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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07452
---------------------------------------------
AIM Variable Insurance Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 12/31
---------------
Date of reporting period: 12/31/05
--------------
Item 1. Reports to Stockholders.
AIM V.I. AGGRESSIVE GROWTH FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330,or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. AGGRESSIVE GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE their durability. We carefully review
financial statements and earnings
======================================================================================= reports, the company's business model
PERFORMANCE SUMMARY and management team, the competitive
========================================== environment and market opportunities.
On September 16, 2005, changes were made FUND VS. INDEXES
to your with the intention of improving We construct the portfolio by
long-term performance. The new team TOTAL RETURNS, 12/31/04--12/31/05, focusing on stocks rather than
consists of Lanny H. Sachnowitz (lead), EXCLUDING VARIABLE PRODUCT ISSUER industries or sectors. While there are
Kirk L. Anderson and James G. Birdsall, CHARGES. IF VARIABLE PRODUCT ISSUER no formal sector guidelines or team
who are assisted by the Large/Multi-cap CHARGES WERE INCLUDED, RETURNS WOULD BE constraints, internal controls and
Growth Team. Our goal is to produce LOWER. proprietary software help us monitor
consistent, strong risk-adjusted returns risk levels and sector concentration.
for long-term investors. Series I Shares 5.74%
Our sell process is designed to
For the year ended December 31, 2005, Series II Shares 5.53 identify deterioration in the underlying
your Fund recorded positive returns. reasons a stock was initially purchased
Standard & Poor's Composite and avoid the risk of capital loss.
The Fund fared better than the Index of 500 Stocks (S&P 500 Index) Conditions that may cause us to reduce
large-cap oriented S&P 500 Index (Broad Market Index) 4.91 or sell a position include:
primarily because of outperformance by
select holdings in health care and Russell Midcap Growth Index o deterioration in business prospects
information technology. However, the (Style-specific Index) 12.10
Fund lagged the Russell Midcap Growth o worsening competitive position
Index largely because its health care Lipper Mid-Cap Growth Fund Index
and materials holdings generally (Peer Group Index) 9.58 o slowing earnings growth
underperformed those of the benchmark
and also due to an underweight position SOURCE: LIPPER,INC. o extended valuation
in the energy sector. ==========================================
o finding more attractive investment
For long term performance, please see opportunities
Pages 4 and 5.
MARKET CONDITIONS AND YOUR FUND
=======================================================================================
When we assumed management of the Fund,
HOW WE INVEST Quantitative analysis helps us narrow major stock market indexes had been
our investment universe down to a fluctuating within a relatively narrow
We believe a growth investment strategy manageable list of potential range for several months. Although
is an essential component of a investments. We focus on the level, corporate earnings were generally solid,
diversified portfolio. growth rate and sustainability of concerns about rising oil prices and
earnings, revenue and cash flow, ranking interest rates, the economic impact of
Our investment process combines investment candidates on absolute and two Gulf Coast hurricanes and other
quantitative and fundamental analysis to relative attractiveness. matters restrained index performance for
uncover companies exhibiting long-term, the reporting period.
sustainable earnings and cash flow Fundamental analysis seeks to define
growth that is not yet reflected in a company's key drivers of success and After assuming management of your
investor expectations or equity to assess Fund, we began restructuring the
valuations. portfolio. While
========================================= ========================================== =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Health Care Equipment 6.9% 1. ENSCO International Inc. 1.8%
Information Technology 24.3% 2. Semiconductors 6.0 2. Cytyc Corp. 1.6
Health Care 21.7 3. Data Processing & 3. Affiliated Computer Services,
Outsourced Services 4.2 Inc.-Class A 1.6
Consumer Discretionary 15.8
4. Aerospace & Defense 4.0 4. Analog Devices, Inc. 1.6
Industrials 13.1
5. Restaurants 3.7 5. Textron Inc. 1.6
Financials 11.2
6. Precision Castparts Corp. 1.5
Energy 6.1
TOTAL NET ASSETS $147.8 MILLION 7. Office Depot, Inc. 1.4
Consumer Staples 2.1 TOTAL NUMBER OF HOLDINGS* 115
8. Amdocs Ltd. 1.4
Materials 1.7
9. Newfield Exploration Co. 1.3
Utilities 0.7
10. Marvell Technology Group Ltd.
Telecommunication Services 0.4 (Singapore) 1.2
Money Market Funds Plus
Other Assets 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 money market fund holdings.
========================================= ========================================== =========================================
2
AIM V.I. AGGRESSIVE GROWTH FUND
maintaining the Fund's focus on mid-cap equipment holdings performed poorly, LANNY H. SACHNOWITZ,
stocks, we slightly increased the Fund's including KINETIC CONCEPTS. The stock senior portfolio
exposure to large-cap stocks while price of this holding declined after a [SACHNOWITZ manager, is lead
modestly reducing its weighting in government agency reduced the company's PHOTO] portfolio manager of
small-cap stocks. Large-cap growth reimbursement for some of its products. AIM V.I. Aggressive
stocks have generally been out of favor We sold the stock. Growth Fund. He
with investors for several years; we joined AIM in 1987
believe they could be poised for a Information technology (IT) was the asa money market
rebound. third-best performing sector for the trader and research analyst. In 1990,
Fund, and our holdings in this sector Mr. Sachnowitz's trading
Since assuming management of the generally outpaced those of our responsibilities were expanded to
Fund, we increased our weightings in style-specific index. Several holdings include head of equity trading. He was
stocks we believe have the greatest in the data processing and outsourced named portfolio manager in 1992. Mr.
potential for growth. We increased the services industry made key contributions Sachnowitz received a B.S. in finance
Fund's weighting in the energy and to Fund return. One example is IRON from the University of Southern
health care sectors while reducing its MOUNTAIN, a records and information California and an M.B.A. from the
exposure to consumer discretionary management company. The company reported University of Houston.
stocks on concerns that rising costs a 15% increase in earnings for the third
might adversely affect consumer quarter of 2005 compared to the same KIRK L. ANDERSON,
spending. Please keep in mind that our period for the previous year as the firm portfolio manager,
sector weightings are primarily the expanded its operations into the [ANDERSON is portfolio manager
result of our stock-selection process, Asia/Pacific region. PHOTO] of AIM V.I.
which is based on an analysis of Aggressive Growth
individual companies. IN CLOSING Fund. Mr. Anderson
joined AIM in 1994
Energy was the best-performing sector At the close of the reporting period, we in the fund services
in many market indexes for the year, as believe your Fund was positioned to area. He moved to portfolio
oil and gas prices soared because of potentially take advantage of moderating administration in 1995, became an
increased demand for fuel. Although our economic growth, stemming from higher analyst in 1997, and was named a
investment in energy stocks was the interest rates and fuel costs and a portfolio manager in 2003. Mr. Anderson
single largest driver of performance possible decline in consumer spending. earned a B.A. in political science from
during 2005, the Fund's underweight We also believe our rigorous investment Texas A&M University and an M.S. in
position in this sector versus the process has the potential to identify finance from the University of Houston.
Russell Midcap Growth Index energy growth stocks that are likely to
weight detracted somewhat from relative appreciate in value in a variety of JAMES G. BIRDSALL,
performance. Our focus in the energy economic and market environments. We portfolio manager,
sector was on oil and gas equipment and thank you for your investment in AIM [BIRDSALL a portfolio
services, exploration and production and V.I. Aggressive Growth Fund. PHOTO] manager of AIM V.I.
drilling companies--firms directly or Aggressive Growth
indirectly involved in efforts to THE VIEWS AND OPINIONS EXPRESSED IN Fund. He has been
increase fuel supplies. With oil and gas MANAGEMENT'S DISCUSSION OF FUND associated with AIM
production barely able to keep up with PERFORMANCE ARE THOSE OF A I M ADVISORS, Investments since
worldwide demand, we believe these INC. THESE VIEWS AND OPINIONS ARE 1995 and assumed his current position in
companies are in a favorable position to SUBJECT TO CHANGE AT ANY TIME BASED ON 1999. Mr. Birdsall received his B.B.A.
experience earnings growth. FACTORS SUCH AS MARKET AND ECONOMIC with a concentration in finance from
CONDITIONS. THESE VIEWS AND OPINIONS MAY Stephen F. Austin State University
An energy stock that enhanced Fund NOT BE RELIED UPON AS INVESTMENT ADVICE before earning his M.B.A. with a
returns was ENSCO INTERNATIONAL, the OR RECOMMENDATIONS, OR AS AN OFFER FOR A concentration in finance and
portfolio's largest holding at the close PARTICULAR SECURITY. THE INFORMATION IS international business from the
of the reporting period. ENSCO, which NOT A COMPLETE ANALYSIS OF EVERY ASPECT University of St. Thomas.
provides contract drilling services for OF ANY MARKET, COUNTRY, INDUSTRY,
the oil industry, reported record SECURITY OR THE FUND. STATEMENTS OF FACT Assisted by the Large/Multi-Cap Growth
earnings for the third quarter of 2005. ARE FROM SOURCES CONSIDERED RELIABLE, Team
BUT A I M ADVISORS, INC. MAKES NO
While our health care holdings REPRESENTATION OR WARRANTY AS TO THEIR
generally underperformed those of the COMPLETENESS OR ACCURACY. ALTHOUGH
Russell Midcap Growth Index, this sector HISTORICAL PERFORMANCE IS NO GUARANTEE
was the second leading contributor to OF FUTURE RESULTS, THESE INSIGHTS MAY
Fund performance. Much of the HELP YOU UNDERSTAND OUR INVESTMENT
underperformance relative to the Russell MANAGEMENT PHILOSOPHY.
Midcap Growth Index in this sector can
be attributed to poor performance by a ========================================== [RIGHT ARROW GRAPHIC]
number of the Fund's biotechnology In November 2005, your Fund's board
holdings, such as EYETECH approved--subject to shareholder FOR A DISCUSSION OF THE RISKS OF
PHARMACEUTICALS, a stock we subsequently approval--the proposed merger of AIM INVESTING IN YOUR FUND, INDEXES USED IN
sold. Additionally, several health care V.I. Aggressive Growth Fund into AIM THIS REPORT AND YOUR FUND'S LONG-TERM
V.I. Capital Appreciation Fund. PERFORMANCE, PLEASE TURN TO PAGES 4 AND
========================================== 5.
3
AIM V.I. AGGRESSIVE GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/1/98, index data from 4/30/98
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. AGGRESSIVE S&P 500 RUSSELL MIDCAP LIPPER MID-CAO
GROWTH FUND- INDEX GROWTH GROWTH FUND
SERIES I SHARES INDEX INDEX
4/30/98 $10000 $10000 $10000
5/98 $9450 9828 9589 9417
6/98 9700 10227 9860 9850
7/98 9141 10119 9438 9195
8/98 7601 8657 7636 7212
9/98 8091 9212 8214 7964
10/98 8380 9960 8819 8257
11/98 9070 10564 9414 8885
12/98 9905 11172 10389 10031
1/99 9996 11639 10700 10529
2/99 9121 11278 10177 9711
3/99 9443 11729 10744 10403
4/99 9774 12183 11233 10830
5/99 9875 11895 11089 10785
6/99 10700 12554 11863 11654
7/99 10830 12164 11485 11495
8/99 10729 12103 11366 11437
9/99 11061 11772 11269 11770
10/99 11543 12517 12140 12811
11/99 12529 12771 13397 14418
12/99 14329 13522 15717 17426
1/00 14129 12843 15714 17126
2/00 18674 12600 19018 21419
3/00 18190 13832 19037 19911
4/00 17054 13416 17189 17284
5/00 15415 13141 15936 15731
6/00 17244 13464 17627 18175
7/00 16370 13254 16511 17421
8/00 18673 14077 19001 19699
9/00 17577 13334 18072 18753
10/00 16732 13277 16835 17236
11/00 13645 12231 13177 13632
12/00 14701 12291 13871 14615
1/01 14832 12727 14663 14813
2/01 12570 11567 12127 12591
3/01 11212 10835 10391 11255
4/01 12389 11676 12123 12739
5/01 12449 11755 12066 12844
6/01 12661 11469 12073 12794
7/01 12077 11356 11258 12121
8/01 11132 10646 10442 11309
9/01 9553 9786 8717 9678
10/01 10015 9973 9633 10217
11/01 10578 10738 10670 11056
12/01 10870 10832 11075 11535
1/02 10639 10674 10716 11094
2/02 10266 10468 10108 10543
3/02 10990 10861 10880 11207
4/02 10850 10203 10304 10835
5/02 10527 10128 9996 10473
6/02 9732 9407 8893 9532
7/02 8627 8674 8029 8504
8/02 8496 8731 8001 8403
9/02 8023 7783 7366 7881
10/02 8385 8467 7936 8278
11/02 8697 8965 8557 8770
12/02 8406 8439 8040 8251
1/03 8215 8218 7961 8129
2/03 8004 8095 7892 8003
3/03 8125 8173 8039 8118
4/03 8537 8846 8586 8687
5/03 8928 9311 9413 9406
6/03 9140 9430 9547 9553
7/03 9351 9597 9888 9930
8/03 9844 9784 10432 10418
9/03 9543 9680 10230 10068
10/03 10287 10227 11055 10858
11/03 10498 10317 11350 11116
12/03 10649 10858 11474 11173
1/04 10941 11057 11853 11456
2/04 11092 11211 12052 11614
3/04 10991 11042 12029 11611
4/04 10749 10868 11689 11243
5/04 11031 11017 11965 11487
6/04 11232 11231 12156 11764
7/04 10458 10860 11351 10928
8/04 10176 10903 11211 10739
9/04 10568 11021 11629 11198
10/04 11000 11190 12024 11529
11/04 11393 11642 12645 12170
12/04 11906 12038 13250 12741
1/05 11544 11745 12896 12330
2/05 11644 11992 13222 12489
3/05 11575 11780 13029 12240
4/05 11032 11557 12514 11650
5/05 11555 11924 13230 12341
6/05 11856 11941 13476 12624
7/05 12460 12385 14263 13351
8/05 12299 12272 14176 13309
9/05 12178 12371 14359 13541
10/05 11867 12165 13936 13165
11/05 12480 12625 14693 13877
12/05 $12591 $12629 $14854 $13962
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. AGGRESSIVE GROWTH FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES. THE INCEPTION DATE OF SERIES I THROUGH INSURANCE COMPANIES ISSUING
SHARES IS MAY 1, 1998. THE INCEPTION VARIABLE PRODUCTS. YOU CANNOT PURCHASE
As of 12/31/05 DATE OF SERIES II SHARES IS MARCH 26, SHARES OF THE FUND DIRECTLY.
2002. SERIES I AND SERIES II SHARES
SERIES I SHARES INVEST IN THE SAME PORTFOLIO OF PERFORMANCE FIGURES GIVEN REPRESENT
Inception (5/1/98) 3.05% SECURITIES AND WILL HAVE SUBSTANTIALLY THE FUND AND ARE NOT INTENDED TO REFLECT
5 Years -3.05 SIMILAR PERFORMANCE, EXCEPT TO THE ACTUAL VARIABLE PRODUCT VALUES. THEY DO
1 Year 5.74 EXTENT THAT EXPENSES BORNE BY EACH CLASS NOT REFLECT SALES CHARGES, EXPENSES AND
DIFFER. FEES ASSESSED IN CONNECTION WITH A
SERIES II SHARES VARIABLE PRODUCT. SALES CHARGES,
Inception 2.80% THE PERFORMANCE DATA QUOTED REPRESENT EXPENSES AND FEES, WHICH ARE DETERMINED
5 Years -3.29 PAST PERFORMANCE AND CANNOT GUARANTEE BY THE VARIABLE PRODUCT ISSUERS, WILL
1 Year 5.53 COMPARABLE FUTURE RESULTS; CURRENT VARY AND WILL LOWER THE TOTAL RETURN.
PERFORMANCE MAY BE LOWER OR HIGHER.
========================================== PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Six months ended 12/31/05 FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
Series I Shares 6.19% AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 6.07 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
========================================== GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
RETURNS SINCE MARCH 26, 2002, THE AIM V.I. AGGRESSIVE GROWTH FUND, A
INCEPTION DATE OF SERIES II SHARES, ARE SERIES PORTFOLIO OF AIM VARIABLE
HISTORICAL. ALL OTHER RETURNS ARE THE INSURANCE FUNDS, IS CURRENTLY OFFERED
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF 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
PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER MID-CAP GROWTH OTHER INFORMATION
FUND INDEX represents an average of the
Investing in smaller companies involves performance of the 30 largest The returns shown in the management's
greater risk than investing in more multi-capitalization growth funds discussion of Fund performance are based
established companies, such as business tracked by Lipper, Inc., an independent on net asset values calculated for
risk, significant stock price mutual fund performance monitor. shareholder transactions. Generally
fluctuations and illiquidity. accepted accounting principles require
RUSSELL MIDCAP GROWTH INDEX, which adjustments to be made to the net assets
The Fund may invest up to 25% of its represents the performance of the stocks of the Fund at period end for financial
assets in the securities of non-U.S. of domestic mid-capitalization reporting purposes, and as such, the net
issuers. International investing companies; the Growth subset measures asset value for shareholder transactions
presents certain risks not associated the performance of Russell Midcap and the returns based on those net asset
with investing solely in the United companies with higher price/book ratios values may differ from the net asset
States. These include risks relating to and higher forecasted growth values. values and returns reported in the
fluctuations in the value of the U.S. Financial Highlights. Additionally, the
dollar relative to the values of other The Fund is not managed to track the returns and net asset values shown
currencies, the custody arrangements performance of any particular index, throughout this report are at the fund
made for the Fund's foreign holdings, including the indexes defined here, and level only and do not include variable
differences in accounting, political consequently, the performance of the product issuer charges. If such charges
risks and the lesser degree of public Fund may deviate significantly from the were included, the total returns would
information required to be provided by performance of the indexes. be lower.
non-U.S. companies.
A direct investment cannot be made in Industry classifications used in this
ABOUT INDEXES USED IN THIS REPORT an index. Unless otherwise indicated, report are generally according to the
index results include reinvested Global Industry Classification Standard,
The unmanaged Standard & Poor's dividends, and they do not reflect sales which was developed by and is the
Composite Index of 500 Stocks (the S&P charges. Performance of an index of exclusive property and a service mark of
500--REGISTERED TRADEMARK-- INDEX) is funds reflects fund expenses; Morgan Stanley Capital International
an index of common stocks frequently performance of a market index does not. Inc. and Standard & Poor's.
used as a general measure of U.S. stock
market performance.
5
AIM V.I. AGGRESSIVE GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
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
July 1, 2005, through December 31, 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 December 31, 2005, appear in the
The table below provides information table "Cumulative Total Returns" on Page
about actual account values and actual 5.
expenses.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,061.90 $5.87 $1,019.51 $5.75 1.13%
Series II 1,000.00 1,060.70 7.17 1,018.25 7.02 1.38
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. AGGRESSIVE GROWTH FUND
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 to those of the Fund; and (ii) was
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the higher than the sub-advisory fee rates
the management of AIM V.I. Aggressive credentials and experience of the for four unaffiliated mutual funds for
Growth Fund (the "Fund") and, as officers and employees of AIM who will which an AIM affiliate serves as
required by law, determines annually provide investment advisory services to sub-advisor, although the total
whether to approve the continuance of the Fund. In reviewing the management fees paid by such
the Fund's advisory agreement with A I M qualifications of AIM to provide unaffiliated mutual funds were higher
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board than the advisory fee rate for the Fund.
recommendation of the Investments reviewed the qualifications of AIM's The Board noted that AIM has agreed to
Committee of the Board, which is investment personnel and considered such waive advisory fees of the Fund and to
comprised solely of independent issues as AIM's portfolio and product limit the Fund's total operating
trustees, at a meeting held on June 30, review process, various back office expenses, as discussed below. Based on
2005, the Board, including all of the support functions provided by AIM and this review, the Board concluded that
independent trustees, approved the AIM's equity and fixed income trading the advisory fee rate for the Fund under
continuance of the advisory agreement operations. Based on the review of these the Advisory Agreement was fair and
(the "Advisory Agreement") between the and other factors, the Board concluded reasonable.
Fund and AIM for another year, effective that the quality of services to be
July 1, 2005. provided by AIM was appropriate and that o Fees relative to those of comparable
AIM currently is providing satisfactory funds with other advisors. The Board
The Board considered the factors services in accordance with the terms of reviewed the advisory fee rate for the
discussed below in evaluating the the Advisory Agreement. Fund under the Advisory Agreement. The
fairness and reasonableness of the Board compared effective contractual
Advisory Agreement at the meeting on o The performance of the Fund relative advisory fee rates at a common asset
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed level and noted that the Fund's rate was
ongoing oversight of the Fund. In their the performance of the Fund during the above the median rate of the funds
deliberations, the Board and the past one, three and five calendar years advised by other advisors with
independent trustees did not identify against the performance of funds advised investment strategies comparable to
any particular factor that was by other advisors with investment those of the Fund that the Board
controlling, and each trustee attributed strategies comparable to those of the reviewed. The Board noted that AIM has
different weights to the various Fund. The Board noted that the Fund's agreed to waive advisory fees of the
factors. performance was below the median Fund and to limit the Fund's total
performance of such comparable funds for operating expenses, as discussed below.
One of the responsibilities of the the one and three year periods and above Based on this review, the Board
Senior Officer of the Fund, who is such median performance for the five concluded that the advisory fee rate for
independent of AIM and AIM's affiliates, year period. Based on this review, the the Fund under the Advisory Agreement
is to manage the process by which the Board concluded that no changes should was fair and reasonable.
Fund's proposed management fees are be made to the Fund and that it was not
negotiated to ensure that they are necessary to change the Fund's portfolio o Expense limitations and fee waivers.
negotiated in a manner which is at arm's management team at this time. The Board noted that AIM has
length and reasonable. To that end, the contractually agreed to waive advisory
Senior Officer must either supervise a o The performance of the Fund relative fees of the Fund through December 31,
competitive bidding process or prepare to indices. The Board reviewed the 2009 to the extent necessary so that the
an independent written evaluation. The performance of the Fund during the past advisory fees payable by the Fund do not
Senior Officer has recommended an one, three and five calendar years exceed a specified maximum advisory fee
independent written evaluation in lieu against the performance of the Lipper rate, which maximum rate includes
of a competitive bidding process and, Mid Cap Growth Index. The Board noted breakpoints and is based on net asset
upon the direction of the Board, has that the Fund's performance was below levels. The Board considered the
prepared such an independent written the performance of such Index for the contractual nature of this fee waiver
evaluation. Such written evaluation also one year period, comparable to such and noted that it remains in effect
considered certain of the factors Index for the three year period, and until December 31, 2009. The Board noted
discussed below. In addition, as above such Index for the five year that AIM has contractually agreed to
discussed below, the Senior Officer made period. Based on this review, the Board waive fees and/or limit expenses of the
certain recommendations to the Board in concluded that no changes should be made Fund through April 30, 2006 in an amount
connection with such written evaluation. to the Fund and that it was not necessary to limit total annual
necessary to change the Fund's portfolio operating expenses to a specified
The discussion below serves as a management team at this time. percentage of average daily net assets
summary of the Senior Officer's for each class of the Fund. The Board
independent written evaluation and o Meeting with the Fund's portfolio consid- ered the contractual nature of
recommendations to the Board in managers and investment personnel. With this fee waiver/expense limitation and
connection therewith, as well as a respect to the Fund, the Board is noted that it remains in effect through
discussion of the material factors and meeting periodically with such Fund's April 30, 2006. The Board considered the
the conclusions with respect thereto portfolio managers and/or other effect these fee waivers/expense
that formed the basis for the Board's investment personnel and believes that limitations would have on the Fund's
approval of the Advisory Agreement. such individuals are competent and able estimated expenses and concluded that
After consideration of all of the to continue to carry out their the levels of fee waivers/expense
factors below and based on its informed responsibilities under the Advisory limitations for the Fund were fair and
business judgment, the Board determined Agreement. reasonable.
that the Advisory Agreement is in the
best interests of the Fund and its o Overall performance of AIM. The Board o Breakpoints and economies of scale.
shareholders and that the compensation considered the overall performance of The Board reviewed the structure of the
to AIM under the Advisory Agreement is AIM in providing investment advisory and Fund's advisory fee under the Advisory
fair and reasonable and would have been portfolio administrative services to the Agreement, noting that it includes one
obtained through arm's length Fund and concluded that such performance breakpoint. The Board reviewed the level
negotiations. was satisfactory. of the Fund's advisory fees, and noted
that such fees, as a percentage of the
o The nature and extent of the advisory o Fees relative to those of clients of Fund's net assets, have decreased as net
services to be provided by AIM. The AIM with comparable investment assets increased because the Advisory
Board reviewed the services to be strategies. The Board reviewed the Agreement includes a breakpoint. The
provided by AIM under the Advisory advisory fee rate for the Fund under the Board noted that AIM has contractually
Agreement. Based on such review, the Advisory Agreement. The Board noted agreed to waive advisory fees of the
Board concluded that the range of that, based on the Fund's current assets Fund through December 31, 2009 to the
services to be provided by AIM under the and taking account of the breakpoint in extent necessary so that the advisory
Advisory Agreement was appropriate and the Fund's advisory fee schedule, this fees payable by the Fund do not exceed a
that AIM currently is providing services rate (i) was the same as the advisory specified maximum advisory fee rate,
in accordance with the terms of the fee rates for a mutual fund advised by
Advisory Agreement. AIM with investment strategies
comparable (continued)
7
AIM V.I. AGGRESSIVE GROWTH FUND
which maximum rate includes breakpoints o Profitability of AIM and its o Other factors and current trends. In
and is based on net asset levels. The affiliates. The Board reviewed determining whether to continue the
Board concluded that the Fund's fee information concerning the profitability Advisory Agreement for the Fund, the
levels under the Advisory Agreement of AIM's (and its affiliates') Board considered the fact that AIM,
therefore reflect economies of scale and investment advisory and other activities along with others in the mutual fund
that it was not necessary to change the and its financial condition. The Board industry, is subject to regulatory
advisory fee breakpoints in the Fund's considered the overall profitability of inquiries and litigation related to a
advisory fee schedule. AIM, as well as the profitability of AIM wide range of issues. The Board also
in connection with managing the Fund. considered the governance and compliance
o Investments in affiliated money market The Board noted that AIM's operations reforms being undertaken by AIM and its
funds. The Board also took into account remain profitable, although increased affiliates, including maintaining an
the fact that uninvested cash and cash expenses in recent years have reduced internal controls committee and
collateral from securities lending AIM's profitability. Based on the review retaining an independent compliance
arrangements (collectively, "cash of the profitability of AIM's and its consultant, and the fact that AIM has
balances") of the Fund may be invested affiliates' investment advisory and undertaken to cause the Fund to operate
in money market funds advised by AIM other activities and its financial in accordance with certain governance
pursuant to the terms of an SEC condition, the Board concluded that the policies and practices. The Board
exemptive order. The Board found that compensation to be paid by the Fund to concluded that these actions indicated a
the Fund may realize certain benefits AIM under its Advisory Agreement was not good faith effort on the part of AIM to
upon investing cash balances in AIM excessive. adhere to the highest ethical standards,
advised money market funds, including a and determined that the current
higher net return, increased liquidity, o Benefits of soft dollars to AIM. The regulatory and litigation environment to
increased diversification or decreased Board considered the benefits realized which AIM is subject should not prevent
transaction costs. The Board also found by AIM as a result of brokerage the Board from continuing the Advisory
that the Fund will not receive reduced transactions executed through "soft Agreement for the Fund.
services if it invests its cash balances dollar" arrangements. Under these
in such money market funds. The Board arrangements, brokerage commissions paid
noted that, to the extent the Fund by the Fund and/or other funds advised
invests in affiliated money market by AIM are used to pay for research and
funds, AIM has voluntarily agreed to execution services. This research is
waive a portion of the advisory fees it used by AIM in making investment
receives from the Fund attributable to decisions for the Fund. The Board
such investment. The Board further concluded that such arrangements were
determined that the proposed securities appropriate.
lending program and related procedures
with respect to the lending Fund is in o AIM's financial soundness in light of
the best interests of the lending Fund the Fund's needs. The Board considered
and its respective shareholders. The whether AIM is financially sound and has
Board therefore concluded that the the resources necessary to perform its
investment of cash collateral received obligations under the Advisory
in connection with the securities Agreement, and concluded that AIM has
lending program in the money market the financial resources necessary to
funds according to the procedures is in fulfill its obligations under the
the best interests of the lending Fund Advisory Agreement.
and its respective shareholders.
o Historical relationship between the
o Independent written evaluation and Fund and AIM. In determining whether to
recommendations of the Fund's Senior continue the Advisory Agreement for the
Officer. The Board noted that, upon Fund, the Board also considered the
their direction, the Senior Officer of prior relationship between AIM and the
the Fund, who is independent of AIM and Fund, as well as the Board's knowledge
AIM's affiliates, had prepared an of AIM's operations, and concluded that
independent written evaluation in order it was beneficial to maintain the cur-
to assist the Board in determining the rent relationship, in part, because of
reasonableness of the proposed such knowledge. The Board also reviewed
management fees of the AIM Funds, the general nature of the non-investment
including the Fund. The Board noted that advisory services currently performed by
the Senior Officer's written evaluation AIM and its affiliates, such as
had been relied upon by the Board in administrative, transfer agency and
this regard in lieu of a competitive distribution services, and the fees
bidding process. In determining whether received by AIM and its affiliates for
to continue the Advisory Agreement for performing such services. In addition to
the Fund, the Board considered the reviewing such services, the trustees
Senior Officer's written evaluation and also considered the organizational
the recommendation made by the Senior structure employed by AIM and its
Officer to the Board that the Board affiliates to provide those services.
consider implementing a process to Based on the review of these and other
assist them in more closely monitoring factors, the Board concluded that AIM
the performance of the AIM Funds. The and its affiliates were qualified to
Board concluded that it would be continue to provide non-investment
advisable to implement such a process as advisory services to the Fund, including
soon as reasonably practicable. administrative, transfer agency and
distribution services, and that AIM and
its affiliates currently are providing
satisfactory non-investment advisory
services.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.15%
ADVERTISING-0.90%
Lamar Advertising Co.-Class A(a) 28,876 $ 1,332,339
=======================================================================
AEROSPACE & DEFENSE-4.04%
Engineered Support Systems, Inc. 28,700 1,195,068
- -----------------------------------------------------------------------
L-3 Communications Holdings, Inc. 14,945 1,111,161
- -----------------------------------------------------------------------
Precision Castparts Corp. 42,222 2,187,522
- -----------------------------------------------------------------------
Rockwell Collins, Inc. 31,901 1,482,439
=======================================================================
5,976,190
=======================================================================
AGRICULTURAL PRODUCTS-0.79%
Corn Products International, Inc. 48,600 1,161,054
=======================================================================
APPAREL RETAIL-2.16%
Aeropostale, Inc.(a) 46,650 1,226,895
- -----------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 30,981 1,069,464
- -----------------------------------------------------------------------
DSW Inc.-Class A(a) 34,358 900,867
=======================================================================
3,197,226
=======================================================================
APPLICATION SOFTWARE-3.41%
Amdocs Ltd.(a) 76,468 2,102,870
- -----------------------------------------------------------------------
Citrix Systems, Inc.(a) 45,000 1,295,100
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 45,739 1,638,371
=======================================================================
5,036,341
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.55%
Affiliated Managers Group, Inc.(a) 13,136 1,054,164
- -----------------------------------------------------------------------
Legg Mason, Inc. 14,300 1,711,567
- -----------------------------------------------------------------------
Nuveen Investments, Inc.-Class A 23,456 999,695
=======================================================================
3,765,426
=======================================================================
AUTOMOTIVE RETAIL-0.87%
Advance Auto Parts, Inc.(a) 29,555 1,284,460
=======================================================================
BIOTECHNOLOGY-0.63%
Neurocrine Biosciences, Inc.(a) 14,800 928,404
=======================================================================
BROADCASTING & CABLE TV-0.83%
Univision Communications Inc.-Class A(a) 41,895 1,231,294
=======================================================================
BUILDING PRODUCTS-1.74%
American Standard Cos. Inc. 36,700 1,466,165
- -----------------------------------------------------------------------
Lennox International Inc. 38,938 1,098,052
=======================================================================
2,564,217
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
CASINOS & GAMING-1.63%
GTECH Holdings Corp. 47,500 $ 1,507,650
- -----------------------------------------------------------------------
Wynn Resorts, Ltd.(a) 16,300 894,055
=======================================================================
2,401,705
=======================================================================
COMMUNICATIONS EQUIPMENT-1.94%
ADC Telecommunications, Inc.(a) 51,604 1,152,833
- -----------------------------------------------------------------------
F5 Networks, Inc.(a) 12,807 732,432
- -----------------------------------------------------------------------
JDS Uniphase Corp.(a) 351,846 830,356
- -----------------------------------------------------------------------
Redback Networks Inc.(a) 10,653 149,781
=======================================================================
2,865,402
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.93%
Network Appliance, Inc.(a) 52,131 1,407,537
- -----------------------------------------------------------------------
QLogic Corp.(a) 44,567 1,448,873
=======================================================================
2,856,410
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.90%
Oshkosh Truck Corp. 30,000 1,337,700
- -----------------------------------------------------------------------
Terex Corp.(a) 24,700 1,467,180
=======================================================================
2,804,880
=======================================================================
CONSUMER ELECTRONICS-0.61%
Harman International Industries, Inc. 9,200 900,220
=======================================================================
CONSUMER FINANCE-1.05%
SLM Corp. 28,138 1,550,122
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.18%
Affiliated Computer Services, Inc.-Class A(a) 40,927 2,422,060
- -----------------------------------------------------------------------
Alliance Data Systems Corp.(a) 31,215 1,111,254
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 30,858 1,302,825
- -----------------------------------------------------------------------
Paychex, Inc. 35,185 1,341,252
=======================================================================
6,177,391
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.27%
ChoicePoint Inc.(a) 29,900 1,330,849
- -----------------------------------------------------------------------
CoStar Group Inc.(a) 12,600 543,942
=======================================================================
1,874,791
=======================================================================
ELECTRIC UTILITIES-0.74%
DPL Inc. 42,222 1,098,194
=======================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.56%
Amphenol Corp.-Class A 37,530 $ 1,661,078
- -----------------------------------------------------------------------
Cogent Inc.(a) 28,148 638,397
=======================================================================
2,299,475
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.94%
Jabil Circuit, Inc.(a) 37,530 1,391,988
=======================================================================
GENERAL MERCHANDISE STORES-0.42%
Tuesday Morning Corp. 29,700 621,324
=======================================================================
HEALTH CARE DISTRIBUTORS-0.89%
AmerisourceBergen Corp. 31,900 1,320,660
=======================================================================
HEALTH CARE EQUIPMENT-6.86%
Advanced Medical Optics, Inc.(a) 40,532 1,694,238
- -----------------------------------------------------------------------
Beckman Coulter, Inc. 10,477 596,141
- -----------------------------------------------------------------------
Biomet, Inc. 35,631 1,303,026
- -----------------------------------------------------------------------
Cytyc Corp.(a) 86,000 2,427,780
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 18,671 1,154,988
- -----------------------------------------------------------------------
PerkinElmer, Inc. 45,800 1,079,048
- -----------------------------------------------------------------------
Thermo Electron Corp.(a) 27,500 828,575
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 21,000 1,057,140
=======================================================================
10,140,936
=======================================================================
HEALTH CARE FACILITIES-3.73%
HealthSouth Corp.(a) 204,000 999,600
- -----------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 27,500 1,031,250
- -----------------------------------------------------------------------
Manor Care, Inc. 42,222 1,679,169
- -----------------------------------------------------------------------
Triad Hospitals, Inc.(a) 29,500 1,157,285
- -----------------------------------------------------------------------
Universal Health Services, Inc.-Class B 13,700 640,338
=======================================================================
5,507,642
=======================================================================
HEALTH CARE SERVICES-3.49%
DaVita, Inc.(a) 20,492 1,037,715
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 19,200 1,608,960
- -----------------------------------------------------------------------
Lincare Holdings Inc.(a) 21,580 904,418
- -----------------------------------------------------------------------
Omnicare, Inc. 28,148 1,610,629
=======================================================================
5,161,722
=======================================================================
HEALTH CARE SUPPLIES-1.22%
Bausch & Lomb Inc. 15,012 1,019,315
- -----------------------------------------------------------------------
Gen-Probe Inc.(a) 16,100 785,519
=======================================================================
1,804,834
=======================================================================
HOME ENTERTAINMENT SOFTWARE-0.86%
Electronic Arts Inc.(a) 24,200 1,265,902
=======================================================================
HOME FURNISHINGS-0.63%
Tempur-Pedic International Inc.(a) 80,500 925,750
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
HOUSEHOLD APPLIANCES-0.43%
Blount International, Inc.(a) 39,738 $ 633,026
=======================================================================
INDUSTRIAL CONGLOMERATES-1.59%
Textron Inc. 30,493 2,347,351
=======================================================================
INDUSTRIAL MACHINERY-0.71%
Pentair, Inc. 30,600 1,056,312
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.43%
Valor Communications Group, Inc. 56,200 640,680
=======================================================================
INTERNET SOFTWARE & SERVICES-1.19%
VeriSign, Inc.(a) 23,942 524,809
- -----------------------------------------------------------------------
Websense, Inc.(a) 18,765 1,231,735
=======================================================================
1,756,544
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.98%
Schwab (Charles) Corp. (The) 98,517 1,445,244
=======================================================================
MANAGED HEALTH CARE-2.10%
Health Net, Inc.(a) 25,500 1,314,525
- -----------------------------------------------------------------------
Humana Inc.(a) 32,839 1,784,143
=======================================================================
3,098,668
=======================================================================
METAL & GLASS CONTAINERS-0.93%
Owens-Illinois, Inc.(a) 65,209 1,371,997
=======================================================================
MOVIES & ENTERTAINMENT-0.69%
Regal Entertainment Group-Class A 53,922 1,025,596
=======================================================================
MULTI-LINE INSURANCE-1.90%
Assurant, Inc. 35,000 1,522,150
- -----------------------------------------------------------------------
HCC Insurance Holdings, Inc. 43,160 1,280,989
=======================================================================
2,803,139
=======================================================================
OIL & GAS DRILLING-2.58%
ENSCO International Inc. 60,987 2,704,773
- -----------------------------------------------------------------------
Pride International, Inc.(a) 36,200 1,113,150
=======================================================================
3,817,923
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.24%
BJ Services Co. 43,629 1,599,875
- -----------------------------------------------------------------------
Hanover Compressor Co.(a) 2,800 39,508
- -----------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 26,700 1,674,090
=======================================================================
3,313,473
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.27%
Newfield Exploration Co.(a) 37,530 1,879,127
=======================================================================
PACKAGED FOODS & MEATS-0.67%
Pilgrim's Pride Corp. 29,800 988,168
=======================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
PHARMACEUTICALS-2.81%
Allergan, Inc. 11,259 $ 1,215,522
- -----------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 21,000 1,308,090
- -----------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 47,391 1,518,881
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International 6,514 117,773
=======================================================================
4,160,266
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.99%
Safeco Corp. 26,000 1,469,000
=======================================================================
REGIONAL BANKS-0.56%
North Fork Bancorp., Inc. 30,000 820,800
=======================================================================
RESTAURANTS-3.74%
CKE Restaurants, Inc. 117,282 1,584,480
- -----------------------------------------------------------------------
Darden Restaurants, Inc. 35,500 1,380,240
- -----------------------------------------------------------------------
Outback Steakhouse, Inc. 18,700 778,107
- -----------------------------------------------------------------------
Ruby Tuesday, Inc. 29,000 750,810
- -----------------------------------------------------------------------
YUM! Brands, Inc. 22,049 1,033,657
=======================================================================
5,527,294
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.97%
KLA-Tencor Corp. 29,027 1,431,902
=======================================================================
SEMICONDUCTORS-6.00%
Analog Devices, Inc. 65,678 2,355,870
- -----------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 56,000 1,409,520
- -----------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 126,665 1,669,445
- -----------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(a) 32,000 1,794,880
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc. 30,390 1,101,334
- -----------------------------------------------------------------------
NVIDIA Corp.(a) 14,801 541,125
=======================================================================
8,872,174
=======================================================================
SOFT DRINKS-0.60%
Coca-Cola Enterprises Inc. 46,550 892,363
=======================================================================
SPECIALIZED CONSUMER SERVICES-0.69%
Jackson Hewitt Tax Service Inc. 37,012 1,025,602
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
SPECIALTY CHEMICALS-0.77%
Rohm and Haas Co. 23,500 $ 1,137,870
=======================================================================
SPECIALTY STORES-2.22%
Office Depot, Inc.(a) 68,024 2,135,954
- -----------------------------------------------------------------------
Tiffany & Co. 30,000 1,148,700
=======================================================================
3,284,654
=======================================================================
SYSTEMS SOFTWARE-0.81%
Check Point Software Technologies Ltd.
