reviewed the considered the overall performance of AIM the management of AIM V.I. Small Cap credentials and experience of the in providing investment advisory and Equity Fund (the "Fund") and, as required officers and employees of AIM who will portfolio administrative services to the by law, determines annually whether to provide investment advisory services to Fund and concluded that such performance approve the continuance of the Fund's the Fund. In reviewing the qualifications was satisfactory. advisory agreement with A I M Advisors, of AIM to provide investment advisory Inc. ("AIM"). Based upon the services, the Board reviewed the o Fees relative to those of clients of recommendation of the Investments qualifications of AIM's investment AIM with comparable investment Committee of the Board, which is personnel and considered such issues as strategies. The Board reviewed the comprised solely of independent trustees, AIM's portfolio and product review advisory fee rate for the Fund under the at a meeting held on June 30, 2005, the process, various back office support Advisory Agreement. The Board noted that Board, including all of the independent functions provided by AIM and AIM's this rate was the same as the advisory trustees, approved the continuance of the equity and fixed income trading fee rates for a mutual fund advised by advisory agreement (the "Advisory operations. Based on the review of these AIM with investment strategies comparable Agreement") between the Fund and AIM for and other factors, the Board concluded to those of the Fund. The Board noted another year, effective July 1, 2005. that the quality of services to be that AIM has agreed to waive advisory provided by AIM was appropriate and that fees of the Fund and to limit the Fund's The Board considered the factors AIM currently is providing satisfactory total operating expenses, as discussed discussed below in evaluating the services in accordance with the terms of below. Based on this review, the Board fairness and reasonableness of the the Advisory Agreement. concluded that the advisory fee rate for Advisory Agreement at the meeting on June the Fund under the Advisory Agreement was 30, 2005 and as part of the Board's o The performance of the Fund relative to fair and reasonable. ongoing oversight of the Fund. In their comparable funds. The Board reviewed the deliberations, the Board and the performance of the Fund during the past o Fees relative to those of comparable independent trustees did not identify any calendar year against the performance of funds with other advisors. The Board particular factor that was controlling, funds advised by other advisors with reviewed the advisory fee rate for the and each trustee attributed different investment strategies comparable to those Fund under the Advisory Agreement. The weights to the various factors. of the Fund. The Board noted that the Board compared effective contractual Fund's performance was below the median advisory fee rates at a common asset One of the responsibilities of the performance of such comparable funds for level and noted that the Fund's rate was Senior Officer of the Fund, who is the one year period. The Board noted that above the median rate of the funds independent of AIM and AIM's affiliates, AIM has recently made changes to the advised by other advisors with investment is to manage the process by which the Fund's portfolio management team, which strategies comparable to those of the Fund's proposed management fees are appear to be producing encouraging early Fund that the Board reviewed. The Board negotiated to ensure that they are results but need more time to be noted that AIM has agreed to waive negotiated in a manner which is at arm's evaluated before a conclusion can be made advisory fees of the Fund and to limit length and reasonable. To that end, the that the changes have addressed the the Fund's total operating expenses, as Senior Officer must either supervise a Fund's under-performance. Based on this discussed below. Based on this review, competitive bidding process or prepare an review, the Board concluded that no the Board concluded that the advisory fee independent written evaluation. The changes should be made to the Fund and rate for the Fund under the Advisory Senior Officer has recommended an that it was not necessary to change the Agreement was fair and reasonable. independent written evaluation in lieu of Fund's portfolio management team at this a competitive bidding process and, upon time. o Expense limitations and fee waivers. the direction of the Board, has prepared The Board noted that AIM has such an independent written evaluation. o The performance of the Fund relative to contractually agreed to waive advisory Such written evaluation also considered indices. The Board reviewed the fees of the Fund through June 30, 2006 to certain of the factors discussed below. performance of the Fund during the past the extent necessary so that the advisory In addition, as discussed below, the calendar year against the performance of fees payable by the Fund do not exceed a Senior Officer made certain the Lipper Small-Cap Core Fund Index. The specified maximum advisory fee rate, recommendations to the Board in Board noted that the Fund's performance which maximum rate includes breakpoints connection with such written evaluation. was below the performance of such Index and is based on net asset levels. The for the one year period. The Board noted Board considered the contractual nature The discussion below serves as a that AIM has recently made changes to the of this fee waiver and noted that it summary of the Senior Officer's Fund's portfolio management team, which remains in effect until June 30, 2006. independent written evaluation and appear to be producing encouraging early The Board noted that AIM has recommendations to the Board in results but need more time to be contractually agreed to waive fees and/or connection therewith, as well as a evaluated before a conclusion can be made limit expenses of the Fund through June discussion of the material factors and that the changes have addressed the 30, 2006 in an amount necessary to limit the conclusions with respect thereto that Fund's under-performance. Based on this total annual operating expenses to a formed the basis for the Board's approval review, the Board concluded that no specified percentage of average daily net of the Advisory Agreement. After changes should be made to the Fund and assets for each class of the Fund. The consideration of all of the factors below that it was not necessary to change the Board considered the contractual nature and based on its informed business Fund's portfolio management team at this of this fee waiver/expense limitation judgment, the Board determined that the time. and noted that it remains in effect until Advisory Agreement is in the best June 30, 2006. The Board considered the interests of the Fund and its o Meeting with the Fund's portfolio effect these fee waivers/expense shareholders and that the compensation to managers and investment personnel. With limitations would have on the Fund's AIM under the Advisory Agreement is fair respect to the Fund, the Board is meeting estimated expenses and concluded that the and reasonable and would have been periodically with such Fund's portfolio levels of fee waivers/expense limitations obtained through arm's length managers and/or other investment for the Fund were fair and reasonable. negotiations. personnel and believes that such individuals are competent and able to o The nature