(Israel)(a) 59,579 1,197,538
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.54%
Ingram Micro Inc.-Class A(a) 40,000 797,200
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.11%
Independence Community Bank Corp. 31,800 1,263,414
- -----------------------------------------------------------------------
MGIC Investment Corp. 24,395 1,605,679
- -----------------------------------------------------------------------
Radian Group Inc. 29,555 1,731,627
=======================================================================
4,600,720
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-1.86%
United Rentals, Inc.(a) 42,500 994,075
- -----------------------------------------------------------------------
WESCO International, Inc.(a) 41,171 1,759,237
=======================================================================
2,753,312
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $129,178,142) 143,594,242
=======================================================================
MONEY MARKET FUNDS-1.93%
Liquid Assets Portfolio-Institutional
Class(b) 1,426,922 1,426,922
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(b) 1,426,922 1,426,922
=======================================================================
Total Money Market Funds (Cost
$2,853,844) 2,853,844
=======================================================================
TOTAL INVESTMENTS-99.08% (Cost $132,031,986) 146,448,086
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.92% 1,361,584
=======================================================================
NET ASSETS-100.00% $147,809,670
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $129,178,142) $143,594,242
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $2,853,844) 2,853,844
=============================================================
Total investments (cost $132,031,986) 146,448,086
=============================================================
Receivables for:
Investments sold 2,065,025
- -------------------------------------------------------------
Fund shares sold 2,578
- -------------------------------------------------------------
Dividends 102,823
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 33,705
=============================================================
Total assets 148,652,217
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 390,055
- -------------------------------------------------------------
Fund shares reacquired 290,884
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 39,892
- -------------------------------------------------------------
Accrued administrative services fees 86,924
- -------------------------------------------------------------
Accrued distribution fees -- Series II 4,163
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 113
- -------------------------------------------------------------
Accrued operating expenses 30,516
=============================================================
Total liabilities 842,547
=============================================================
Net assets applicable to shares outstanding $147,809,670
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $158,191,817
- -------------------------------------------------------------
Undistributed net investment income (loss) (35,224)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (24,763,023)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 14,416,100
=============================================================
$147,809,670
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $140,868,745
_____________________________________________________________
=============================================================
Series II $ 6,940,925
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 11,253,957
_____________________________________________________________
=============================================================
Series II 559,499
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.52
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.41
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends $ 1,024,078
- ------------------------------------------------------------
Dividends from affiliated money market funds 255,667
============================================================
Total investment income 1,279,745
============================================================
EXPENSES:
Advisory fees 1,192,801
- ------------------------------------------------------------
Administrative services fees 401,667
- ------------------------------------------------------------
Custodian fees 30,019
- ------------------------------------------------------------
Distribution fees -- Series II 15,317
- ------------------------------------------------------------
Transfer agent fees 10,163
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 19,398
- ------------------------------------------------------------
Other 86,709
============================================================
Total expenses 1,756,074
============================================================
Less: Fees waived and expense offset
arrangement (77,104)
============================================================
Net expenses 1,678,970
============================================================
Net investment income (loss) (399,225)
============================================================
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 $535,667) 14,312,675
- ------------------------------------------------------------
Option contracts written 255,353
============================================================
14,568,028
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (6,307,076)
- ------------------------------------------------------------
Option contracts written 24,385
============================================================
(6,282,691)
============================================================
Net gain from investment securities and option
contracts 8,285,337
============================================================
Net increase in net assets resulting from
operations $ 7,886,112
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (399,225) $ (1,036,585)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 14,568,028 28,554,370
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (6,282,691) (11,078,280)
==========================================================================================
Net increase in net assets resulting from operations 7,886,112 16,439,505
==========================================================================================
Share transactions-net:
Series I (20,699,627) (6,191,332)
- ------------------------------------------------------------------------------------------
Series II 1,304,029 1,886,916
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (19,395,598) (4,304,416)
==========================================================================================
Net increase (decrease) in net assets (11,509,486) 12,135,089
==========================================================================================
NET ASSETS:
Beginning of year 159,319,156 147,184,067
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(35,224) and $(36,453), respectively) $147,809,670 $159,319,156
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. AGGRESSIVE GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. 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 replace 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>
AIM V.I. AGGRESSIVE GROWTH FUND
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 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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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. 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 year ended December 31, 2005, AIM waived fees of $76,620.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $351,667 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 year ended
December 31, 2005, the Fund paid AISI $10,163.
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 year ended December
31, 2005, the Series II shares paid $15,317.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
AIM V.I. AGGRESSIVE 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 year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,960,012 $46,621,957 $ (52,155,047) $ -- $1,426,922 $127,415 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,960,012 46,621,957 (52,155,047) -- 1,426,922 128,252 --
====================================================================================================================================
Total $13,920,024 $93,243,914 $(104,310,094) $ -- $2,853,844 $255,667 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $2,789,783 and sales of $6,996,835, which
resulted in net realized gains of $535,667.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $484.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,482
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
AIM V.I. AGGRESSIVE GROWTH FUND
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year 1,260 $ 131,528
- ------------------------------------------------------------------------------------
Written 3,245 408,899
- ------------------------------------------------------------------------------------
Closed (1,597) (228,600)
- ------------------------------------------------------------------------------------
Exercised (1,165) (124,231)
- ------------------------------------------------------------------------------------
Expired (1,743) (187,596)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 14,060,518
- ----------------------------------------------------------------------------
Temporary book/tax differences (35,224)
- ----------------------------------------------------------------------------
Capital loss carryforward (23,962,087)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (445,354)
- ----------------------------------------------------------------------------
Shares of beneficial interest 158,191,817
============================================================================
Total net assets $147,809,670
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $14,347,753 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $23,832,947
- -----------------------------------------------------------------------------
December 31, 2011 129,140
=============================================================================
Total capital loss carryforward $23,962,087
_____________________________________________________________________________
=============================================================================
</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. AGGRESSIVE GROWTH FUND
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $251,112,428 and $261,449,556, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 16,498,666
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,438,148)
===============================================================================
Net unrealized appreciation of investment securities $ 14,060,518
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $132,387,568.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses on
December 31, 2005, undistributed net investment income (loss) was increased by
$400,454 and shares of beneficial interest decreased by $400,454. This
reclassification had no effect on the net assets of the Fund
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(A) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,410,341 $ 39,528,304 2,271,088 $ 24,883,290
- ----------------------------------------------------------------------------------------------------------------------
Series II 258,122 2,984,514 206,842 2,213,893
======================================================================================================================
Reacquired:
Series I (5,169,619) (60,227,931) (2,891,694) (31,074,622)
- ----------------------------------------------------------------------------------------------------------------------
Series II (144,821) (1,680,485) (30,232) (326,977)
======================================================================================================================
(1,645,977) $(19,395,598) (443,996) $ (4,304,416)
______________________________________________________________________________________________________________________
======================================================================================================================
</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 88% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units 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. AGGRESSIVE GROWTH FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 10.59 $ 8.36 $ 10.81 $ 14.62
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.07)(a) (0.08)(a) (0.08) (0.10)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.71 1.32 2.31 (2.37) (3.71)
========================================================================================================================
Total from investment operations 0.68 1.25 2.23 (2.45) (3.81)
========================================================================================================================
Net asset value, end of period $ 12.52 $ 11.84 $ 10.59 $ 8.36 $ 10.81
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 5.74% 11.80% 26.67% (22.66)% (26.06)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $140,869 $154,070 $144,341 $103,611 $121,889
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.12%(c)(d) 1.16% 1.15% 1.16% 1.21%
========================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.26)%(c) (0.68)% (0.83)% (0.87)% (0.88)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 178% 148% 90% 85% 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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $142,973,111.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.17% for the year ended December 31, 2005.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------
MARCH 26, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------- 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) (0.06) (0.10)(a) (0.10)(a) (0.10)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 1.31 2.30 (2.25)
==============================================================================================================================
Total from investment operations 0.65 1.21 2.20 (2.35)
==============================================================================================================================
Net asset value, end of period $12.41 $11.76 $10.55 $ 8.35
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 5.53% 11.47% 26.35% (21.96)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,941 $5,249 $2,843 $ 436
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 1.37%(c)(d) 1.41% 1.40% 1.32%(d)(e)
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.51)%(c) (0.93)% (1.08)% (1.03)%(e)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 178% 148% 90% 85%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total Returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $6,126,969.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 1.42% and 1.41% for the years ended December 31, 2005 and December
31, 2002, respectively.
(e) Annualized.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 14--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005, a
Plan of Reorganization pursuant to which the Fund, would transfer all of its
assets to AIM V.I. Capital Appreciation Fund ("Buying Fund"), a series of the
Trust (the "Reorganization"). Upon closing of the Reorganization, shareholders
of the Fund will receive a corresponding class of shares of Buying Fund in
exchange for their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around April 4, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Aggressive Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Aggressive Growth Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
As described in Note 13, the Board of Trustees has approved a plan of
reorganization under which the Fund will merge with AIM V.I. Capital
Appreciation Fund. This merger is expected to take place following the approval
by the Fund's shareholders, at which time the Fund will cease to operate.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. AGGRESSIVE GROWTH FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. BASIC BALANCED FUND
Annual Report to Shareholders o December 31,2005
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 long-term growth of capital and
current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31,2005,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
202-942-8090 or 800-732-0330,or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. BASIC BALANCED FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE fee-for-service pricing model, a move
that will substantially reduce their
======================================================================================== exposure to the level and volatility of
PERFORMANCE SUMMARY drug price inflation.
===========================================
For the year ended December 31, 2005, FUND VS. INDEXES The Fund's largest detractors from
Series I shares of AIM V.I. Basic performance during 2005 were mortgage
Balanced Fund at net asset value TOTAL RETURNS, 12/31/04--12/31/05, giant Fannie Mae and manufacturing
performed essentially in line with the EXCLUDING VARIABLE PRODUCT ISSUER conglomerate Tyco International. Fannie
broad markets, our custom style-specific CHARGES. IF VARIABLE PRODUCT ISSUER Mae continues the arduous process of
index and our peers. Long-term Fund CHARGES WERE INCLUDED, RETURNS WOULD BE restating its historical results caused
performance information appears on Pages LOWER. by a change in the interpretation of
4 and 5. accounting standards. We continue to
Series I Shares 5.29% believe that Fannie Mae's estimated
Fund returns for the year were intrinsic value will be driven by future
largely driven by significant Series II Shares 5.00 regulatory capital requirements and not
above-market returns from selected the impact of accounting restatements.
investments in the energy and health And based on a variety of existing
care sectors. Primary detractors from Standard & Poor's Composite Index capital standards, we believe Fannie Mae
performance were selected investments in of 500 Stocks (S&P 500 Index) continues to be an attractive long-term
financials, consumer discretionary and (Broad Market index) 4.91 investment opportunity.
industrials stocks. 60% Russell 1000 Value Index/
40% Lehman Brothers U.S. Aggregate Bond We managed fixed-income holdings
Index (Style-specific Index) 5.26 with the expectation that interest rates
would rise during the year.
Additionally, we positioned the Fund to
Lipper Balanced Fund Index benefit from our expectation of a
(Peer Group Index) 5.20 further flattening of the yield curve.
Both actions proved beneficial to
SOURCE: LIPPER, INC. performance in the period as interest
=========================================== rates were generally higher by year end,
and the yield curve did in fact flatten
======================================================================================== further as evidenced by a narrowing of
CURRENT PERIOD ANALYSIS Our energy and health care sector the yield differential between short-
stocks were among the largest and long-term securities. As the year
Soaring energy prices were the focus of contributors to Fund performance. Higher progressed, we also increased the Fund's
much investor attention during 2005. energy prices and improved earnings allocation to both BBB-rated securities
While higher gasoline prices, rising prospects led to significant stock price and mortgage-backed securities, which we
short term interest rates and the increases in our oil service investments believed offered good value relative to
ongoing fear of a housing bubble HALLIBURTON, TRANSOCEAN and U.S. Treasury securities.
dominated the popular press, the U.S. SCHLUMBERGER.
economy continued its expansion and We have made a few changes to the
inflation remained low. Energy and Health care holdings MCKESSON, portfolio's equity holdings since the
utility stocks were standout performers CARDINAL HEALTH and WELLPOINT were also Fund's
while consumer discretionary and among the biggest contributors to Fund
telecommunication services stocks performance. The stocks of both McKesson
declined. Against this diverse backdrop, and Cardinal rallied in 2005 in response
both equity and fixed-income markets to the progress made in the industry's
delivered single digit gains. ongoing transition to a
=========================================== ============================================ =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By security type 1. U.S. Mortgage-Backed Securities 12.8% 1. Cardinal Health,Inc. 3.1%
Stocks & Other Equity Interests 66.5% 2. Tyco International Ltd. 2.8
Bonds & Notes 24.2 2. Other Diversified Financial 3. Halliburton Co. 2.4
U.S. Mortgage-Backed Securities 12.8 Services 8.3 4. First Data Corp. 2.4
Asset-Backed Securities 1.2 3. Pharmaceuticals 5.1 5. JPMorgan Chase & Co. 2.2
U.S. Treasury Securities 1.1 4. Industrial Conglomerates 5.0 6. WellPoint, Inc. 2.2
U.S. Government Agency Securities 0.9 5. Health Care Distributors 4.2 7. Sanofi-Aventis (France) 2.0
Money Market Funds 8. Citigroup Inc. 1.9
Plus Other Assets Less Liabilities -6.7
9. Wyeth 1.9
10. Computer Associates
International, Inc. 1.8
TOTAL NET ASSETS $96.5 MILLION
TOTAL NUMBER OF HOLDINGS* 294
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================== ======================================= =========================================
2
AIM V.I. BASIC BALANCED FUND
semiannual report. We sold our remaining PORTFOLIO ASSESSMENT BRET W. STANLEY,
shares in MOTOROLA based primarily on [STANLEY Chartered Financial
valuation and other portfolio We believe the single most important PHOTO] Analyst, senior portfolio
considerations. We initiated new positions indicator of the way AIM V.I. Basic manager, is lead
in cement manufacturer CEMEX and brewer Balanced Fund is positioned for potential portfolio manager of AIM
MOLSON COORS BREWING. success is not our historical investment V.I. Basic Balanced Fund. Mr. Stanley
results or popular statistical measures, received a B.B.A. in finance from The
but rather the portfolio's estimated University of Texas at Austin and an
INVESTMENT PROCESS AND EVALUATION intrinsic value. Since we can estimate the M.S. in finance from the University of
intrinsic value of each holding in the Houston.
We seek to create wealth by maintaining a portfolio, we can also estimate the
long-term investment horizon and investing intrinsic value of the entire Fund. The R. CANON COLEMAN II,
in companies that are selling at a difference between market price and [COLEMAN II Chartered Financial
significant discount to their estimated estimated intrinsic value is about average PHOTO] Analyst, portfolio
intrinsic value--a value that is based on for your Fund for the past several years. manager, is manager of
the future cash flows generated by the However, we believe the estimated AIM V.I. Basic Balanced
business. The Fund's philosophy is based intrinsic value content of our equity Fund. Mr. Coleman earned a B.S. and an
on two elements that we believe have portfolio is significantly greater than M.S. in accounting from the University
extensive empirical evidence: what is available in the broad market. of Florida. He also has an M.B.A. from
While there is no assurance that market The Wharton School at the University of
o Companies have a measurable estimated value will ever reflect our estimate of Pennsylvania.
intrinsic value. Importantly, this fair portfolio intrinsic value, we believe this
value is independent of the company's provides the best indication that your
stock price. Fund is positioned to potentially achieve JAN H. FRIEDLI, senior
its objective of long-term growth of [FRIEDLI portfolio manager, is
o Market prices are more volatile than capital. PHOTO] manager of AIM V.I. Basic
business values, partly because investors Balanced Fund. Mr.
regularly overreact to negative news. IN CLOSING Friedli graduated cum
laude from Villanova University with a
Since our application of this strategy Results were in line with our benchmarks B.S. in computer science and earned an
is highly disciplined and relatively during this period, but normal market M.B.A. with honors from the University
unique, it is important to understand the volatility affects short-term performance of Chicago.
benefits and limitations of our process. and limits our ability to measure success.
First, the investment strategy is intended Over longer periods, though, we have SCOT W. JOHNSON,
to preserve your capital while growing it demonstrated the potential to turn market [JOHNSON Chartered Financial
at above-market rates over the long term. volatility and investor overreaction into PHOTO] Analyst, senior portfolio
Second, we have little portfolio capital appreciation. We thank you for manager, is manager of
commonality with popular benchmarks and your investment and for sharing our AIM V.I. Basic Balanced
most of our peers. Third, short-term long-term horizon. Fund. Mr. Johnson received both his
relative performance will differ from the bachelor's degree in economics and an
benchmarks and have little information THE VIEWS AND OPINIONS EXPRESSED IN M.B.A. in finance from Vanderbilt
value simply because we don't own the MANAGEMENT'S DISCUSSION OF FUND University.
exact same stocks (low commonality). PERFORMANCE ARE THOSE OF A I M ADVISORS,
INC. THESE VIEWS AND OPINIONS ARE SUBJECT MATTHEW W. SEINSHEIMER,
Our fixed-income portfolio investment TO CHANGE AT ANY TIME BASED ON FACTORS [SEINSHEIMER Chartered Financial
process is accomplished through the use of SUCH AS MARKET AND ECONOMIC CONDITIONS. PHOTO] Analyst, senior portfolio
top-down strategies involving duration THESE VIEWS AND OPINIONS MAY NOT BE RELIED manager, is manager of
management, yield-curve position and UPON AS INVESTMENT ADVICE OR AIM V.I. Basic Balanced
sector allocation. (Duration is the RECOMMENDATIONS, OR AS AN OFFER FOR A Fund. He received a B.B.A. from Southern
measure of a debt security's sensitivity PARTICULAR SECURITY. THE INFORMATION IS Methodist University and an M.B.A. from
to interest rate changes, expressed in NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF The University of Texas at Austin.
terms of years. Longer durations usually ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
are more sensitive to interest rate THE FUND. STATEMENTS OF FACT ARE FROM MICHAEL J. SIMON,
movements. The yield curve traces the SOURCES CONSIDERED RELIABLE, BUT A I M [SIMON Chartered Financial
yields on debt securities of the same ADVISORS, INC. MAKES NO REPRESENTATION OR PHOTO] Analyst, senior portfolio
quality but different maturities from the WARRANTY AS TO THEIR COMPLETENESS OR manager, is manager of
shortest to the longest available.) In ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE AIM V.I. Basic Balanced
addition, we use bottom-up strategies IS NO GUARANTEE OF FUTURE RESULTS, THESE Fund. He received
involving credit analysis and selection of INSIGHTS MAY HELP YOU UNDERSTAND OUR a B.B.A. in finance from Texas Christian
specific securities. By combining INVESTMENT MANAGEMENT PHILOSOPHY. University and an M.B.A. from the
perspectives from both the portfolio and University of Chicago.
the security level, we seek to
consistently add value over time while Assisted by the Basic Value Team and
minimizing portfolio risk. Taxable Investment-Grade Bond Team
[RIGHT ARROW GRAPHIC]
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND,INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. BASIC BALANCED FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/1/98, index data from 4/30/98
====================================================================================================================================
[MOUNTAIN CHART]
Date AIM V.I. Bas S&P 500 60% Russell 1000 Value Lipper Balanced
Balanced Fund- Index Index/40% Lehman Brothers Fund Index
Series I Shares U.S. Aggregate Bond Index
4/30/98 $10000 $10000 $10000
5/98 $ 9910 9828 9949 9899
6/98 10150 10227 10059 10081
7/98 10110 10119 9962 9963
8/98 9681 8657 9137 9105
9/98 10031 9212 9537 9498
10/98 10381 9960 9961 9853
11/98 10751 10564 10262 10214
12/98 11303 11172 10484 10591
1/99 11617 11639 10564 10760
2/99 11221 11278 10400 10502
3/99 11678 11729 10552 10761
4/99 11830 12183 11157 11113
5/99 11606 11895 11044 10942
6/99 11942 12554 11222 11244
7/99 11759 12164 11006 11034
8/99 11647 12103 10759 10918
9/99 11658 11772 10583 10778
10/99 12195 12517 10965 11090
11/99 12632 12771 10913 11210
12/99 13484 13522 10923 11541
1/00 13329 12843 10695 11252
2/00 14022 12600 10270 11224
3/00 14250 13832 11076 11885
4/00 13453 13416 10986 11668
5/00 12926 13141 11053 11558
6/00 13732 13464 10842 11742
7/00 13639 13254 10963 11710
8/00 14445 14077 11392 12233
9/00 13948 13334 11484 11975
10/00 13700 13277 11684 11965
11/00 12604 12231 11500 11531
12/00 12916 12291 11932 11817
1/01 13310 12727 12037 12068
2/01 12357 11567 11878 11599
3/01 11726 10835 11650 11225
4/01 12326 11676 11973 11696
5/01 12326 11755 12164 11800
6/01 12025 11469 12020 11619
7/01 11911 11356 12113 11611
8/01 11311 10646 11877 11281
9/01 10586 9786 11431 10738
10/01 10958 9973 11467 10918
11/01 11403 10738 11804 11353
12/01 11440 10832 11941 11435
1/02 11187 10674 11924 11334
2/02 11008 10468 11982 11257
3/02 11261 10861 12243 11504
4/02 10839 10203 12086 11227
5/02 10723 10128 12163 11222
6/02 10164 9407 11786 10743
7/02 9564 8674 11185 10193
8/02 9637 8731 11312 10297
9/02 9110 7783 10631 9683
10/02 9469 8467 11084 10086
11/02 9754 8965 11501 10495
12/02 9485 8439 11297 10213
1/03 9323 8218 11137 10060
2/03 9247 8095 11020 9984
3/03 9268 8173 11028 10025
4/03 9723 8846 11647 10567
5/03 10146 9311 12185 11035
6/03 10190 9430 12266 11118
7/03 10146 9597 12211 11144
8/03 10320 9784 12358 11332
9/03 10276 9680 12416 11347
10/03 10624 10227 12826 11721
11/03 10711 10317 12943 11825
12/03 11038 10858 13474 12248
1/04 11236 11057 13659 12431
2/04 11458 11211 13894 12601
3/04 11436 11042 13862 12541
4/04 11192 10868 13515 12277
5/04 11192 11017 13576 12331
6/04 11435 11231 13799 12524
7/04 11004 10860 13737 12288
8/04 11026 10903 13959 12363
9/04 11092 11021 14104 12547
10/04 11181 11190 14292 12682
11/04 11545 11642 14680 13024
12/04 11867 12038 15029 13349
1/05 11756 11745 14906 13177
2/05 11879 11992 15167 13364
3/05 11768 11780 15012 13180
4/05 11689 11557 14932 13021
5/05 11868 11924 15212 13320
6/05 11969 11941 15345 13416
7/05 12159 12385 15555 13714
8/05 12080 12272 15595 13753
9/05 12114 12371 15661 13808
10/05 11968 12165 15373 13591
11/05 12294 12625 15704 13921
12/05 $12495 $12629 $15820 $14043
====================================================================================================================================
Source: Lipper, Inc.
Past performance cannot guarantee dollar value of an investment, is
comparable future results. constructed with each segment
representing a percent change in the
This chart, which is a logarithmic value of the investment. In this chart,
chart, presents the fluctuations in the each segment represents a doubling, or
value of the Fund and its indexes. We 100% change, in the value of the
believe that a logarithmic chart is more investment. In other words, the space
effective than other types of charts in between $5,000 and $10,000 is the same
illustrating changes in value during the size as the space between $10,000 and
early years shown in the chart. The $20,000, and so on.
vertical axis, the one that indicates
the
4
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
========================================= SERIES II SHARES. THE INCEPTION DATE OF INSURANCE COMPANIES ISSUING VARIABLE
AVERAGE ANNUAL TOTAL RETURNS SERIES I SHARES IS MAY 1, 1998. SERIES I PRODUCTS. YOU CANNOT PURCHASE SHARES OF
AND SERIES II SHARES INVEST IN THE SAME THE FUND DIRECTLY. PERFORMANCE FIGURES
As of 12/31/05 PORTFOLIO OF SECURITIES AND WILL HAVE GIVEN REPRESENT THE FUND AND ARE NOT
SUBSTANTIALLY SIMILAR PERFORMANCE, INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES EXCEPT TO THE EXTENT THAT EXPENSES BORNE PRODUCT VALUES. THEY DO NOT REFLECT
Inception (5/1/98) 2.95% BY EACH CLASS DIFFER. SALES CHARGES, EXPENSES AND FEES
5 Years -0.66 ASSESSED IN CONNECTION WITH A VARIABLE
1 Year 5.29 THE PERFORMANCE DATA QUOTED PRODUCT. SALES CHARGES, EXPENSES AND
REPRESENT PAST PERFORMANCE AND CANNOT FEES, WHICH ARE DETERMINED BY THE
SERIES II SHARES GUARANTEE COMPARABLE FUTURE RESULTS; VARIABLE PRODUCT ISSUERS, WILL VARY AND
Inception 2.70% CURRENT PERFORMANCE MAY BE LOWER OR WILL LOWER THE TOTAL RETURN.
5 Years -0.90 HIGHER. PLEASE CONTACT YOUR VARIABLE
1 Year 5.00 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR PER NASD REQUIREMENTS, THE MOST RECENT
THE MOST RECENT MONTH-END VARIABLE MONTH-END PERFORMANCE DATA AT THE FUND
========================================= PRODUCT PERFORMANCE. PERFORMANCE FIGURES LEVEL, EXCLUDING VARIABLE PRODUCT
REFLECT FUND EXPENSES, REINVESTED CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS DISTRIBUTIONS AND CHANGES IN NET ASSET INFORMATION LINE, 866-702-4402. AS
VALUE. INVESTMENT RETURN AND PRINCIPAL MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 VALUE WILL FLUCTUATE SO THAT YOU MAY MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 4.40% HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 4.31 SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
========================================= AIM V.I. BASIC BALANCED FUND, A
SERIES PORTFOLIO OF AIM VARIABLE
RETURNS SINCE JANUARY 24, 2002, THE INSURANCE FUNDS, IS CURRENTLY OFFERED
INCEPTION DATE OF SERIES II SHARES, ARE THROUGH
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I SHARES
(FOR PERIODS PRIOR TO INCEPTION OF
SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT Unless otherwise indicated, index
results include reinvested dividends,
The Fund may invest up to 25% of its The unmanaged Standard & Poor's and they do not reflect sales charges.
assets in the securities of non-U.S. Composite INDEX of 500 Stocks (the S&P Performance of an index of funds
issuers. International investing 500 --Registered Trademark-- Index) is reflects fund expenses; performance of a
presents certain risks not associated an index of common stocks frequently market index does not.
with investing solely in the United used as a general measure of U.S. stock
States. These include risks relating to market performance. OTHER INFORMATION
fluctuations in the value of the U.S.
dollar relative to the values of other The unmanaged LIPPER BALANCED FUND The returns shown in the management's
currencies, the custody arrangements INDEX represents an average of the 30 discussion of Fund performance are based
made for the Fund's foreign holdings, largest balanced funds tracked by on net asset values calculated for
differences in accounting, political Lipper, Inc., an independent mutual fund shareholder transactions. Generally
risks and the lesser degree of public performance monitor. It is calculated accepted accounting principles require
information required to be provided by daily, with adjustments for adjustments to be made to the net assets
non-U.S. companies. distributions as of the ex-dividend of the Fund at period end for financial
dates. reporting purposes, and as such, the net
U.S. Treasury securities such as asset values for shareholder
bills, notes and bonds offer a high The blended index used in this transactions and the returns based on
degree of safety, and they guarantee the report is composed of 60% RUSSELL 1000 those net asset values may differ from
payment of principal and any applicable --Registered Trademark-- VALUE INDEX and the net asset values and returns
interest if held to maturity. Fund 40% LEHMAN BROTHERS U.S. AGGREGATE BOND reported in the Financial Highlights.
shares are not insured, and their value INDEX. The unmanaged Russell 1000 Additionally, the returns and net asset
and yield will vary with market --Registered Trademark-- Index values shown throughout this report are
conditions. represents the performance of the stocks at the Fund level only and do not
of large-capitalization companies; the include variable product issuer charges.
The Fund may invest a portion of its Value segment measures the performance If such charges were included, the total
assets in mortgage-backed securities, of Russell 1000 companies with lower returns would be lower.
which may lose value if mortgages are price/book ratios and lower forecasted
prepaid in response to falling interest growth values. Industry classifications used in
rates. this report are generally according to
The unmanaged LEHMAN BROTHERS U.S. the Global Industry Classification
AGGREGATE BOND INDEX, which represents Standard, which was developed by and is
the U.S. investment-grade fixed-rate the exclusive property and a service
bond market (including government and mark of Morgan Stanley Capital
corporate securities, mortgage International Inc. and Standard &
pass-through securities and asset-backed Poor's.
securities), is compiled by Lehman
Brothers, a global investment bank. Commonality measures the similarity
of holdings between two portfolios using
The Fund is not managed to track the the lowest common percentage method.
performance of any particular index, This method compares each security's
including the indexes defined here, and percentage of total net assets in both
consequently, the performance of the portfolios and adds the lower
Fund may deviate significantly from the percentages of the two portfolios to
performance of the indexes. determine commonality.
A direct investment cannot be made in an
index.
5
AIM V.I. BASIC BALANCED FUND
CALCULATING YOUR ONGOING FUND EXPENSES ACTUAL EXPENSES actual return. The Fund's actual
cumulative total returns at net asset
EXAMPLE The table below provides information value after expenses for the six months
about actual account values and actual ended December 31, 2005, appear in the
As a shareholder of the Fund, you incur expenses. You may use the information in table "Cumulative Total Returns" on Page
ongoing costs, including management this table, together with the amount you 5.
fees; distribution and/or service fees invested, to estimate the expenses that
(12b-1); and other Fund expenses. This you paid over the period. Simply divide The hypothetical account values and
example is intended to help you your account value by $1,000 (for expenses may not be used to estimate the
understand your ongoing costs (in example, an $8,600 account value divided actual ending account balance or
dollars) of investing in the Fund and to by $1,000 = 8.6), then multiply the expenses you paid for the period. You
compare these costs with ongoing costs result by the number in the table under may use this information to compare the
of investing in other mutual funds. The the heading entitled "Actual Expenses ongoing costs of investing in the Fund
example is based on an investment of Paid During Period" to estimate the and other funds. To do so, compare this
$1,000 invested at the beginning of the expenses you paid on your account during 5% hypothetical example with the 5%
period and held for the entire period this period. hypothetical examples that appear in the
July 1, 2005, through December 31, 2005. shareholder reports of the other funds.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The actual and hypothetical expenses Please note that the expenses shown
in the examples below do not represent The table below also provides in the table are meant to highlight your
the effect of any fees or other expenses information about hypothetical account ongoing costs. Therefore, the
assessed in connection with a variable values and hypothetical expenses based hypothetical information is useful in
product; if they did, the expenses shown on the Fund's actual expense ratio and comparing ongoing costs, and will not
would be higher while the ending account an assumed rate of return of 5% per year help you determine the relative total
values shown would be lower. before expenses, which is not the Fund's costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,044.00 $4.69 $1,020.62 $4.63 0.91%
Series II 1,000.00 1,043.10 5.97 1,019.36 5.90 1.16
(1) The actual ending account value is based on the actual total return of the Fund
for the period July 1, 2005, through December 31, 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 December 31, 2005, appear in the table "Cumulative Total
Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 184/365
to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. BASIC BALANCED FUND
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. Basic credentials and experience of the strategies. The Board reviewed the
Balanced Fund (formerly known as "AIM officers and employees of AIM who will advisory fee rate for the Fund under the
V.I. Balanced Fund") (the "Fund") and, provide investment advisory services to Advisory Agreement. The Board noted that
as required by law, determines annually the Fund. In reviewing the this rate (i) was the same as the
whether to approve the continuance of qualifications of AIM to provide initial advisory fee rate for a mutual
the Fund's advisory agreement with A I M investment advisory services, the Board fund advised by AIM with investment
Advisors, Inc. ("AIM"). Based upon the reviewed the qualifications of AIM's strategies comparable to those of the
recommendation of the Investments investment personnel and considered such Fund; and (ii) was lower than the
Committee of the Board, which is issues as AIM's portfolio and product advisory fee rates for two offshore
comprised solely of independent review process, various back office funds for which an AIM affiliate serves
trustees, at a meeting held on June 30, support functions provided by AIM and as advisor with investment strategies
2005, the Board, including all of the AIM's equity and fixed income trading comparable to those of the Fund. The
independent trustees, approved the operations. Based on the review of these Board noted that AIM has agreed to waive
continuance of the advisory agreement and other factors, the Board concluded advisory fees of the Fund and to limit
(the "Advisory Agreement") between the that the quality of services to be the Fund's total operating expenses, as
Fund and AIM for another year, effective provided by AIM was appropriate and that discussed below. Based on this review,
July 1, 2005. AIM currently is providing satisfactory the Board concluded that the advisory
services in accordance with the terms of fee rate for the Fund under the Advisory
The Board considered the factors the Advisory Agreement. Agreement was fair and reasonable.
discussed below in evaluating the
fairness and reasonableness of the o The performance of the Fund relative o Fees relative to those of comparable
Advisory Agreement at the meeting on to comparable funds. The Board reviewed funds with other advisors. The Board
June 30, 2005 and as part of the Board's the performance of the Fund during the reviewed the advisory fee rate for the
ongoing oversight of the Fund. In their past one, three and five calendar years Fund under the Advisory Agreement. The
deliberations, the Board and the against the performance of funds advised Board compared effective contractual
independent trustees did not identify any by other advisors with investment advisory fee rates at a common asset
particular factor that was controlling, strategies comparable to those of the level and noted that the Fund's rate was
and each trustee attributed different Fund. The Board noted that the Fund's above the median rate of the funds
weights to the various factors. performance in such periods was below advised by other advisors with
the median performance of such investment strategies comparable to
One of the responsibilities of the comparable funds. The Board noted that those of the Fund that the Board
Senior Officer of the Fund, who is AIM has recently made changes to the reviewed. The Board noted that AIM has
independent of AIM and AIM's affiliates, Fund's portfolio management team, which agreed to waive advisory fees of the
is to manage the process by which appear to be producing encouraging early Fund and to limit the Fund's total
the Fund's proposed management fees are results but need more time to be operating expenses, as discussed below.
negotiated to ensure that they are evaluated before a conclusion can be Based on this review, the Board
negotiated in a manner which is at arm's made that the changes have addressed the concluded that the advisory fee rate for
length and reasonable. To that end, the Fund's under-performance. Based on this the Fund under the Advisory Agreement
Senior Officer must either supervise a review, the Board concluded that no was fair and reasonable.
competitive bidding process or prepare changes should be made to the Fund and
an independent written evaluation. The that it was not necessary to change the o Expense limitations and fee waivers.
Senior Officer has recommended an Fund's portfolio management team at this The Board noted that AIM has
independent written evaluation in lieu time. contractually agreed to waive advisory
of a competitive bidding process and, fees of the Fund through December 31,
upon the direction of the Board, has o The performance of the Fund relative 2009 to the extent necessary so that the
prepared such an independent written to indices. The Board reviewed the advisory fees payable by the Fund do not
evaluation. Such written evaluation also performance of the Fund during the past exceed a specified maximum advisory fee
considered certain of the factors one, three and five calendar years rate, which maximum rate includes
discussed below. In addition, as against the performance of the Lipper breakpoints and is based on net asset
discussed below, the Senior Officer made Balanced Fund Index. The Board noted levels. The Board considered the
certain recommendations to the Board in that the Fund's performance in such contractual nature of this fee waiver
connection with such written evaluation. periods was below the performance of and noted that it remains in effect
such Index. The Board noted that AIM has until December 31, 2009. The Board also
The discussion below serves as a recently made changes to the Fund's noted that AIM has contractually agreed
summary of the Senior Officer's portfolio management team, which appear to waive fees and/or limit expenses of
independent written evaluation and to be producing encouraging early the Fund through June 30, 2006 so that
recommendations to the Board in results but need more time to be total annual operating expenses are
connection there-with, as well as a evaluated before a conclusion can be limited to a specified percentage of
discussion of the material factors and made that the changes have addressed the average daily net assets for each class
the conclusions with respect thereto Fund's under-performance. Based on this of the Fund. The Board considered the
that formed the basis for the Board's review, the Board concluded that no contractual nature of this fee waiver
approval of the Advisory Agreement. changes should be made to the Fund and and noted that it remains in effect
After consideration of all of the that it was not necessary to change the until June 30, 2006. The Board
factors below and based on its informed Fund's portfolio management team at this considered the effect these fee
business judgment, the Board determined time. waivers/expense limitations would have
that the Advisory Agreement is in the on the Fund's estimated expenses and
best interests of the Fund and its o Meeting with the Fund's portfolio concluded that the levels of fee
shareholders and that the compensation managers and investment personnel. With waivers/expense limitations for the Fund
to AIM under the Advisory Agreement is respect to the Fund, the Board is were fair and reasonable.
fair and reasonable and would have been meeting periodically with such Fund's
obtained through arm's length portfolio managers and/or other o Breakpoints and economies of scale.
negotiations. investment personnel and believes that The Board reviewed the structure of the
such individuals are competent and able Fund's advisory fee under the Advisory
o The nature and extent of the advisory to continue to carry out their Agreement, noting that it includes one
services to be provided by AIM. The responsibilities under the Advisory breakpoint. The Board reviewed the level
Board reviewed the services to be Agreement. 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 o Overall performance of AIM. The Board Fund's net assets, would decrease as net
Board concluded that the range of considered the overall performance of assets increase because the Advisory
services to be provided by AIM under the AIM in providing investment advisory and Agreement includes a breakpoint. The
Advisory Agreement was appropriate and portfolio administrative services to the Board noted that, due to the Fund's
that AIM currently is providing services Fund and concluded that such performance current asset levels and the way in
in accordance with the terms of the was satisfactory. which
Advisory Agreement.
(continued)
7
AIM V.I. BASIC BALANCED FUND
the advisory fee breakpoints have been o Profitability of AIM and its o Other factors and current trends. In
structured, the Fund has yet to benefit affiliates. The Board reviewed determining whether to continue the
from the breakpoint. The Board noted information concerning the profitability Advisory Agreement for the Fund, the
that AIM has contractually agreed to of AIM's (and its affiliates') Board considered the fact that AIM,
waive advisory fees of the Fund through investment advisory and other activities along with others in the mutual fund
December 31, 2009 to the extent and its financial condition. The Board industry, is subject to regulatory
necessary so that the advisory fees considered the overall profitability of inquiries and litigation related to a
payable by the Fund do not exceed a AIM, as well as the profitability of AIM wide range of issues. The Board also
specified maximum advisory fee rate, in connection with managing the Fund. considered the governance and
which maximum rate includes breakpoints The Board noted that AIM's operations compliance reforms being undertaken by
and is based on net asset levels. The remain profitable, although increased AIM and its affiliates, including
Board concluded that the Fund's fee expenses in recent years have reduced maintaining an internal controls
levels under the Advisory Agreement AIM's profitability. Based on the review committee and retaining an independent
therefore would reflect economies of of the profitability of AIM's and its compliance consultant, and the fact that
scale at higher asset levels and that it affiliates' investment advisory and AIM has undertaken to cause the Fund to
was not necessary to change the advisory other activities and its financial operate in accordance with certain
fee breakpoints in the Fund's advisory condition, the Board concluded that the governance policies and practices. The
fee schedule. compensation to be paid by the Fund to Board concluded that these actions
AIM under its Advisory Agreement was not indicated a good faith effort on the
o Investments in affiliated money market excessive. part of AIM to adhere to the highest
funds. The Board also took into account ethical standards, and determined that
the fact that uninvested cash and cash o Benefits of soft dollars to AIM. The the current regulatory and litigation
collateral from securities lending Board considered the benefits realized environment to which AIM is subject
arrangements (collectively, "cash by AIM as a result of brokerage should not prevent the Board from
balances") of the Fund may be invested transactions executed through "soft continuing the Advisory Agreement for
in money market funds advised by AIM dollar" arrangements. Under these the Fund.
pursuant to the terms of an SEC arrangements, brokerage commissions paid
exemptive order. The Board found that by the Fund and/or other funds advised
the Fund may realize certain benefits by AIM are used to pay for research and
upon investing cash balances in AIM execution services. This research is
advised money market funds, including a used by AIM in making investment
higher net return, increased liquidity, decisions for the Fund. The Board
increased diversification or decreased concluded that such arrangements were
transaction costs. The Board also found appropriate.
that the Fund will not receive reduced
services if it invests its cash balances o AIM's financial soundness in
in such money market funds. The Board light of the Fund's needs. The Board
noted that, to the extent the Fund considered whether AIM is financially
invests in affiliated money market sound and has the resources necessary to
funds, AIM has voluntarily agreed to perform its obligations under the
waive a portion of the advisory fees it Advisory Agreement, and concluded that
receives from the Fund attributable to AIM has the financial resources
such investment. The Board further necessary to fulfill its obligations
determined that the proposed securities under the Advisory Agreement.
lending program and related procedures
with respect to the lending Fund is in o Historical relationship between the
the best interests of the lending Fund Fund and AIM. In determining whether to
and its respective shareholders. The continue the Advisory Agreement for the
Board therefore concluded that the Fund, the Board also considered the
investment of cash collateral received prior relationship between AIM and the
in connection with the securities Fund, as well as the Board's knowledge
lending program in the money market of AIM's operations, and concluded that
funds according to the procedures is in it was beneficial to maintain the cur-
the best interests of the lending Fund rent relationship, in part, because of
and its respective 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 administrative, transfer agency and
their direction, the Senior Officer of distribution services, and the fees
the Fund, who is independent of AIM and received by AIM and its affiliates for
AIM's affiliates, had prepared an performing such services. In addition to
independent written evaluation in order reviewing such services, the trustees
to assist the Board in determining the also considered the organizational
reasonableness of the proposed structure employed by AIM and its
management fees of the AIM Funds, affiliates to provide those services.
including the Fund. The Board noted that Based on the review of these and other
the Senior Officer's written evaluation factors, the Board concluded that AIM
had been relied upon by the Board in and its affiliates were qualified to
this regard in lieu of a competitive continue to provide non-investment
bidding process. In determining whether advisory services to the Fund, including
to continue the Advisory Agreement for administrative, transfer agency and
the Fund, the Board considered the distribution services, and that AIM and
Senior Officer's written evaluation and its affiliates currently are providing
the recommendation made by the Senior satisfactory non-investment advisory
Officer to the Board that the Board services.
consider implementing a process to
assist them in more closely monitoring
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-66.52%
ADVERTISING-2.53%
Interpublic Group of Cos., Inc. (The)(a) 88,500 $ 854,025
- --------------------------------------------------------------------------------
Omnicom Group Inc. 18,600 1,583,418
================================================================================
2,437,443
================================================================================
AEROSPACE & DEFENSE-0.90%
Honeywell International Inc. 23,300 867,925
================================================================================
ALUMINUM-0.86%
Alcoa Inc. 28,100 830,917
================================================================================
APPAREL RETAIL-0.99%
Gap, Inc. (The) 54,000 952,560
================================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.27%
Bank of New York Co., Inc. (The) 38,600 1,229,410
================================================================================
BREWERS-1.13%
Molson Coors Brewing Co.-Class B 16,312 1,092,741
================================================================================
BUILDING PRODUCTS-1.65%
American Standard Cos. Inc. 15,500 619,225
- --------------------------------------------------------------------------------
Masco Corp. 32,200 972,118
================================================================================
1,591,343
================================================================================
CONSTRUCTION MATERIALS-1.38%
CEMEX, S.A. de C.V.-ADR (Mexico) 22,500 1,334,925
================================================================================
CONSUMER ELECTRONICS-2.09%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 29,700 923,670
- --------------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 26,700 1,089,360
================================================================================
2,013,030
================================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.45%
Ceridian Corp.(a) 42,600 1,058,610
- --------------------------------------------------------------------------------
First Data Corp. 52,700 2,266,627
================================================================================
3,325,237
================================================================================
DIVERSIFIED BANKS-0.02%
HSBC Capital Funding L.P. (United Kingdom),
4.61% Pfd. (Acquired 11/05/03; Cost
$23,313)(b)(c) 25,000 23,651
================================================================================
DIVERSIFIED CAPITAL MARKETS-0.12%
UBS Preferred Funding Trust I, 8.62% Pfd.(b) 100,000 115,464
================================================================================
DIVERSIFIED CHEMICALS-0.26%
Dow Chemical Co. (The) 5,700 249,774
================================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------------
<Caption>
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.38%
Cendant Corp. 77,121 $ 1,330,337
================================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.72%
Waste Management, Inc. 54,700 1,660,145
================================================================================
FOOD RETAIL-2.06%
Kroger Co. (The)(a) 57,300 1,081,824
- --------------------------------------------------------------------------------
Safeway Inc. 38,400 908,544
================================================================================
1,990,368
================================================================================
GENERAL MERCHANDISE STORES-1.16%
Target Corp. 20,400 1,121,388
================================================================================
HEALTH CARE DISTRIBUTORS-4.14%
Cardinal Health, Inc. 42,900 2,949,375
- --------------------------------------------------------------------------------
McKesson Corp. 20,222 1,043,253
================================================================================
3,992,628
================================================================================
HEALTH CARE EQUIPMENT-0.92%
Baxter International Inc. 23,600 888,540
================================================================================
HEALTH CARE FACILITIES-1.28%
HCA Inc. 24,500 1,237,250
================================================================================
INDUSTRIAL CONGLOMERATES-4.40%
General Electric Co. 44,100 1,545,705
- --------------------------------------------------------------------------------
Tyco International Ltd. 93,500 2,698,410
================================================================================
4,244,115
================================================================================
INDUSTRIAL MACHINERY-1.30%
Illinois Tool Works Inc. 14,300 1,258,257
================================================================================
INVESTMENT BANKING & BROKERAGE-2.63%
Merrill Lynch & Co., Inc. 18,200 1,232,686
- --------------------------------------------------------------------------------
Morgan Stanley 23,100 1,310,694
================================================================================
2,543,380
================================================================================
LIFE & HEALTH INSURANCE-0.11%
Aegon N.V. (Netherlands), 6.38% Pfd 4,100 103,566
================================================================================
MANAGED HEALTH CARE-2.21%
WellPoint, Inc.(a) 26,700 2,130,393
================================================================================
MOVIES & ENTERTAINMENT-1.22%
Walt Disney Co. (The) 49,300 1,181,721
================================================================================
MULTI-LINE INSURANCE-1.49%
Hartford Financial Services Group, Inc. (The) 16,700 1,434,363
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
OIL & GAS DRILLING-1.78%
Transocean Inc.(a) 24,600 $ 1,714,374
================================================================================
OIL & GAS EQUIPMENT & SERVICES-3.94%
Halliburton Co. 37,900 2,348,284
- --------------------------------------------------------------------------------
Schlumberger Ltd. 15,000 1,457,250
================================================================================
3,805,534
================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.70%
ABN AMRO XVII Custodial Receipts-Series MM17,
3.80% Floating Rate Pfd. (Acquired
05/11/05; Cost $301,781)(b)(c)(d) 3 300,000
- --------------------------------------------------------------------------------
Auction Pass-Through Trust-Series 2001-1,
Class A, 5.30% Floating Rate Pfd. (Acquired
10/03/05; Cost $250,000)(c)(e)(f) 1 250,000
- --------------------------------------------------------------------------------
Citigroup Inc. 37,300 1,810,169
- --------------------------------------------------------------------------------
JPMorgan Chase & Co. 54,268 2,153,897
- --------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 4.80%
Floating Rate Pfd. (Acquired
06/03/04-09/28/04; Cost $488,940)(b)(c)(e) 500 498,030
- --------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust IV, 4.87%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$244,120)(b)(c)(e) 250 244,539
- --------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust VI, 5.05%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$242,867)(b)(c)(e) 250 243,817
================================================================================
5,500,452
================================================================================
PACKAGED FOODS & MEATS-1.80%
Kraft Foods Inc.-Class A 24,900 700,686
- --------------------------------------------------------------------------------
Unilever N.V. (Netherlands)(g) 15,100 1,034,081
================================================================================
1,734,767
================================================================================
PHARMACEUTICALS-5.08%
Pfizer Inc. 51,900 1,210,308
- --------------------------------------------------------------------------------
Sanofi-Aventis (France)(g) 21,761 1,906,553
- --------------------------------------------------------------------------------
Wyeth 38,693 1,782,587
================================================================================
4,899,448
================================================================================
PROPERTY & CASUALTY INSURANCE-1.61%
ACE Ltd. 29,100 1,555,104
================================================================================
SYSTEMS SOFTWARE-1.80%
Computer Associates International, Inc. 61,700 1,739,323
================================================================================
THRIFTS & MORTGAGE FINANCE-2.14%
Fannie Mae 26,800 1,308,108
- --------------------------------------------------------------------------------
Fannie Mae-Series J, 4.72% Floating Rate
Pfd.(h) 2,950 147,264
- --------------------------------------------------------------------------------
Fannie Mae-Series K, 5.40% Floating Rate
Pfd.(h) 2,950 146,320
- --------------------------------------------------------------------------------
Freddie Mac 7,100 463,985
================================================================================
2,065,677
================================================================================
Total Stocks & Other Equity Interests
(Cost $54,991,311) 64,195,550
================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
================================================================================
BONDS & NOTES-24.24%
AEROSPACE & DEFENSE-0.19%
Systems 2001 Asset Trust LLC (Cayman
Islands)- Series 2001, Class G, Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13 (Acquired
02/09/05-10/27/05; Cost $188,213)(b)(c)(i) $ 170,774 $ 183,726
================================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.15%
Janus Capital Group Inc., Sr. Unsec. Notes,
7.00%, 11/01/06(b) 80,000 81,200
- --------------------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes, 5.50%, 09/15/15(b) 65,000 64,009
================================================================================
145,209
================================================================================
AUTOMOBILE MANUFACTURERS-0.46%
DaimlerChrysler North America Holding Corp.,
Gtd. Global Notes, 6.40%, 05/15/06(b) 55,000 55,266
- --------------------------------------------------------------------------------
Series D, Gtd. Floating Rate Medium Term
Notes, 4.99%, 05/24/06(b)(e) 260,000 260,200
- --------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes, 7.25%,
01/18/06(b) 125,000 125,100
================================================================================
440,566
================================================================================
BROADCASTING & CABLE TV-1.94%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06(b) 200,000 203,454
- --------------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06(b) 345,000 354,984
- --------------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 9.46%,
11/15/22(b) 140,000 183,746
- --------------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
7.75%, 08/15/06(b) 390,000 395,928
- --------------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 10/03/05-11/14/05; Cost
$518,995)(b)(c)(f) 500,000 514,785
- --------------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(b) 50,000 50,103
- --------------------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(b) 150,000 172,975
================================================================================
1,875,975
================================================================================
COMMERCIAL PRINTING-0.08%
Deluxe Corp., Medium Term Notes, 2.75%,
09/15/06(b) 80,000 78,796
================================================================================
COMMUNICATIONS EQUIPMENT-0.19%
Telecomunicaciones de Puerto Rico, Inc.
(Puerto Rico), Sr. Unsec. Gtd. Sub. Global
Notes, 6.65%, 05/15/06(b) 180,000 180,965
================================================================================
CONSUMER ELECTRONICS-0.05%
Koninklijke (Royal) Philips Electronics N.V.
(Netherlands), Yankee Notes, 8.38%,
09/15/06(b) 50,000 51,177
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
CONSUMER FINANCE-1.98%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 5.80%, 02/01/27 (Acquired
09/16/04; Cost $229,365)(b)(c)(e) $ 225,000 $ 225,326
- --------------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06(b) 275,000 277,186
- --------------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(b) 30,000 31,430
- --------------------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 6.50%, 02/15/06(b) 125,000 124,544
- --------------------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 02/01/06(b) 970,000 967,672
- --------------------------------------------------------------------------------
Unsec. Notes, 6.13%, 01/09/06(b) 55,000 54,998
- --------------------------------------------------------------------------------
General Motors Acceptance Corp., Floating
Rate Medium Term Notes, 5.24%,
05/18/06(b)(e) 230,000(j) 226,647
================================================================================
1,907,803
================================================================================
DIVERSIFIED BANKS-1.30%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $167,403)(b)(c)(k) 150,000 152,574
- --------------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(b)(c) 25,000 25,038
- --------------------------------------------------------------------------------
Bangkok Bank PCL (Hong Kong), Unsec. Sub.
Notes, 9.03%, 03/15/29 (Acquired 04/22/05;
Cost $200,323)(b)(c) 160,000 200,320
- --------------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes, 8.85%, 06/01/27 (Acquired 05/22/03;
Cost $63,272)(b)(c) 50,000 54,315
- --------------------------------------------------------------------------------
Corporacion Andina de Fomento, Unsec. Global
Notes, 6.88%, 03/15/12(b) 75,000 81,751
- --------------------------------------------------------------------------------
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 15,157
- --------------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91% (Acquired 06/07/04; Cost
$60,000)(b)(c)(k) 60,000 62,198
- --------------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
4.94%(b)(k)(l) 130,000 114,561
- --------------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 4.19%, 08/29/87(b)(l) 60,000 50,825
- --------------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes, 4.25%(b)(k)(l) 100,000 87,171
- --------------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(b) 50,000 64,882
- --------------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(b)(k) 60,000 60,338
- --------------------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 5.25%, 09/21/07 (Acquired 12/14/05;
Cost $140,000)(b)(c)(e) 140,000 140,280
- --------------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07(b) 150,000 147,454
================================================================================
1,256,864
================================================================================
</Table>
<Table>
- --------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.66%
Cendant Corp., Sr. Unsec. Global Notes,
6.88%, 08/15/06(b) $ 630,000 $ 636,691
================================================================================
ELECTRIC UTILITIES-1.15%
American Electric Power Co., Inc.-Series A,
Unsec. Unsub. Global Notes, 6.13%,
05/15/06(b) 100,000(j) 100,495
- --------------------------------------------------------------------------------
Consolidated Edison Co. of New York-Series A,
Unsec. Deb., 7.75%, 06/01/26(b) 45,000 46,348
- --------------------------------------------------------------------------------
Duke Capital LLC, Sr. Unsec. Notes, 4.30%,
05/18/06(b) 90,000 89,862
- --------------------------------------------------------------------------------
Korea Electric Power Corp. (South Korea),
Unsec. Gtd. Putable Disc. Yankee Deb.,
7.95%, 04/01/16(b)(m) 155,000 96,794
- --------------------------------------------------------------------------------
Northeast Utilities-Series A, Notes, 8.58%,
12/01/06(b) 33,600 34,417
- --------------------------------------------------------------------------------
Pepco Holdings, Inc., Unsec. Unsub. Notes,
3.75%, 02/15/06(b) 180,000 179,802
- --------------------------------------------------------------------------------
Pinnacle West Capital Corp., Sr. Unsec.
Notes, 6.40%, 04/01/06(b) 290,000 290,954
- --------------------------------------------------------------------------------
Progress Energy, Inc., Sr. Unsec. Notes,
6.75%, 03/01/06(b) 270,000 270,829
================================================================================
1,109,501
================================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.35%
Waste Management, Inc., Unsec. Notes, 7.00%,
10/15/06(b) 335,000 340,303
================================================================================
FOOD RETAIL-0.34%
ARAMARK Services Inc., Unsec. Gtd. Notes,
7.00%, 07/15/06(b) 85,000 85,918
- --------------------------------------------------------------------------------
Kroger Co. (The), Sr. Unsec. Gtd. Notes,
7.63%, 09/15/06(b) 120,000 121,994
- --------------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 6.15%,
03/01/06(b) 120,000 120,257
================================================================================
328,169
================================================================================
FOREST PRODUCTS-0.09%
Weyerhaeuser Co. (Canada), Unsec. Yankee
Notes, 6.75%, 02/15/06(b) 90,000 90,100
================================================================================
HEALTH CARE DISTRIBUTORS-0.09%
Cardinal Health, Inc., Unsec. Notes, 6.00%,
01/15/06(b) 90,000 90,031
================================================================================
HEALTH CARE SERVICES-0.24%
Caremark Rx, Inc., Sr. Unsec. Notes, 7.38%,
10/01/06(b) 150,000 152,365
- --------------------------------------------------------------------------------
Quest Diagnostics Inc., Sr. Unsec. Gtd.
Notes, 6.75%, 07/12/06(b) 75,000 75,678
================================================================================
228,043
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
HOMEBUILDING-0.46%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(b) $ 100,000 $ 108,620
- --------------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 8.00%, 08/15/06(b) 330,000 334,966
================================================================================
443,586
================================================================================
HOUSEHOLD APPLIANCES-0.09%
Stanley Works Capital Trust I, Trust Pfd.
Bonds, 5.90%, 12/01/45 (Acquired 11/15/05;
Cost $90,000)(b)(c) 90,000 89,830
================================================================================
HOUSEWARES & SPECIALTIES-0.15%
American Greetings Corp., Unsec. Putable
Deb., 6.10%, 08/01/08(b) 140,000 141,841
================================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.24%
PSEG Power LLC, Sr. Unsec. Gtd. Global Notes,
6.88%, 04/15/06(b) 175,000 175,954
- --------------------------------------------------------------------------------
TXU Corp.-Series O, Sr. Unsec. Global Notes,
4.80%, 11/15/09(b) 60,000 58,025
================================================================================
233,979
================================================================================
INDUSTRIAL CONGLOMERATES-0.62%
Tyco International Group S.A. (Luxembourg),
Sr. Unsec. Gtd. Unsub. Yankee Notes, 6.38%,
02/15/06(b) 275,000(j) 275,478
- --------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Yankee Notes, 5.80%,
08/01/06(b) 284,000 285,241
- --------------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$45,291)(b)(c) 40,000 40,515
================================================================================
601,234
================================================================================
INTEGRATED OIL & GAS-0.87%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(b) 65,000 68,294
- --------------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06(b) 410,000 416,986
- --------------------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28(b) 325,000 354,656
================================================================================
839,936
================================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.48%
France Telecom S.A. (France), Sr. Unsec.
Global Notes,
7.20%, 03/01/06(b) 90,000 90,389
- --------------------------------------------------------------------------------
8.50%, 03/01/31(b) 40,000 54,069
- --------------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06(b) 160,000 160,278
- --------------------------------------------------------------------------------
Unsec. Gtd. Notes, 4.78%, 08/17/06(b) 450,000 449,671
- --------------------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(b) 140,000 183,057
- --------------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(b) 100,000 103,448
- --------------------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(b) $ 60,000 $ 60,934
- --------------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06(b) 21,000 21,079
- --------------------------------------------------------------------------------
8.75%, 11/01/21(b) 65,000 82,184
- --------------------------------------------------------------------------------
Verizon Maryland Inc.-Series A, Unsec. Global
Notes, 6.13%, 03/01/12(b) 65,000 66,529
- --------------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(b) 90,000 93,838
- --------------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(b) 70,000 64,966
================================================================================
1,430,442
================================================================================
INVESTMENT BANKING & BROKERAGE-0.11%
Lehman Brothers Inc., Sr. Unsec. Sub. Notes,
7.63%, 06/01/06(b) 100,000(j) 101,143
================================================================================
LEISURE PRODUCTS-0.26%
Brunswick Corp., Unsec. Unsub. Notes, 6.75%,
12/15/06(b) 250,000 253,532
================================================================================
LIFE & HEALTH INSURANCE-0.24%
Prudential Holdings, LLC-Series B, Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23 (Acquired 01/22/04; Cost
$207,149)(b)(c)(i) 175,000 206,225
- --------------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(b) 20,000 20,534
================================================================================
226,759
================================================================================
MANAGED HEALTH CARE-0.34%
CIGNA Corp., Notes, 6.38%, 01/15/06(b) 170,000 170,077
- --------------------------------------------------------------------------------
Humana Inc., Sr. Unsec. Notes, 7.25%,
08/01/06(b) 155,000 157,032
================================================================================
327,109
================================================================================
MOVIES & ENTERTAINMENT-1.13%
CBS Corp., Sr. Unsec. Gtd. Global Notes,
6.40%, 01/30/06(b) 440,000 440,528
- --------------------------------------------------------------------------------
Time Warner Cos., Inc.,
Notes,
8.11%, 08/15/06(b) 24,000 24,387
- --------------------------------------------------------------------------------
8.18%, 08/15/07(b) 150,000 156,546
- --------------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(b) 300,000 370,704
- --------------------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06(b) 95,000 95,321
================================================================================
1,087,486
================================================================================
MULTI-UTILITIES-0.10%
DTE Energy Co., Sr. Unsec. Unsub. Notes,
6.45%, 06/01/06(b) 100,000 100,653
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
MUNICIPALITIES-1.52%
Brownsville (City of), Texas; Refunding &
Improvement Utilities System Series 2005 A
RB, (INS-Ambac Assurance Corp.) 5.00%,
09/01/31(b)(i) $ 30,000 $ 31,125
- --------------------------------------------------------------------------------
Chicago (City of), Illinois O'Hare
International Airport; Refunding Taxable
General Airport Third Lien Series 2004 E
RB, (INS-MBIA Insurance Corp.) 3.88%,
01/01/08(b)(i) 250,000 246,250
- --------------------------------------------------------------------------------
Dallas (City of), Texas; Taxable Pension
Limited Tax Series 2005 A GO,
4.61%, 02/15/14(b) 50,000 48,750
- --------------------------------------------------------------------------------
5.20%, 02/15/35(b) 100,000 99,090
- --------------------------------------------------------------------------------
Detroit (City of), Michigan; Taxable Capital
Improvement Limited Tax Series 2005 A-1 GO,
(INS-Ambac Assurance Corp.) 4.96%,
04/01/20(b)(i) 65,000 62,806
- --------------------------------------------------------------------------------
Detroit (City of), Michigan; Taxable Series
2005 COP, (INS-Financial Guaranty Insurance
Co.) 4.95%, 06/15/25(b)(i) 80,000 77,200
- --------------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Taxable Series 2005
A RB,
4.87%, 07/15/16(b) 50,000 49,250
- --------------------------------------------------------------------------------
5.22%, 07/15/20(b) 50,000 49,949
- --------------------------------------------------------------------------------
5.28%, 01/15/22(b) 25,000 25,000
- --------------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 RB, (INS-MBIA
Insurance Corp.) 6.10%, 05/01/24(b)(i) 125,000 129,844
- --------------------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(City of Detroit School District); Series
2005 RB, (INS-Financial Security Assurance
Inc.) 5.00%, 06/01/15(b)(i) 50,000 54,063
- --------------------------------------------------------------------------------
New Hampshire (State of); Taxable Unlimited
Tax Series 2005 B GO, 4.65%, 05/15/15(b) 100,000 99,125
- --------------------------------------------------------------------------------
Oregon (State of) Community College
Districts; Taxable Pension Limited Tax
Series 2005 GO, (INS-Ambac Assurance Corp.)
4.64%, 06/30/20(b)(i) 55,000 53,213
- --------------------------------------------------------------------------------
4.83%, 06/30/28(b)(i) 100,000 95,314
- --------------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB, (INS-Financial Guaranty Insurance
Co.) 3.69%, 07/01/07(b)(i) 50,000 49,275
- --------------------------------------------------------------------------------
4.21%, 07/01/08(b)(i) 75,000 74,060
- --------------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding CARS Series 2004 C-1 RB,
(INS-MBIA Insurance Corp.) 3.42%,
07/10/30(b)(i)(n) 225,000 219,537
================================================================================
1,463,851
================================================================================
OIL & GAS EQUIPMENT & SERVICES-0.11%
Halliburton Co., Medium Term Notes, 6.00%,
08/01/06(b) 102,000 102,703
================================================================================
</Table>
<Table>
- --------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
OIL & GAS EXPLORATION & PRODUCTION-0.67%
Devon Energy Corp., Sr. Unsec. Notes, 2.75%,
08/01/06(b) $ 309,000 $ 305,363
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico),
Series 12, Unsec. Gtd. Unsub. Notes, 5.75%,
12/15/15 (Acquired 06/27/05; Cost
$124,121)(b)(c) 125,000 124,500
- --------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes, 8.63%,
02/01/22(b) 175,000 214,393
================================================================================
644,256
================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.73%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(b) 20,000 19,979
- --------------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Trust
Pfd. Global Bonds, 8.44%,(b)(k) 100,000 114,001
- --------------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87%, (Acquired 06/16/04-07/28/05;
Cost $356,092)(b)(c)(k) 315,000 345,722
- --------------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(b) 273,750 296,953
- --------------------------------------------------------------------------------
Series 2000-1, Class A1, Global Notes,
9.03%, 02/15/11(b) 100,000 109,529
- --------------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07(b) 92,500 94,433
- --------------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost $16,364)(b)(c) 16,143 16,085
- --------------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $199,866)(b)(c) 200,000 190,748
- --------------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $169,578)(b)(c) 143,333 168,726
- --------------------------------------------------------------------------------
Toll Road Investors Partnership II,
L.P.-Series A, Bonds (INS-MBIA Insurance
Corp.) 5.56%, 02/15/45 (Acquired
03/11/05-05/03/05; Cost
$164,386)(b)(c)(i)(o) 1,400,000 170,978
- --------------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 5.36% (Acquired
12/07/04; Cost $100,000)(b)(c)(k)(p) 100,000 100,107
- --------------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(b)(k) 40,000 43,473
================================================================================
1,670,734
================================================================================
PACKAGED FOODS & MEATS-0.65%
ConAgra Foods, Inc., Notes, 6.00%,
09/15/06(b) 160,000 161,395
- --------------------------------------------------------------------------------
General Mills, Inc., Notes, 6.45%,
10/15/06(b) 60,000 60,696
- --------------------------------------------------------------------------------
Tyson Foods, Inc., Sr. Unsec. Global Notes,
7.25%, 10/01/06(b) 395,000 401,166
================================================================================
623,257
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.14%
ACE INA Holdings, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.30%, 08/15/06(b) $ 115,000 $ 117,274
- --------------------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(b) 125,000 134,554
- --------------------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(b) 220,000 239,732
- --------------------------------------------------------------------------------
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) 200,000 203,210
- --------------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda),
Sr. Unsec. Floating Rate Notes, 4.51%,
10/06/06 (Acquired 10/12/05; Cost
$99,250)(b)(c)(p) 100,000 99,163
- --------------------------------------------------------------------------------
Unsec. Sub. Deb., 5.15%, 08/15/33 (Acquired
03/23/04-06/09/05; Cost $300,084)(b)(c) 295,000 291,336
- --------------------------------------------------------------------------------
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06(b) 10,000(j) 10,148
================================================================================
1,095,417
================================================================================
RAILROADS-0.03%
Union Pacific Corp., Unsec. Notes, 6.40%,
02/01/06(b) 30,000 30,040
================================================================================
REAL ESTATE-0.62%
Health Care Property Investors, Inc.,
Notes, 5.63%, 05/01/17(b) 60,000 59,151
- --------------------------------------------------------------------------------
Sr. Unsec. Notes, 7.07%, 06/08/15(b) 90,000 98,787
- --------------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(b) 65,000 64,170
- --------------------------------------------------------------------------------
ProLogis, Sr. Unsec. Notes, 7.05%,
07/15/06(b) 270,000 273,100
- --------------------------------------------------------------------------------
Summit Properties Partnership, L.P., Medium
Term Notes, 7.04%, 05/09/06(b) 100,000 100,567
================================================================================
595,775
================================================================================
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 50,778
================================================================================
REGIONAL BANKS-0.56%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 5.96%, 03/01/34(b)(e) 200,000 206,196
- --------------------------------------------------------------------------------
Frost National Bank (The), Unsec. Sub. Notes,
6.88%, 08/01/11(b) 75,000 80,822
- --------------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 4.98%, 06/01/28(b)(e) 100,000 97,919
- --------------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09(b) 100,000 98,409
- --------------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(b) 60,000 59,216
================================================================================
542,562
================================================================================
</Table>
<Table>
- --------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
REINSURANCE-0.31%
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(b) $ 100,000 $ 101,372
- --------------------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs., 5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $196,920)(b)(c) 200,000 197,746
================================================================================
299,118
================================================================================
RESTAURANTS-0.05%
YUM! Brands, Inc., Sr. Unsec. Notes, 8.50%,
04/15/06(b) 50,000 50,484
================================================================================
SOVEREIGN DEBT-0.20%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04-05/18/04; Cost
$90,094)(b)(c) 80,000 85,720
- --------------------------------------------------------------------------------
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 71,016
================================================================================
195,044
================================================================================
SPECIALTY CHEMICALS-0.15%
ICI North America, Unsec. Gtd. Deb., 8.88%,
11/15/06(b) 140,000 144,347
================================================================================
THRIFTS & MORTGAGE FINANCE-0.45%
Countrywide Home Loans, Inc.-Series J, Gtd.
Medium Term Global Notes, 5.50%,
08/01/06(b) 370,000 371,413
- --------------------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(b) 60,000 65,716
================================================================================
437,129
================================================================================
TOBACCO-0.21%
Altria Group, Inc.,
Notes, 6.95%, 06/01/06(b) 47,000 47,377
- --------------------------------------------------------------------------------
Unsec. Notes,
6.38%, 02/01/06(b) 95,000 95,116
- --------------------------------------------------------------------------------
7.20%, 02/01/07(b) 61,000 62,371
================================================================================
204,864
================================================================================
TRADING COMPANIES & DISTRIBUTORS-0.17%
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) 150,000 166,604
================================================================================
TRUCKING-0.11%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(b) 100,000 106,529
================================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.16%
Telephone & Data Systems, Inc., Unsec. Notes,
7.00%, 08/01/06(b) 150,000 151,193
================================================================================
Total Bonds & Notes (Cost $23,552,864) 23,396,134
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-12.78%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-5.62%
Pass Through Ctfs.,
7.00%, 06/01/15 to 06/01/32(b) $ 50,440 $ 52,531
- --------------------------------------------------------------------------------
6.00%, 04/01/16 to 11/01/33(b) 622,599 631,026
- --------------------------------------------------------------------------------
5.50%, 10/01/18(b) 253,210 254,893
- --------------------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31(b) 38,753 40,691
- --------------------------------------------------------------------------------
6.50%, 05/01/32 to 08/01/32(b) 46,373 47,623
- --------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21 to 01/01/36(b)(q) 1,498,880 1,463,110
- --------------------------------------------------------------------------------
5.50%, 01/01/36(b)(q) 2,962,702 2,935,852
================================================================================
5,425,726
================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.05%
Pass Through Ctfs.,
6.50%, 04/01/14 to 10/01/35(b) 942,176 968,935
- --------------------------------------------------------------------------------
7.50%, 11/01/15(b) 5,090 5,354
- --------------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32(b) 98,723 102,947
- --------------------------------------------------------------------------------
6.00%, 01/01/17 to 05/01/17(b) 109,141 111,599
- --------------------------------------------------------------------------------
5.00%, 04/01/18(b) 295,985 293,336
- --------------------------------------------------------------------------------
4.50%, 11/01/18(b) 110,804 108,103
- --------------------------------------------------------------------------------
8.00%, 08/01/21 to 12/01/23(b) 33,279 35,501
- --------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21(b)(q) 66,270 65,566
- --------------------------------------------------------------------------------
5.50%, 01/01/21 to 01/01/36(b)(q) 2,992,840 2,975,686
- --------------------------------------------------------------------------------
6.00%, 01/01/36(b)(q) 1,159,650 1,170,522
================================================================================
5,837,549
================================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.11%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(b) 42,896 45,268
- --------------------------------------------------------------------------------
8.50%, 11/15/24(b) 115,903 126,283
- --------------------------------------------------------------------------------
8.00%, 08/15/25(b) 16,614 17,801
- --------------------------------------------------------------------------------
6.50%, 03/15/29 to 12/15/33(b) 178,637 186,736
- --------------------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33(b) 392,798 402,840
- --------------------------------------------------------------------------------
7.00%, 09/15/31 to 03/15/33(b) 25,490 26,764
- --------------------------------------------------------------------------------
5.50%, 12/15/33 to 02/15/34(b) 256,894 258,886
================================================================================
1,064,578
================================================================================
Total U.S. Mortgage-Backed Securities
(Cost $12,299,511) 12,327,853
================================================================================
ASSET-BACKED SECURITIES-1.20%
COLLATERALIZED MORTGAGE OBLIGATIONS-0.14%
Federal Home Loan Bank (FHLB)-Series TQ-2015,
Class A, Pass Through Ctfs., 5.07%,
10/20/15(b) 131,925 132,050
================================================================================
</Table>
<Table>
- --------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
MULTI-SECTOR HOLDINGS-0.10%
Longport Funding Ltd.-Series 2005-2A, Class
A1J, Floating Rate Bonds, 4.76%, 02/03/40
(Acquired 03/31/05; Cost $100,000)(c)(e)(f) $ 100,000 $ 100,000
================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.86%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-07/27/05; Cost $304,966)(b)(c) 275,000 332,718
- --------------------------------------------------------------------------------
LILACS Repackaging 2005-I-Series A, Sec.
Notes, 5.14%, 01/15/64 (Acquired 07/14/05;
Cost $500,000)(c)(f) 500,000 492,715
================================================================================
825,433
================================================================================
PROPERTY & CASUALTY INSURANCE-0.10%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$100,000)(b)(c) 100,000 98,701
================================================================================
Total Asset-Backed Securities (Cost
$1,135,241) 1,156,184
================================================================================
U.S. TREASURY SECURITIES-1.05%
U.S. TREASURY INFLATION-INDEXED NOTES-0.27%
2.00%, 07/15/14(b) 264,163(j)(r) 262,769
================================================================================
U.S. TREASURY NOTES-0.41%
3.13%, 01/31/07(b) 400,000 394,500
================================================================================
U.S. TREASURY STRIPS-0.37%
3.03%, 02/15/07(b)(s) 125,000 119,043
- --------------------------------------------------------------------------------
4.63%, 11/15/24(b)(s) 165,000 69,171
- --------------------------------------------------------------------------------
4.54%, 05/15/25(b)(s) 115,000 46,790
- --------------------------------------------------------------------------------
4.71%, 08/15/28(b)(s) 350,000 124,579
================================================================================
359,583
================================================================================
Total U.S. Treasury Securities (Cost
$1,021,630) 1,016,852
================================================================================
U.S. GOVERNMENT AGENCY SECURITIES-0.91%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.91%
Unsec. Floating Rate Global Notes,
5.83%, 02/17/09(b)(p) 350,000 341,180
- --------------------------------------------------------------------------------
Unsec. Global Notes,
3.55%, 01/12/07(b) 190,000 187,805
- --------------------------------------------------------------------------------
4.20%, 03/24/08(b) 350,000 346,000
================================================================================
Total U.S. Government Agency Securities
(Cost $888,678) 874,985
================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS-1.76%
Liquid Assets Portfolio-Institutional
Class(t) 850,068 $ 850,068
- --------------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(t) 850,068 850,068
================================================================================
Total Money Market Funds (Cost
$1,700,136) 1,700,136
================================================================================
TOTAL INVESTMENTS-108.46% (Cost $95,589,371) 104,667,694
================================================================================
OTHER ASSETS LESS LIABILITIES-(8.46%) (8,164,490)
================================================================================
NET ASSETS-100.00% $ 96,503,204
________________________________________________________________________________
================================================================================
</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
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Backed Charitable Securities
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 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 value of these securities at December 31,
2005 was $39,604,794, which represented 41.04% of the Fund's Net Assets. 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 value of these securities at December 31, 2005 was $6,655,105,
which represented 6.90% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(d) Dividend rate is redetermined annually. Rate shown is the rate in effect on
December 31, 2005.