and extent of the advisory continue to carry out their services to be provided by AIM. The Board responsibilities under the Advisory reviewed the services to be provided by Agreement. AIM under the Advisory Agreement. Based on such review, the Board concluded that the range of services to be provided by AIM under the Advisory Agreement was appropriate and that AIM currently is providing services in accordance with the terms of the Advisory Agreement. (continued) </Table> AIM V.I. SMALL CAP EQUITY FUND <Table> o Breakpoints and economies of scale. The o Independent written evaluation and o Historical relationship between the Board reviewed the structure of the recommendations of the Fund's Senior Fund and AIM. In determining whether to Fund's advisory fee under the Advisory Officer. The Board noted that, upon their continue the Advisory Agreement for the Agreement, noting that it does not direction, the Senior Officer of the Fund Fund, the Board also considered the prior include any breakpoints. The Board had prepared an independent written relationship between AIM and the Fund, as considered whether it would be evaluation in order to assist the Board well as the Board's knowledge of AIM's appropriate to add advisory fee in determining the reasonableness of the operations, and concluded that it was breakpoints for the Fund or whether, due proposed management fees of the AIM beneficial to maintain the current to the nature of the Fund and the Funds, including the Fund. The Board relationship, in part, because of such advisory fee structures of comparable noted that the Senior Officer's written knowledge. The Board also reviewed the funds, it was reasonable to structure the evaluation had been relied upon by the general nature of the non-investment advisory fee without breakpoints. Based Board in this regard in lieu of a advisory services currently performed by on this review, the Board concluded that competitive bidding process. In AIM and its affiliates, such as it was not necessary to add advisory fee determining whether to continue the administrative, transfer agency and breakpoints to the Fund's advisory fee Advisory Agreement for the Fund, the distribution services, and the fees schedule. The Board reviewed the level of Board considered the Senior Officer's received by AIM and its affiliates for the Fund's advisory fees, and noted that written evaluation and the recommendation performing such services. In addition to such fees, as a percentage of the Fund's made by the Senior Officer to the Board reviewing such services, the trustees net assets, would remain constant under that the Board consider implementing a also considered the organizational the Advisory Agreement because the process to assist them in more closely structure employed by AIM and its Advisory Agreement does not include any monitoring the performance of the AIM affiliates to provide those services. breakpoints. The Board noted that AIM has Funds. The Board concluded that it would Based on the review of these and other contractually agreed to waive advisory be advisable to implement such a process factors, the Board concluded that AIM and fees of the Fund through June 30, 2006 to as soon as reasonably practicable. its affiliates were qualified to continue the extent necessary so that the advisory to provide non-investment advisory fees payable by the Fund do not exceed a o Profitability of AIM and its services to the Fund, including specified maximum advisory fee rate, affiliates. The Board reviewed administrative, transfer agency and which maximum rate includes breakpoints information concerning the profitability distribution services, and that AIM and and is based on net asset levels. The of AIM's (and its affiliates') investment its affiliates currently are providing Board concluded that the Fund's fee advisory and other activities and its satisfactory non-investment advisory levels under the Advisory Agreement financial condition. The Board considered services. therefore would not reflect economies of the overall profitability of AIM, as well scale, although the advisory fee waiver as the profitability of AIM in connection o Other factors and current trends. In reflects economies of scale. with managing the Fund. The Board noted determining whether to continue the that AIM's operations remain profitable, Advisory Agreement for the Fund, the o Investments in affiliated money market although increased expenses in recent Board considered the fact that AIM, along funds. The Board also took into account years have reduced AIM's profitability. with others in the mutual fund industry, the fact that uninvested cash and cash Based on the review of the profitability is subject to regulatory inquiries and collateral from securities lending of AIM's and its affiliates' investment litigation related to a wide range of arrangements (collectively, "cash advisory and other activities and its issues. The Board also considered the balances") of the Fund may be invested in financial condition, the Board concluded governance and compliance reforms being money market funds advised by AIM that the compensation to be paid by the undertaken by AIM and its affiliates, pursuant to the terms of an SEC exemptive Fund to AIM under its Advisory Agreement including maintaining an internal order. The Board found that the Fund may was not excessive. controls committee and retaining an realize certain benefits upon investing independent compliance consultant, and cash balances in AIM advised money market o Benefits of soft dollars to AIM. The the fact that AIM has undertaken to cause funds, including a higher net return, Board considered the benefits realized by the Fund to operate in accordance with increased liquidity, increased AIM as a result of brokerage transactions certain governance policies and diversification or decreased transaction executed through "soft dollar" practices. The Board concluded that these costs. The Board also found that the Fund arrangements. Under these arrangements, actions indicated a good faith effort on will not receive reduced services if it brokerage commissions paid by the Fund the part of AIM to adhere to the highest invests its cash balances in such money and/or other funds advised by AIM are ethical standards, and determined that market funds. The Board noted that, to used to pay for research and execution the current regulatory and litigation the extent the Fund invests in affiliated services. This research is used by AIM in environment to which AIM is subject money market funds, AIM has voluntarily making investment decisions for the Fund. should not prevent the Board from agreed to waive a portion of the advisory The Board concluded that such continuing the Advisory Agreement for the fees it receives from the Fund arrangements were appropriate. Fund. attributable to such investment. The Board further determined that the o AIM's financial soundness in light of proposed securities lending program and the Fund's needs. The Board considered related procedures with respect to the whether AIM is financially sound and has lending Fund is in the best interests of the resources necessary to perform its the lending Fund and its respective obligations under the Advisory Agreement, shareholders. The Board therefore and concluded that AIM has the financial concluded that the investment of cash resources necessary to fulfill its collateral received in connection with obligations under the Advisory Agreement. the securities lending program in the money market funds according to the procedures is in the best interests of the lending Fund and its respective shareholders. </Table> SCHEDULE OF INVESTMENTS June 30, 2005 (Unaudited) <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.94% ADVERTISING-1.00% R.H. Donnelley Corp.