(e) Interest or dividend rate is redetermined quarterly. Rate shown is the rate
in effect on December 31, 2005.
(f) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2005 was
$1,357,500, which represented 1.41% 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 value of these securities at December 31, 2005 was $2,940,634,
which represented 3.05% of the Fund's Net Assets. See Note 1A.
(h) Dividend rate is redetermined bi-annually. Rate shown is the rate in effect
on December 31, 2005.
(i) Principal and/or interest payments are secured by the bond insurance company
listed.
(j) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1J and Note 7.
(k) Perpetual bond with no specified maturity date.
(l) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2005.
(m) Step coupon bond issued at discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(n) Bond issued at a discount with a zero coupon. The rate shown represents the
yield at issue to the remarketing date of July 10, 2006. The Bond will be
remarketed or converted to a fixed coupon rate on that date.
(o) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at the time of purchase by the Fund.
(p) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2005.
(q) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1G.
(r) Principal amount of security and interest payments are adjusted for
inflation.
(s) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(t) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $93,889,235) $102,967,558
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,700,136) 1,700,136
=============================================================
Total investments (cost $95,589,371) 104,667,694
=============================================================
Foreign currencies, at value (cost $1,179) 1,180
- -------------------------------------------------------------
Receivables for:
Investments sold 169,252
- -------------------------------------------------------------
Fund shares sold 803
- -------------------------------------------------------------
Dividends and interest 568,138
- -------------------------------------------------------------
Principal paydowns 18,481
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 32,795
- -------------------------------------------------------------
Other assets 2,936
=============================================================
Total assets 105,461,279
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 8,559,182
- -------------------------------------------------------------
Fund shares reacquired 277,877
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 37,411
- -------------------------------------------------------------
Variation margin 4,697
- -------------------------------------------------------------
Accrued administrative services fees 51,807
- -------------------------------------------------------------
Accrued distribution fees -- Series II 3,619
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 108
- -------------------------------------------------------------
Accrued transfer agent fees 733
- -------------------------------------------------------------
Accrued operating expenses 22,641
=============================================================
Total liabilities 8,958,075
=============================================================
Net assets applicable to shares outstanding $ 96,503,204
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $106,960,210
- -------------------------------------------------------------
Undistributed net investment income 1,628,613
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
futures contracts (21,181,906)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 9,096,287
=============================================================
$ 96,503,204
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 90,633,157
_____________________________________________________________
=============================================================
Series II $ 5,870,047
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,250,099
_____________________________________________________________
=============================================================
Series II 537,804
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 10.99
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 10.91
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $1,569,812
- ------------------------------------------------------------
Dividends (net of foreign withholding tax of
$16,522) 1,022,750
- ------------------------------------------------------------
Dividends from affiliated money market funds 10,298
============================================================
Total investment income 2,602,860
============================================================
EXPENSES:
Advisory fees 740,114
- ------------------------------------------------------------
Administrative services fees 255,807
- ------------------------------------------------------------
Custodian fees 27,576
- ------------------------------------------------------------
Distribution fees -- Series II 14,086
- ------------------------------------------------------------
Transfer agent fees 8,854
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 17,914
- ------------------------------------------------------------
Other 90,590
============================================================
Total expenses 1,154,941
============================================================
Less: Fees waived (199,504)
============================================================
Net expenses 955,437
============================================================
Net investment income 1,647,423
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (Includes gains from
securities sold to affiliates of $6,230) 2,443,006
- ------------------------------------------------------------
Foreign currencies (14,860)
- ------------------------------------------------------------
Futures contracts (65,054)
============================================================
2,363,092
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 927,313
- ------------------------------------------------------------
Futures contracts (12,508)
============================================================
914,805
============================================================
Net gain from investment securities, foreign
currencies and futures contracts 3,277,897
============================================================
Net increase in net assets resulting from
operations $4,925,320
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,647,423 $ 1,269,394
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 2,363,092 2,712,101
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 914,805 3,340,549
==========================================================================================
Net increase in net assets resulting from operations 4,925,320 7,322,044
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,309,455) (1,389,511)
- ------------------------------------------------------------------------------------------
Series II (72,217) (73,687)
==========================================================================================
Decrease in net assets resulting from distributions (1,381,672) (1,463,198)
==========================================================================================
Share transactions-net:
Series I (11,775,262) (4,169,694)
- ------------------------------------------------------------------------------------------
Series II 23,488 1,224,095
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (11,751,774) (2,945,599)
==========================================================================================
Net increase (decrease) in net assets (8,208,126) 2,913,247
==========================================================================================
NET ASSETS:
Beginning of year 104,711,330 101,798,083
==========================================================================================
End of year (including undistributed net investment income
of $1,628,613 and $1,314,746, respectively) $ 96,503,204 $104,711,330
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic Balanced Fund, formerly AIM V.I. Balanced Fund, (the "Fund") is a
series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company
consisting of twenty-seven 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 and current
income.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. BASIC BALANCED FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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. Based on the typical structure of dollar roll
transactions by the Fund, fee income is agreed upon amongst the parties at
the commencement of the dollar roll. This fee income is amortized to income
ratably over the term of the dollar roll. During the period between the
sale and purchase settlement dates, the Fund will not be entitled to
receive interest and principal payments on securities purchased and not yet
settled. 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.
H. 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
AIM V.I. BASIC BALANCED FUND
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.
I. 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.
J. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are 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.
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 replace 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. This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (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.
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 year ended December 31, 2005, AIM waived fees of $199,504.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
AIM V.I. BASIC BALANCED FUND
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $205,807 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 year ended
December 31, 2005, the Fund paid AISI $8,854.
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 year ended December
31, 2005, the Series II shares paid $14,086.
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 year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $3,925,059 $(3,074,991) $ -- $ 850,068 $ 5,130 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 3,925,059 (3,074,991) -- 850,068 5,168 --
==================================================================================================================================
Total $ -- $7,850,118 $(6,149,982) $ -- $1,700,136 $10,298 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $307,006 and sales of $11,134, which resulted
in net realized gains of $6,230.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,269
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
AIM V.I. BASIC BALANCED 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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--FUTURES CONTRACTS
On December 31, 2005, $810,000 principal amount of U.S. Treasury Securities and
corporate obligations were pledged as collateral to cover margin requirements
for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/05 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 3 Sep-06/Long $ 713,700 $ (3,128)
- ---------------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 13 Dec-06/Long 3,094,162 (13,540)
- ---------------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 4 Mar-07/Long 952,500 (1,433)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 15 Mar-06/Long 3,077,813 1,050
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 14 Mar-06/Short (1,488,813) (3,570)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 16 Mar-06/Long 1,750,500 26,077
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 3 Mar-06/Long 342,563 9,572
=================================================================================================================================
$8,442,425 $ 15,028
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $1,381,672 $1,463,198
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,691,158
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 8,609,353
- ----------------------------------------------------------------------------
Temporary book/tax differences (33,483)
- ----------------------------------------------------------------------------
Capital loss carryforward (20,724,034)
- ----------------------------------------------------------------------------
Shares of beneficial interest 106,960,210
============================================================================
Total net assets $ 96,503,204
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales, the
realization for tax purposes of unrealized gains on certain future contracts and
the treatment of defaulted bonds. The tax-basis unrealized appreciation on
investments amount included appreciation on remaining proceeds to be received on
Candescent Technologies Corp. of $2,936.
AIM V.I. BASIC BALANCED FUND
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $2,277,500 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 4,507,081
- -----------------------------------------------------------------------------
December 31, 2010 16,216,953
=============================================================================
Total capital loss carryforward $20,724,034
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $40,903,732 and $48,131,744, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $11,257,314
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,650,897)
===============================================================================
Net unrealized appreciation of investment securities $ 8,606,417
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $96,061,277.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of bond premium
amortization, treatment of partnerships, paydowns on mortgage backed securities
and foreign currency transactions, on December 31, 2005, undistributed net
investment income was increased by $48,116 and undistributed net realized gain
(loss) was decreased by $48,116. This reclassification had no effect on the net
assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 (A) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
Sold:
Series I 6,962,166 $ 72,685,111 819,573 $ 8,359,573
- --------------------------------------------------------------------------------------------------
Series II 271,411 2,830,503 184,634 1,876,616
==================================================================================================
Issued as reinvestment of dividends:
Series I 119,258 1,309,455 132,334 1,389,511
- --------------------------------------------------------------------------------------------------
Series II 6,619 72,217 7,058 73,686
==================================================================================================
Reacquired:
Series I (8,187,375) (85,769,828) (1,367,292) (13,918,778)
- --------------------------------------------------------------------------------------------------
Series II (276,220) (2,879,232) (70,995) (726,207)
==================================================================================================
(1,104,141) $(11,751,774) (294,688) $ (2,945,599)
__________________________________________________________________________________________________
==================================================================================================
</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 owns 84% 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 entities are also owned
beneficially.
AIM V.I. BASIC BALANCED FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.59 $ 9.99 $ 8.75 $ 10.84 $ 12.46
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.13(a) 0.14(a) 0.18(a) 0.27(a)(b)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.38 0.62 1.29 (2.02) (1.70)
=============================================================================================================
Total from investment operations 0.56 0.75 1.43 (1.84) (1.43)
=============================================================================================================
Less dividends from net investment
income (0.16) (0.15) (0.19) (0.25) (0.19)
=============================================================================================================
Net asset value, end of period $ 10.99 $ 10.59 $ 9.99 $ 8.75 $ 10.84
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(c) 5.29% 7.52% 16.36% (17.02)% (11.43)%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $90,633 $99,070 $97,665 $82,866 $105,395
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 0.95%(d)(e) 1.12% 1.11% 1.17% 1.12%
=============================================================================================================
Ratio of net investment income to
average net assets 1.68%(d) 1.24% 1.47% 1.90% 2.37%(b)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate 44% 51% 131% 90% 55%
_____________________________________________________________________________________________________________
=============================================================================================================
</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%.
(c) Included adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $93,047,368.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.15%.
<Table>
<Caption>
SERIES II
-----------------------------------------------------------
JANUARY 24, 2002
YEAR ENDED DECEMBER 31, (DATE SALES
----------------------------------- COMMENCED) TO
2005 2004 2003 DECEMBER 31, 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 $ 9.95 $ 8.73 $ 10.70
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.10(a) 0.12(a) 0.14(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 0.62 1.29 (1.86)
=========================================================================================================================
Total from investment operations 0.52 0.72 1.41 (1.72)
=========================================================================================================================
Less dividends from net investment income (0.14) (0.14) (0.19) (0.25)
=========================================================================================================================
Net asset value, end of period $10.91 $10.53 $ 9.95 $ 8.73
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 4.91% 7.24% 16.15% (16.12)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,870 $5,642 $4,133 $ 733
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.20%(c)(d) 1.37% 1.36% 1.42%(e)
=========================================================================================================================
Ratio of net investment income to average net assets 1.43%(c) 0.99% 1.22% 1.65%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 44% 51% 131% 90%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Included adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $5,634,509.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.40%.
(e) Annualized.
AIM V.I. BASIC BALANCED 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
AIM V.I. BASIC BALANCED FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds and Shareholders of
AIM V.I. Basic Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Basic Balanced Fund, (one
of the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. BASIC BALANCED FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 59.36% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 2.51% was derived from U.S. Treasury
Obligations.
AIM V.I. BASIC BALANCED FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. BASIC BALANCED FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2001 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William P. Kethler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly Senior Vice President, Director
of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. BASIC BALANCED FUND
AIM V.I. BASIC VALUE FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. BASIC VALUE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
CARDINAL HEALTH were also among the
biggest contributors to performance.
================================================================================= McKesson and Cardinal rallied in
PERFORMANCE SUMMARY ======================================= response to progress made in the
FUND VS. INDEXES industry's transition to fee-for-service
For the year ended December 31, 2005, pricing, a move that will substantially
Series I shares of AIM V.I. Basic Value TOTAL RETURNS, 12/31/04-12/31/05, reduce their exposure to the level and
Fund at net asset performed essentially EXCLUDING VARIABLE PRODUCT ISSUER volatility of drug price inflation.
in line with the S&P 500 Index and the CHARGES. IF VARIABLE PRODUCT ISSUER
Fund's value peers. During the period, CHARGES WERE INCLUDED, RETURNS WOULD BE The Fund's largest detractors from
the Fund underperformed the Russell 1000 LOWER. performance were mortgage giant FANNIE
Value Index. Long-term performance may MAE and manufacturing conglomerate TYCO
be found on Pages 4 and 5. Series I Shares 5.74% INTERNATIONAL. Fannie Mae continues the
arduous process of restating its
Fund returns for the year were Series II Shares 5.43 historical results caused by a change in
largely driven by significant above- the interpretation of accounting
market returns from selected investments S&P 500 Index standards. We believe that Fannie Mae's
in the energy and health care sectors. (Broad Market index) 4.91 estimated intrinsic value will be driven
While our investment in energy stocks by future regulatory capital
was the single largest driver of Russell 1000 Value Index requirements and not the impact of
performance during 2005, the Fund's (Style-specific Index) 7.05 accounting restatements. Based on a
underweight position versus the Russell variety of existing capital standards,
1000 Value Index hurt our relative Lipper Large-Cap Value Fund Index we believe Fannie Mae continues to
performance. (Peer Group Index) 6.26 be an attractive long-term
investment opportunity.
SOURCE: LIPPER,INC.
======================================= Tyco was one of your Fund's best
Primary detractors from performance were performing stocks in both 2003 and 2004,
selected investments in the information having nearly tripled from the lows
technology, consumer discretionary and reached over three years ago. During
industrial sectors. 2005, the stock fell 19% as the pace of
================================================================================= both sales and operating improvement
began to moderate. While we were
CURRENT PERIOD ANALYSIS markets delivered single digit gains. disappointed with recent results, the
ongoing turnaround of this company
Soaring energy prices were the focus of Our energy and health care sector remains intact and we believe the stock
much investor attention during 2005. stocks were among the largest represents one of the more compelling
While higher gasoline prices, rising contributors to Fund performance. Higher opportunities in the portfolio.
short term interest rates and the energy prices and improved earnings
ongoing fear of a housing bubble prospects led to significant stock price We have made a few changes to the
dominated the popular press, the U.S. increases in oil service investments portfolio since the Fund's semiannual
economy continued its expansion and HALLIBURTON, TRANSOCEAN and WEATHERFORD report. We sold our remaining shares in
inflation remained low. Energy and INTERNATIONAL. Halliburton provided a HONEYWELL
utilities stocks were standout total return of more than 59% and was
performers while consumer discretionary the Fund's single largest contributor to
and telecommunication services stocks performance.
declined. Against this diverse backdrop,
equity Health care holdings MCKESSON and
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.6% 1. Cardinal Health, Inc. 4.9%
Financials 21.2% 2. Health Care Distributors 6.5 2. Tyco International Ltd. 4.2
Health Care 21.1 3. Industrial Conglomerates 6.2 3. Halliburton Co. 3.7
Industrials 15.0 4. Other Diversified Financial 4. JPMorgan Chase & Co. 3.6
Services 5.8
Consumer Discretionary 12.3 5. First Data Corp. 3.5
5. Oil & Gas Equipment & Services 5.6
Information Technology 10.8 6. UnitedHealth Group Inc. 3.4
Energy 8.3 TOTAL NET ASSETS $850.7 MILLION 7. Computer Associates
TOTAL NUMBER OF HOLDINGS* 45 International, Inc. 3.3
Consumer Staples 6.6
8. Fannie Mae 3.0
Materials 2.4
9. Sanofi-Aventis (France) 2.9
Money Market Funds
Plus Other Assets Less Liabilities 2.3 10. Wyeth 2.8
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. BASIC VALUE FUND
INTERNATIONAL, MATTEL, and ENSCO our estimate of portfolio intrinsic BRET W. STANLEY, Chartered
INTERNATIONAL based primarily on value, we believe this provides the best Financial Analyst, senior portfo-
valuation and other portfolio indication that your Fund is positioned [SIMON lio manager, is lead portfolio
considerations. We initiated new to achieve its objective of long-term PHOTO] manager of AIM V.I. Basic Value
positions in MOLSON COORS BREWING, CEMEX growth of capital. Fund and the head of AIM's
and GENERAL ELECTRIC. Value Investment Management
IN CLOSING Unit. Prior to joining AIM in 1998, Mr.
INVESTMENT PROCESS AND EVALUATION Stanley served as a vice president and
Our 2005 results were essentially in portfolio manager and managed growth and
We seek to create wealth by maintaining line with our peers and the Fund's income, equity income and value
a long-term investment horizon and long-term results (See Pages 4 and 5) portfolios. He began his investment
investing in companies that are selling remain significantly better than the career in 1988. Mr. Stanley received a
at a significant discount to their market and our peers. We believe a B.B.A. in finance from The University of
estimated intrinsic value--a value that long-term investment horizon and Texas at Austin and an M.S. in finance
is based on the future cash flows attractive portfolio estimated intrinsic from the University of Houston.
generated by the business. The Fund's value content are critical to creating
philosophy is based on two elements that wealth. But we understand maintaining a R. CANON COLEMAN II,
we believe have extensive empirical long-term investment horizon is a Chartered Financial Analyst,
evidence: challenge. Empirical evidence reveals [WALSH portfolio manager, is manager
short-term behavior by both portfolio PHOTO] of AIM V.I. Basic Value Fund.
o Companies have a measurable estimated managers and fund shareholders dilutes He joined AIM in 2000.
intrinsic value. Importantly, this fair investors' actual returns. One recent He previously worked as a
value is independent of the company's study estimated the combined effects of CPA. Mr. Coleman earned a B.S. and an
stock price. short-term activity and expenses have M.S. in accounting from the University
caused investors to underperform the of Florida. He also has an M.B.A. from
o Market prices are more volatile than market by 5% per year over a 20-year The Wharton School at the University of
business values, partly because period. During this period, the average Pennsylvania.
investors regularly overreact to holding period for a typical stock has
negative news. declined from more than three years to MATTHEW W. SEINSHEIMER,
less than 12 months. Considering this Chartered Financial Analyst,
Since our application of this market backdrop, your Fund is doing [SIMON senior portfolio manager,
strategy is highly disciplined and something different and old PHOTO] is manager of AIM V.I. Basic
relatively unique, it is important to fashioned--investing for the long term. Value Fund. He began his
understand the benefits and limitations Our strategy of buying undervalued investment career in 1992 as a
of our process. First, the investment stocks and avoiding the rest is based on fixed-income trader. He later served as
strategy is intended to preserve your common sense. a portfolio manager on both fixed income
capital while growing it at above-market and equity portfolios. Mr. Seinsheimer
rates over the long term. Second, we We remain optimistic about AIM V.I. joined AIM as a senior analyst in 1998
have little portfolio commonality with Basic Value Fund's portfolio. As always, and assumed his current responsibilities
popular benchmarks and most of our we are continually searching for in 2000. He received a B.B.A. from
peers. Third, short-term relative opportunities to increase the Southern Methodist University and an
performance will differ from the portfolio's estimated intrinsic value. M.B.A. from The University of Texas at
benchmarks and have little information In the meantime, we thank you for your Austin.
value simply because we don't own the investment and for sharing our long-term
exact same stocks (low commonality). horizon. MICHAEL J. SIMON,
Chartered Financial Analyst,
PORTFOLIO ASSESSMENT THE VIEWS AND OPINIONS EXPRESSED IN [WALSH senior portfolio manager, is
MANAGEMENT'S DISCUSSION OF FUND PHOTO] manager of AIM V.I. Basic Value
We believe the single most important PERFORMANCE ARE THOSE OF A I M ADVISORS, Fund. He joined AIM in 2001.
indicator of the way AIM V.I. Basic INC. THESE VIEWS AND OPINIONS ARE Prior to joining AIM, Mr. Simon
Value Fund is positioned for potential SUBJECT TO CHANGE AT ANY TIME BASED ON worked as a vice president, equity
success is not our historical investment FACTORS SUCH AS MARKET AND ECONOMIC analyst and portfolio manager. Mr.
results or popular statistical measures, CONDITIONS. THESE VIEWS AND OPINIONS MAY Simon, who began his investment career
but rather the portfolio's estimated NOT BE RELIED UPON AS INVESTMENT ADVICE in 1989, received a B.B.A. in finance
intrinsic value. Since we can estimate OR RECOMMENDATIONS, OR AS AN OFFER FOR A from Texas Christian University and an
the intrinsic value of each holding in PARTICULAR SECURITY. THE INFORMATION IS M.B.A. from the University of Chicago.
the portfolio, we can also estimate the NOT A COMPLETE ANALYSIS OF EVERY ASPECT Mr. Simon has served as Occasional
intrinsic value of the entire Fund. The OF ANY MARKET, COUNTRY, INDUSTRY, Faculty in the Finance and Decision
difference between market price and SECURITY OR THE FUND. STATEMENTS OF FACT Sciences Department of Texas Christian
estimated intrinsic value is about ARE FROM SOURCES CONSIDERED RELIABLE, University's M.J. Neeley School of
average for your Fund for the past BUT A I M ADVISORS, INC. MAKES NO Business.
several years. However, we believe this REPRESENTATION OR WARRANTY AS TO THEIR
estimated intrinsic value content is COMPLETENESS OR ACCURACY. ALTHOUGH Assisted by the Basic Value Team
significantly greater than what is HISTORICAL PERFORMANCE IS NO GUARANTEE
available in the broad market. While OF FUTURE RESULTS, THESE INSIGHTS MAY
there is no assurance that market value HELP YOU UNDERSTAND OUR INVESTMENT [RIGHT ARROW GRAPHIC]
will ever reflect MANAGEMENT PHILOSOPHY.
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 9/10/01, INDEX DATA FROM 8/31/01
====================================================================================================================================
[MOUNTAIN CHART]
AIM V.I. BASIC AIM V.I. BASIC LIPPER LARGE-CAP
VALUE FUND- VALUE FUND- S&P 500 RUSSELL 1000 VALUE FUND
DATE SERIES I SHARES SERIES II SHARES INDEX VALUE INDEX INDEX
8/31/01 10000 10000 10000
9/01 9210 9210 9193 9296 9220
10/01 9270 9270 9368 9216 9280
11/01 9950 9950 10086 9752 9875
12/01 10263 10258 10175 9982 10024
1/02 10183 10178 10026 9905 9839
2/02 9992 9987 9833 9921 9784
3/02 10723 10717 10203 10390 10216
4/02 10342 10337 9585 10034 9781
5/02 10292 10287 9514 10084 9794
6/02 9281 9267 8837 9505 9111
7/02 8289 8276 8148 8621 8324
8/02 8430 8426 8201 8687 8380
9/02 7418 7406 7311 7721 7411
10/02 7888 7876 7954 8293 7955
11/02 8509 8497 8421 8815 8454
12/02 7988 7966 7927 8432 8051
1/03 7808 7786 7720 8228 7860
2/03 7528 7506 7604 8009 7663
3/03 7497 7476 7677 8022 7658
4/03 8168 8147 8309 8728 8305
5/03 9008 8978 8747 9292 8816
6/03 9038 9007 8858 9408 8917
07/03 9308 9277 9015 9548 9041
08/03 9628 9597 9190 9697 9194
09/03 9428 9397 9093 9602 9090
10/03 9898 9857 9607 10190 9592
11/03 10089 10048 9691 10328 9710
12/03 10673 10618 10199 10964 10306
01/04 10833 10779 10387 11157 10462
02/04 11053 10998 10531 11396 10682
03/04 11013 10959 10372 11297 10555
04/04 10863 10799 10209 11021 10360
05/04 10963 10899 10349 11133 10436
06/04 11234 11170 10550 11396 10665
07/04 10623 10559 10201 11235 10409
08/04 10553 10489 10242 11395 10484
09/04 10682 10610 10353 11572 10608
10/04 10873 10799 10511 11764 10721
11/04 11443 11370 10936 12359 11187
12/04 11854 11770 11308 12773 11542
01/05 11644 11559 11033 12546 11318
02/05 11895 11800 11265 12962 11636
03/05 11675 11579 11066 12784 11446
04/05 11404 11309 10856 12555 11220
05/05 11624 11530 11201 12857 11482
06/05 11834 11740 11217 12998 11599
07/05 12225 12120 11634 13374 11977
08/05 12034 11930 11528 13316 11925
09/05 12145 12039 11621 13503 12040
10/05 11834 11719 11427 13160 11789
11/05 12294 12180 11859 13593 12194
12/05 12538 12408 11863 13674 12264
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
4
AIM V.I. BASIC VALUE FUND
======================================== HIGHER. PLEASE CONTACT YOUR VARIABLE SALES CHARGES, EXPENSES AND FEES, WHICH
AVERAGE ANNUAL TOTAL RETURNS PRODUCT ISSUER OR FINANCIAL ADVISOR FOR ARE DETERMINED BY THE VARIABLE PRODUCT
As of 12/31/05 THE MOST RECENT MONTH-END VARIABLE ISSUERS, WILL VARY AND WILL LOWER THE
PRODUCT PERFORMANCE. PERFORMANCE FIGURES TOTAL RETURN.
SERIES I SHARES REFLECT FUND EXPENSES, REINVESTED
Inception (9/10/01) 5.39% DISTRIBUTIONS AND CHANGES IN NET ASSET PER NASD REQUIREMENTS, THE MOST
1 Year 5.74 VALUE. INVESTMENT RETURN AND PRINCIPAL RECENT MONTH-END PERFORMANCE DATA AT THE
VALUE WILL FLUCTUATE SO THAT YOU MAY FUND LEVEL, EXCLUDING VARIABLE PRODUCT
SERIES II SHARES HAVE A GAIN OR LOSS WHEN YOU SELL CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Inception (9/10/01) 5.14% SHARES. INFORMATION LINE, 866-702-4402. AS
1 Year 5.43 MENTIONED ABOVE, FOR THE MOST RECENT
AIM V.I. BASIC VALUE FUND, A SERIES MONTH-END PERFORMANCE INCLUDING VARIABLE
======================================== PORTFOLIO OF AIM VARIABLE INSURANCE PRODUCT CHARGES, PLEASE CONTACT YOUR
CUMULATIVE TOTAL RETURNS FUNDS, IS CURRENTLY OFFERED THROUGH VARIABLE PRODUCT ISSUER OR FINANCIAL
Six months ended 12/31/05 INSURANCE COMPANIES ISSUING VARIABLE ADVISOR.
Series I 5.91% PRODUCTS. YOU CANNOT PURCHASE SHARES OF
Series II 5.70 THE FUND DIRECTLY. PERFORMANCE FIGURES
======================================== GIVEN REPRESENT THE FUND AND ARE NOT
INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I AND SERIES II SHARES INVEST IN PRODUCT VALUES. THEY DO NOT REFLECT
THE SAME PORTFOLIO OF SECURITIES AND SALES CHARGES, EXPENSES AND FEES
WILL HAVE SUBSTANTIALLY SIMILAR ASSESSED IN CONNECTION WITH A VARIABLE
PERFORMANCE, EXCEPT TO THE EXTENT THAT PRODUCT.
EXPENSES BORNE BY EACH CLASS DIFFER.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR
PRINCIPAL RISKS OF INVESTING IN THE FUND pendent mutual fund performance monitor. principles require adjustments to be
made to the net assets of the Fund at
Investing in smaller companies involves The unmanaged Russell 1000--Registered period end for financial reporting
greater risk than investing in more Trademark-- VALUE INDEX is a subset of purposes, and as such, the net asset
established companies, such as business the unmanaged Russell 1000--Registered values for shareholder transactions and
risk, significant stock price Trademark-- INDEX, which represents the returns based on those net asset
fluctuations and illiquidity. the performance of the stocks of large- values may differ from the net asset
capitalization companies; the Value values and returns reported in the
The Fund may invest up to 25% of its subset measures the performance of Financial Highlights. Additionally, the
assets in the securities of non-U.S. Russell 1000 companies with lower returns and net asset values shown
issuers. International investing price/book ratios and lower forecasted throughout this report are at the Fund
presents certain risks not associated growth values. level only and do not include variable
with investing solely in the United product issuer charges. If such charges
States. These include risks relating to The Fund is not managed to track the were included, the total returns would
fluctuations in the value of the U.S. performance of any particular index, be lower.
dollar relative to the values of other including the indexes defined here, and
currencies, the custody arrangements consequently, the performance of the Commonality measures the similarity
made for the Fund's foreign holdings, Fund may deviate significantly from the of holdings between two portfolios using
differences in accounting, political performance of the indexes. the lowest common percentage method.
risks and the lesser degree of public This method compares each security's
information required to be provided by A direct investment cannot be made in percentage of total net assets in both
non-U.S. companies. an index. Unless otherwise indicated, portfolios and adds the lower
index results include reinvested percentages of the two portfolios to
ABOUT INDEXES USED IN THIS REPORT dividends, and they do not reflect sales determine commonality.
charges. Performance of an index of
The unmanaged Standard & Poor's funds reflects fund expenses; Industry classifications used in this
Composite Index of 500 Stocks (the S&P performance of a market index does not. report are generally according to the
500--Registered Trademark-- INDEX) is Global Industry Classification Standard,
an index of common stocks frequently OTHER INFORMATION which was developed by and is the
used as a general measure of U.S. stock exclusive property and a service mark of
market performance. The returns shown in the management's Morgan Stanley Capital International
discussion of Fund performance are based Inc. and Standard & Poor's.
The unmanaged LIPPER LARGE-CAP VALUE on net asset values calculated for
FUND INDEX represents an average of the shareholder transactions. Generally
performance of the 30 largest accepted accounting
large-capitalization value funds tracked
by Lipper, Inc., an inde-
5
AIM V.I. BASIC VALUE FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON
the effect of any fees or other expenses PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,059.10 $5.03 $1,020.32 $4.94 0.97%
Series II 1,000.00 1,057.00 6.33 1,019.06 6.21 1.22
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. BASIC VALUE FUND
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 for which AIM serves as sub-advisor,
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the although the total management fees paid
the management of AIM V.I. Basic Value credentials and experience of the by such unaffiliated mutual fund was
Fund (the "Fund") and, as required by officers and employees of AIM who will higher than the advisory fee rate for
law, determines annually whether to provide investment advisory services to the Fund; and (iv) was higher than the
approve the continuance of the Fund's the Fund. In reviewing the advisory fee rates for twenty separately
advisory agreement with A I M Advisors, qualifications of AIM to provide managed wrap accounts managed by an AIM
Inc. ("AIM"). Based upon the investment advisory services, the Board affiliate, and lower than the advisory
recommendation of the Investments reviewed the qualifications of AIM's fee rates for two separately managed
Committee of the Board, which is investment personnel and considered such wrap accounts managed by an AIM
comprised solely of independent issues as AIM's portfolio and product affiliate with investment strategies
trustees, at a meeting held on June 30, review process, various back office comparable to those of the Fund. The
2005, the Board, including all of the support functions provided by AIM and Board noted that AIM has agreed to waive
independent trustees, approved the AIM's equity and fixed income trading advisory fees of the Fund and to limit
continuance of the advisory agreement operations. Based on the review of these the Fund's total operating expenses, as
(the "Advisory Agreement") between the and other factors, the Board concluded discussed below. Based on this review,
Fund and AIM for another year, effective that the quality of services to be the Board concluded that the advisory
July 1, 2005. provided by AIM was appropriate and that fee rate for the Fund under the Advisory
AIM currently is providing satisfactory Agreement was fair and reasonable.
The Board considered the factors services in accordance with the terms of
discussed below in evaluating the the Advisory Agreement. o Fees relative to those of comparable
fairness and reasonableness of the funds with other advisors. The Board
Advisory Agreement at the meeting on o The performance of the Fund relative reviewed the advisory fee rate for the
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed Fund under the Advisory Agreement. The
ongoing oversight of the Fund. In their the performance of the Fund during the Board compared effective contractual
deliberations, the Board and the past one and three calendar years advisory fee rates at a common asset
independent trustees did not identify against the performance of funds advised level and noted that the Fund's rate was
any particular factor that was by other advisors with investment above the median rate of the funds
controlling, and each trustee attributed strategies comparable to those of the advised by other advisors with
different weights to the various Fund. The Board noted that the Fund's investment strategies comparable to
factors. performance in such periods was above those of the Fund that the Board
the median performance of such reviewed. The Board noted that AIM has
One of the responsibilities of the comparable funds. Based on this review, agreed to waive advisory fees of the
Senior Officer of the Fund, who is the Board concluded that no changes Fund and to limit the Fund's total
independent of AIM and AIM's affiliates, should be made to the Fund and that it operating expenses, as discussed below.
is to manage the process by which the was not necessary to change the Fund's Based on this review, the Board
Fund's proposed management fees are portfolio management team at this time. concluded that the advisory fee rate for
negotiated to ensure that they are the Fund under the Advisory Agreement
negotiated in a manner which is at arm's o The performance of the Fund relative was fair and reasonable.
length and reasonable. To that end, the to indices. The Board reviewed the
Senior Officer must either supervise a performance of the Fund during the past o Expense limitations and fee waivers.
competitive bidding process or prepare one and three calendar years against the The Board noted that AIM has
an independent written evaluation. The performance of the Lipper Large-Cap contractually agreed to waive advisory
Senior Officer has recommended an Value Index. The Board noted that the fees of the Fund through December 31,
independent written evaluation in lieu Fund's performance in such periods was 2009 to the extent necessary so that the
of a competitive bidding process and, comparable to the performance of such advisory fees payable by the Fund do not
upon the direction of the Board, has Index. Based on this review, the Board exceed a specified maximum advisory fee
prepared such an independent written concluded that no changes should be made rate, which maximum rate includes
evaluation. Such written evaluation also to the Fund and that it was not breakpoints and is based on net asset
considered certain of the factors necessary to change the Fund's portfolio levels. The Board considered the
discussed below. In addition, as management team at this time. contractual nature of this fee waiver
discussed below, the Senior Officer made and noted that it remains in effect
certain recommendations to the Board in o Meeting with the Fund's portfolio until December 31, 2009. The Board also
connection with such written evaluation. managers and investment personnel. With noted that AIM has contractually agreed
respect to the Fund, the Board is to waive fees and/or limit expenses of
The discussion below serves as a meeting periodically with such Fund's the Fund through April 30, 2006 so that
summary of the Senior Officer's portfolio managers and/or other total annual operating expenses are
independent written evaluation and investment personnel and believes that limited to a specified percentage of
recommendations to the Board in such individuals are competent and able average daily net assets for each class
connection therewith, as well as a to continue to carry out their of the Fund. The Board considered the
discussion of the material factors and responsibilities under the Advisory contractual nature of this fee waiver
the conclusions with respect thereto Agreement. and noted that it remains in effect
that formed the basis for the Board's until April 30, 2006. The Board
approval of the Advisory Agreement. o Overall performance of AIM. The Board considered the effect these fee
After consideration of all of the considered the overall performance of waivers/expense limitations would have
factors below and based on its informed AIM in providing investment advisory and on the Fund's estimated expenses and
business judgment, the Board determined portfolio administrative services to the concluded that the levels of fee
that the Advisory Agreement is in the Fund and concluded that such performance waivers/expense limitations for the Fund
best interests of the Fund and its was satisfactory. were fair and reasonable.
shareholders and that the compensation
to AIM under the Advisory Agreement is o Fees relative to those of clients of o Breakpoints and economies of scale.
fair and reasonable and would have been AIM with comparable investment The Board reviewed the structure of the
obtained through arm's length strategies. The Board reviewed the Fund's advisory fee under the Advisory
negotiations. advisory fee rate for the Fund under the Agreement, noting that it includes three
Advisory Agreement. The Board noted that breakpoints. The Board reviewed the
o The nature and extent of the advisory this rate (i) was the same as the level of the Fund's advisory fees, and
services to be provided by AIM. The advisory fee rates for one mutual fund noted that such fees, as a percentage of
Board reviewed the services to be advised by AIM with investment the Fund's net assets, have decreased as
provided by AIM under the Advisory strategies comparable to those of the net assets increased because the
Agreement. Based on such review, the Fund; (ii) was lower than the advisory Advisory Agreement includes breakpoints.
Board concluded that the range of fee rates for an offshore fund for which The Board noted that, due to the Fund's
services to be provided by AIM under the an AIM affiliate serves as advisor with current asset levels and the way in
Advisory Agreement was appropriate and investment strategies comparable to which the advisory
that AIM currently is providing services those of the Fund; (iii) was higher than
in accordance with the terms of the the sub-advisory fee rates for an
Advisory Agreement. unaffiliated mutual fund
7
AIM V.I. BASIC VALUE FUND
fee breakpoints have been structured, o Profitability of AIM and its o Other factors and current trends. In
the Fund has yet to fully benefit from affiliates. The Board reviewed determining whether to continue the
the breakpoints. The Board noted that information concerning the profitability Advisory Agreement for the Fund, the
AIM has contractually agreed to waive of AIM's (and its affiliates') Board considered the fact that AIM,
advisory fees of the Fund through investment advisory and other activities along with others in the mutual fund
December 31, 2009 to the extent and its financial condition. The Board industry, is subject to regulatory
necessary so that the advisory fees considered the overall profitability of inquiries and litigation related to a
payable by the Fund do not exceed a AIM, as well as the profitability of AIM wide range of issues. The Board also
specified maximum advisory fee rate, in connection with managing the Fund. considered the governance and compliance
which maximum rate includes breakpoints The Board noted that AIM's operations reforms being undertaken by AIM and its
and is based on net asset levels. The remain profitable, although increased affiliates, including maintaining an
Board concluded that the Fund's fee expenses in recent years have reduced internal controls committee and
levels under the Advisory Agreement AIM's profitability. Based on the review retaining an independent compliance
therefore reflect economies of scale and of the profitability of AIM's and its consultant, and the fact that AIM has
that it was not necessary to change the affiliates' investment advisory and undertaken to cause the Fund to operate
advisory fee breakpoints in the Fund's other activities and its financial in accordance with certain governance
advisory fee schedule. condition, the Board concluded that the policies and practices. The Board
compensation to be paid by the Fund to concluded that these actions indicated a
o Investments in affiliated money market AIM under its Advisory Agreement was not good faith effort on the part of AIM to
funds. The Board also took into account excessive. adhere to the highest ethical standards,
the fact that uninvested cash and cash and determined that the current
collateral from securities lending o Benefits of soft dollars to AIM. The regulatory and litigation environment to
arrangements (collectively, "cash Board considered the benefits realized which AIM is subject should not prevent
balances") of the Fund may be invested by AIM as a result of brokerage the Board from continuing the Advisory
in money market funds advised by AIM transactions executed through "soft Agreement for the Fund.