(a) 5,050 $ 312,999 ==================================================================== AEROSPACE & DEFENSE-2.18% Alliant Techsystems Inc.(a) 5,100 360,060 - -------------------------------------------------------------------- Curtiss-Wright Corp. 6,000 323,700 ==================================================================== 683,760 ==================================================================== AIR FREIGHT & LOGISTICS-1.78% EGL, Inc.(a) 10,700 217,424 - -------------------------------------------------------------------- UTI Worldwide, Inc. (United Kingdom) 4,900 341,138 ==================================================================== 558,562 ==================================================================== ALUMINUM-0.42% Century Aluminum Co.(a) 6,400 130,560 ==================================================================== APPAREL RETAIL-6.98% Dress Barn, Inc. (The)(a) 16,700 377,921 - -------------------------------------------------------------------- DSW Inc.-Class A(a) 800 19,960 - -------------------------------------------------------------------- Finish Line, Inc. (The)-Class A 10,700 202,444 - -------------------------------------------------------------------- Genesco Inc.(a) 8,600 318,974 - -------------------------------------------------------------------- Guess?, Inc.(a) 18,906 313,461 - -------------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 9,150 315,034 - -------------------------------------------------------------------- Stage Stores, Inc.(a) 8,150 355,340 - -------------------------------------------------------------------- Too Inc.(a) 12,300 287,451 ==================================================================== 2,190,585 ==================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-1.17% Kenneth Cole Productions, Inc.-Class A 1,800 56,016 - -------------------------------------------------------------------- Quiksilver, Inc.(a) 19,400 310,012 ==================================================================== 366,028 ==================================================================== APPLICATION SOFTWARE-1.49% Hyperion Solutions Corp.(a) 5,000 201,200 - -------------------------------------------------------------------- SERENA Software, Inc.(a) 13,900 268,270 ==================================================================== 469,470 ==================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.24% Affiliated Managers Group, Inc.(a) 5,700 389,481 ==================================================================== BIOTECHNOLOGY-1.93% DOV Pharmaceutical, Inc.(a) 8,400 156,744 - -------------------------------------------------------------------- Neurocrine Biosciences, Inc.(a) 5,000 210,300 - -------------------------------------------------------------------- Transkaryotic Therapies, Inc.(a) 6,500 237,770 ==================================================================== 604,814 ==================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------- <Caption> BUILDING PRODUCTS-0.51% NCI Building Systems, Inc.(a) 4,900 $ 160,720 ==================================================================== CASINOS & GAMING-1.03% Pinnacle Entertainment, Inc.(a) 16,500 322,740 ==================================================================== COMMERCIAL PRINTING-0.56% Banta Corp. 3,900 176,904 ==================================================================== COMMUNICATIONS EQUIPMENT-2.18% CommScope, Inc.(a) 16,000 278,560 - -------------------------------------------------------------------- Packeteer, Inc.(a) 20,300 286,230 - -------------------------------------------------------------------- Westell Technologies, Inc.-Class A(a) 20,100 120,198 ==================================================================== 684,988 ==================================================================== COMPUTER HARDWARE-1.83% Intergraph Corp.(a) 6,200 213,652 - -------------------------------------------------------------------- Stratasys, Inc.(a) 11,000 359,480 ==================================================================== 573,132 ==================================================================== COMPUTER STORAGE & PERIPHERALS-0.42% Synaptics Inc.(a) 6,200 132,432 ==================================================================== CONSTRUCTION & ENGINEERING-0.78% URS Corp.(a) 6,600 246,510 ==================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-3.37% Manitowoc Co., Inc. (The) 8,600 352,772 - -------------------------------------------------------------------- Wabash National Corp. 13,000 314,990 - -------------------------------------------------------------------- Wabtec Corp. 18,200 390,936 ==================================================================== 1,058,698 ==================================================================== CONSUMER FINANCE-0.54% World Acceptance Corp.(a) 5,600 168,280 ==================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.06% BISYS Group, Inc. (The)(a) 22,800 340,632 - -------------------------------------------------------------------- Wright Express Corp.(a) 16,600 306,602 ==================================================================== 647,234 ==================================================================== DIVERSIFIED CHEMICALS-1.09% FMC Corp.(a) 6,100 342,454 ==================================================================== DIVERSIFIED METALS & MINING-0.96% Compass Minerals International, Inc. 12,900 301,860 ==================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.27% Waste Connections, Inc.(a) 10,700 399,003 ==================================================================== </Table> AIM V.I. SMALL CAP EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------- GAS UTILITIES-1.58% Energen Corp. 9,100 $ 318,955 - -------------------------------------------------------------------- New Jersey Resources Corp. 3,700 178,525 ==================================================================== 497,480 ==================================================================== HEALTH CARE EQUIPMENT-0.99% Invacare Corp. 7,000 310,520 ==================================================================== HEALTH CARE FACILITIES-3.44% Genesis HealthCare Corp.(a) 5,700 263,796 - -------------------------------------------------------------------- Kindred Healthcare, Inc.(a) 10,500 415,905 - -------------------------------------------------------------------- VCA Antech, Inc.(a) 16,500 400,125 ==================================================================== 1,079,826 ==================================================================== HEALTH CARE SERVICES-1.14% Apria Healthcare Group Inc.(a) 10,300 356,792 ==================================================================== HEALTH CARE SUPPLIES-3.54% DJ Orthopedics Inc.(a) 13,100 359,333 - -------------------------------------------------------------------- Haemonetics Corp.(a) 8,600 349,504 - -------------------------------------------------------------------- Sybron Dental Specialties, Inc.(a) 10,700 402,534 ==================================================================== 1,111,371 ==================================================================== HOTELS, RESORTS & CRUISE LINES-1.19% La Quinta Corp.