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
and its respective shareholders. current relationship, in part, because
of such knowledge. The Board also
o Independent written evaluation and reviewed the general nature of the
recommendations of the Fund's Senior non-investment advisory services
Officer. The Board noted that, upon currently performed by AIM and its
their direction, the Senior Officer of affiliates, such as administrative,
the Fund, who is independent of AIM and transfer agency and distribution
AIM's affiliates, had prepared an services, and the fees received by AIM
independent written evaluation in order and its affiliates for performing such
to assist the Board in determining the services. In addition to reviewing such
reasonableness of the proposed services, the trustees also considered
management fees of the AIM Funds, the organizational structure employed by
including the Fund. The Board noted that AIM and its affiliates to provide those
the Senior Officer's written evaluation services. Based on the review of these
had been relied upon by the Board in and other factors, the Board concluded
this regard in lieu of a competitive that AIM and its affiliates were
bidding process. In determining whether qualified to continue to provide
to continue the Advisory Agreement for non-investment advisory services to the
the Fund, the Board considered the Fund, including administrative, transfer
Senior Officer's written evaluation and agency and distribution services, and
the recommendation made by the Senior that AIM and its affiliates currently
Officer to the Board that the Board are providing satisfactory
consider implementing a process to non-investment advisory services.
assist them in more closely monitoring
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.71%
ADVERTISING-4.29%
Interpublic Group of Cos., Inc. (The)(a) 1,659,100 $ 16,010,315
- -----------------------------------------------------------------------
Omnicom Group Inc. 240,700 20,490,791
=======================================================================
36,501,106
=======================================================================
APPAREL RETAIL-1.94%
Gap, Inc. (The) 937,450 16,536,618
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.96%
Bank of New York Co., Inc. (The) 523,450 16,671,882
=======================================================================
BREWERS-1.74%
Molson Coors Brewing Co.-Class B 220,570 14,775,984
=======================================================================
BUILDING PRODUCTS-3.46%
American Standard Cos. Inc. 404,650 16,165,767
- -----------------------------------------------------------------------
Masco Corp. 439,300 13,262,467
=======================================================================
29,428,234
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.52%
Lexmark International, Inc.-Class A(a) 98,400 4,411,272
=======================================================================
CONSTRUCTION MATERIALS-2.39%
CEMEX S.A. de C.V.-ADR (Mexico) 343,250 20,365,022
=======================================================================
CONSUMER ELECTRONICS-1.55%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 424,550 13,203,505
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-5.55%
Ceridian Corp.(a) 689,050 17,122,892
- -----------------------------------------------------------------------
First Data Corp. 698,850 30,057,538
=======================================================================
47,180,430
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.10%
Cendant Corp. 1,036,603 17,881,402
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.48%
Waste Management, Inc. 694,250 21,070,488
=======================================================================
FOOD RETAIL-3.28%
Kroger Co. (The)(a) 874,000 16,501,120
- -----------------------------------------------------------------------
Safeway Inc. 480,750 11,374,545
=======================================================================
27,875,665
=======================================================================
GENERAL MERCHANDISE STORES-1.41%
Target Corp. 217,700 11,966,969
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
HEALTH CARE DISTRIBUTORS-6.49%
Cardinal Health, Inc. 602,100 $ 41,394,375
- -----------------------------------------------------------------------
McKesson Corp. 267,348 13,792,483
=======================================================================
55,186,858
=======================================================================
HEALTH CARE EQUIPMENT-1.83%
Waters Corp.(a) 411,800 15,566,040
=======================================================================
HEALTH CARE FACILITIES-1.74%
HCA Inc. 292,700 14,781,350
=======================================================================
INDUSTRIAL CONGLOMERATES-6.24%
General Electric Co. 487,000 17,069,350
- -----------------------------------------------------------------------
Tyco International Ltd. 1,247,550 36,004,293
=======================================================================
53,073,643
=======================================================================
INDUSTRIAL MACHINERY-0.78%
Parker Hannifin Corp. 100,950 6,658,662
=======================================================================
INVESTMENT BANKING & BROKERAGE-4.24%
Merrill Lynch & Co., Inc. 251,850 17,057,801
- -----------------------------------------------------------------------
Morgan Stanley 334,950 19,005,063
=======================================================================
36,062,864
=======================================================================
MANAGED HEALTH CARE-3.38%
UnitedHealth Group Inc. 462,900 28,764,606
=======================================================================
MOVIES & ENTERTAINMENT-1.75%
Walt Disney Co. (The) 622,650 14,924,921
=======================================================================
MULTI-LINE INSURANCE-1.66%
Genworth Financial Inc.-Class A 407,800 14,101,724
=======================================================================
OIL & GAS DRILLING-2.73%
Transocean Inc.(a) 332,950 23,203,286
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-5.58%
Halliburton Co. 504,300 31,246,428
- -----------------------------------------------------------------------
Weatherford International Ltd.(a) 447,900 16,213,980
=======================================================================
47,460,408
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.82%
Citigroup Inc. 396,750 19,254,278
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 762,690 30,271,166
=======================================================================
49,525,444
=======================================================================
PACKAGED FOODS & MEATS-1.57%
Unilever N.V. (Netherlands)(b) 195,500 13,388,263
=======================================================================
</Table>
AIM V.I. BASIC VALUE FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
PHARMACEUTICALS-7.62%
Pfizer Inc. 720,800 $ 16,809,056
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 280,128 24,542,941
- -----------------------------------------------------------------------
Wyeth 510,302 23,509,613
=======================================================================
64,861,610
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.43%
ACE Ltd. 386,350 20,646,544
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.50%
Novellus Systems, Inc.(a) 529,915 12,781,550
=======================================================================
SPECIALIZED CONSUMER SERVICES-1.32%
H&R Block, Inc. 457,400 11,229,170
=======================================================================
SYSTEMS SOFTWARE-3.26%
Computer Associates International, Inc. 982,976 27,710,093
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-5.10%
Fannie Mae 518,350 $ 25,300,664
- -----------------------------------------------------------------------
MGIC Investment Corp. 140,350 9,237,837
- -----------------------------------------------------------------------
Radian Group Inc. 151,250 8,861,738
=======================================================================
43,400,239
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $656,035,850) 831,195,852
=======================================================================
MONEY MARKET FUNDS-0.93%
Liquid Assets Portfolio-Institutional
Class(c) 3,971,140 3,971,140
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 3,971,140 3,971,140
=======================================================================
Total Money Market Funds (Cost
$7,942,280) 7,942,280
=======================================================================
TOTAL INVESTMENTS-98.64% (Cost $663,978,130) 839,138,132
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.36% 11,587,196
=======================================================================
NET ASSETS-100.00% $850,725,328
_______________________________________________________________________
=======================================================================
</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 value of these securities at December 31, 2005 was $37,931,204,
which represented 4.46% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $656,035,850) $831,195,852
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $7,942,280) 7,942,280
=============================================================
Total investments (cost $663,978,130) 839,138,132
=============================================================
Foreign currencies, at value (cost $15,267) 15,275
- -------------------------------------------------------------
Receivables for:
Investments sold 13,930,594
- -------------------------------------------------------------
Investments sold to affiliates 232,575
- -------------------------------------------------------------
Fund shares sold 214,619
- -------------------------------------------------------------
Dividends 858,655
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 25,606
=============================================================
Total assets 854,415,456
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,693,759
- -------------------------------------------------------------
Fund shares reacquired 1,175,041
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 51,526
- -------------------------------------------------------------
Accrued administrative services fees 540,292
- -------------------------------------------------------------
Accrued distribution fees -- Series II 225,963
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 179
- -------------------------------------------------------------
Accrued operating expenses 3,368
=============================================================
Total liabilities 3,690,128
=============================================================
Net assets applicable to shares outstanding $850,725,328
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $640,321,177
- -------------------------------------------------------------
Undistributed net investment income 2,175,778
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 33,068,139
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 175,160,234
=============================================================
$850,725,328
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $487,332,394
_____________________________________________________________
=============================================================
Series II $363,392,934
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 39,402,959
_____________________________________________________________
=============================================================
Series II 29,633,511
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.37
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.26
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$203,938) $10,701,389
- ------------------------------------------------------------
Dividends from affiliated money market funds 665,096
============================================================
Total investment income 11,366,485
============================================================
EXPENSES:
Advisory fees 6,010,305
- ------------------------------------------------------------
Administrative services fees 2,271,261
- ------------------------------------------------------------
Custodian fees 75,832
- ------------------------------------------------------------
Distribution fees -- Series II 884,933
- ------------------------------------------------------------
Transfer agent fees 29,360
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 39,723
- ------------------------------------------------------------
Other 115,891
============================================================
Total expenses 9,427,305
============================================================
Less: Fees waived (404,786)
============================================================
Net expenses 9,022,519
============================================================
Net investment income 2,343,966
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains
(losses) from securities sold to
affiliates of $(30,198)) 34,344,853
- ------------------------------------------------------------
Foreign currencies (141,154)
============================================================
34,203,699
============================================================
Change in net unrealized appreciation of:
Investment securities 9,604,958
- ------------------------------------------------------------
Foreign currencies 1,640
============================================================
9,606,598
============================================================
Net gain from investment securities and foreign
currencies 43,810,297
============================================================
Net increase in net assets resulting from
operations $46,154,263
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,343,966 $ 463,473
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 34,203,699 16,587,227
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 9,606,598 61,496,532
==========================================================================================
Net increase in net assets resulting from operations 46,154,263 78,547,232
==========================================================================================
Distributions to shareholders from net investment income:
Series I (426,072) --
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Series I (5,437,294) --
- ------------------------------------------------------------------------------------------
Series II (4,139,818) --
==========================================================================================
Total distributions from net realized gains (9,577,112) --
==========================================================================================
Decrease in net assets resulting from distributions (10,003,184) --
==========================================================================================
Share transactions-net:
Series I (30,575,554) 141,562,360
- ------------------------------------------------------------------------------------------
Series II (5,292,288) 67,072,182
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (35,867,842) 208,634,542
==========================================================================================
Net increase in net assets 283,237 287,181,774
==========================================================================================
NET ASSETS:
Beginning of year 850,442,091 563,260,317
==========================================================================================
End of year (including undistributed net investment income
of $2,175,778 and $399,038, respectively) $850,725,328 $850,442,091
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. BASIC VALUE FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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 VALUE 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 $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 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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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. 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 year ended December 31, 2005, AIM waived fees of $404,786.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $203,374 for
accounting and fund administrative services and reimbursed $2,067,887 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 year ended
December 31, 2005, the Fund paid AISI $29,360.
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
AIM V.I. BASIC VALUE FUND
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 year ended December
31, 2005, the Series II shares paid $884,933.
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 year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $11,460,610 $ 72,117,730 $ (79,607,200) $ -- $3,971,140 $331,553 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 11,460,610 72,117,730 (79,607,200) -- 3,971,140 333,543 --
==================================================================================================================================
Total $22,921,220 $144,235,460 $(159,214,400) $ -- $7,942,280 $665,096 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $1,379,341 and sales of $762,900, which
resulted in net realized gains (losses) of $(30,198).
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $7,054
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
AIM V.I. BASIC VALUE FUND
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 4,240,393 $ --
- ----------------------------------------------------------------------------------
Long-term capital gain 5,762,791 --
==================================================================================
Total distributions $10,003,184 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed ordinary income $ 4,470,762
- --------------------------------------------------------------------------
Undistributed long-term gain 32,753,451
- --------------------------------------------------------------------------
Unrealized appreciation-investments 173,272,783
- --------------------------------------------------------------------------
Temporary book/tax differences (38,695)
- --------------------------------------------------------------------------
Post-October currency loss deferral (54,150)
- --------------------------------------------------------------------------
Shares of beneficial interest 640,321,177
==========================================================================
Total net assets $850,725,328
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $232.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 31, 2005.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $128,561,668 and $171,756,966, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 201,517,697
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (28,245,146)
===============================================================================
Net unrealized appreciation of investment securities $ 173,272,551
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $665,865,581.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income was
decreased by $141,154 and undistributed net realized gain was increased by
$141,154. This reclassification had no effect on the net assets of the Fund.
AIM V.I. BASIC VALUE FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2005(A) 2004
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 8,650,711 $ 102,288,763 13,734,851 $149,824,539
- ------------------------------------------------------------------------------------------------------------------------
Series II 5,591,052 65,583,748 11,573,153 125,795,937
========================================================================================================================
Issued as reinvestment of dividends:
Series I 470,853 5,857,415 -- --
- ------------------------------------------------------------------------------------------------------------------------
Series II 335,752 4,139,818 -- --
========================================================================================================================
Issued in connection with acquisitions:(b)
Series I -- -- 2,495,812 27,079,556
========================================================================================================================
Reacquired:
Series I (11,690,247) (138,721,732) (3,284,585) (35,341,735)
- ------------------------------------------------------------------------------------------------------------------------
Series II (6,368,816) (75,015,854) (5,416,314) (58,723,755)
========================================================================================================================
(3,010,695) $ (35,867,842) 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 the aggregate they own 69% 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 May 3, 2004, the Fund acquired all of
the net assets of LSA Basic Value Fund, pursuant to a plan of
reorganization approved 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 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------------- DECEMBER 31,
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 0.05 0.02 0.00 0.02(a) 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.63 1.16 2.68 (2.29) 0.25
=================================================================================================================================
Total from investment operations 0.68 1.18 2.68 (2.27) 0.26
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- (0.00) (0.00) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.14) -- -- -- --
=================================================================================================================================
Total distributions (0.15) -- (0.00) (0.00) (0.01)
=================================================================================================================================
Net asset value, end of period $ 12.37 $ 11.84 $ 10.66 $ 7.98 $ 10.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.74% 11.07% 33.63% (22.15)% 2.63%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $487,332 $496,837 $309,384 $97,916 $19,638
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.97%(c) 1.02% 1.04% 1.16% 1.27%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.02%(c) 1.02% 1.04% 1.16% 2.61%(d)
=================================================================================================================================
Ratio of net investment income to average net assets 0.38%(c) 0.17% 0.01% 0.18% 0.28%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 16% 14% 18% 22% 4%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for the financial reporting purposes and the returns based upon
those net asset values may differ from the net asset value and returns
for shareholder transactions. Total returns are not annualized for
periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(c) Ratios are annualized and based on average daily net assets of
$486,784,738.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. BASIC VALUE FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------- 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) 0.02 (0.01) (0.02) (0.01)(a) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.62 1.16 2.67 (2.28) 0.26
=================================================================================================================================
Total from investment operations 0.64 1.15 2.65 (2.29) 0.26
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.00) (0.00) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.14) -- -- -- --
=================================================================================================================================
Total distributions (0.14) -- (0.00) (0.00) (0.01)
=================================================================================================================================
Net asset value, end of period $ 12.26 $ 11.76 $ 10.61 $ 7.96 $10.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.43% 10.84% 33.29% (22.34)% 2.58%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $363,393 $353,605 $253,877 $104,597 $ 513
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(c) 1.27% 1.29% 1.41% 1.44%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(c) 1.27% 1.29% 1.41% 2.88%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.13%(c) (0.08)% (0.24)% (0.07)% 0.12%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 16% 14% 18% 22% 4%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for the financial reporting purposes and the returns based upon
those net asset values may differ from the net asset value and returns
for shareholder transactions. Total returns are not annualized for
periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(c) Ratios are based on average daily net assets of $353,973,101.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL
AIM V.I. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
Court: (i) denied the motion to dismiss on the grounds that the plaintiffs lack
standing or that the defendants' investments in company stock are entitled to a
presumption of prudence; (ii) granted the motion to dismiss as to defendants not
named in the employee benefit plan documents as fiduciaries but gave plaintiffs
leave to replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Basic Value Fund, (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. BASIC VALUE FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2005, the fund designates $5,762,791 as
long term capital gain dividend.
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. BASIC VALUE FUND
AIM V.I. BLUE CHIP FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. BLUE CHIP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE o growth--we seek companies with the
potential for sustainable, long-term
================================================================================ earnings, revenue and cash flow growth.
PERFORMANCE SUMMARY
======================================= o value--we seek companies whose
For the year ended December 31, 2005, FUND VS. INDEXES stocks are trading at attractive
AIM V.I. Blue Chip Fund delivered valuations relative to their potential
positive returns but lagged its broad TOTAL RETURNS, 12/31/04--12/31/05, growth rates
market and style-specific indexes. EXCLUDING VARIABLE PRODUCT ISSUER
Strong performance by the Fund's health CHARGES. IF VARIABLE PRODUCT ISSUER We construct the portfolio by
care stocks couldn't offset an CHARGES WERE INCLUDED, RETURNS WOULD BE focusing on stocks rather than
overweight position relative to our LOWER. industries or sectors. While there are
broad market index in the information no formal sector guidelines or
technology (IT) sector, which was weak Series I Shares 3.50% constraints, internal controls and
for the year. Performance of the Fund's proprietary software help us monitor
IT and industrials stocks hindered Fund Series II Shares 3.27 risk levels and sector concentration.
performance relative to its
style-specific index, the Russell 1000 Standard & Poor's Composite Our sell process seeks to identify
Growth Index. In both sectors, the Index of 500 Stocks (S&P 500 Index) deterioration in the underlying reasons
Fund's holdings sustained losses while (Broad Market Index) 4.91 a stock was initially purchased. We may
holdings in the index enjoyed gains. reduce or sell a position if we see:
Russell 1000 Growth Index
Your Fund's long-term performance (Style-specific Index) 5.26 o a deterioration in business
appears on Pages 4 and 5. prospects
Lipper Large-Cap Core Fund Index
(Former Peer Group Index) 5.72 o a worsening competitive position
Lipper Large-Cap Growth Fund Index o slowing earnings growth
(New Peer Group Index) 7.58
o extended valuation
SOURCE: LIPPER, INC.
======================================= o more attractive investment
opportunities
================================================================================
HOW WE INVEST enue and cash flow, ranking investment MARKET CONDITIONS AND YOUR FUND
candidates on absolute and relative
We believe a growth investment strategy attractiveness. Fundamental analysis Despite widespread concern about the
is an essential component of a seeks to define a company's key drivers potential impact of rising short-term
diversified portfolio. of success and to assess their interest rates and historically high
durability. We review financial energy prices, the U.S. economy showed
Our investment process combines statements and earnings reports, the signs of strength for the year.
quantitative and fundamental analysis company's business model and management Economic activity expanded, inflation
to uncover companies exhibiting long- team, the competitive environment and remained contained and corporate
term, sustainable earnings and cash market opportunities. profits generally rose. Late in the
flow growth that is not yet reflected year, some worried that higher energy
in investor expectations or equity We follow a "conservative growth" prices and rising interest rates might
valuations. strategy, investing in market leaders crimp consumer spending, which accounts
that have attractive growth and value for approximately two-thirds of the
Quantitative analysis focuses on the characteristics:
level, growth rate and sustainability
of earnings, rev-
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Managed Health Care 8.2% 1. Johnson & Johnson 3.3%
Health Care 30.0% 2. Pharmaceuticals 8.1 2. Procter & Gamble Co. (The) 3.0
Information Technology 22.3 3. Biotechnology 6.1 3. Aetna Inc. 2.7
Financials 13.6 4. Investment Banking & Brokerage 5.7 4. Amgen Inc. 2.7
Energy 9.5 5. Semiconductors 5.3 5. Goldman Sachs Group, Inc. (The) 2.7
Consumer Discretionary 9.3 6. Communications Equipment 5.3 6. QUALCOMM Inc. 2.5
Industrials 7.4 7. Aerospace & Defense 4.7 7. UnitedHealth Group Inc. 2.4
Consumer Staples 4.7 8. Oil & Gas Equipment & Services 3.5 8. Microsoft Corp. 2.2
Materials 0.5 9. Systems Software 3.2 9. Home Depot, Inc. (The) 2.1
Money Market Funds Plus 10. Health Care Equipment 3.2 10. Valero Energy Corp. 1.9
Other Assets Less Liabilities 2.7
TOTAL NET ASSETS $124.4 MILLION
TOTAL NUMBER OF HOLDINGS* 78
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================= ======================================= =========================================
2
AIM V.I. BLUE CHIP FUND
U.S. economy. Initial data suggested We added to the Fund's consumer The views and opinions expressed in
that holiday sales were solid. discretionary holdings following a major management's discussion of Fund
sell-off in the sector in August. We performance are those of A I M Advisors,
Health care and energy stocks made targeted retailers that cater to Inc. These views and opinions are
the greatest contribution to your Fund's higher-end consumers--consumers less subject to change at any time based on
performance for the year. likely to be affected by potentially factors such as market and economic
higher winter heating bills. NORDSTROM conditions. These views and opinions may
Within the health care sector, we was among the stocks that we added to not be relied upon as investment advice
generally avoided stocks of a number of the Fund, and we did so at what we or recommendations, or as an offer for a
U.S. pharmaceutical companies due to believe was a very reasonable price. particular security. The information is
their weak product pipelines, patent not a complete analysis of every aspect
expiration and litigation risk. Our Individual stock selection in the IT of any market, country, industry,
research led us to managed health care sector was a significant drag on Fund security or the Fund. Statements of fact
stocks and non-U.S. pharmaceutical performance for the year. The Fund did are from sources considered reliable,
stocks. Many managed health care not own GOOGLE for much of the year, but A I M Advisors, Inc. makes no
companies reported strong earnings in which has been a Wall Street darling representation or warranty as to their
recent quarters by aggressively since going public in August 2004. Not completeness or accuracy. Although
controlling costs. This was a function owning the stock until December 2005 historical performance is no guarantee
of lower hospital utilization rates and hurt the Fund's performance relative to of future results, these insights may
plan participants switching from its style-specific index. IT stalwarts help you understand our investment
name-brand to generic drugs. AETNA and MICROSOFT, IBM and ORACLE all management philosophy.
UNITEDHEALTH GROUP were among the underperformed, hindering the Fund's
managed health care companies that aided absolute performance for the year. (We KIRK L. ANDERSON, portfolio
Fund performance. sold our stock in IBM before the end of [ANDERSON manager, is lead portfolio
the year after the company announced PHOTO] manager of AIM V.I. Blue Chip
We increased our ownership of disappointing quarterly earnings.) Fund. Mr. Anderson joined AIM
non-U.S. pharmaceutical stocks, in 1994 in the fund services
including Switzerland's ROCHE HOLDING Many of the Fund's industrials area. He became an analyst in 1997, and
and NOVARTIS, both of which have holdings also hurt Fund performance was named a portfolio manager in 2003.
developed promising new cancer during the year. Within this sector, Mr. Anderson earned a B.A. in political
treatments. In addition to being the Tyco was the most significant detractor. science from Texas A&M University and an
manufacturer of Tamiflu--REGISTERED Its stock fell as the pace of sales M.S. in finance from the University of
TRADEMARK--, a potential treatment for growth and operating improvements began Houston.
"bird flu," Roche owns 56% of GENENTECH, to moderate. We eliminated Tyco from the
maker of Avastin--REGISTERED TRADEMARK--, Fund because we were concerned that the Assisted by the Large/Multi-Cap Growth
which has shown promise in the slowdown in the company's sales and Team
treatment of a number of types of earnings would continue.
cancers.
IN CLOSING
Worldwide energy production and
refining capacity has struggled to keep As the year ended, we considered the
pace with rising demand. Continued fundamentals of large-cap growth stocks
explosive economic growth in China and to be good. As a group, large-cap growth
India, and a severe hurricane season companies boasted healthy cash flows,
along the U.S. Gulf Coast, pushed the strong balance sheets and positive
price of oil to record highs in 2005. We earnings growth. Also, their managements
believe that any significant improvement were generally using capital for the
in supply is likely to be years away. benefit of their shareholders. And yet,
large-cap growth stocks appeared to us
Given these trends, many energy to be attractively valued relative to
companies have seen notable growth in other stocks with less attractive
their revenue and earnings, and have fundamentals. As always, we thank you
used those earnings to improve their for your continued investment in AIM
balance sheets and to benefit V.I. Blue Chip Fund. ========================================
shareholders through stock buybacks and In November 2005, your Fund's board
increased dividends. Since taking over approved--subject to shareholder
management of the Fund, we increased the approval--the proposed merger of AIM
Fund's exposure to the energy sector. V.I. Blue Chip Fund into AIM V.I. Large
Integrated oil giant EXXONMOBIL and Cap Growth Fund.
oilfield services provider SCHLUMBERGER ========================================
were among the energy stocks that helped [RIGHT ARROW GRAPHIC]
Fund performance for the year. (We sold
our holdings in ExxonMobil before the FOR A DISCUSSION OF THE RISKS OF
close of the year due to concerns about INVESTING IN YOUR FUND, INDEXES USED IN
valuation.) THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. BLUE CHIP FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 12/29/99, index data from 12/31/99
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. BLUE S&P 500 RUSSELL 1000 LIPPER LARGE-CAP LIPPER LARGE-CAP
CHIP FUND- INDEX GROWTH CORE FUND GROWTH FUND
SERIES I SHARES INDEX INDEX INDEX
12/29/99 $10000
12/99 10000 $10000 $10000 $10000 $10000
01/00 9700 9498 9531 9596 9599
02/00 9920 9318 9997 9593 10103
03/00 10760 10229 10713 10427 10813
04/00 10330 9921 10203 10086 9976
05/00 10020 9718 9689 9829 9402
06/00 10460 9957 10423 10189 10023
07/00 10370 9802 9989 10030 9820
08/00 10990 10410 10893 10722 10670
09/00 10300 9861 9863 10151 9856
10/00 10050 9819 9396 10034 9335
11/00 9149 9045 8011 9151 8082
12/00 9181 9090 7758 9263 8032
01/01 9371 9412 8294 9525 8266
02/01 8141 8554 6886 8639 6986
03/01 7361 8013 6136 8109 6260
04/01 8101 8635 6912 8725 6932
05/01 8080 8693 6811 8774 6880
06/01 7790 8481 6653 8541 6682
07/01 7540 8398 6487 8417 6442
08/01 6960 7873 5956 7922 5952
09/01 6320 7237 5362 7320 5354
10/01 6560 7375 5643 7493 5576
11/01 7090 7941 6185 7984 6087
12/01 7112 8010 6173 8074 6115
01/02 6962 7893 6064 7947 5977
02/02 6712 7741 5813 7814 5729
03/02 6992 8032 6014 8080 5960
04/02 6471 7546 5523 7657 5563
05/02 6321 7490 5389 7601 5462
06/02 5891 6957 4891 7076 5017
07/02 5491 6415 4622 6551 4639
08/02 5522 6457 4636 6604 4665
09/02 4982 5756 4155 5963 4213
10/02 5411 6262 4536 6426 4537
11/02 5572 6630 4782 6713 4725
12/02 5251 6241 4452 6360 4396
01/03 5101 6077 4344 6193 4295
02/03 5081 5986 4324 6111 4248
03/03 5171 6044 4404 6162 4328
04/03 5551 6542 4730 6616 4645
05/03 5801 6886 4966 6937 4873
06/03 5821 6974 5035 7005 4913
07/03 5961 7097 5160 7116 5055
08/03 6071 7235 5288 7253 5180
09/03 5961 7159 5232 7160 5069
10/03 6271 7563 5525 7510 5377
11/03 6332 7630 5583 7573 5428
12/03 6572 8030 5776 7937 5581
01/04 6652 8177 5894 8049 5688
02/04 6702 8291 5932 8144 5713
03/04 6622 8166 5822 8017 5649
04/04 6452 8038 5754 7892 5522
05/04 6542 8148 5861 7973 5622
06/04 6622 8306 5934 8115 5703
07/04 6342 8031 5599 7828 5366
08/04 6312 8063 5571 7833 5328
09/04 6362 8151 5624 7923 5452
10/04 6442 8275 5712 8030 5518
11/04 6672 8610 5909 8335 5764
12/04 6879 8903 6140 8595 5997
01/05 6729 8686 5935 8401 5791
02/05 6789 8868 5999 8558 5829
03/05 6649 8712 5889 8401 5722
04/05 6479 8546 5777 8214 5598
05/05 6709 8818 6057 8480 5909
06/05 6689 8831 6034 8509 5921
07/05 6959 9159 6329 8811 6218
08/05 6829 9076 6248 8731 6152
09/05 6919 9149 6277 8831 6226
10/05 6899 8996 6216 8726 6185
11/05 7130 9336 6484 9060 6468
12/05 7120 9340 6463 9087 6452
====================================================================================================================================
Source: Lipper, Inc.
Past performance cannot guarantee During the fiscal year, the Fund
comparable future results. elected to use the Lipper Large-Cap
Growth Fund Index as its peer group
This chart, which is a logarithmic index rather than the Lipper Large-Cap
chart, presents the fluctuations in the Core Fund Index. Fund management
value of the Fund and its indexes. We believes the Lipper Large-Cap Growth
believe that a logarithmic chart is more Fund Index more closely reflects the
effective than other types of charts in Fund's investment strategy and
illustrating changes in value during the objectives.
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $4,000 and $8,000 is the same
size as the space between $8,000 and
$16,000, and so on.
4
AIM V.I. BLUE CHIP FUND
========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES. THE INCEPTION DATE OF SERIES I PRODUCTS. YOU CANNOT PURCHASE SHARES OF
SHARES IS DECEMBER 29, 1999. THE SERIES THE FUND DIRECTLY. PERFORMANCE FIGURES
As of 12/31/05 I AND SERIES II SHARES INVEST IN THE GIVEN REPRESENT THE FUND AND ARE NOT
SAME PORTFOLIO OF SECURITIES AND WILL INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES HAVE SUBSTANTIALLY SIMILAR PERFORMANCE, PRODUCT VALUES. THEY DO NOT REFLECT
Inception (12/29/99) -5.50% EXCEPT TO THE EXTENT THAT EXPENSES BORNE SALES CHARGES, EXPENSES AND FEES
5 Years -4.96 BY EACH CLASS DIFFER. ASSESSED IN CONNECTION WITH A VARIABLE
1 Year 3.50 PRODUCT. SALES CHARGES, EXPENSES AND
THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
Inception -5.75% COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
5 Years -5.22 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 3.27 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
======================================== RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 6.44% WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 6.23 GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
======================================== AIM V.I. BLUE CHIP FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE
RETURNS SINCE MARCH 13, 2002, THE FUNDS, IS CURRENTLY OFFERED THROUGH
INCEPTION DATE OF SERIES II SHARES, ARE INSURANCE COMPANIES ISSUING VARIABLE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF THE SERIES II SHARES) ADJUSTED TO
REFLECT THE HIGHER RULE 12b-1 FEES
APPLICABLE TO SERIES II
ance of the stocks of OTHER INFORMATION
PRINCIPAL RISKS OF INVESTING IN THE FUND large-capitalization companies; the
Growth subset measures the performance The returns shown in the management's
The Fund may invest up to 25% of its of Russell 1000 companies with higher discussion of Fund performance are based
assets in the securities of non-U.S. price/book ratios and higher forecasted on net asset values calculated for
issuers. International investing growth values. shareholder transactions. Generally
presents certain risks not associated accepted accounting principles require
with investing solely in the United The unmanaged Standard & Poor's adjustments to be made to the net assets
States. These include risks relating to Composite Index of 500 Stocks (the S&P of the Fund at period end for financial
fluctuations in the value of the U.S. 500--REGISTERED TRADEMARK-- Index) is an reporting purposes, and as such, the net
dollar relative to the values of other index of common stocks frequently used asset values for shareholder
currencies, the custody arrangements as a general measure of U.S. stock transactions and the returns based on
made for the Fund's foreign holdings, market performance. those net asset values may differ from
differences in accounting, political the net asset values and returns
risks and the lesser degree of public The Fund is not managed to track the reported in the Financial Highlights.
information required to be provided by performance of any particular index, Additionally, the returns and net asset
non-U.S. companies. including the indexes defined here, and values shown throughout this report are
consequently, the performance of the at the Fund level only and do not
ABOUT INDEXES USED IN THIS REPORT Fund may deviate significantly from the include variable product issuer charges.
performance of the indexes. If such charges were included, the total
The unmanaged LIPPER LARGE-CAP CORE FUND returns would be lower.
INDEX represents an average of the A direct investment cannot be made in
performance of the 30 largest an index. Unless otherwise indicated, Industry classifications used in this
large-capitalization core equity funds index results include reinvested report are generally according to the
tracked by Lipper, Inc., an independent dividends, and they do not reflect sales Global Industry Classification Standard,
mutual fund performance monitor. charges. Performance of an index of which was developed by and is the
funds reflects fund expenses; exclusive property and a service mark of
The unmanaged LIPPER LARGE-CAP GROWTH performance of a market index does not. Morgan Stanley Capital International
FUND INDEX represents an average of the Inc. and Standard & Poor's.
performance of the 30 largest
large-capitalization growth funds
tracked by Lipper, Inc., an independent
mutual fund performance monitor.
The unmanaged RUSSELL 1000--REGISTERED
TRADEMARK-- GROWTH INDEX is a subset of
the unmanaged RUSSELL 1000--REGISTERED
TRADEMARK-- INDEX, which represents
the perform-
5
AIM V.I. BLUE CHIP FUND
CALCULATING YOUR ONGOING FUND EXPENSES
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
July 1, 2005, through December 31, 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 before expenses, which is not the Fund's
account 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 December 31, 2005, appear in the
The table below provides information table "Cumulative Total Returns" on Page
about actual account values and actual 5.
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,064.40 $5.26 $1,020.11 $5.14 1.01%
Series II 1,000.00 1,062.30 6.55 1,018.85 6.41 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. BLUE CHIP FUND
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 o Fees relative to those of clients of
Insurance Funds (the "Board") oversees provided by AIM. The Board reviewed the AIM with comparable investment
the management of AIM V.I. Blue Chip 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 higher than the
comprised solely of independent issues as AIM's portfolio and product sub-advisory fee rates for three
trustees, at a meeting held on June 30, review process, various back office unaffiliated mutual funds for which an
2005, the Board, including all of the support functions provided by AIM and AIM affiliate serves as sub-advisor,
independent trustees, approved the AIM's equity and fixed income trading although the total management fees paid
continuance of the advisory agreement operations. Based on the review of these by such unaffiliated mutual funds were
(the "Advisory Agreement") between the and other factors, the Board concluded higher than the advisory fee rate for
Fund and AIM for another year, effective that the quality of services to be the Fund. The Board noted that AIM has
July 1, 2005. provided by AIM was appropriate and that agreed to waive advisory fees of the
AIM currently is providing satisfactory Fund and to limit the Fund's total
The Board considered the factors services in accordance with the terms of operating expenses, as discussed below.
discussed below in evaluating the the Advisory Agreement. Based on this review, the Board
fairness and reasonableness of the concluded that the advisory fee rate for
Advisory Agreement at the meeting on o The performance of the Fund relative the Fund under the Advisory Agreement
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed was fair and reasonable.
ongoing oversight of the Fund. In their the performance of the Fund during the
deliberations, the Board and the past one and three calendar years o Fees relative to those of comparable
independent trustees did not identify against the performance of funds advised funds with other advisors. The Board
any particular factor that was by other advisors with investment reviewed the advisory fee rate for the
controlling, and each trustee attributed strategies comparable to those of the Fund under the Advisory Agreement. The
different weights to the various Fund. The Board noted that the Fund's Board compared effective contractual
factors. performance in such periods was below advisory fee rates at a common asset
the median performance of such level and noted that the Fund's rate was
One of the responsibilities of the comparable funds. The Board noted that, above the median rate of the funds
Senior Officer of the Fund, who is effective July 1, 2005, AIM will change advised by other advisors with
independent of AIM and AIM's affiliates, the Fund's portfolio management team, investment strategies comparable to
is to manage the process by which the which change will need time to be those of the Fund that the Board
Fund's proposed management fees are evaluated before a conclusion can be reviewed. The Board noted that AIM has
negotiated to ensure that they are made that the change has addressed the agreed to waive advisory fees of the
negotiated in a manner which is at arm's Fund's under-performance. Based on this Fund and to limit the Fund's total
length and reasonable. To that end, the review, the Board concluded that no operating expenses, as discussed below.
Senior Officer must either supervise a changes should be made to the Fund and Based on this review, the Board
competitive bidding process or prepare that it was not necessary to further concluded that the advisory fee rate for
an independent written evaluation. The change the Fund's portfolio management the Fund under the Advisory Agreement
Senior Officer has recommended an team at this time. was fair and reasonable.
independent written evaluation in lieu
of a competitive bidding process and, o The performance of the Fund relative o Expense limitations and fee waivers.
upon the direction of the Board, has to indices. The Board reviewed the The Board noted that AIM has
prepared such an independent written performance of the Fund during the past contractually agreed to waive advisory
evaluation. Such written evaluation also one and three calendar years against the fees of the Fund through December 31,
considered certain of the factors performance of the Lipper Large Cap Core 2009 to the extent necessary so that the
discussed below. In addition, as Index. The Board noted that the Fund's advisory fees payable by the Fund do not
discussed below, the Senior Officer made performance in such periods was below exceed a specified maximum advisory fee
certain recommendations to the Board in the performance of such Index. The Board rate, which maximum rate includes
connection with such written evaluation. noted that, effective July 1, 2005, AIM breakpoints and is based on net asset
will change the Fund's portfolio levels. The Board considered the
The discussion below serves as a management team, which change will need contractual nature of this fee waiver
summary of the Senior Officer's time to be evaluated before a conclusion and noted that it remains in effect
independent written evaluation and can be made that the change has until December 31, 2009. The Board noted
recommendations to the Board in addressed the Fund's under-performance. that AIM has contractually agreed to
connection therewith, as well as a Based on this review, the Board waive fees and/or limit expenses of the
discussion of the material factors and concluded that no changes should be made Fund through June 30, 2006 in an amount
the conclusions with respect thereto to the Fund and that it was not necessary to limit total annual
that formed the basis for the Board's necessary to further change the Fund's operating expenses to a specified
approval of the Advisory Agreement. portfolio management team at this time. percentage of average daily net assets
After consideration of all of the for each class of the Fund. The Board
factors below and based on its informed o Meeting with the Fund's portfolio considered the contractual nature of
business judgment, the Board determined managers and investment personnel. With this fee waiver/expense limitation and
that the Advisory Agreement is in the respect to the Fund, the Board is noted that it remains in effect until
best interests of the Fund and its meeting periodically with such Fund's June 30, 2006. The Board considered the
shareholders and that the compensation portfolio managers and/or other effect these fee waivers/expense
to AIM under the Advisory Agreement is investment personnel and believes that limitations would have on the Fund's
fair and reasonable and would have been such individuals are competent and able estimated expenses and concluded that
obtained through arm's length to continue to carry out their the levels of fee waivers/expense
negotiations. responsibilities under the Advisory limitations for the Fund were fair and
Agreement. reasonable.
o The nature and extent of the
advisory services to be provided by AIM. o Overall performance of AIM. The o Breakpoints and economies of scale.