(a) 40,100 374,133 ==================================================================== HOUSEWARES & SPECIALTIES-1.19% Yankee Candle Co., Inc. (The) 11,600 372,360 ==================================================================== INDUSTRIAL GASES-0.94% Airgas, Inc. 12,000 296,040 ==================================================================== INDUSTRIAL MACHINERY-0.93% Kaydon Corp. 10,500 292,425 ==================================================================== INSURANCE BROKERS-0.77% Hilb Rogal & Hobbs Co. 7,000 240,800 ==================================================================== INTERNET SOFTWARE & SERVICES-0.96% United Online, Inc. 27,800 301,908 ==================================================================== INVESTMENT BANKING & BROKERAGE-0.03% CMET Finance Holdings, Inc. (Acquired 12/08/03; Cost $20,000)(a)(b)(c) 200 10,120 ==================================================================== INVESTMENT COMPANIES-EXCHANGE TRADED FUNDS-0.50% iShares Nasdaq Biotechnology Index Fund(a) 2,300 156,170 ==================================================================== MANAGED HEALTH CARE-1.65% AMERIGROUP Corp.(a) 6,100 245,220 - -------------------------------------------------------------------- Sierra Health Services, Inc.(a) 3,800 271,548 ==================================================================== 516,768 ==================================================================== METAL & GLASS CONTAINERS-1.13% AptarGroup, Inc. 7,000 355,600 ==================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------- <Caption> MULTI-UTILITIES-0.51% Avista Corp. 8,700 $ 161,733 ==================================================================== OFFICE SERVICES & SUPPLIES-0.66% Brady Corp.-Class A 6,700 207,700 ==================================================================== OIL & GAS EQUIPMENT & SERVICES-1.89% FMC Technologies, Inc.(a) 8,400 268,548 - -------------------------------------------------------------------- Oceaneering International, Inc.(a) 8,400 324,660 ==================================================================== 593,208 ==================================================================== OIL & GAS EXPLORATION & PRODUCTION-4.60% Comstock Resources, Inc.(a) 10,000 252,900 - -------------------------------------------------------------------- Penn Virginia Corp. 8,900 397,563 - -------------------------------------------------------------------- Plains Exploration & Production Co.(a) 12,200 433,466 - -------------------------------------------------------------------- Warren Resources Inc.(a) 34,500 360,525 ==================================================================== 1,444,454 ==================================================================== OIL & GAS STORAGE & TRANSPORTATION-0.49% Golar LNG Ltd. (Bermuda)(a)(d) 12,947 153,803 ==================================================================== PACKAGED FOODS & MEATS-2.28% Flowers Foods, Inc. 12,400 438,464 - -------------------------------------------------------------------- TreeHouse Foods, Inc.(a) 9,700 276,547 ==================================================================== 715,011 ==================================================================== PAPER PRODUCTS-0.74% Wausau Paper Corp. 19,500 233,610 ==================================================================== PHARMACEUTICALS-1.52% Aspreva Pharmaceuticals Corp. (Canada)(a) 14,500 224,605 - -------------------------------------------------------------------- Par Pharmaceutical Cos. Inc.(a) 7,900 251,299 ==================================================================== 475,904 ==================================================================== PROPERTY & CASUALTY INSURANCE-2.49% Assured Guaranty Ltd. (Bermuda) 17,500 408,800 - -------------------------------------------------------------------- Philadelphia Consolidated Holding Corp.(a) 4,400 372,944 ==================================================================== 781,744 ==================================================================== REAL ESTATE-3.66% Alexandria Real Estate Equities, Inc. 2,700 198,315 - -------------------------------------------------------------------- Global Signal Inc. 10,200 384,030 - -------------------------------------------------------------------- LaSalle Hotel Properties 10,000 328,100 - -------------------------------------------------------------------- Universal Health Realty Income Trust 6,300 240,093 ==================================================================== 1,150,538 ==================================================================== REAL ESTATE MANAGEMENT & DEVELOPMENT-1.22% Jones Lang LaSalle Inc.(a) 8,650 382,590 ==================================================================== REGIONAL BANKS-6.50% Alabama National BanCorp. 4,000 261,480 - -------------------------------------------------------------------- Boston Private Financial Holdings, Inc. 9,600 241,920 - -------------------------------------------------------------------- Columbia Banking System, Inc. 6,500 160,030 - -------------------------------------------------------------------- </Table> AIM V.I. SMALL CAP EQUITY FUND <Table> <Caption> MARKET SHARES VALUE - -------------------------------------------------------------------- REGIONAL BANKS-(CONTINUED) CVB Financial Corp. 8,775 $ 172,692 - -------------------------------------------------------------------- Hancock Holding Co. 4,900 168,560 - -------------------------------------------------------------------- Hudson United Bancorp 4,300 155,230 - -------------------------------------------------------------------- MB Financial, Inc. 6,000 238,980 - -------------------------------------------------------------------- Signature Bank(a) 7,500 183,000 - -------------------------------------------------------------------- Sterling Bancshares, Inc. 10,900 169,604 - -------------------------------------------------------------------- Western Alliance Bancorp(a) 1,700 43,180 - -------------------------------------------------------------------- Wintrust Financial Corp. 4,700 246,045 ==================================================================== 2,040,721 ==================================================================== RESTAURANTS-4.20% Dave & Buster's, Inc.(a) 16,800 309,792 - -------------------------------------------------------------------- Lone Star Steakhouse & Saloon, Inc. 11,600 352,756 - -------------------------------------------------------------------- Papa John's International, Inc.(a) 8,000 319,760 - -------------------------------------------------------------------- Steak n Shake Co. (The)(a) 18,100 337,022 ==================================================================== 1,319,330 ==================================================================== SEMICONDUCTOR EQUIPMENT-1.99% ATMI, Inc.(a) 12,400 359,724 - -------------------------------------------------------------------- Varian Semiconductor Equipment Associates, Inc.(a) 7,200 266,400 ==================================================================== 626,124 ==================================================================== SEMICONDUCTORS-1.83% DSP Group, Inc.(a) 13,100 312,697 - -------------------------------------------------------------------- Semtech Corp.(a) 8,600 143,190 - -------------------------------------------------------------------- Silicon Laboratories Inc.(a) 4,500 117,945 ==================================================================== 573,832 ==================================================================== SPECIALTY CHEMICALS-2.07% Albemarle Corp. 9,500 346,465 - -------------------------------------------------------------------- Minerals Technologies Inc. 4,950 304,920 ==================================================================== 651,385 ==================================================================== </Table> <Table> MARKET SHARES VALUE - -------------------------------------------------------------------- <Caption> SPECIALTY STORES-0.88% Hibbett Sporting Goods, Inc.