The Board reviewed the services to be Board considered the overall performance The Board reviewed the structure of the
provided by AIM under the Advisory of AIM in providing investment advisory Fund's advisory fee under the Advisory
Agreement. Based on such review, the and portfolio administrative services to Agreement, noting that it includes one
Board concluded that the range of the Fund and concluded that such breakpoint. The Board reviewed the level
services to be provided by AIM under the performance was satisfactory. of the Fund's advisory fees, and noted
Advisory Agreement was appropriate and that such fees, as a percent-
that AIM currently is providing services
in accordance with the terms of the
Advisory Agreement.
(continued)
7
AIM V.I. BLUE CHIP FUND
age of the Fund's net assets, would the recommendation made by the Senior non-investment advisory services
decrease as net assets increase because Officer to the Board that the Board currently performed by AIM and its
the Advisory Agreement includes a consider implementing a process to affiliates, such as administrative,
breakpoint. The Board noted that, due to assist them in more closely monitoring transfer agency and distribution
the Fund's current asset levels and the the performance of the AIM Funds. The services, and the fees received by AIM
way in which the advisory fee Board concluded that it would be and its affiliates for performing such
breakpoints have been structured, the advisable to implement such a process as services. In addition to reviewing such
Fund has yet to benefit from the soon as reasonably practicable. The services, the trustees also considered
breakpoint. The Board noted that AIM has Board noted that, effective July 1, the organizational structure employed by
contractually agreed to waive advisory 2005, AIM will change the Fund's AIM and its affiliates to provide those
fees of the Fund through December 31, portfolio management team, which change services. Based on the review of these
2009 to the extent necessary so that the will need time to be evaluated before a and other factors, the Board concluded
advisory fees payable by the Fund do not conclusion can be made that the change that AIM and its affiliates were
exceed a specified maximum advisory fee has addressed the Fund's qualified to continue to provide
rate, which maximum rate includes under-performance. The Board also non-investment advisory services to the
breakpoints and is based on net asset considered the Senior Officer's Fund, including administrative, transfer
levels. The Board concluded that the recommendation that the Board consider agency and distribution services, and
Fund's fee levels under the Advisory an additional advisory fee waiver for that AIM and its affiliates currently
Agreement therefore would reflect the Fund due to the Fund's are providing satisfactory
economies of scale at higher asset under-performance. The Board concluded non-investment advisory services.
levels and that it was not necessary to that such a fee waiver was not
change the advisory fee breakpoints in appropriate for the Fund at this time o Other factors and current trends. In
the Fund's advisory fee schedule. and that, rather than requesting such a determining whether to continue the
fee waiver from AIM, the Board should Advisory Agreement for the Fund, the
o Investments in affiliated money closely monitor the Fund's performance Board considered the fact that AIM,
market funds. The Board also took into under the new portfolio management team. along with others in the mutual fund
account the fact that uninvested cash industry, is subject to regulatory
and cash collateral from securities o Profitability of AIM and its inquiries and litigation related to a
lending arrangements (collectively, affiliates. The Board reviewed wide range of issues. The Board also
"cash balances") of the Fund may be information concerning the profitability considered the governance and compliance
invested in money market funds advised of AIM's (and its affiliates') reforms being undertaken by AIM and its
by AIM pursuant to the terms of an SEC investment advisory and other activities affiliates, including maintaining an
exemptive order. The Board found that and its financial condition. The Board internal controls committee and
the Fund may realize certain benefits considered the overall profitability of retaining an independent compliance
upon investing cash balances in AIM AIM, as well as the profitability of AIM consultant, and the fact that AIM has
advised money market funds, including a in connection with managing the Fund. undertaken to cause the Fund to operate
higher net return, increased liquidity, The Board noted that AIM's operations in accordance with certain governance
increased diversification or decreased remain profitable, although increased policies and practices. The Board
transaction costs. The Board also found expenses in recent years have reduced concluded that these actions indicated a
that the Fund will not receive reduced AIM's profitability. Based on the review good faith effort on the part of AIM to
services if it invests its cash balances of the profitability of AIM's and its adhere to the highest ethical standards,
in such money market funds. The Board affiliates' investment advisory and and determined that the current
noted that, to the extent the Fund other activities and its financial regulatory and litigation environment to
invests in affiliated money market condition, the Board concluded that the which AIM is subject should not prevent
funds, AIM has voluntarily agreed to compensation to be paid by the Fund to the Board from continuing the Advisory
waive a portion of the advisory fees it AIM under its Advisory Agreement was not Agreement for the Fund.
receives from the Fund attributable to excessive.
such investment. The Board further
determined that the proposed securities o Benefits of soft dollars to AIM. The
lending program and related procedures Board considered the benefits realized
with respect to the lending Fund is in by AIM as a result of brokerage
the best interests of the lending Fund transactions executed through "soft
and its respective shareholders. The dollar" arrangements. Under these
Board therefore concluded that the arrangements, brokerage commissions paid
investment of cash collateral received by the Fund and/or other funds advised
in connection with the securities by AIM are used to pay for research and
lending program in the money market execution services. This research is
funds according to the procedures is in used by AIM in making investment
the best interests of the lending Fund decisions for the Fund. The Board
and its respective shareholders. concluded that such arrangements were
appropriate.
o Independent written evaluation and
recommendations of the Fund's Senior o AIM's financial soundness in light
Officer. The Board noted that, upon of the Fund's needs. The Board
their direction, the Senior Officer of considered whether AIM is financially
the Fund, who is independent of AIM and sound and has the resources necessary to
AIM's affiliates, had prepared an perform its obligations under the
independent written evaluation in order Advisory Agreement, and concluded that
to assist the Board in determining the AIM has the financial resources
reasonableness of the proposed necessary to fulfill its obligations
management fees of the AIM Funds, under the Advisory Agreement.
including the Fund. The Board noted that
the Senior Officer's written evaluation o Historical relationship between the
had been relied upon by the Board in Fund and AIM. In determining whether to
this regard in lieu of a competitive continue the Advisory Agreement for the
bidding process. In determining whether Fund, the Board also considered the
to continue the Advisory Agreement for prior relationship between AIM and the
the Fund, the Board considered the Fund, as well as the Board's knowledge
Senior Officer's written evaluation and of AIM's operations, and concluded that
it was beneficial to maintain the cur-
rent relationship, in part, because of
such knowledge. The Board also reviewed
the general nature of the
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.27%
AEROSPACE & DEFENSE-4.73%
Boeing Co. (The) 18,511 $ 1,300,213
- ------------------------------------------------------------------------
General Dynamics Corp. 11,412 1,301,539
- ------------------------------------------------------------------------
Lockheed Martin Corp. 31,050 1,975,711
- ------------------------------------------------------------------------
United Technologies Corp. 23,405 1,308,574
========================================================================
5,886,037
========================================================================
APPLICATION SOFTWARE-1.21%
Amdocs Ltd.(a) 54,891 1,509,502
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.06%
Franklin Resources, Inc. 14,043 1,320,182
========================================================================
BIOTECHNOLOGY-6.06%
Amgen Inc.(a) 42,199 3,327,813
- ------------------------------------------------------------------------
Genentech, Inc.(a) 14,717 1,361,322
- ------------------------------------------------------------------------
Genzyme Corp.(a) 13,096 926,935
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 36,547 1,923,469
========================================================================
7,539,539
========================================================================
COMMUNICATIONS EQUIPMENT-5.30%
Cisco Systems, Inc.(a) 95,828 1,640,575
- ------------------------------------------------------------------------
Motorola, Inc. 82,979 1,874,496
- ------------------------------------------------------------------------
QUALCOMM Inc. 71,350 3,073,758
========================================================================
6,588,829
========================================================================
COMPUTER HARDWARE-1.70%
Apple Computer, Inc.(a) 15,856 1,139,888
- ------------------------------------------------------------------------
Dell Inc.(a) 32,598 977,614
========================================================================
2,117,502
========================================================================
COMPUTER STORAGE & PERIPHERALS-1.69%
EMC Corp.(a) 153,987 2,097,303
========================================================================
CONSUMER FINANCE-0.87%
SLM Corp. 19,578 1,078,552
========================================================================
DEPARTMENT STORES-2.56%
J.C. Penney Co., Inc. 24,397 1,356,473
- ------------------------------------------------------------------------
Nordstrom, Inc. 48,788 1,824,671
========================================================================
3,181,144
========================================================================
DIVERSIFIED BANKS-1.13%
Bank of America Corp. 30,493 1,407,252
========================================================================
DIVERSIFIED METALS & MINING-0.53%
BHP Billiton Ltd (Australia)(b) 39,500 659,878
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DRUG RETAIL-0.51%
CVS Corp. 24,028 $ 634,820
========================================================================
FOOTWEAR-0.60%
NIKE, Inc.-Class B 8,619 748,043
========================================================================
GENERAL MERCHANDISE STORES-0.89%
Target Corp. 20,031 1,101,104
========================================================================
HEALTH CARE DISTRIBUTORS-0.83%
AmerisourceBergen Corp. 25,000 1,035,000
========================================================================
HEALTH CARE EQUIPMENT-3.20%
Bard (C.R.), Inc. 10,673 703,564
- ------------------------------------------------------------------------
Baxter International Inc. 16,383 616,820
- ------------------------------------------------------------------------
Medtronic, Inc. 28,055 1,615,126
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 20,733 1,043,699
========================================================================
3,979,209
========================================================================
HEALTH CARE SERVICES-1.86%
Express Scripts, Inc.(a) 12,409 1,039,874
- ------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 22,783 1,271,291
========================================================================
2,311,165
========================================================================
HEALTH CARE SUPPLIES-1.66%
Alcon, Inc. (Switzerland) 15,921 2,063,362
========================================================================
HOME ENTERTAINMENT SOFTWARE-0.49%
Electronic Arts Inc.(a) 11,600 606,796
========================================================================
HOME IMPROVEMENT RETAIL-2.12%
Home Depot, Inc. (The) 65,091 2,634,884
========================================================================
HOUSEHOLD PRODUCTS-3.00%
Procter & Gamble Co. (The) 64,359 3,725,099
========================================================================
INTEGRATED OIL & GAS-2.07%
ConocoPhillips 32,621 1,897,890
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 8,501 679,060
========================================================================
2,576,950
========================================================================
INTERNET RETAIL-1.37%
eBay Inc.(a) 39,396 1,703,877
========================================================================
INTERNET SOFTWARE & SERVICES-2.48%
Google Inc.-Class A(a) 2,393 992,760
- ------------------------------------------------------------------------
Yahoo! Inc.(a) 53,511 2,096,561
========================================================================
3,089,321
========================================================================
INVESTMENT BANKING & BROKERAGE-5.69%
Goldman Sachs Group, Inc. (The) 26,051 3,326,973
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 10,118 1,296,824
- ------------------------------------------------------------------------
</Table>
AIM V.I. BLUE CHIP FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Merrill Lynch & Co., Inc. 22,109 $ 1,497,443
- ------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 64,629 948,107
========================================================================
7,069,347
========================================================================
MANAGED HEALTH CARE-8.21%
Aetna Inc. 35,916 3,387,238
- ------------------------------------------------------------------------
CIGNA Corp. 14,135 1,578,879
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 47,655 2,961,282
- ------------------------------------------------------------------------
WellPoint, Inc.(a) 28,558 2,278,643
========================================================================
10,206,042
========================================================================
MULTI-LINE INSURANCE-2.29%
Genworth Financial Inc.-Class A 37,592 1,299,931
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 17,995 1,545,591
========================================================================
2,845,522
========================================================================
OIL & GAS DRILLING-1.49%
ENSCO International Inc. 20,003 887,133
- ------------------------------------------------------------------------
GlobalSantaFe Corp. 20,068 966,274
========================================================================
1,853,407
========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.51%
BJ Services Co. 58,853 2,158,139
- ------------------------------------------------------------------------
Schlumberger Ltd. 22,765 2,211,620
========================================================================
4,369,759
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.54%
Devon Energy Corp. 10,641 665,488
========================================================================
OIL & GAS REFINING & MARKETING-1.89%
Valero Energy Corp. 45,450 2,345,220
========================================================================
PHARMACEUTICALS-8.14%
Allergan, Inc. 11,586 1,250,825
- ------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 11,138 693,786
- ------------------------------------------------------------------------
Johnson & Johnson 69,079 4,151,648
- ------------------------------------------------------------------------
Novartis A.G.-ADR (Switzerland) 31,516 1,653,960
- ------------------------------------------------------------------------
Roche Holding A.G. (Switzerland) 11,417 1,714,288
- ------------------------------------------------------------------------
Wyeth 14,398 663,316
========================================================================
10,127,823
========================================================================
PROPERTY & CASUALTY INSURANCE-1.53%
Allstate Corp. (The) 35,132 1,899,587
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
RAILROADS-2.69%
Burlington Northern Santa Fe Corp. 30,042 $ 2,127,574
- ------------------------------------------------------------------------
Canadian National Railway Co. (Canada) 15,244 1,219,368
========================================================================
3,346,942
========================================================================
RESTAURANTS-1.74%
Starbucks Corp.(a) 20,861 626,039
- ------------------------------------------------------------------------
YUM! Brands, Inc. 32,899 1,542,305
========================================================================
2,168,344
========================================================================
SEMICONDUCTOR EQUIPMENT-0.92%
KLA-Tencor Corp. 23,178 1,143,371
========================================================================
SEMICONDUCTORS-5.30%
Analog Devices, Inc. 63,791 2,288,183
- ------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 39,918 1,004,736
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(a) 17,139 961,327
- ------------------------------------------------------------------------
Microchip Technology Inc. 24,947 802,046
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 84,950 841,854
- ------------------------------------------------------------------------
Texas Instruments Inc. 21,762 697,907
========================================================================
6,596,053
========================================================================
SOFT DRINKS-1.20%
PepsiCo, Inc. 25,310 1,495,315
========================================================================
SYSTEMS SOFTWARE-3.22%
Microsoft Corp. 104,796 2,740,415
- ------------------------------------------------------------------------
Oracle Corp.(a) 103,894 1,268,546
========================================================================
4,008,961
========================================================================
THRIFTS & MORTGAGE FINANCE-0.99%
MGIC Investment Corp. 18,788 1,236,626
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $102,541,632) 120,973,157
========================================================================
MONEY MARKET FUNDS-2.85%
Liquid Assets Portfolio-Institutional
Class(c) 1,770,954 1,770,954
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,770,954 1,770,954
========================================================================
Total Money Market Funds (Cost
$3,541,908) 3,541,908
========================================================================
TOTAL INVESTMENTS-100.12% (Cost $106,083,540) 124,515,065
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.12%) (150,354)
========================================================================
NET ASSETS-100.00% $124,364,711
________________________________________________________________________
========================================================================
</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 value of this security at December 31, 2005 represented 0.53% of
the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BLUE CHIP FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $102,541,632) $120,973,157
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $3,541,908) 3,541,908
=============================================================
Total investments (cost $106,083,540) 124,515,065
=============================================================
Receivable for dividends 86,863
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,420
=============================================================
Total assets 124,626,348
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 124,847
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 29,111
- -------------------------------------------------------------
Accrued administrative services fees 76,317
- -------------------------------------------------------------
Accrued distribution fees -- Series II 873
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 111
- -------------------------------------------------------------
Accrued transfer agent fees 635
- -------------------------------------------------------------
Accrued operating expenses 29,743
=============================================================
Total liabilities 261,637
=============================================================
Net assets applicable to shares outstanding $124,364,711
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $127,605,820
- -------------------------------------------------------------
Undistributed net investment income 214,947
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts and option contracts (21,887,581)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 18,431,525
=============================================================
$124,364,711
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $122,989,041
_____________________________________________________________
=============================================================
Series II $ 1,375,670
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 17,406,961
_____________________________________________________________
=============================================================
Series II 196,019
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 7.07
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 7.02
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,878) $1,447,409
- ------------------------------------------------------------
Dividends from affiliated money market funds 93,052
- ------------------------------------------------------------
Interest 5,153
============================================================
Total investment income 1,545,614
============================================================
EXPENSES:
Advisory fees 941,739
- ------------------------------------------------------------
Administrative services fees 350,680
- ------------------------------------------------------------
Custodian fees 29,536
- ------------------------------------------------------------
Distribution fees -- Series II 3,495
- ------------------------------------------------------------
Transfer agent fees 8,334
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 18,707
- ------------------------------------------------------------
Other 76,980
============================================================
Total expenses 1,429,471
============================================================
Less: Fees waived and expense offset arrangement (122,694)
============================================================
Net expenses 1,306,777
============================================================
Net investment income 238,837
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from
securities sold to affiliates of $7,176) 4,256,519
- ------------------------------------------------------------
Foreign currencies 3,276
- ------------------------------------------------------------
Futures contracts 53,605
- ------------------------------------------------------------
Option contracts written 96,347
============================================================
4,409,747
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (547,402)
- ------------------------------------------------------------
Futures contracts (33,149)
============================================================
(580,551)
============================================================
Net gain from investment securities, foreign
currencies, futures contracts and option
contracts 3,829,196
============================================================
Net increase in net assets resulting from
operations $4,068,033
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BLUE CHIP FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 238,837 $ 724,655
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 4,409,747 817,453
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts (580,551) 4,015,557
==========================================================================================
Net increase in net assets resulting from operations 4,068,033 5,557,665
==========================================================================================
Distributions to shareholders from net investment income:
Series I (725,733) (134,718)
- ------------------------------------------------------------------------------------------
Series II (4,715) --
==========================================================================================
Decrease in net assets resulting from distributions (730,448) (134,718)
==========================================================================================
Share transactions-net:
Series I (11,997,559) 3,778,955
- ------------------------------------------------------------------------------------------
Series II (125,410) 104,980
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (12,122,969) 3,883,935
==========================================================================================
Net increase (decrease) in net assets (8,785,384) 9,306,882
==========================================================================================
NET ASSETS:
Beginning of year 133,150,095 123,843,213
==========================================================================================
End of year (including undistributed net investment income
of $214,947 and $703,281, respectively) $124,364,711 $133,150,095
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BLUE CHIP FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. BLUE CHIP FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
J. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's
AIM V.I. BLUE CHIP FUND
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.
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 replace 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>
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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $122,565.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the
AIM V.I. BLUE CHIP FUND
year ended December 31, 2005, AIM was paid $50,000 for accounting and fund
administrative services and reimbursed $300,680 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 year ended
December 31, 2005, the Fund paid AISI $8,334.
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 year ended December
31, 2005, the Series II shares paid $3,495.
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 year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $2,849,475 $22,100,951 $(23,179,472) $ -- $1,770,954 $46,393 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 2,849,475 22,100,951 (23,179,472) -- 1,770,954 46,659 --
==================================================================================================================================
Total $5,698,950 $44,201,902 $(46,358,944) $ -- $3,541,908 $93,052 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $1,182,182 and sales of $171,303, which
resulted in net realized gains of $7,176.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $129.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,394
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
AIM V.I. BLUE CHIP FUND
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 1,562 150,205
- -----------------------------------------------------------------------------------
Closed (618) (50,729)
- -----------------------------------------------------------------------------------
Exercised (439) (48,787)
- -----------------------------------------------------------------------------------
Expired (505) (50,689)
===================================================================================
End of year -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $730,448 $134,718
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed ordinary income $ 240,402
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 16,346,589
- --------------------------------------------------------------------------
Temporary book/tax differences (25,455)
- --------------------------------------------------------------------------
Capital loss carryforward (19,802,645)
- --------------------------------------------------------------------------
Shares of beneficial interest 127,605,820
==========================================================================
Total net assets $124,364,711
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. BLUE CHIP FUND
The Fund utilized $929,472 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 4,477,804
- -----------------------------------------------------------------------------
December 31, 2010 11,780,141
- -----------------------------------------------------------------------------
December 31, 2011 3,544,700
=============================================================================
Total capital loss carryforward $19,802,645
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $93,316,190 and $104,778,962, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 18,200,229
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,853,640)
===============================================================================
Net unrealized appreciation of investment securities $ 16,346,589
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $108,168,476.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income was
increased by $3,277 and undistributed net realized gain (loss) was decreased by
$(3,277). This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(a) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,508,454 $ 37,338,836 5,292,562 $ 34,996,471
- ----------------------------------------------------------------------------------------------------------------------
Series II 164,311 1,100,911 45,425 299,097
======================================================================================================================
Issued as reinvestment of dividends:
Series I 100,517 725,733 19,754 134,718
- ----------------------------------------------------------------------------------------------------------------------
Series II 657 4,715 -- --
======================================================================================================================
Reacquired:
Series I (7,378,077) (50,062,128) (4,776,958) (31,352,234)
- ----------------------------------------------------------------------------------------------------------------------
Series II (183,422) (1,231,036) (29,772) (194,117)
======================================================================================================================
(1,787,560) $(12,122,969) 551,011 $ 3,883,935
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are 5 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's principle underwriter may have an
agreement with these entities to sell Fund shares. 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, distribution, third party record keeping and account servicing.
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 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM V.I. Large Cap Growth Fund ("Buying Fund"), a series of the Trust
(the "Reorganization"). Upon closing of the Reorganization, shareholders of the
Fund will receive a corresponding class of shares of Buying Fund in exchange for
their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around April 4, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.87 $ 6.57 $ 5.25 $ 7.11 $ 9.18
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.04(a) 0.01(b) (0.00)(b) (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.22 0.27 1.31 (1.86) (2.06)
================================================================================================================================
Total from investment operations 0.24 0.31 1.32 (1.86) (2.07)
================================================================================================================================
Less dividends from net investment income (0.04) (0.01) -- -- --
================================================================================================================================
Net asset value, end of period $ 7.07 $ 6.87 $ 6.57 $ 5.25 $ 7.11
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 3.50% 4.67% 25.14% (26.16)% (22.54)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,989 $131,687 $122,543 $65,490 $60,129
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.04%(d) 1.11% 1.13% 1.18% 1.26%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.14%(d) 1.11% 1.13% 1.18% 1.26%
================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.19%(d) 0.56%(a) 0.14% (0.03)% (0.17)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 76% 38% 24% 38% 19%
________________________________________________________________________________________________________________________________
================================================================================================================================
</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 of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income per share and the ratio of net investment income to
average net assets excluding the special dividend are $0.02 and 0.22%,
respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total Returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $124,167,133.
AIM V.I. BLUE CHIP FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------------
MARCH 13, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- 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) (0.00) 0.02(a) (0.01)(b) (0.01)(b)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.22 0.26 1.31 (1.75)
===================================================================================================================
Total from investment operations 0.22 0.28 1.30 (1.76)
===================================================================================================================
Less dividends from net investment income (0.02) -- -- --
===================================================================================================================
Net asset value, end of period $ 7.02 $ 6.82 $ 6.54 $ 5.24
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 3.27% 4.28% 24.81% (25.14)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,376 $1,463 $1,301 $ 273
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.29%(d) 1.36% 1.38% 1.43%(e)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%(d) 1.36% 1.38% 1.43%(e)
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.06)%(d) 0.31%(a) (0.11)% (0.28)%(e)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 76% 38% 24% 38%
___________________________________________________________________________________________________________________
===================================================================================================================
</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 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 the
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $1,398,054.
(e) Annualized.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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
AIM V.I. BLUE CHIP FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
AIM V.I. BLUE CHIP FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Blue Chip Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Blue Chip Fund, (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
As described in Note 13, the Board of Trustees has approved a plan of
reorganization under which the Fund will merge with AIM V.I. Large Cap Growth.
This merger is expected to take place following the approval by the Fund's
shareholders, at which time the Fund will cease to operate.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. BLUE CHIP FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year December
31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. BLUE CHIP FUND
AIM V.I. CAPITAL APPRECIATION FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. CAPITAL APPRECIATION FUND seeks to provide growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31,2005, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. CAPITAL APPRECIATION FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE We construct the portfolio by focusing
on individual stocks rather than
====================================================================================== industries or sectors. While there are no
PERFORMANCE SUMMARY formal sector guidelines or constraints,
========================================= internal controls and proprietary
We are pleased to report that for the FUND VS. INDEXES software help us monitor risk levels and
year ended December 31, 2005, AIM V.I. sector concentration.
Capital Appreciation Fund outperformed TOTAL RETURNS, 12/31/04-12/31/05,
its broad market and style-specific EXCLUDING VARIABLE PRODUCT ISSUER Our sell process is designed to
indexes. The Fund outperformed the broad CHARGES. IF VARIABLE PRODUCT ISSUER identify deterioration in the underlying
market largely due to strong CHARGES WERE INCLUDED, RETURNS WOULD BE reasons a stock was initially purchased
research-driven stock selection within LOWER. and avoid the risk of capital loss.
the energy, health care and information Conditions that may cause us to reduce or
technology (IT) sectors. In each of those Series I Shares 8.83% sell a position include:
sectors, the Fund was overweight relative
to the S&P 500 Index, and the Fund's Series II Shares 8.58 o deterioration in business prospects
holdings outperformed those of the index.
Standard & Poor's Composite Index o worsening competitive position
The Fund outperformed its of 500 Stocks (S&P 500 Index)
style-specific index primarily due to a (Broad Market Index) 4.91 o slowing earnings growth
significant overweight position in the
energy sector, and due to strong stock Russell 1000 Growth Index o extended valuation
selection in the health care and IT (Style-specific Index) 5.26
sectors. In those two sectors, the Fund o finding more attractive investment
was underweight the index, but Lipper Multi-Cap Growth Fund Index opportunities
(Peer Group Index) 9.13
MARKET CONDITIONS AND YOUR FUND
SOURCE: LIPPER,INC.
========================================= Despite widespread concern about the
potential impact of rising short-term
the Fund's holdings significantly interest rates and historically high
outperformed those of the index. energy prices, the U.S. economy showed
signs of strength for the year. Economic
Your Fund's long-term performance activity expanded, inflation remained
appears on Pages 4 and 5. contained and corporate profits generally
====================================================================================== rose. Late in the year, some worried that
higher energy prices and rising interest
HOW WE INVEST of potential investments. We focus on the rates might crimp consumer spending,
level, growth rate and sustainability of which accounts for approximately
We believe a growth investment strategy earnings, revenue and cash flow, ranking two-thirds of the U.S. economy. Initial
is an essential component of a investment candidates on absolute and data suggested that holiday sales were
diversified portfolio. relative attractiveness. solid.
Our investment process combines Fundamental analysis seeks to define a Corporate profits and stock market
quantitative and fundamental analysis to company's key drivers of success and to performance varied widely by sector for
uncover companies exhibiting long-term, assess their durability. We carefully the year. Rising oil and natural gas
sustainable earnings and cash flow growth review financial statements and earnings prices caused many energy and utilities
that is not yet reflected in investor reports, the company's business model and companies to report record earnings and
expectations or equity valuations. management team, the competitive profits, and led those two sectors to
environment and market opportunities.
Quantitative analysis helps us narrow
our investment universe down to a
manageable list
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
Information Technology 22.5% 1. Semiconductors 5.5% 1. Apple Computer, Inc. 2.7%
Health Care 21.5 2. Biotechnology 5.3 2. Amgen Inc. 2.1
Consumer Discretionary 12.5 3. Managed Health Care 5.1 3. Johnson & Johnson 1.8
Industrials 12.1 4. Pharmaceuticals 4.9 4. QUALCOMM Inc. 1.8
Energy 9.7 5. Computer Hardware 3.4 5. Microchip Technology Inc. 1.7
Financials 9.0 6. Communications Equipment 3.3 6. Office Depot, Inc. 1.7
Materials 6.7 7. Health Care Equipment 3.2 7. Procter & Gamble Co. (The) 1.7
Consumer Staples 3.1 8. Investment Banking & Brokerage 3.2 8. UnitedHealth Group Inc. 1.6
Money Market Funds 9. Internet Software & Services 3.1 9. Yahoo! Inc. 1.6
Plus Other Assets Less Liabilities 2.9 10. Industrial Machinery 2.9 10. Alcon, Inc. (Switzerland) 1.6
TOTAL NET ASSETS $1.2 BILLION
TOTAL NUMBER OF HOLDINGS* 113
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
2
AIM V.I. CAPITAL APPRECIATION FUND
outperform the broad market. The same integrated oil producer CONOCOPHILLIPS WARRANTY AS TO THEIR COMPLETENESS OR
trend hurt the profits of many consumer among the stocks benefiting Fund ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
discretionary stocks, and that sector performance. IS NO GUARANTEE OF FUTURE RESULTS, THESE
lagged the broad market for the year. INSIGHTS MAY HELP YOU UNDERSTAND OUR
Our bottom-up research helped us INVESTMENT MANAGEMENT PHILOSOPHY.
Strong stock selection within the identify attractive investment
health care, energy and IT sectors opportunities in the IT sector. IT stocks LANNY H. SACHNOWITZ,
contributed to Fund performance for the helping your Fund's performance included [SACHNOWITZ senior portfolio
year. Internet search engine GOOGLE and APPLE PHOTO] manager, is lead
COMPUTER. As more people worldwide go portfolio manager of AIM
Within the health care sector, our online, Google offers advertisers a V.I. Capital
research led us to managed health care cost-effective way to reach consumers, Appreciation Fund. He joined AIM in 1987
stocks. Many managed health care and the stock more than doubled in 2005. as a money market trader and research
companies reported strong earnings in Despite the phenomenal success of Apple's analyst. In 1990, Mr. Sachnowitz's
recent quarters by aggressively iPod--Registered Trademark-- music trading responsibilities were expanded to
controlling costs. This was a function of player, we believe earnings estimates for include head of equity trading. He was
lower hospital utilization rates and plan the company are still conservative, and named a portfolio manager in 1991. Mr.
participants switching from name-brand to it remains a top Fund holding. Sachnowitz received a B.S. in finance
generic drugs. AETNA, UNITEDHEALTH GROUP from the University of Southern
and WELLPOINT were among the managed Detractors from performance were California and an M.B.A. from the
health care companies that aided Fund concentrated in the consumer University of Houston.
performance. But not all the Fund's discretionary sector and included online
health care stocks performed well. One auctioneer EBAY. In September, eBay KIRK L. ANDERSON,
that detracted from Fund performance was proposed acquiring an Internet phone [ANDERSON portfolio manager, is a
pharmaceutical giant PFIZER. Overall, the company. Like many other investors, we PHOTO] portfolio manager of AIM
company's long-term prospects questioned the strategic value of the V.I. Capital
deteriorated dramatically due to proposed acquisition, which hurt eBay's Appreciation Fund. He
regulatory scrutiny and litigation risk, short-term performance. But we held the joined AIM in 1994 and was named a
which led us to eliminate it from the stock at the close of the year because we portfolio manager in 2003. Mr. Anderson
portfolio. believed the company's core business earned a B.A. in political science from
remains strong, it continues to generate Texas A&M University and M.S. in finance
Other health care stocks that significant cash flow, and it continues from the University of Houston.
performed well included GENENTECH, a to grow faster than most companies.
leader in the biotechnology industry, and JAMES G. BIRDSALL,
JOHNSON & JOHNSON, arguably the world's IN CLOSING [BIRDSALL portfolio manager, is a
most diversified health care company. PHOTO] portfolio manager of AIM
Genentech developed and markets As the year ended, we considered the V.I. Capital
Avastin--Registered Trademark--, a drug fundamentals of large-cap growth stocks Appreciation Fund. He
originally approved for treatment of to be good. As a group, large-cap growth has been associated with AIM since 1997
colorectal cancer that has, more companies boasted healthy cash flows, and was named a portfolio manager in
recently, shown promise in the treatment strong balance sheets and positive 1999. Mr. Birdsall received his B.B.A.
of other types of cancer. While Johnson & earnings growth. Also, managements were with a concentration in finance from
Johnson develops pharmaceutical products, generally using capital for the benefit Stephen F. Austin State University before
it manufactures a broad array of health of their shareholders. These factors, earning his M.B.A. with a concentration
care products for consumers and medical together with our quantitative and in finance and international business
professionals. fundamental research, led us to invest from the University of St. Thomas.
the bulk of Fund assets in stocks of
Worldwide energy production and large-capitalization companies. At the ROBERT J. LLOYD,
refining capacity has struggled to keep close of the year, we believed many [LLOYD Chartered Financial
pace with rising demand. Continued large-cap growth stocks were attractively PHOTO] Analyst, portfolio
explosive economic growth in China and priced relative to other stocks with less manager, is a portfolio
India, and a severe hurricane season attractive fundamentals. As always, we manager of AIM V.I.
along the U.S. Gulf Coast, pushed the thank you for your continued investment Capital Appreciation Fund. He joined AIM
price of oil to record highs in 2005. We in AIM V.I. Capital Appreciation Fund. in 2000 and was named portfolio manager
believe that any significant improvement in 2001. He served eight years in the
in supply is likely to be years away. THE VIEWS AND OPINIONS EXPRESSED IN U.S. Navy as a Naval Flight Officer
MANAGEMENT'S DISCUSSION OF FUND flying the S-3B Viking. Mr. Lloyd
Given these trends, many energy PERFORMANCE ARE THOSE OF A I M ADVISORS, received a B.B.A. from the University of
companies have seen notable growth in INC. THESE VIEWS AND OPINIONS ARE SUBJECT Notre Dame and an M.B.A. from the
their revenue and earnings, and have used TO CHANGE AT ANY TIME BASED ON FACTORS University of Chicago.
those earnings to improve their balance SUCH AS MARKET AND ECONOMIC CONDITIONS.
sheets and to benefit shareholders THESE VIEWS AND OPINIONS MAY NOT BE Assisted by the Large/Multi-Cap Growth
through stock buybacks and increased RELIED UPON AS INVESTMENT ADVICE OR Team
dividends. For the year, your Fund was RECOMMENDATIONS, OR AS AN OFFER FOR A
overweight energy stocks relative to its PARTICULAR SECURITY. THE INFORMATION IS [RIGHT ARROW GRAPHIC]
style-specific index, with refiner VALERO NOT A COMPLETE ANALYSIS OF EVERY ASPECT
ENERGY and OF ANY MARKET, COUNTRY, INDUSTRY, FOR A DISCUSSION OF THE RISKS OF
SECURITY OR THE FUND. STATEMENTS OF FACT INVESTING IN YOUR FUND, INDEXES USED IN
ARE FROM SOURCES CONSIDERED RELIABLE, BUT THIS REPORT AND YOUR FUND'S LONG-TERM
A I M ADVISORS, INC. MAKES NO PERFORMANCE, PLEASE TURN TO PAGES 4 AND
REPRESENTATION OR 5.
3
AIM V.I. CAPITAL APPRECIATION FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/5/93, index data from 4/30/93
[MOUNTAIN CHART]
================================================================================
AIM V.I. CAPITAL S&P RUSSELL LIPPER MULTI-CAP
APPRECIATION FUND- 500- 1000 GROWTH GROWTH FUND
DATE SERIES I SHARES INDEX BOND INDEX INDEX
4/30/93 $10000 $10000 $10000
5/93 $10320 10267 10350 10544
6/93 10200 10297 10256 10645
7/93 10390 10255 10072 10648
8/93 10990 10644 10486 11184
9/93 11370 10562 10409 11422
10/93 11440 10780 10698 11555
11/93 11261 10678 10626 11206
12/93 11950 10807 10809 11583
1/94 12590 11174 11060 11968
2/94 12831 10871 10857 11776
3/94 11820 10398 10332 11144
4/94 11940 10531 10380 11154
5/94 11770 10703 10537 11119
6/94 11099 10441 10225 10657
7/94 11378 10784 10575 10962
8/94 12209 11225 11163 11570
9/94 12239 10950 11012 11391
10/94 12620 11196 11271 11614
11/94 12070 10789 10910 11161
12/94 12249 10949 11092 11256
1/95 12098 11232 11330 11253
2/95 12750 11670 11804 11708
3/95 13343 12013 12149 12089
4/95 13624 12367 12414 12336
5/95 13996 12860 12846 12658
6/95 15101 13159 13342 13428
7/95 16537 13595 13897 14286
8/95 16677 13629 13912 14404
9/95 17259 14204 14553 14801
10/95 16888 14153 14563 14613
11/95 17089 14773 15129 15099
12/95 16621 15058 15216 15052
1/96 16772 15570 15725 15280
2/96 17666 15715 16013 15730
3/96 17647 15866 16033 15823
4/96 18732 16100 16455 16526
5/96 19324 16514 17030 16980
6/96 18601 16577 17053 16615
7/96 17005 15845 16054 15411
8/96 17980 16180 16468 16087
9/96 19346 17090 17667 17131
10/96 19035 17561 17774 17091
11/96 19979 18887 19108 18066
12/96 19547 18513 18734 17739
1/97 20403 19669 20048 18590
2/97 19559 19824 19913 18077
3/97 18362 19011 18835 17144
4/97 18694 20144 20086 17688
5/97 20535 21376 21535 19188
6/97 21180 22326 22397 19908
7/97 23353 24102 24378 21741
8/97 23082 22753 22951 21146
9/97 24190 23998 24080 22484
10/97 22649 23198 23190 21490
11/97 22398 24271 24175 21626
12/97 22192 24687 24446 21810
1/98 21764 24960 25177 21905
2/98 23814 26759 27071 23728
3/98 24609 28129 28150 24885
4/98 25222 28417 28540 25173
5/98 24069 27929 27730 24217
6/98 25039 29063 29428 25461
7/98 24163 28755 29234 24841
8/98 19683 24601 24846 20242
9/98 21346 26178 26755 21701
10/98 22388 28304 28905 22922
11/98 23736 30019 31104 24517
12/98 26480 31748 33909 27218
1/99 26954 33075 35900 28891
2/99 25250 32047 34260 27385
3/99 26386 33329 36064 28944
4/99 27228 34620 36110 29647
5/99 27114 33803 35000 29074
6/99 29006 35674 37452 31108
7/99 28156 34565 36262 30407
8/99 28018 34394 36854 30103
9/99 28206 33452 36080 29930
10/99 30257 35568 38805 32039
11/99 32853 36291 40898 34608
12/99 38300 38425 45152 39834
1/00 37645 36495 43035 39430
2/00 42576 35805 45139 45734
3/00 43619 39305 48369 45554
4/00 40283 38123 46068 41735
5/00 37874 37342 43748 38920
6/00 41456 38261 47064 42780
7/00 41046 37664 45102 41437
8/00 46439 40002 49185 45925
9/00 43834 37891 44533 43135
10/00 40854 37730 42425 40630
11/00 33124 34757 36172 33975
12/00 34124 34928 35027 35033
1/01 35783 36166 37447 35743
2/01 30229 32871 31090 30511
3/01 26910 30790 27706 27241
4/01 29588 33180 31211 30567
5/01 29289 33403 30751 30402
6/01 28759 32590 30039 29861
7/01 27675 32269 29288 28249
8/01 25306 30251 26893 25811
9/01 22120 27809 24208 21975
10/01 23391 28339 25478 23548
11/01 25738 30512 27926 25816
12/01 26180 30780 27873 26218
1/02 25722 30331 27381 25478
2/02 24624 29746 26245 23896
3/02 26119 30865 27152 25321
4/02 24611 28994 24936 23783
5/02 24154 28781 24333 23093
6/02 22465 26732 22082 20940
7/02 20417 24649 20868 18973
8/02 20368 24810 20931 18829
9/02 18789 22116 18759 17369
10/02 20465 24061 20480 18696
11/02 21296 25476 21593 19866
12/02 19801 23980 20101 18399
1/03 19270 23353 19613 18095
2/03 19185 23002 19523 17972
3/03 19450 23225 19887 18258
4/03 20751 25137 21357 19592
5/03 21777 26460 22423 21032
6/03 22053 26798 22732 21275
7/03 22874 27271 23297 21935
8/03 23740 27801 23877 22812
9/03 22945 27507 23621 22372
10/03 24583 29062 24948 23957
11/03 25102 29318 25209 24394
12/03 25625 30854 26081 24909
1/04 26094 31420 26614 25531
2/04 26300 31857 26783 25868
3/04 25856 31376 26286 25790
4/04 25049 30885 25980 24925
5/04 25567 31308 26465 25513
6/04 26158 31916 26795 26060
7/04 24544 30860 25281 24220
8/04 24122 30984 25156 23879
9/04 24834 31319 25395 24800
10/04 25447 31798 25791 25333
11/04 26602 33084 26678 26697
12/04 27326 34209 27724 27715
1/05 26555 33376 26800 26715
2/05 27073 34077 27085 27017
3/05 26410 33475 26591 26446
4/05 25470 32840 26085 25476
5/05 26649 33884 27347 27043
6/05 26710 33933 27246 27189
7/05 28096 35194 28578 28796
8/05 28071 34873 28210 28659
9/05 28854 35155 28340 29121
10/05 28361 34569 28064 28590
11/05 29518 35875 29275 30119
12/05 29736 35888 29183 30244
================================================================================
</Table>
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates the
dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, the space between $20,000 and
$40,000 is the same as that between
$40,000 and $80,000, and so on.
4
AIM V.I. CAPITAL APPRECIATION FUND
=========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES) ADJUSTED TO REFLECT THE HIGHER THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 RULE 12b-1 FEES APPLICABLE TO SERIES II VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SHARES. SERIES I AND SERIES II SHARES SHARES OF THE FUND DIRECTLY.
SERIES I SHARES INVEST IN THE SAME PORTFOLIO OF
Inception (5/5/93) 8.99% SECURITIES AND WILL HAVE SUBSTANTIALLY PERFORMANCE FIGURES GIVEN REPRESENT
10 Years 5.99 SIMILAR PERFORMANCE, EXCEPT TO THE EXTENT THE FUND AND ARE NOT INTENDED TO REFLECT
5 Years -2.70 THAT EXPENSES BORNE BY EACH CLASS DIFFER. ACTUAL VARIABLE PRODUCT VALUES. THEY DO
1 Year 8.83 NOT REFLECT SALES CHARGES, EXPENSES AND
THE PERFORMANCE DATA QUOTED REPRESENT FEES ASSESSED IN CONNECTION WITH A
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT. SALES CHARGES, EXPENSES
10 Years 5.73% COMPARABLE FUTURE RESULTS; CURRENT AND FEES, WHICH ARE DETERMINED BY THE
5 Years -2.94 PERFORMANCE MAY BE LOWER OR HIGHER. VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 8.58 PLEASE CONTACT YOUR VARIABLE PRODUCT WILL LOWER THE TOTAL RETURN.
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
========================================= RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST RECENT
CUMULATIVE TOTAL RETURNS PERFORMANCE. PERFORMANCE FIGURES REFLECT MONTH-END PERFORMANCE DATA AT THE FUND
Six months ended 12/31/05 FUND EXPENSES, REINVESTED DISTRIBUTIONS LEVEL, EXCLUDING VARIABLE PRODUCT
AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Series I Shares 11.34% INVESTMENT RETURN AND PRINCIPAL VALUE INFORMATION LINE, 866-702-4402. AS
Shares II Shares 11.20 WILL FLUCTUATE SO THAT YOU MAY HAVE A MENTIONED ABOVE, FOR THE MOST RECENT
========================================= GAIN OR LOSS WHEN YOU SELL SHARES. AIM MONTH-END PERFORMANCE INCLUDING VARIABLE
V.I. CAPITAL APPRECIATION FUND, A SERIES PRODUCT CHARGES, PLEASE CONTACT YOUR
RETURNS SINCE AUGUST 21, 2001, THE PORTFOLIO OF AIM VARIABLE INSURANCE VARIABLE PRODUCT ISSUER OR FINANCIAL
INCEPTION DATE OF SERIES II SHARES, ARE FUNDS, IS CURRENTLY OFFERED ADVISOR.
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I SHARES
(FOR PERIODS PRIOR TO INCEPTION OF SERIES
II
PRINCIPAL RISKS OF INVESTING IN THE FUND unmanaged RUSSELL 1000--Registered OTHER INFORMATION
Trademark-- INDEX, which represents the
The Fund may invest up to 25% of its performance of the stocks of The returns shown in the management's
assets in the securities of non-U.S. large-capitalization companies; the discussion of Fund performance are based
issuers. International investing presents Growth subset measures the performance of on net asset values calculated for
certain risks not associated with Russell 1000 companies with higher shareholder transactions. Generally
investing solely in the United States. price/book ratios and higher forecasted accepted accounting principles require
These include risks relating to growth values. 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 Standard & Poor's reporting purposes, and as such, the net
currencies, the custody arrangements made Composite Index of 500 Stocks (the S&P asset values for shareholder transactions
for the Fund's foreign holdings, 500--Registered Trademark-- Index) is an and the returns based on those net asset
differences in accounting, political index of common stocks frequently used as values may differ from the net asset
risks and the lesser degree of public a general measure of U.S. stock market values and returns reported in the
information required to be provided by performance. Financial Highlights. Additionally, the
non-U.S. companies. returns and net asset values shown
The Fund is not managed to track the throughout this report are at the Fund
Investing in smaller companies performance of any particular index, level only and do not include variable
involves greater risk than investing in including the indexes defined here, and product issuer charges. If such charges
more established companies, such as consequently, the performance of the Fund were included, the total returns would be
business risk, significant stock price may deviate significantly from the lower.
fluctuations and illiquidity. performance of the indexes.
Industry classifications used in this
ABOUT INDEXES USED IN THIS REPORT A direct investment cannot be made in report are generally according to the
an index. Unless otherwise indicated, Global Industry Classification Standard,
The unmanaged LIPPER MULTI-CAP GROWTH index results include reinvested which was developed by and is the
FUND INDEX represents an average of the dividends, and they do not reflect sales exclusive property and a service mark of
performance of the 30 largest charges. Performance of an index of funds Morgan Stanley Capital International Inc.
multi-capitalization growth funds tracked reflects fund expenses; performance of a and Standard & Poor's.
by Lipper, Inc., an independent mutual market index does not.
fund performance monitor.
The unmanaged RUSSELL 1000--Registered
Trademark-- GROWTH INDEX is
a subset of the
5
AIM V.I. CAPITAL APPRECIATION FUND
CALCULATING YOUR ONGOING FUND EXPENSES
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 July 1, 2005, through HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
December 31, 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 December 31,
2005, appear in the table "Cumulative
The table below provides information Total Returns" on Page 5.
about actual account values and actual
expenses.
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,113.40 $4.79 $1,020.67 $4.58 0.90%
Series II 1,000.00 1,112.00 6.12 1,019.41 5.85 1.15
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
===================================================================================================================================
6
AIM V.I. CAPITAL APPRECIATION FUND
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 AIM affiliate serves as sub-advisor,
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the although the total management fees paid
the management of AIM V.I. Capital credentials and experience of the by such unaffiliated mutual funds were
Appreciation Fund (the "Fund") and, as officers and employees of AIM who will higher than the advisory fee rate for the
required by law, determines annually provide investment advisory services to Fund; and (iv) was higher than the
whether to approve the continuance of the the Fund. In reviewing the qualifications advisory fee rates for three separately
Fund's advisory agreement with A I M of AIM to provide investment advisory managed wrap accounts managed by an AIM
Advisors, Inc. ("AIM"). Based upon the services, the Board reviewed the affiliate with investment strategies
recommendation of the Investments qualifications of AIM's investment comparable to those of the Fund. The
Committee of the Board, which is personnel and considered such issues as Board noted that AIM has agreed to waive
comprised solely of independent trustees, AIM's portfolio and product review advisory fees of the Fund and to limit
at a meeting held on June 30, 2005, the process, various back office support the Fund's total operating expenses, as
Board, including all of the independent functions provided by AIM and AIM's discussed below. Based on this review,
trustees, approved the continuance of the equity and fixed income trading the Board concluded that the advisory fee
advisory agreement (the "Advisory operations. Based on the review of these rate for the Fund under the Advisory
Agreement") between the Fund and AIM for and other factors, the Board concluded Agreement was fair and reasonable.
another 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 June Board compared effective contractual
30, 2005 and as part of the Board's o The performance of the Fund relative to advisory fee rates at a common asset
ongoing oversight of the Fund. In their comparable funds. The Board reviewed the level and noted that the Fund's rate was
deliberations, the Board and the performance of the Fund during the past above the median rate of the funds
independent trustees did not identify any one, three and five calendar years advised by other advisors with investment
particular factor that was controlling, against the performance of funds advised strategies comparable to those of the
and each trustee attributed different by other advisors with investment Fund that the Board reviewed. The Board
weights to the various factors. strategies comparable to those of the noted that AIM has agreed to waive
Fund. The Board noted that the Fund's advisory fees of the Fund and to limit
One of the responsibilities of the performance was below the median the Fund's total operating expenses, as
Senior Officer of the Fund, who is performance of such comparable funds for discussed below. Based on this review,
independent of AIM and AIM's affiliates, the one year period and above such median the Board concluded that the advisory fee
is to manage the process by which the performance for the three and five year rate for the Fund under the Advisory
Fund's proposed management fees are periods. Based on this review, the Board Agreement was fair and reasonable.
negotiated to ensure that they are concluded that no changes should be made
negotiated in a manner which is at arm's to the Fund and that it was not necessary o Expense limitations and fee waivers.
length and reasonable. To that end, the to change the Fund's portfolio management The Board noted that AIM has
Senior Officer must either supervise a team at this time. contractually agreed to waive advisory
competitive bidding process or prepare an fees of the Fund through June 30, 2006 to
independent written evaluation. The o The performance of the Fund relative to the extent necessary so that the advisory
Senior Officer has recommended an indices. The Board reviewed the fees payable by the Fund do not exceed a
independent written evaluation in lieu of performance of the Fund during the past specified maximum advisory fee rate,
a competitive bidding process and, upon one, three and five calendar years which maximum rate includes breakpoints
the direction of the Board, has prepared against the performance of the Lipper and is based on net asset levels. The
such an independent written evaluation. Multi-Cap Growth Index. The Board noted Board considered the contractual nature
Such written evaluation also considered that the Fund's performance was below the of this fee waiver and noted that it
certain of the factors discussed below. performance of such Index for the one and remains in effect until June 30, 2006.
In addition, as discussed below, the three year periods and above such Index The Board noted that AIM has
Senior Officer made certain for the five year period. Based on this contractually agreed to waive fees and/or
recommendations to the Board in review, the Board concluded that no limit expenses of the Fund through April
connection with such written evaluation. changes should be made to the Fund and 30, 2006 in an amount necessary to limit
that it was not necessary to change the total annual operating expenses to a
The discussion below serves as a Fund's portfolio management team at this specified percentage of average daily net
summary of the Senior Officer's time. assets for each class of the Fund. The
independent written evaluation and Board considered the contractual nature
recommendations to the Board in o Meeting with the Fund's portfolio of this fee waiver/expense limitation and
connection therewith, as well as a managers and investment personnel. With noted that it remains in effect until
discussion of the material factors and respect to the Fund, the Board is meeting April 30, 2006. The Board considered the
the conclusions with respect thereto that periodically with such Fund's portfolio effect these fee waivers/expense
formed the basis for the Board's approval managers and/or other investment limitations would have on the Fund's
of the Advisory Agreement. After personnel and believes that such estimated expenses and concluded that the
consideration of all of the factors below individuals are competent and able to levels of fee waivers/expense limitations
and based on its informed business continue to carry out their for the Fund were fair and reasonable.
judgment, the Board determined that the responsibilities under the Advisory
Advisory Agreement is in the best Agreement. o Breakpoints and economies of scale. The
interests of the Fund and its Board reviewed the structure of the
shareholders and that the compensation to o Overall performance of AIM. The Board Fund's advisory fee under the Advisory
AIM under the Advisory Agreement is fair considered the overall performance of AIM Agreement, noting that it includes one
and reasonable and would have been in providing investment advisory and breakpoint. The Board reviewed the level
obtained through arm's length portfolio administrative services to the of the Fund's advisory fees, and noted
negotiations. Fund and concluded that such performance that such fees, as a percentage of the
was satisfactory. Fund's net assets, have decreased as net
o The nature and extent of the advisory assets increased because the Advisory
services to be provided by AIM. The Board o Fees relative to those of clients of Agreement includes a breakpoint. The
reviewed the services to be provided by AIM with comparable investment Board noted that AIM has contractually
AIM under the Advisory Agreement. Based strategies. The Board reviewed the agreed to waive advisory fees of the Fund
on such review, the Board concluded that advisory fee rate for the Fund under the through June 30, 2006 to the extent
the range of services to be provided by Advisory Agreement. The Board noted that necessary so that the advisory fees
AIM under the Advisory Agreement was this rate (i) was comparable to the payable by the Fund do not exceed a
appropriate and that AIM currently is advisory fee rates for a mutual fund specified maximum advisory fee rate,
providing services in accordance with the advised by AIM with investment strategies which maximum rate includes breakpoints
terms of the Advisory Agreement. comparable to those of the Fund; (ii) was and is based on net asset levels. The
lower than the advisory fee rates for an Board concluded that the Fund's
offshore fund advised by an AIM affiliate
with investment strategies comparable to
those of the Fund; (iii) was higher than
the sub-advisory fee rates for three
unaffiliated mutual funds for which an
(continued)
7
AIM V.I. CAPITAL APPRECIATION FUND
fee levels under the Advisory Agreement o Benefits of soft dollars to AIM. The
therefore reflect economies of scale and Board considered the benefits realized by
that it was not necessary to change the AIM as a result of brokerage transactions
advisory fee breakpoints in the Fund's executed through "soft dollar"
advisory fee schedule. arrangements. Under these arrangements,
brokerage commissions paid by the Fund
o Investments in affiliated money market and/or other funds advised by AIM are
funds. The Board also took into account used to pay for research and execution
the fact that uninvested cash and cash services. This research is used by AIM in
collateral from securities lending making investment decisions for the Fund.
arrangements (collectively, "cash The Board concluded that such
balances") of the Fund may be invested in arrangements were appropriate.
money market funds advised by AIM
pursuant to the terms of an SEC exemptive o AIM's financial soundness in light of
order. The Board found that the Fund may the Fund's needs. The Board considered
realize certain benefits upon investing whether AIM is financially sound and has
cash balances in AIM advised money market the resources necessary to perform its
funds, including a higher net return, obligations under the Advisory Agreement,
increased liquidity, increased and concluded that AIM has the financial
diversification or decreased transaction resources necessary to fulfill its
costs. The Board also found that the Fund obligations under the Advisory Agreement.
will not receive reduced services if it
invests its cash balances in such money o Historical relationship between the
market funds. The Board noted that, to Fund and AIM. In determining whether to
the extent the Fund invests in affiliated continue the Advisory Agreement for the
money market funds, AIM has voluntarily Fund, the Board also considered the prior
agreed to waive a portion of the advisory relationship between AIM and the Fund, as
fees it receives from the Fund well as the Board's knowledge of AIM's
attributable to such investment. The operations, and concluded that it was
Board further determined that the beneficial to maintain the current
proposed securities lending program and relationship, in part, because of such
related procedures with respect to the knowledge. The Board also reviewed the
lending Fund is in the best interests of general nature of the non-investment
the lending Fund and its respective advisory services currently performed by
shareholders. The Board therefore AIM and its affiliates, such as
concluded that the investment of cash administrative, transfer agency and
collateral received in connection with distribution services, and the fees
the securities lending program in the received by AIM and its affiliates for
money market funds according to the performing such services. In addition to
procedures is in the best interests of reviewing such services, the trustees
the lending Fund and its respective also considered the organizational
shareholders. structure employed by AIM and its
affiliates to provide those services.
o Independent written evaluation and Based on the review of these and other
recommendations of the Fund's Senior factors, the Board concluded that AIM and
Officer. The Board noted that, upon their its affiliates were qualified to continue
direction, the Senior Officer of the to provide non-investment advisory
Fund, who is independent of AIM and AIM's services to the Fund, including
affiliates, had prepared an independent administrative, transfer agency and
written evaluation in order to assist the distribution services, and that AIM and
Board in determining the reasonableness its affiliates currently are providing
of the proposed management fees of the satisfactory non-investment advisory
AIM Funds, including the Fund. The Board services.
noted that the Senior Officer's written
evaluation had been relied upon by the o Other factors and current trends. In
Board in this regard in lieu of a determining whether to continue the
competitive bidding process. In Advisory Agreement for the Fund, the
determining whether to continue the Board considered the fact that AIM, along
Advisory Agreement for the Fund, the with others in the mutual fund industry,
Board considered the Senior Officer's is subject to regulatory inquiries and
written evaluation and the recommendation litigation related to a wide range of
made by the Senior Officer to the Board issues. The Board also considered the
that the Board consider implementing a governance and compliance reforms being
process to assist them in more closely undertaken by AIM and its affiliates,
monitoring the performance of the AIM including maintaining an internal
Funds. The Board concluded that it would controls committee and retaining an
be advisable to implement such a process independent compliance consultant, and
as soon as reasonably practicable. the fact that AIM has undertaken to cause
the Fund to operate in accordance with
o Profitability of AIM and its certain governance policies and
affiliates. The Board reviewed practices. The Board concluded that these
information concerning the profitability actions indicated a good faith effort on
of AIM's (and its affiliates') investment the part of AIM to adhere to the highest
advisory and other activities and its ethical standards, and determined that
financial condition. The Board considered the current regulatory and litigation
the overall profitability of AIM, as well environment to which AIM is subject
as the profitability of AIM in connection should not prevent the Board from
with managing the Fund. The Board noted continuing the Advisory Agreement for the
that AIM's operations remain profitable, Fund.
although increased expenses in recent
years have reduced AIM's profitability.
Based on the review of the profitability
of AIM's and its affiliates' investment
advisory and other activities and its
financial condition, the Board concluded
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.40%
AEROSPACE & DEFENSE-1.78%
Boeing Co. (The) 172,650 $ 12,126,936
- --------------------------------------------------------------------------
General Dynamics Corp. 75,000 8,553,750
==========================================================================
20,680,686
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.50%
Coach, Inc.(a) 174,117 5,805,061
==========================================================================
APPLICATION SOFTWARE-0.77%
Amdocs Ltd.(a) 324,374 8,920,285
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.51%
Franklin Resources, Inc. 62,782 5,902,136
==========================================================================
BIOTECHNOLOGY-5.27%
Amgen Inc.(a) 310,000 24,446,600
- --------------------------------------------------------------------------
Genentech, Inc.(a) 64,665 5,981,513
- --------------------------------------------------------------------------
Genzyme Corp.(a) 155,000 10,970,900
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 257,532 13,553,909
- --------------------------------------------------------------------------
Protein Design Labs, Inc.(a)(b) 221,811 6,303,869
==========================================================================
61,256,791
==========================================================================
COMMUNICATIONS EQUIPMENT-2.53%
Cisco Systems, Inc.(a) 456,041 7,807,422
- --------------------------------------------------------------------------
QUALCOMM Inc. 481,329 20,735,653
- --------------------------------------------------------------------------
Redback Networks Inc.(a) 57,262 805,104
==========================================================================
29,348,179
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.51%
Best Buy Co., Inc. 135,000 5,869,800
==========================================================================
COMPUTER HARDWARE-3.43%
Apple Computer, Inc.(a) 432,151 31,067,335
- --------------------------------------------------------------------------
Dell Inc.(a) 292,983 8,786,560
==========================================================================
39,853,895
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.22%
EMC Corp.(a) 1,039,252 14,154,612
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.98%
Caterpillar Inc. 197,834 11,428,870
==========================================================================
CONSUMER ELECTRONICS-1.63%
Garmin Ltd.(b) 104,637 6,942,665
- --------------------------------------------------------------------------
Harman International Industries, Inc.(b) 122,981 12,033,691
==========================================================================
18,976,356
==========================================================================
CONSUMER FINANCE-1.49%
American Express Co. 113,137 5,822,030
- --------------------------------------------------------------------------
SLM Corp. 209,273 11,528,850
==========================================================================
17,350,880
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-1.28%
Iron Mountain Inc.(a) 163,490 $ 6,902,548
- --------------------------------------------------------------------------
Paychex, Inc. 209,273 7,977,487
==========================================================================
14,880,035
==========================================================================
DEPARTMENT STORES-1.35%
Federated Department Stores, Inc. 135,000 8,954,550
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 120,332 6,690,459
==========================================================================
15,645,009
==========================================================================
DIVERSIFIED BANKS-1.02%
Bank of America Corp. 257,181 11,868,903
==========================================================================
DIVERSIFIED CHEMICALS-0.79%
Dow Chemical Co. (The) 209,273 9,170,343
==========================================================================
DIVERSIFIED METALS & MINING-1.04%
Phelps Dodge Corp. 83,709 12,043,214
==========================================================================
DRUG RETAIL-0.06%
CVS Corp. 28,103 742,481
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.25%
Emerson Electric Co. 106,834 7,980,500
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 109,868 6,499,791
==========================================================================
14,480,291
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.60%
Agilent Technologies, Inc.(a) 209,273 6,966,698
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.77%
Monsanto Co. 116,000 8,993,480
==========================================================================
FOOTWEAR-0.55%
NIKE, Inc.-Class B 73,067 6,341,485
==========================================================================
GENERAL MERCHANDISE STORES-0.97%
Target Corp. 205,000 11,268,850
==========================================================================
HEALTH CARE EQUIPMENT-3.24%
Medtronic, Inc. 250,291 14,409,253
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 245,143 12,306,179
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 217,833 10,965,713
==========================================================================
37,681,145
==========================================================================
HEALTH CARE SERVICES-1.45%
Caremark Rx, Inc.(a) 324,393 16,800,313
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.86%
Electronic Arts Inc.(a) 190,267 9,952,867
==========================================================================
HOME IMPROVEMENT RETAIL-0.95%
Home Depot, Inc. (The) 271,773 11,001,371
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-1.68%
Procter & Gamble Co. (The) 338,175 $ 19,573,569
==========================================================================
HOUSEWARES & SPECIALTIES-0.39%
Jarden Corp.(a) 151,868 4,578,820
==========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.99%
Robert Half International Inc.(b) 303,446 11,497,569
==========================================================================
INDUSTRIAL CONGLOMERATES-1.04%
Textron Inc. 156,955 12,082,396
==========================================================================
INDUSTRIAL GASES-0.48%
Air Products and Chemicals, Inc. 95,000 5,623,050
==========================================================================
INDUSTRIAL MACHINERY-2.91%
Eaton Corp. 104,637 7,020,096
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 76,029 6,689,792
- --------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd.-Class A 293,832 11,861,998
- --------------------------------------------------------------------------
Parker Hannifin Corp. 125,564 8,282,201
==========================================================================
33,854,087
==========================================================================
INTEGRATED OIL & GAS-1.96%
ConocoPhillips 230,201 13,393,094
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 117,483 9,384,542
==========================================================================
22,777,636
==========================================================================
INTERNET RETAIL-1.48%
eBay Inc.(a) 397,619 17,197,022
==========================================================================
INTERNET SOFTWARE & SERVICES-3.11%
Google Inc.-Class A(a) 41,669 17,286,801
- --------------------------------------------------------------------------
Yahoo! Inc.(a)(b) 481,329 18,858,470
==========================================================================
36,145,271
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.18%
Goldman Sachs Group, Inc. (The) 115,100 14,699,421
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 166,875 11,302,444
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 750,502 11,009,864
==========================================================================
37,011,729
==========================================================================
MANAGED HEALTH CARE-5.06%
Aetna Inc. 173,027 16,318,176
- --------------------------------------------------------------------------
CIGNA Corp. 76,175 8,508,748
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 304,164 18,900,751
- --------------------------------------------------------------------------
WellPoint, Inc.(a) 189,109 15,089,007
==========================================================================
58,816,682
==========================================================================
MOVIES & ENTERTAINMENT-0.38%
Pixar(a) 83,709 4,413,139
==========================================================================
OIL & GAS DRILLING-1.50%
ENSCO International Inc. 222,248 9,856,699
- --------------------------------------------------------------------------
GlobalSantaFe Corp. 156,955 7,557,383
==========================================================================
17,414,082
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.66%
Baker Hughes Inc. 154,862 $ 9,412,512
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 156,955 9,841,079
==========================================================================
19,253,591
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.89%
Apache Corp. 125,564 8,603,645
- --------------------------------------------------------------------------
Devon Energy Corp. 167,419 10,470,384
- --------------------------------------------------------------------------
Newfield Exploration Co.(a) 125,564 6,286,990
- --------------------------------------------------------------------------
XTO Energy, Inc. 188,485 8,282,031
==========================================================================
33,643,050
==========================================================================
OIL & GAS REFINING & MARKETING-1.72%
Sunoco, Inc. 62,782 4,920,853
- --------------------------------------------------------------------------
Valero Energy Corp. 292,982 15,117,871
==========================================================================
20,038,724
==========================================================================
PACKAGED FOODS & MEATS-0.45%
Kellogg Co. 120,789 5,220,501
==========================================================================
PHARMACEUTICALS-2.84%
Johnson & Johnson 354,948 21,332,375
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 171,140 5,485,037
- --------------------------------------------------------------------------
Wyeth 134,521 6,197,382
==========================================================================
33,014,794
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.97%
Allstate Corp. (The) 209,273 11,315,391
==========================================================================
RAILROADS-1.14%
Burlington Northern Santa Fe Corp. 186,253 13,190,437
==========================================================================
RESTAURANTS-0.49%
Brinker International, Inc. 148,317 5,733,935
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.58%
KLA-Tencor Corp. 136,028 6,710,261
==========================================================================
SEMICONDUCTORS-4.29%
Analog Devices, Inc. 468,547 16,806,781
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 340,000 8,557,800
- --------------------------------------------------------------------------
Microchip Technology Inc. 627,831 20,184,767
- --------------------------------------------------------------------------
NVIDIA Corp.(a) 116,229 4,249,332
==========================================================================
49,798,680
==========================================================================
SOFT DRINKS-0.64%
PepsiCo, Inc. 125,564 7,418,321
==========================================================================
SPECIALIZED FINANCE-0.35%
Chicago Mercantile Exchange Holdings Inc. 11,019 4,049,372
==========================================================================
SPECIALTY CHEMICALS-0.35%
Rohm and Haas Co. 85,000 4,115,700
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SPECIALTY STORES-2.69%
Office Depot, Inc.(a)(b) 641,172 $ 20,132,801
- --------------------------------------------------------------------------
Tiffany & Co. 289,882 11,099,582
==========================================================================
31,232,383
==========================================================================
STEEL-1.52%
Nucor Corp. 94,173 6,283,223
- --------------------------------------------------------------------------
United States Steel Corp.(b) 237,483 11,415,808
==========================================================================
17,699,031
==========================================================================
SYSTEMS SOFTWARE-1.86%
McAfee Inc.(a) 292,983 7,948,629
- --------------------------------------------------------------------------
Microsoft Corp. 523,183 13,681,235
==========================================================================
21,629,864
==========================================================================
Total Domestic Common Stocks (Cost
$769,098,154) 992,433,123
==========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-11.70%
AUSTRALIA-0.43%
BHP Billiton Ltd. (Diversified Metals &
Mining)(c) 300,000 5,011,730
==========================================================================
BRAZIL-0.57%
Companhia Vale do Rio Doce-ADR (Steel)(b) 161,394 6,639,749
==========================================================================
CANADA-0.28%
Shoppers Drug Mart Corp. (Drug Retail)(b) 87,200 3,294,189
==========================================================================
FINLAND-0.76%
Nokia Oyj-ADR (Communications Equipment) 485,000 8,875,500
==========================================================================
ISRAEL-0.81%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 217,494 9,354,417
==========================================================================
JAPAN-2.88%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 428,000 7,165,550
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(c) 288,000 5,575,167
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.-ADR
(Consumer Electronics) 34,500 668,610
- --------------------------------------------------------------------------
Millea Holdings, Inc. (Property & Casualty
Insurance)(c) 380 6,599,731
- --------------------------------------------------------------------------
Mitsui O.S.K. Lines, Ltd. (Marine)(c) 1,140,000 10,034,592
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
JAPAN-(CONTINUED)
Mitsui Sumitomo Insurance Co., Ltd. (Property
& Casualty Insurance)(c) 278,000 $ 3,440,199
==========================================================================
33,483,849
==========================================================================
SINGAPORE-1.18%
Marvell Technology Group Ltd.
(Semiconductors)(a) 243,576 13,662,178
==========================================================================
SOUTH KOREA-1.13%
Kookmin Bank (Diversified Banks)(a)(c) 100,000 7,479,450
- --------------------------------------------------------------------------
POSCO-ADR (Steel)(b) 114,263 5,657,161
==========================================================================
13,136,611
==========================================================================
SWITZERLAND-3.38%
ABB Ltd. (Heavy Electrical Equipment)(a)(c) 650,000 6,314,387
- --------------------------------------------------------------------------
Alcon, Inc. (Health Care Supplies) 141,762 18,372,355
- --------------------------------------------------------------------------
Roche Holding Ltd. (Pharmaceuticals) 97,000 14,564,764
==========================================================================
39,251,506
==========================================================================
UNITED KINGDOM-0.28%
Rio Tinto PLC (Diversified Metals &
Mining)(c) 72,000 3,287,438
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $110,861,788) 135,997,167
==========================================================================
MONEY MARKET FUNDS-2.43%
Liquid Assets Portfolio-Institutional
Class(d) 14,102,149 14,102,149
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 14,102,149 14,102,149
==========================================================================
Total Money Market Funds (Cost
$28,204,298) 28,204,298
==========================================================================
TOTAL INVESTMENTS-99.53% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $908,164,240) 1,156,634,588
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-5.69%
Liquid Assets Portfolio-Institutional
Class(d)(e) 66,155,830 66,155,830
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $66,155,830) 66,155,830
==========================================================================
TOTAL INVESTMENTS-105.22% (Cost $974,320,070) 1,222,790,418
==========================================================================
OTHER ASSETS LESS LIABILITIES-(5.22%) (60,701,792)
==========================================================================
NET ASSETS-100.00% $1,162,088,626
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $54,908,244,
which represented 4.72% of the Fund's Net Assets. See Note 1A.
(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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $879,959,942)* $1,128,430,290
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $94,360,128) 94,360,128
- -------------------------------------------------------------
Total investments (cost $974,320,070) 1,222,790,418
=============================================================
Foreign currencies, at value (cost $287,912) 288,445
- -------------------------------------------------------------
Receivables for:
Investments sold 8,466,476
- -------------------------------------------------------------
Fund shares sold 671,885
- -------------------------------------------------------------
Dividends 747,425
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 75,936
- -------------------------------------------------------------
Other assets 364
=============================================================
Total assets 1,233,040,949
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 2,650,118
- -------------------------------------------------------------
Fund shares reacquired 1,085,400
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 134,755
- -------------------------------------------------------------
Collateral upon return of securities loaned 66,155,830
- -------------------------------------------------------------
Accrued administrative services fees 713,655
- -------------------------------------------------------------
Accrued distribution fees -- Series II 210,907
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,658
=============================================================
Total liabilities 70,952,323
=============================================================
Net assets applicable to shares outstanding $1,162,088,626
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,236,662,964
- -------------------------------------------------------------
Undistributed net investment income 574,433
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (323,633,694)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 248,484,923
=============================================================
$1,162,088,626
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 822,898,843
_____________________________________________________________
=============================================================
Series II $ 339,189,783
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 33,350,129
_____________________________________________________________
=============================================================
Series II 13,886,595
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 24.67
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 24.43
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$70,554) $ 9,514,819
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$77,239, less compensation to counterparties
of $1,012,170) 1,069,908
- ------------------------------------------------------------
Interest 3,048
============================================================
Total investment income 10,587,775
============================================================
EXPENSES:
Advisory fees 6,447,166
- ------------------------------------------------------------
Administrative services fees 2,660,779
- ------------------------------------------------------------
Custodian fees 102,102
- ------------------------------------------------------------
Distribution fees--Series II 562,106
- ------------------------------------------------------------
Transfer agent fees 43,487
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 47,077
- ------------------------------------------------------------
Other 125,182
============================================================
Total expenses 9,987,899
============================================================
Less: Fees waived (8,070)
- ------------------------------------------------------------
Net expenses 9,979,829
============================================================
Net investment income 607,946
============================================================
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 $958,350) 99,386,061
- ------------------------------------------------------------
Foreign currencies 66,549
============================================================
99,452,610
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (5,869,085)
- ------------------------------------------------------------
Foreign currencies 14,507
============================================================
(5,854,578)
============================================================
Net gain from investment securities and foreign
currencies 93,598,032
============================================================
Net increase in net assets resulting from
operations $94,205,978
____________________________________________________________
============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $64,002,947 were
on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 607,946 $ 647,415
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts written 99,452,610 53,272,992
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (5,854,578) 5,399,330
==============================================================================================
Net increase in net assets resulting from operations 94,205,978 59,319,737
==============================================================================================
Distributions to shareholders from net investment
income-Series I (505,822) --
==============================================================================================
Share transactions-net:
Series I (131,492,019) (103,365,150)
- ----------------------------------------------------------------------------------------------
Series II 175,908,989 58,730,811
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 44,416,970 (44,634,339)
==============================================================================================
Net increase in net assets 138,117,126 14,685,398
==============================================================================================
NET ASSETS:
Beginning of year 1,023,971,500 1,009,286,102
==============================================================================================
End of year (including undistributed net investment income
of $574,433 and $405,760, respectively) $1,162,088,626 $1,023,971,500
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. CAPITAL APPRECIATION FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
J. 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
AIM V.I. CAPITAL APPRECIATION FUND
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
K. 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 replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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. 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 year ended December 31, 2005, AIM waived fees of $8,070.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $252,350 for
accounting and fund administrative services and reimbursed $2,408,429 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 year ended
December 31, 2005, the Fund paid AISI $43,487.
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 year ended December
31, 2005, the Series II shares paid $562,106.
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 year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Intuitional
Class $11,214,768 $262,270,550 $(259,383,169) $ -- $14,102,149 $494,774 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Intuitional
Class 11,214,768 262,270,550 (259,383,169) -- 14,102,149 497,895 --
===========================================================================================================================
Subtotal $22,429,536 $524,541,100 $(518,766,338) $ -- $28,204,298 $992,669 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Intuitional
Class $ -- $225,394,632 $(159,238,802) $ -- $66,155,830 $ 39,893 $ --
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Intuitional
Class 30,500,985 201,445,719 (231,946,704) -- -- 37,346 --
=============================================================================================================================
Subtotal $30,500,985 $426,840,351 $(391,185,506) $ -- $66,155,830 $ 77,239 $ --
=============================================================================================================================
Total $52,930,521 $951,381,451 $(909,951,844) $ -- $94,360,128 $1,069,908 $ --
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $10,336,225 and sales of $10,192,725, which
resulted in net realized gains of $958,350.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $7,796
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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2005, securities with an aggregate value of $64,002,947 were
on loan to brokers. The loans were secured by cash collateral of $66,155,830
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $77,239 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------
Distributions paid from ordinary income $505,822 $ --
________________________________________________________________________________
================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 689,959
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 240,830,443
- ------------------------------------------------------------------------------
Temporary book/tax differences (115,526)
- ------------------------------------------------------------------------------
Capital loss carryforward (315,979,214)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,236,662,964
==============================================================================
Total net assets $1,162,088,626
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the deferral
of losses on wash sales and certain straddles. The tax-basis unrealized
appreciation on investments amount includes appreciation on foreign currencies
of $14,575.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. CAPITAL APPRECIATION FUND
The Fund utilized $97,991,994 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $103,221,919
- -----------------------------------------------------------------------------
December 31, 2010 156,444,344
- -----------------------------------------------------------------------------
December 31, 2011 56,312,951
=============================================================================
Total capital loss carryforward $315,979,214
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $1,029,636,052 and $998,129,657, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $251,413,149
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,597,281)
==============================================================================
Net unrealized appreciation of investment securities $240,815,868
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $981,974,550.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income was
increased by $66,549 and undistributed net realized gain (loss) was decreased by
$66,549. This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 7,080,254 $ 158,159,074 6,397,229 $ 136,561,015
- --------------------------------------------------------------------------------------------------------------------------
Series II 8,650,154 194,868,060 3,114,855 66,251,744
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 17,427 439,171 -- --
==========================================================================================================================
Reacquired:
Series I (12,847,505) (290,090,264) (11,416,993) (239,926,165)
- --------------------------------------------------------------------------------------------------------------------------
Series II (851,863) (18,959,071) (357,082) (7,520,933)
==========================================================================================================================
2,048,467 $ 44,416,970 (2,261,991) $ (44,634,339)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 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. CAPITAL APPRECIATION FUND
NOTE 12--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005,
Plans of Reorganization pursuant to which the Fund would acquire all of the
assets of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth Fund ("Selling
Funds"), each series of the Trust (the "Reorganizations"). Upon closing of the
Reorganizations, shareholders of Selling Funds will receive a corresponding
class of shares of the Fund in exchange for their shares of Selling Funds, and
Selling Funds will cease operations.