(a) 7,300 $ 276,232 ==================================================================== SYSTEMS SOFTWARE-1.78% Progress Software Corp.(a) 10,500 316,575 - -------------------------------------------------------------------- RADWARE Ltd. (Israel)(a) 13,400 242,272 ==================================================================== 558,847 ==================================================================== THRIFTS & MORTGAGE FINANCE-0.54% Sterling Financial Corp.(a) 4,500 168,300 ==================================================================== TIRES & RUBBER-0.51% Bandag, Inc. 3,500 161,175 ==================================================================== TRADING COMPANIES & DISTRIBUTORS-0.96% Watsco, Inc. 7,100 302,460 ==================================================================== TRUCKING-0.85% Landstar System, Inc.(a) 8,900 268,068 ==================================================================== Total Common Stocks & Other Eqity Interests (Cost $27,464,000) 30,440,296 ==================================================================== MONEY MARKET FUNDS-2.43% Liquid Assets Portfolio-Institutional Class(e) 380,999 380,999 - -------------------------------------------------------------------- STIC Prime Portfolio-Institutional Class(e) 380,999 380,999 ==================================================================== Total Money Market Funds (Cost $761,998) 761,998 ==================================================================== TOTAL INVESTMENTS-99.37% (Cost $28,225,998) 31,202,294 ==================================================================== OTHER ASSETS LESS LIABILITIES-0.63% 197,739 ==================================================================== NET ASSETS-100.00% $31,400,033 ____________________________________________________________________ ==================================================================== </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 market value of this security at June 30, 2005 represented 0.03% 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 market value of this security at June 30, 2005 represented 0.03% of the Fund's Net Assets. This security is considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities. (d) 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 June 30, 2005 represented 0.49% of the Fund's Total Investments. See Note 1A. (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. SMALL CAP EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited) <Table> ASSETS: Investments, at market value (cost $27,464,000) $30,440,296 - ------------------------------------------------------------ Investments in affiliated money market funds (cost $761,998) 761,998 ============================================================ Total investments (cost $28,225,998) 31,202,294 ============================================================ Cash 308,808 - ------------------------------------------------------------ Receivables for: Investments sold 680,577 - ------------------------------------------------------------ Fund shares sold 45,492 - ------------------------------------------------------------ Dividends 14,946 - ------------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 3,499 - ------------------------------------------------------------ Other assets 2,851 ============================================================ Total assets 32,258,467 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Investments purchased 791,523 - ------------------------------------------------------------ Fund shares reacquired 5,601 - ------------------------------------------------------------ Trustee deferred compensation and retirement plans 3,499 - ------------------------------------------------------------ Accrued administrative services fees 34,020 - ------------------------------------------------------------ Accrued distribution fees -- Series II 104 - ------------------------------------------------------------ Accrued trustees' and officer's fees and benefits 110 - ------------------------------------------------------------ Accrued transfer agent fees 291 - ------------------------------------------------------------ Accrued operating expenses 23,286 ============================================================ Total liabilities 858,434 ============================================================ Net assets applicable to shares outstanding $31,400,033 ____________________________________________________________ ============================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $29,454,016 - ------------------------------------------------------------ Undistributed net investment income (loss) (101,301) - ------------------------------------------------------------ Undistributed net realized gain (loss) from investment securities and foreign currencies (928,978) - ------------------------------------------------------------ Unrealized appreciation of investment securities 2,976,296 ============================================================ $31,400,033 ____________________________________________________________ ============================================================ NET ASSETS: Series I $30,772,142 ____________________________________________________________ ============================================================ Series II $ 627,891 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 2,464,072 ____________________________________________________________ ============================================================ Series II 50,393 ____________________________________________________________ ============================================================ Series I: Net asset value per share $ 12.49 ____________________________________________________________ ============================================================ Series II: Net asset value price per share $ 12.46 ____________________________________________________________ ============================================================ </Table> STATEMENT OF OPERATIONS For the six months ended June 30, 2005 (Unaudited) <Table> INVESTMENT INCOME: Dividends (net of foreign withholding tax of $83) $ 69,928 - ----------------------------------------------------------- Dividends from affiliated money market funds 14,129 =========================================================== Total investment income 84,057 =========================================================== EXPENSES: Advisory fees 118,378 - ----------------------------------------------------------- Administrative services fees 58,909 - ----------------------------------------------------------- Custodian fees 10,826 - ----------------------------------------------------------- Distribution fees -- Series II 754 - ----------------------------------------------------------- Transfer agent fees 1,587 - ----------------------------------------------------------- Trustees' and officer's fees and benefits 6,743 - ----------------------------------------------------------- Professional services fees 17,325 - ----------------------------------------------------------- Other 6,498 =========================================================== Total expenses 221,020 =========================================================== Less: Fees waived and expenses reimbursed (39,572) =========================================================== Net expenses 181,448 =========================================================== Net investment income (loss) (97,391) =========================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain from: Investment securities (includes gains from securities sold to affiliates of $9,540) 290,933 - ----------------------------------------------------------- Foreign currencies 174 =========================================================== 291,107 =========================================================== Change in net unrealized appreciation (depreciation) of investment securities (30,894) - ----------------------------------------------------------- Net gain from investment securities and foreign currencies 260,213 =========================================================== Net increase in net assets resulting from operations $162,822 ___________________________________________________________ =========================================================== </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 six months ended June 30, 2005 and the year ended December 31, 2004 (Unaudited) <Table> <Caption> JUNE 30, DECEMBER 31, 2005 2004 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (97,391) $ (82,316) - ----------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies and futures contracts 291,107 (1,216,759) - ----------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities (30,894) 2,814,379 ========================================================================================= Net increase in net assets resulting from operations 162,822 1,515,304 ========================================================================================= Distributions to shareholders from net investment income: Series I -- (972) - ----------------------------------------------------------------------------------------- Series II -- (25) ========================================================================================= Decrease in net assets resulting from distributions -- (997) ========================================================================================= Share transactions-net: Series I 4,646,820 22,271,440 - ----------------------------------------------------------------------------------------- Series II 4,227 125 ========================================================================================= Net increase in net assets resulting from share transactions 4,651,047 22,271,565 ========================================================================================= Net increase in net assets 4,813,869 23,785,872 ========================================================================================= NET ASSETS: Beginning of period 26,586,164 2,800,292 ========================================================================================= End of period (including undistributed net investment income (loss) of $(101,301) and $(3,910), respectively) $31,400,033 $26,586,164 _________________________________________________________________________________________ ========================================================================================= </Table> See accompanying notes which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 (Unaudited) 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 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 including estimates and assumptions related to taxation. 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 AIM V.I. SMALL CAP EQUITY FUND 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 and domestic and foreign index futures. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. 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 received or made 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. SMALL CAP 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 0.85% of the Fund's average daily net assets. 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: <Table> <Caption> AVERAGE NET ASSETS RATE - ---------------------------------------------------------------------- First $250 million 0.745% - ---------------------------------------------------------------------- Next $250 million 0.73% - ---------------------------------------------------------------------- Next $500 million 0.715% - ---------------------------------------------------------------------- Next $1.5 billion 0.70% - ---------------------------------------------------------------------- Next $2.5 billion 0.685% - ---------------------------------------------------------------------- Next $2.5 billion 0.67% - ---------------------------------------------------------------------- Next $2.5 billion 0.655% - ---------------------------------------------------------------------- Over $10 billion 0.64% ______________________________________________________________________ ====================================================================== </Table> Effective July 1, 2005, 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 Series I shares to 1.15% and Series II shares to 1.40% of average daily net assets, through June 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) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) 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; (v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, in addition to expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset arrangements from which the Fund may benefit 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. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. 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. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. 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 six months ended June 30, 2005, AIM waived fees and/or reimbursed expenses of $39,270. At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2005, AMVESCAP's expense reimbursement was less than $100. 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 fund administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2005, AIM was paid $24,795 for accounting and fund administrative services and reimbursed $34,114 for services provided by insurance companies. 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 six months ended June 30, 2005, the Fund paid AISI $1,587. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("ADI") 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 ADI 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. Through June 30, 2005, ADI had 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 (i) through (vi) discussed above) of Series II shares to 1.45% of average daily net assets. ADI did not reimburse fees during the period under this expense limitation. Pursuant to the Plan, for the six months ended June 30, 2005, the Series II shares paid $452 after ADI waived Plan fees of $302. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or ADI. AIM V.I. SMALL CAP EQUITY FUND NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to an exemptive order from the SEC and approved procedures by the Board of Trustees, to invest daily available cash balances in affiliated money market funds. 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 six months ended June 30, 2005. <Table> <Caption> UNREALIZED MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $344,833 $ 5,037,066 $ (5,000,900) $ -- $380,999 $ 7,025 $ -- - ---------------------------------------------------------------------------------------------------------------------------------- STIC Prime Porfolio- Institutional Class 344,833 5,037,066 (5,000,900) -- 380,999 7,104 -- ================================================================================================================================== Total $689,666 $10,074,132 $(10,001,800) $ -- $761,998 $14,129 $ -- __________________________________________________________________________________________________________________________________ ================================================================================================================================== </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 six months ended June 30, 2005, the Fund engaged in securities purchases of $1,128,205 and sales of $74,562, which resulted in net realized gains of $9,540. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee of the Fund who is not an "interested person" of the AIM Funds. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, 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 who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. In addition to the above, "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to the Senior Officer of the AIM Funds. During the six months ended June 30, 2005, the Fund paid legal fees of $2,012 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--BORROWINGS Pursuant to an exemptive order from the SEC, the Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. A loan will be secured by collateral if the Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total assets. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the six months ended June 30, 2005, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility. Additionally, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated at an amount equal to the Federal Funds rate plus 100 basis points. AIM V.I. SMALL CAP EQUITY FUND NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. 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 had 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 six months ended June 30, 2005 was $15,365,617 and $11,061,807, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end. <Table> <Caption> UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $3,691,980 - ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (740,474) ============================================================================== Net unrealized appreciation of investment securities $2,951,506 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $28,250,788. </Table> NOTE 9--SHARE INFORMATION <Table> <Caption> CHANGES IN SHARES OUTSTANDING (a) - ----------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------- Sold: Series I 793,152 $ 9,634,489 2,694,847 $31,500,234 - ----------------------------------------------------------------------------------------------------------------- Series II 485 5,932 8 100 ================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 79 972 - ----------------------------------------------------------------------------------------------------------------- Series II -- -- 2 25 ================================================================================================================= Reacquired: Series I (414,660) (4,987,669) (805,404) (9,229,766) - ----------------------------------------------------------------------------------------------------------------- Series II (140) (1,705) -- -- - ----------------------------------------------------------------------------------------------------------------- 378,837 $ 4,651,047 1,889,532 $22,271,565 _________________________________________________________________________________________________________________ ================================================================================================================= </Table> (a) There is one entity that is a record owner of more than 5% of the outstanding shares of the Fund and owns 57% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with this entity whereby this entity sells 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 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. AIM V.I. SMALL CAP EQUITY 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 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED COMMENCED) TO JUNE 30, DECEMBER 31, DECEMBER 31, 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.45 $ 11.38 $10.00 - ------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.04) (0.06)(a) (0.01) - ------------------------------------------------------------------------------------------------------------------ Net gains on securities (both realized and unrealized) 0.08 1.13 1.41 ================================================================================================================== Total from investment operations 0.04 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 $ 12.49 $ 12.45 $11.38 __________________________________________________________________________________________________________________ ================================================================================================================== Total return(b) 0.32% 9.41% 13.94% __________________________________________________________________________________________________________________ ================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $30,772 $25,964 $2,231 __________________________________________________________________________________________________________________ ================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.30%(c) 1.30% 1.32%(d) - ------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.58%(c) 2.01% 12.86%(d) ================================================================================================================== Ratio of net investment income (loss) to average net assets (0.70)%(c) (0.56)% (0.44)%(d) __________________________________________________________________________________________________________________ ================================================================================================================== Portfolio turnover rate(e) 41% 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 annualized and based on average daily net assets of $27,476,152. (d) Annualized. (e) Not annualized for periods less than one year. AIM V.I. SMALL CAP EQUITY FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED) <Table> <Caption> SERIES II ---------------------------------------------------- AUGUST 29, 2003 SIX MONTHS (DATE OPERATIONS ENDED YEAR ENDED COMMENCED) TO JUNE 30, DECEMBER 31, DECEMBER 31, 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.43 $11.38 $10.00 - ------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.05) (0.08)(a) (0.02) - ------------------------------------------------------------------------------------------------------------------ Net gains on securities (both realized and unrealized) 0.08 1.13 1.41 ================================================================================================================== Total from investment operations 0.03 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 $12.46 $12.43 $11.38 __________________________________________________________________________________________________________________ ================================================================================================================== Total return(b) 0.24% 9.23% 13.88% __________________________________________________________________________________________________________________ ================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 628 $ 622 $ 569 __________________________________________________________________________________________________________________ ================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.45%(c) 1.45% 1.47%(d) - ------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.83%(c) 2.26% 13.11%(d) ================================================================================================================== Ratio of net investment income (loss) to average net assets (0.85)%(c) (0.71)% (0.59)%(d) __________________________________________________________________________________________________________________ ================================================================================================================== Portfolio turnover rate(e) 41% 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 annualized and based on average daily net assets of $608,402. (d) Annualized. (e) Not annualized for periods less than one year. NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS On December 1, 2004 the Audit Committee (the "Audit Committee") of the Board of Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the independent registered public accounting firm of the Fund for the fiscal year ending December 31, 2005 such appointment was ratified and approved by the Independent Trustees of the Board. Tait, Weller & Baker ("TAIT") was the Fund's independent registered public accounting firm for the prior reporting period. The change in the Fund's independent auditors was part of an effort by the Audit Committee to increase operational efficiencies by reducing the number of different audit firms engaged by the AIM Funds with December 31 year ends. On May 5, 2005, the Trust obtained a formal resignation from TAIT as the independent registered public accounting firm of the Fund. TAIT's report on the financial statements of the Fund for the past two years did not contain an adverse or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period TAIT was engaged, there were no disagreements with TAIT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to TAIT's satisfaction would have caused TAIT to make reference to that matter in connection with such reports. 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), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil AIM V.I. SMALL CAP EQUITY FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) penalties) is being created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI agreed to create a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. As the methodology is unknown at the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the distribution of these two fair funds may have on the Fund or whether such distribution will have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. REGULATORY INQUIRIES AND PENDING LITIGATION IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in numerous civil lawsuits related to one or more of these issues. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous unrelated mutual fund complexes and financial institutions. None of the AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed in the Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or deceptive trade practices by failing to disclose in the prospectuses for the AIM Funds, including those formerly advised by IFG, that they had entered into certain arrangements permitting market timing of such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The WVAG complaint is seeking, among other things, injunctive relief, civil monetary penalties and a writ of quo warranto against the defendants. If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could affect the ability of AIM or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including the Fund. The Fund has been informed by AIM that, if these results occur, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There is no assurance that such exemptive relief will be granted. On July 7, 2005, the Supreme Court of West Virginia ruled in the context of a separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an action based upon conduct that is ancillary to the purchase or sale of securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this ruling. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - 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 and that the defendants adopted unlawful distribution plans; - that the defendants breached their fiduciary duties by charging distribution fees while AIM Funds and/or specific share classes were closed generally to new investors and/or while other share classes of the same AIM Fund were not charged the same distribution fees; - 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; and - that the defendants breached their fiduciary duties by failing to ensure that the AIM Funds participated in class action settlements in which they were eligible to participate. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. 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 above may have on AIM, ADI or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the AIM Funds might react by redeeming their investments. This might require the AIM Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AIM Funds. AIM V.I. SMALL CAP EQUITY FUND TRUSTEES AND OFFICERS <Table> BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Robert H. Graham 11 Greenway Plaza Frank S. Bayley President Suite 100 James T. Bunch Houston, TX 77046-1173 Bruce L. Crockett Mark H. Williamson Chair Executive Vice President INVESTMENT ADVISOR Albert R. Dowden A I M Advisors, Inc. Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza Jack M. Fields Senior Vice President and Chief Compliance Suite 100 Carl Frischling Officer Houston, TX 77046-1173 Robert H. Graham Gerald J. Lewis Russell C. Burk TRANSFER AGENT Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc. Lewis F. Pennock P.O. Box 4739 Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739 Larry Soll Senior Vice President, Secretary and Chief Mark H. Williamson Legal Officer CUSTODIAN State Street Bank and Trust Company Sidney M. Dilgren 225 Franklin Street Vice President and Treasurer Boston, MA 02110-2801 Robert G. Alley Vice President J. Philip Ferguson Vice President Mark D. Greenberg Vice President William R. Keithler Vice President Karen Dunn Kelley Vice President COUNSEL TO THE FUND Foley & Lardner LLP 3000 K N.W., Suite 500 Washington, D.C. 20007-5111 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 DISTRIBUTOR A I M Distributors, Inc. 11 Greenway Plaza Suite 100 Houston, TX 77046-1173 </Table> AIM V.I. SMALL CAP EQUITY FUND ITEM 2. CODE OF ETHICS. There were no amendments to the Code of Ethics (the "Code") that applies to the Registrant's Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO") 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. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. 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 INVESTMENT 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 June 21, 2005, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer ("PEO") and Principal Financial Officer ("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 June 21, 2005, 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 has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. 12(a)(1) Not applicable. 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: August 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: August 25, 2005 By: /s/ Sidney M. Dilgren -------------------------------------------------- Sidney M. Dilgren Principal Financial Officer Date: August 25, 2005 EXHIBIT INDEX 12(a)(1) Not applicable. 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.