The Plans of Reorganization require approval of each Selling Fund's
shareholders, respectively. The Selling Funds currently intend to submit the
Plans of Reorganization to the shareholders for their consideration at a meeting
to be held on or around April 4, 2006. Additional information regarding the
Plans of Reorganization will be included in proxy materials to be mailed to
shareholders for consideration. If the Plans of Reorganization are approved by
the shareholders of Selling Funds and certain conditions required by the Plans
of Reorganization are satisfied, the Reorganizations are expected to become
effective on or around May 1, 2006.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.97 1.39 4.89 (5.24) (7.17)
==========================================================================================================================
Total from investment operations 2.00 1.41 4.85 (5.29) (7.22)
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (1.90)
==========================================================================================================================
Total distributions (0.02) -- -- -- (1.90)
==========================================================================================================================
Net asset value, end of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 8.79% 6.62% 29.52% (24.35)% (23.28)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $822,899 $886,990 $938,820 $763,038 $1,160,236
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 0.89%(d) 0.91% 0.85% 0.85% 0.85%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.11%(d) 0.09%(a) (0.23)% (0.27)% (0.22)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 97% 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 $(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $828,851,813.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------------------------------------
AUGUST 21, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------------- 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) (0.03) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.96 1.36 4.87 (5.23) 0.45
=================================================================================================================================
Total from investment operations 1.93 1.34 4.78 (5.32) 0.41
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 8.58% 6.33% 29.18% (24.52)% 1.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $339,190 $ 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 (0.14)%(d) (0.16)%(a) (0.48)% (0.52)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 97% 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 and do not
reflect charges assessed in connection with a variable product, which if
included would reduce total returns.
(d) Ratios are based on average daily net assets of $224,842,465.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
Section 529 college savings plans and procedures for locating lost
securityholders. IFG, AIM and ADI are providing full cooperation with respect to
these inquiries. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds and Shareholders of
AIM V.I. Capital Appreciation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Capital Appreciation Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. CAPITAL APPRECIATION FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. CAPITAL DEVELOPMENT FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE o a stock's price reaches our valuation
======================================================================================= target
PERFORMANCE SUMMARY
o a company moves into the large
Your Fund's focus on mid-cap stocks, the ========================================== capitalization range
best-performing domestic equity category FUND VS. INDEXES
for the year, helped it post solid gains o we find a more attractive investment
for the year ended December 31, 2005. TOTAL RETURNS 12/31/04-12/31/05, EXCLUDING option
VARIABLE PRODUCT ISSUER CHARGES. IF
The Fund outperformed the large-cap VARIABLE PRODUCT ISSUER CHARGES WERE MARKET CONDITIONS AND YOUR FUND
oriented S&P 500 Index, largely due to INCLUDED, RETURNS WOULD BE LOWER.
strong returns by investments in the While higher gasoline prices, rising
health care, telecommunication services and Series I Shares 9.61% short-term interest rates and the ongoing
consumer discretionary sectors. However, concern of a housing bubble seemed to
the Fund underperformed the Series II Shares 9.27 dominate the popular press, the U.S.
Russell Midcap Growth Index, as many of the economy continued its expansion and
Fund's industrials and financials holdings Standard & Poor's Composite Index inflation remained low. Against this
underperformed those of the index. of 500 stocks (S&P 500 Index) diverse backdrop, equity markets delivered
(Broad Market Index) 4.91 single-digit gains during 2005.
For long-term performance, please see
Pages 4 and 5. Russell Midcap Growth Index In this environment, holdings in the
(Style-specific Index) 12.10 energy, health care, telecommunication
services and consumer discretionary
Russell Midcap Index sectors were the leading contributors to
(Former Style-specific Index) 12.65 Fund returns during the year. Positive
performance was broad-based, as
Lipper Mid-Cap Growth Fund Index significant detractors to Fund returns
(Peer Group Index) 9.58 were concentrated in the industrials
sector.
Lipper Mid-Cap Core Fund Index
(Former Peer Group Index) 9.46 The energy sector was the leading
contributor to Fund returns during the
SOURCE: LIPPER, INC. year. Oil services holdings
========================================== NATIONAL-OILWELL VARCO, and GRANT PRIDECO
benefited from strong demand for their
======================================================================================= products and services as exploration
companies moved quickly to take advantage
HOW WE INVEST financial statement analysis, to identify of high oil prices. Other key contributors
companies with large potential markets, in this sector included WILLIAMS COMPANIES
We select stocks based on evaluation of cash-generating business models, improving and MURPHY OIL CORP.
individual companies, focusing on mid-cap balance sheets and solid management teams
growth companies that are favorably priced Health care stocks benefited from
relative to the rest of the market. o using a variety of valuation techniques steady demand for medical products and
to determine target buy prices and a services, which tends to remain constant
Our investment process involves: stock's valuation upside and downside regardless of economic conditions. A
potential number of the Fund's health care providers
o identifying companies with sustainable and services holdings
cash flow and earnings growth and low We strive to control volatility and
stock prices relative to their projected risk by diversifying Fund holdings across
growth rates sectors.
o applying fundamental research, including We consider selling a stock if:
o a company's fundamentals deteriorate
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. American Tower Corp.-Class A 2.2%
Information Technology 24.0% 1. Semiconductors 6.9% 2. CB Richard Ellis Group, Inc.
-Class A 1.3
Consumer Discretionary 17.1 2. Application Software 4.8
3. Chicago Mercantile Exchange
Health Care 16.0 Holdings Inc. 1.3
3. Wireless Telecommunication
Energy 11.9 Services 4.3 4. National-Oilwell Varco Inc. 1.2
Industrials 10.8 4. Health Care Services 4.3 5. Corrections Corp. of America 1.2
Financials 8.1 5. Diversified Commercial 6. Williams Cos., Inc. (The) 1.2
& Professional Services 4.0
Telecommunication Services 5.2 7. Grant Prideco, Inc. 1.2
Consumer Staples 2.6 8. IHS Inc.- Class A 1.2
TOTAL NET ASSETS $201.1 million
Materials 1.1 TOTAL NUMBER OF HOLDINGS* 116 9. Citrix Systems, Inc. 1.1
Utilities 1.0 10. Shoppers Drug Mart Corp.
(Canada) 1.1
Money Market Funds
Plus Other Assets Less Liabilities 2.2
The Fund's holdings are subject to change, and there is no assurance that the Fund
will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
</Table>
2
AIM V.I. CAPITAL DEVELOPMENT FUND
performed particularly well. One example The industrials sector was the only THE VIEWS AND OPINIONS EXPRESSED IN
is EXPRESS SCRIPTS, a pharmacy benefits sector that detracted from Fund returns MANAGEMENT'S DISCUSSION OF FUND
management company. Express Scripts, during the year. Within this sector, PERFORMANCE ARE THOSE OF A I M ADVISORS,
whose clients include managed-care several of the fund's commercial services INC. THESE VIEWS AND OPINIONS ARE SUBJECT
organizations, insurance carriers and holdings performed poorly. SIRVA, one of TO CHANGE AT ANY TIME BASED ON FACTORS
employers, reported record earnings for the largest relocation and moving services SUCH AS MARKET AND ECONOMIC CONDITIONS.
the third quarter of 2005 and raised its companies in the world, detracted from THESE VIEWS AND OPINIONS MAY NOT BE RELIED
earnings estimate for the remainder of the Fund returns. Other significant detractors UPON AS INVESTMENT ADVICE OR
year. The company benefited from increased in the industrials sector included RECOMMENDATIONS, OR AS AN OFFER FOR A
use of generic drugs and home delivery of industrial product manufacturer PARKER PARTICULAR SECURITY. THE INFORMATION IS
pharmaceutical products. HANNIFIN and truckload carrier SWIFT NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
TRANSPORTATION. All three holdings were ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
Several telecommunication services subsequently sold. THE FUND. STATEMENTS OF FACT ARE FROM
holdings also made significant SOURCES CONSIDERED RELIABLE, BUT A I M
contributions to performance during the Despite achieving a positive return in ADVISORS, INC. MAKES NO REPRESENTATION OR
year, including NII HOLDINGS. Formerly the financials sector, the Fund lost WARRANTY AS TO THEIR COMPLETENESS OR
known as Nextel International, this ground to its style-specific Russell ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
wireless communications company reported Midcap Growth Index largely due to IS NO GUARANTEE OF FUTURE RESULTS, THESE
record earnings for the third quarter of underperformance by several insurance and INSIGHTS MAY HELP YOU UNDERSTAND OUR
2005 as it added 183,200 subscribers, real estate holdings. Insurance holdings INVESTMENT MANAGEMENT PHILOSOPHY.
boosting its total to more than 2.3 that underperformed included ENDURANCE
million. Communications tower operator SPECIALTY HOLDINGS LTD., a company that
AMERICAN TOWER also appreciated during provides commercial property and casualty
the year, as the company merged with coverage, specializing in catastrophe [RASPLICKA PAUL J. RASPLICKA,
former Fund holding SpectraSite and policies. We subsequently sold the holding PHOTO] Chartered Financial
benefited from strong demand from wireless due to a weaker outlook and deteriorating Analyst and senior
communication companies that lease space fundamentals. Real estate holding NEW portfolio manager, is
on its towers. We retained the SpectraSite CENTURY FINANCIAL, a company that provides lead portfolio manager
shares received in the merger, which mortgage loans, also performed poorly. We of AIM V.I. Capital Development Fund. Mr.
explains the large American Tower position sold the stock. Some of this under- Rasplicka began his investment career in
in the Fund. performance was offset by strong 1982. A native of Denver, Mr. Rasplicka is
performance by diversified financial a magna cum laude graduate of the
The consumer discretionary sector was services holding CHICAGO MERCANTILE University of Colorado at Boulder with a
another area of strength for the Fund. EXCHANGE. B.S. in business administration. He
While many consumer discretionary stocks received an M.B.A. from the University of
were negatively affected by rising oil and IN CLOSING Chicago. He is also a Chartered Investment
gas prices during the year, we focused on Counselor.
companies whose customers were less We are pleased to have provided positive
affected by these trends. Examples of returns for our investors for the Assisted by the Mid Cap Growth/GARP
holdings that performed well for the Fund reporting period. We remain committed to (Growth-at-a-Reasonable Price) Team
included NORDSTROM, ABERCROMBIE & FITCH our investment process of focusing on the
and POLO RALPH LAUREN. attractively priced stocks of mid-cap
companies with strong cash flow and
ADVANCE AUTO PARTS, another key earning growth. We believe our strategy
contributor in the consumer has the potential to provide investors [RIGHT ARROW GRAPHIC]
discretionary sector, is particularly with attractive returns over the long
reflective of our investment discipline. term, and we thank you for your FOR A DISCUSSION OF THE RISKS OF INVESTING
This auto parts retailer is led by a commitment to AIM V.I. Capital Development IN YOUR FUND, INDEXES USED IN THIS REPORT
talented management team that has been Fund. AND YOUR FUND'S LONG-TERM PERFORMANCE,
highly successful in orchestrating a PLEASE TURN TO PAGES 4 AND 5.
turnaround, leading to improvements in
profit margins and growth in revenues. The
company also continues to gain market
share and is now the second largest auto
parts retailer in the U.S. Despite the
recent run-up in market prices, our long-
term view of Advance Auto Parts remains
favorable, and we believe the shares
have potential for further increases as
the company continues to remodel existing
stores, open new stores in attractive
markets and improve sales margins.
</Table>
3
AIM V.I. CAPITAL DEVELOPMENT FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/1/98, index data from 4/30/98
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. CAPITAL S&P RUSSELL RUSSELL LIPPER LIPPER MID-CAP
DEVELOPMENT FUND- 500 MIDCAP MIDCAP GROWTH MID-CAP CORE GROWTH
SERIES I SHARES INDEX INDEX INDEX FUND INDEX FUND INDEX
4/30/98 $10000 $10000 $10000 $10000 $10000
5/98 $9430 9828 9691 9589 9485 9417
6/98 9530 10227 9825 9860 9594 9850
7/98 8840 10119 9356 9438 9048 9195
8/98 7120 8657 7860 7636 7204 7212
9/98 7760 9212 8368 8214 7832 7964
10/98 7970 9960 8939 8819 8277 8257
11/98 8480 10564 9362 9414 8693 8885
12/98 9249 11172 9911 10389 9530 10031
1/99 9139 11639 9894 10700 9485 10529
2/99 8346 11278 9565 10177 8817 9711
3/99 8547 11729 9865 10744 9073 10403
4/99 8788 12183 10593 11233 9594 10830
5/99 8888 11895 10563 11089 9708 10785
6/99 9431 12554 10936 11863 10237 11654
7/99 9360 12164 10635 11485 10037 11495
8/99 8958 12103 10360 11366 9760 11437
9/99 9209 11772 9996 11269 9577 11770
10/99 9580 12517 10469 12140 10052 12811
11/99 10534 12771 10771 13397 10806 14418
12/99 11941 13522 11718 15717 12217 17426
1/00 11740 12843 11330 15714 12088 17126
2/00 14432 12600 12201 19018 14097 21419
3/00 14402 13832 12900 19037 13988 19911
4/00 13317 13416 12289 17189 13037 17284
5/00 12544 13141 11964 15936 12501 15731
6/00 13336 13464 12318 17627 13519 18175
7/00 12955 13254 12180 16511 13132 17421
8/00 14371 14077 13347 19001 14413 19699
9/00 13799 13334 13157 18072 14030 18753
10/00 13487 13277 12954 16835 13532 17236
11/00 11981 12231 11788 13177 12035 13632
12/00 13044 12291 12685 13871 12981 14615
1/01 13356 12727 12889 14663 13364 14813
2/01 12363 11567 12105 12127 12316 12591
3/01 11398 10835 11354 10391 11494 11255
4/01 12473 11676 12325 12123 12606 12739
5/01 12764 11755 12554 12066 12905 12844
6/01 12894 11469 12436 12073 12939 12794
7/01 12552 11356 12080 11258 12532 12121
8/01 11990 10646 11616 10442 11992 11309
9/01 10393 9786 10215 8717 10459 9678
10/01 10614 9973 10619 9633 10982 10217
11/01 11418 10738 11509 10670 11812 11056
12/01 11990 10832 11971 11075 12345 11535
1/02 11728 10674 11900 10716 12204 11094
2/02 11688 10468 11774 10108 11993 10543
3/02 12622 10861 12480 10880 12802 11207
4/02 12521 10203 12238 10304 12591 10835
5/02 12280 10128 12099 9996 12335 10473
6/02 11407 9407 11288 8893 11443 9532
7/02 10052 8674 10187 8029 10283 8504
8/02 9941 8731 10242 8001 10401 8403
9/02 8987 7783 9297 7366 9570 7881
10/02 9298 8467 9767 7936 10020 8278
11/02 9840 8965 10445 8557 10701 8770
12/02 9428 8439 10034 8040 10200 8251
1/03 9258 8218 9831 7961 9999 8129
2/03 9167 8095 9701 7892 9788 8003
3/03 9227 8173 9796 8039 9812 8118
4/03 9830 8846 10508 8586 10553 8687
5/03 10533 9311 11470 9413 11439 9406
6/03 10804 9430 11586 9547 11640 9553
7/03 11075 9597 11968 9888 12000 9930
8/03 11527 9784 12487 10432 12532 10418
9/03 11266 9680 12331 10230 12322 10068
10/03 12130 10227 13272 11055 13226 10858
11/03 12452 10317 13644 11350 13587 11116
12/03 12763 10858 14053 11474 13932 11173
1/04 13124 11057 14462 11853 14308 11456
2/04 13465 11211 14773 12052 14581 11614
3/04 13475 11042 14776 12029 14546 11611
4/04 13093 10868 14234 11689 14088 11243
5/04 13164 11017 14587 11965 14310 11487
6/04 13455 11231 14990 12156 14699 11764
7/04 12661 10860 14335 11351 13952 10928
8/04 12490 10903 14397 11211 13899 10739
9/04 13002 11021 14864 11629 14387 11198
10/04 13313 11190 15274 12024 14623 11529
11/04 14136 11642 16205 12645 15493 12170
12/04 14738 12038 16895 13250 16083 12741
1/05 14467 11745 16476 12896 15662 12330
2/05 14648 11992 16985 13222 16051 12489
3/05 14387 11780 16852 13029 15888 12240
4/05 13685 11557 16315 12514 15282 11650
5/05 14468 11924 17097 13230 16007 12341
6/05 14850 11941 17556 13476 16385 12624
7/05 15663 12385 18482 14263 17144 13351
8/05 15673 12272 18352 14176 17043 13309
9/05 15764 12371 18596 14359 17184 13541
10/05 15162 12165 18037 13936 16738 13165
11/05 15945 12625 18837 14693 17434 13877
12/05 $16158 $12629 $19032 $14854 $17604 $13962
====================================================================================================================================
Source: Lipper, Inc.
Past performance cannot guarantee During the fiscal year, the Fund has
comparable future results. elected to use the Russell Midcap Growth
Index as its style-specific index rather
This chart, which is a logarithmic than the Russell Midcap Index because Fund
chart, presents the fluctuations in the management believes the Russell Midcap
value of the Fund and its indexes. We Growth Index more closely reflects the
believe that a logarithmic chart is more performance of the types of securities in
effective than other types of charts in which the Fund invests. In addition, the
illustrating changes in value during the Fund has elected to use the Lipper Mid-Cap
early years shown in the chart. The Growth Fund Index as its peer group index
vertical axis, the one that indicates the rather than the Lipper Mid-Cap Core Fund
dollar value of an investment, is Index. Fund management believes the Lipper
constructed with each segment representing Mid-Cap Growth Fund Index more closely
a percent change in the value of the reflects its investment strategy and
investment. In this chart, each segment objectives.
represents a doubling, or 100% change, in
the value of the investment. In other
words, the space between $5,000 and
$10,000 is the same size as the space
between $10,000 and $20,000, and so on.
</Table>
4
AIM V.I. CAPITAL DEVELOPMENT FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12B-1 FEES APPLICABLE TO SERIES II INSURANCE FUNDS, IS CURRENTLY OFFERED
SHARES. THE INCEPTION DATE OF SERIES I THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 SHARES IS MAY 1, 1998. SERIES I AND SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
II SHARES INVEST IN THE SAME PORTFOLIO OF SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES SECURITIES AND WILL HAVE SUBSTANTIALLY FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/1/98) 6.46% SIMILAR PERFORMANCE, EXCEPT TO THE EXTENT NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 4.37 THAT EXPENSES BORNE BY EACH CLASS DIFFER. PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 9.61 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 6.20% COMPARABLE FUTURE RESULTS; CURRENT DETERMINED BY THE VARIABLE PRODUCT
5 Years 4.12 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 9.27 CONTACT YOUR VARIABLE PRODUCT ISSUER OR TOTAL RETURN.
FINANCIAL ADVISOR FOR THE MOST RECENT
========================================== MONTH-END VARIABLE PRODUCT PERFORMANCE. PER NASD REQUIREMENTS, THE MOST RECENT
PERFORMANCE FIGURES REFLECT FUND MONTH-END PERFORMANCE DATA AT THE FUND
CUMULATIVE TOTAL RETURNS EXPENSES, REINVESTED DISTRIBUTIONS AND LEVEL, EXCLUDING VARIABLE PRODUCT
CHANGES IN NET ASSET VALUE. INVESTMENT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Six months ended 12/31/05 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE INFORMATION LINE, 866-702-4402. AS
Series I Shares 8.79% SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 8.60 YOU SELL SHARES. MONTH-END PERFORMANCE INCLUDING VARIABLE
PRODUCT CHARGES, PLEASE CONTACT YOUR
========================================== AIM V.I. CAPITAL DEVELOPMENT FUND, A VARIABLE PRODUCT ISSUER OR FINANCIAL
SERIES PORTFOLIO OF AIM VARIABLE ADVISOR.
RETURNS SINCE AUGUST 21, 2001, THE
INCEPTION DATE OF SERIES II SHARES, ARE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE THEIR
INCEPTION AND THE RESTATED HISTORICAL
PERFORMANCE OF SERIES I SHARES (FOR
PERIODS PRIOR TO INCEPTION OF SERIES II
SHARES) ADJUSTED TO REFLECT THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE The unmanaged LIPPER MID-CAP GROWTH FUND OTHER INFORMATION
FUND INDEX represents an average of the
performance of the 30 largest The returns shown in management's
Investing in smaller companies involves mid-capitalization growth funds tracked by discussion of Fund performance are based
greater risk than investing in more Lipper, Inc., an independent mutual fund on net asset values calculated for
established companies, such as business performance monitor. shareholder transactions. Generally
risk, significant stock price fluctuations accepted accounting principles require
and illiquidity. The unmanaged LIPPER MID-CAP CORE FUND adjustments to be made to the net assets
INDEX represents an average of the of the Fund at period end for financial
The Fund may invest up to 25% of its performance of the 30 largest reporting purposes, and as such, the net
assets in the securities of non-U.S. mid-capitalization core funds tracked by asset values for shareholder transactions
issuers. International investing presents Lipper, Inc., an independent mutual fund and the returns based on those net asset
certain risks not associated with performance monitor. values may differ from the net asset
investing solely in the United States. values and returns reported in the
These include risks relating to The unmanaged RUSSELL MIDCAP Financial Highlights. Additionally, the
fluctuations in the value of the U.S. --REGISTERED TRADEMARK-- GROWTH INDEX is a returns and net asset values shown
dollar relative to the values of other subset of the RUSSELL MIDCAP --REGISTERED throughout this report are at the Fund
currencies, the custody arrangements made TRADEMARK-- INDEX, which represents the level only and do not include variable
for the Fund's foreign holdings, performance of the stocks of domestic product issuer charges. If such charges
differences in accounting, political risks mid-capitalization companies; the Growth were included, the total returns would be
and the lesser degree of public subset measures the performance of Russell lower.
information required to be provided by Midcap companies with higher price/book
non-U.S. companies. ratios and higher forecasted growth Industry classifications used in this
values. report are generally according to the
ABOUT INDEXES USED IN THIS REPORT Global Industry Classification Standard,
The Fund is not managed to track the which was developed by and is the
The unmanaged Standard & Poor's Composite performance of any particular index, exclusive property and a service mark of
Index of 500 Stocks (the S&P 500 including the indexes defined here, and Morgan Stanley Capital International Inc.
- --REGISTERED TRADEMARK-- INDEX) is an consequently, the performance of the Fund and Standard & Poor's.
index of common stocks frequently used as may deviate significantly from the
a general measure of U.S. stock market performance of the indexes.
performance.
</Table>
5
AIM V.I. CAPITAL DEVELOPMENT FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES year before expenses, which is not the
Fund's actual return. The Fund's actual
As a shareholder of the Fund, you incur The table below provides information about cumulative total returns at net asset
ongoing costs, including management fees; actual account values and actual expenses. value after expenses for the six months
distribution and/or service fees (12b-1); You may use the information in this table, ended December 31, 2005, appear in the
and other Fund expenses. This example is together with the amount you invested, to table "Cumulative Total Returns" on Page
intended to help you understand your estimate the expenses that you paid over 5.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 The hypothetical account values and
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), expenses may not be used to estimate the
funds. The example is based on an then multiply the result by the number in actual ending account balance or expenses
investment of $1,000 invested at the the table under the heading entitled you paid for the period. You may use this
beginning of the period and held for the "Actual Expenses Paid During Period" to information to compare the ongoing costs
entire period July 1, 2005, through estimate the expenses you paid on your of investing in the Fund and other funds.
December 31, 2005. account during this period. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples
The actual and hypothetical expenses in HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
the examples below do not represent the PURPOSES the other funds.
effect of any fees or other expenses
assessed in connection with a variable The table below also provides information Please note that the expenses shown in
product; if they did, the expenses shown about hypothetical account values and the table are meant to highlight your
would be higher while the ending account hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
values shown would be lower. actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of 5% per costs, and will not help you determine the
relative total costs of owning different
funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,087.90 $5.74 $1,019.71 $5.55 1.09%
Series II 1,000.00 1,086.00 7.05 1,018.45 6.82 1.34
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. CAPITAL DEVELOPMENT FUND
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 comparable
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the funds with other advisors. The Board
the management of AIM V.I. Capital credentials and experience of the reviewed the advisory fee rate for the
Development Fund (the "Fund") and, as officers and employees of AIM who will Fund under the Advisory Agreement. The
required by law, determines annually provide investment advisory services to Board compared effective contractual
whether to approve the continuance of the Fund. In reviewing the advisory fee rates at a common asset
the Fund's advisory agreement with A I M qualifications of AIM to provide level and noted that the Fund's rate was
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board below the median rate of the funds
recommendation of the Investments reviewed the qualifications of AIM's advised by other advisors with
Committee of the Board, which is investment personnel and considered such investment strategies comparable to
comprised solely of independent issues as AIM's portfolio and product those of the Fund that the Board
trustees, at a meeting held on June 30, review process, various back office reviewed. The Board noted that AIM has
2005, the Board, including all of the support functions provided by AIM and agreed to waive advisory fees of the
independent trustees, approved the AIM's equity and fixed income trading Fund and to limit the Fund's total
continuance of the advisory agreement operations. Based on the review of these operating expenses, as discussed below.
(the "Advisory Agreement") between the and other factors, the Board concluded Based on this review, the Board
Fund and AIM for another year, effective that the quality of services to be concluded that the advisory fee rate for
July 1, 2005. provided by AIM was appropriate and that the Fund under the Advisory Agreement
AIM currently is providing satisfactory was fair and reasonable.
The Board considered the factors services in accordance with the terms of
discussed below in evaluating the the Advisory Agreement. o Expense limitations and fee waivers.
fairness and reasonableness of the The Board noted that AIM has
Advisory Agreement at the meeting on o The performance of the Fund relative contractually agreed to waive advisory
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed fees of the Fund through June 30, 2006
ongoing oversight of the Fund. In their the performance of the Fund during the to the extent necessary so that the
deliberations, the Board and the past one, three and five calendar years advisory fees payable by the Fund do not
independent trustees did not identify against the performance of funds advised exceed a specified maximum advisory fee
any particular factor that was by other advisors with investment rate, which maximum rate includes
controlling, and each trustee attributed strategies comparable to those of the breakpoints and is based on net asset
different weights to the various Fund. The Board noted that the Fund's levels. The Board considered the
factors. performance was at the median contractual nature of this fee waiver
performance of such comparable funds for and noted that it remains in effect
One of the responsibilities of the the one year period and above such until June 30, 2006. The Board noted
Senior Officer of the Fund, who is median performance for the three and that AIM has contractually agreed to
independent of AIM and AIM's affiliates, five year periods. Based on this review, waive fees and/or limit expenses of the
is to manage the process by which the the Board concluded that no changes Fund through April 30, 2006 in an amount
Fund's proposed management fees are should be made to the Fund and that it necessary to limit total annual
negotiated to ensure that they are was not necessary to change the Fund's operating expenses to a specified
negotiated in a manner which is at arm's portfolio management team at this time. percentage of average daily net assets
length and reasonable. To that end, the for each class of the Fund. The Board
Senior Officer must either supervise a o The performance of the Fund relative considered the contractual nature of
competitive bidding process or prepare to indices. The Board reviewed the this fee waiver/expense limitation and
an independent written evaluation. The performance of the Fund during the past noted that it remains in effect through
Senior Officer has recommended an one, three and five calendar years April 30, 2006. The Board considered the
independent written evaluation in lieu against the performance of the Lipper effect these fee waivers/expense
of a competitive bidding process and, Mid Cap Growth Index. The Board noted limitations would have on the Fund's
upon the direction of the Board, has that the Fund's performance in such estimated expenses and concluded that
prepared such an independent written periods was above the performance of the levels of fee waivers/expense
evaluation. Such written evaluation also such Index. Based on this review, the limitations for the Fund were fair and
considered certain of the factors Board concluded that no changes should reasonable.
discussed below. In addition, as be made to the Fund and that it was not
discussed below, the Senior Officer made necessary to change the Fund's portfolio o Breakpoints and economies of scale.
certain recommendations to the Board in management team at this time. The Board reviewed the structure of the
connection with such written evaluation. Fund's advisory fee under the Advisory
o Meeting with the Fund's portfolio Agreement, noting that it includes one
The discussion below serves as a managers and investment personnel. With breakpoint. The Board reviewed the level
summary of the Senior Officer's respect to the Fund, the Board is of the Fund's advisory fees, and noted
independent written evaluation and meeting periodically with such Fund's that such fees, as a percentage of the
recommendations to the Board in portfolio managers and/or other Fund's net assets, would decrease as net
connection therewith, as well as a investment personnel and believes that assets increase because the Advisory
discussion of the material factors and such individuals are competent and able Agreement includes a breakpoint. The
the conclusions with respect thereto to continue to carry out their Board noted that, due to the Fund's
that formed the basis for the Board's responsibilities under the Advisory current asset levels and the way in
approval of the Advisory Agreement. Agreement. which the advisory fee breakpoints have
After consideration of all of the been structured, the Fund has yet to
factors below and based on its informed o Overall performance of AIM. The Board benefit from the breakpoint. The Board
business judgment, the Board determined considered the overall performance of noted that AIM has contractually agreed
that the Advisory Agreement is in the AIM in providing investment advisory and to waive advisory fees of the Fund
best interests of the Fund and its portfolio administrative services to the through June 30, 2006 to the extent
shareholders and that the compensation Fund and concluded that such performance necessary so that the advisory fees
to AIM under the Advisory Agreement is was satisfactory. payable by the Fund do not exceed a
fair and reasonable and would have been specified maximum advisory fee rate,
obtained through arm's length o Fees relative to those of clients of which maximum rate includes breakpoints
negotiations. AIM with comparable investment and is based on net asset levels. The
strategies. The Board reviewed the Board concluded that the Fund's fee
o The nature and extent of the advisory advisory fee rate for the Fund under the levels under the Advisory Agreement
services to be provided by AIM. The Advisory Agreement. The Board noted that therefore would reflect economies of
Board reviewed the services to be this rate was the same as the advisory scale at higher asset levels and that it
provided by AIM under the Advisory fee rates for a mutual fund advised by was not necessary to change the advisory
Agreement. Based on such review, the AIM with investment strategies fee breakpoints in the Fund's advisory
Board concluded that the range of comparable to those of the Fund. The fee schedule.
services to be provided by AIM under the Board noted that AIM has agreed to waive
Advisory Agreement was appropriate and advisory fees of the Fund and to limit
that AIM currently is providing services the Fund's total operating expenses, as
in accordance with the terms of the discussed below. Based on this review,
Advisory Agreement. the Board concluded that the advisory
fee rate for the Fund under the Advisory
Agreement was fair and reasonable.
(continued)
</Table>
7
AIM V.I. CAPITAL DEVELOPMENT FUND
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized
the fact that uninvested cash and cash by AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements (collectively, "cash dollar" arrangements. Under these
balances") of the Fund may be invested arrangements, brokerage commissions paid
in money market funds advised by AIM by the Fund and/or other funds advised
pursuant to the terms of an SEC by AIM are used to pay for research and
exemptive order. The Board found that execution services. This research is
the Fund may realize certain benefits used by AIM in making investment
upon investing cash balances in AIM decisions for the Fund. The Board
advised money market funds, including a concluded that such arrangements were
higher net return, increased liquidity, appropriate.
increased diversification or decreased
transaction costs. The Board also found o AIM's financial soundness in light of
that the Fund will not receive reduced the Fund's needs. The Board considered
services if it invests its cash balances whether AIM is financially sound and has
in such money market funds. The Board the resources necessary to perform its
noted that, to the extent the Fund obligations under the Advisory
invests in affiliated money market Agreement, and concluded that AIM has
funds, AIM has voluntarily agreed to the financial resources necessary to
waive a portion of the advisory fees it fulfill its obligations under the
receives from the Fund attributable to Advisory Agreement.
such investment. The Board further
determined that the proposed securities o Historical relationship between the
lending program and related procedures Fund and AIM. In determining whether to
with respect to the lending Fund 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. The prior relationship between AIM and the
Board therefore concluded that the Fund, as well as the Board's knowledge
investment of cash collateral received of AIM's operations, and concluded that
in connection with the securities it was beneficial to maintain the
lending program in the money market current relationship, in part, because
funds according to the procedures is in of such knowledge. The Board also
the best interests of the lending Fund reviewed the general nature of the
and its respective shareholders. non-investment advisory services
currently performed by AIM and its
o Independent written evaluation and affiliates, such as administrative,
recommendations of the Fund's Senior transfer agency and distribution
Officer. The Board noted that, upon services, and the fees received by AIM
their direction, the Senior Officer of and its affiliates for performing such
the Fund, who is independent of AIM and services. In addition to reviewing such
AIM's affiliates, had prepared an services, the trustees also considered
independent written evaluation in order the organizational structure employed by
to assist the Board in determining the AIM and its affiliates to provide those
reasonableness of the proposed services. Based on the review of these
management fees of the AIM Funds, and other factors, the Board concluded
including the Fund. The Board noted that that AIM and its affiliates were
the Senior Officer's written evaluation qualified to continue to provide
had been relied upon by the Board in non-investment advisory services to the
this regard in lieu of a competitive Fund, including administrative, transfer
bidding process. In determining whether agency and distribution services, and
to continue the Advisory Agreement for that AIM and its affiliates currently
the Fund, the Board considered the are providing satisfactory
Senior Officer's written evaluation and non-investment advisory services.
the recommendation made by the Senior
Officer to the Board that the Board o Other factors and current trends. In
consider implementing a process to determining whether to continue the
assist them in more closely monitoring Advisory Agreement for the Fund, the
the performance of the AIM Funds. The Board considered the fact that AIM,
Board concluded that it would be along with others in the mutual fund
advisable to implement such a process as industry, is subject to regulatory
soon as reasonably practicable. inquiries and litigation related to a
wide range of issues. The Board also
o Profitability of AIM and its considered the governance and compliance
affiliates. The Board reviewed reforms being undertaken by AIM and its
information concerning the profitability affiliates, including maintaining an
of AIM's (and its affiliates') internal controls committee and
investment advisory and other activities retaining an independent compliance
and its financial condition. The Board consultant, and the fact that AIM has
considered the overall profitability of undertaken to cause the Fund to operate
AIM, as well as the profitability of AIM in accordance with certain governance
in connection with managing the Fund. policies and practices. The Board
The Board noted that AIM's operations concluded that these actions indicated a
remain profitable, although increased good faith effort on the part of AIM to
expenses in recent years have reduced adhere to the highest ethical standards,
AIM's profitability. Based on the review and determined that the current
of the profitability of AIM's and its regulatory and litigation environment to
affiliates' investment advisory and which AIM is subject should not prevent
other activities and its financial the Board from continuing the Advisory
condition, the Board concluded that the Agreement for the Fund.
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
</Table>
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.74%
ADVERTISING-2.99%
Clear Channel Outdoor Holdings, Inc.-Class
A(a) 101,051 $ 2,026,073
- ------------------------------------------------------------------------
Omnicom Group Inc. 22,200 1,889,886
- ------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 33,900 2,088,918
========================================================================
6,004,877
========================================================================
AEROSPACE & DEFENSE-0.91%
Aviall, Inc.(a) 63,562 1,830,586
========================================================================
AGRICULTURAL PRODUCTS-1.02%
Archer-Daniels-Midland Co. 83,456 2,058,025
========================================================================
AIR FREIGHT & LOGISTICS-1.02%
Robinson (C.H.) Worldwide, Inc. 55,200 2,044,056
========================================================================
APPAREL RETAIL-2.28%
Abercrombie & Fitch Co.-Class A 32,798 2,137,774
- ------------------------------------------------------------------------
DSW Inc.-Class A(a) 10,200 267,444
- ------------------------------------------------------------------------
Ross Stores, Inc. 75,469 2,181,054
========================================================================
4,586,272
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.48%
Coach, Inc.(a) 27,300 910,182
- ------------------------------------------------------------------------
Polo Ralph Lauren Corp. 36,649 2,057,475
========================================================================
2,967,657
========================================================================
APPLICATION SOFTWARE-4.75%
Amdocs Ltd.(a) 77,771 2,138,702
- ------------------------------------------------------------------------
Business Objects S.A.-ADR (France)(a)(b) 27,315 1,103,799
- ------------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 55,459 938,366
- ------------------------------------------------------------------------
Citrix Systems, Inc.(a) 79,211 2,279,693
- ------------------------------------------------------------------------
Hyperion Solutions Corp.(a) 28,893 1,034,947
- ------------------------------------------------------------------------
Synopsys, Inc.(a) 102,991 2,065,999
========================================================================
9,561,506
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.99%
Legg Mason, Inc. 16,600 1,986,854
========================================================================
AUTOMOTIVE RETAIL-1.01%
Advance Auto Parts, Inc.(a) 46,770 2,032,624
========================================================================
BROADCASTING & CABLE TV-0.91%
Univision Communications Inc.-Class A(a) 62,000 1,822,180
========================================================================
CASINOS & GAMING-1.91%
Harrah's Entertainment, Inc. 26,500 1,889,185
- ------------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 71,228 1,943,100
========================================================================
3,832,285
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COAL & CONSUMABLE FUELS-0.50%
Aventine Renewable Energy Holdings, Inc.
(Acquired 12/12/05; Cost
$1,001,000)(a)(c)(d) 77,000 $ 1,001,000
========================================================================
COMMUNICATIONS EQUIPMENT-1.90%
Comverse Technology, Inc.(a) 73,165 1,945,457
- ------------------------------------------------------------------------
Harris Corp. 43,405 1,866,849
========================================================================
3,812,306
========================================================================
COMPUTER HARDWARE-0.90%
Palm, Inc.(a)(b) 56,798 1,806,176
========================================================================
COMPUTER STORAGE & PERIPHERALS-2.48%
Emulex Corp.(a) 101,161 2,001,976
- ------------------------------------------------------------------------
Network Appliance, Inc.(a) 35,295 952,965
- ------------------------------------------------------------------------
QLogic Corp.(a) 62,400 2,028,624
========================================================================
4,983,565
========================================================================
CONSTRUCTION & ENGINEERING-1.07%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 85,516 2,155,858
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.69%
Joy Global Inc. 31,266 1,250,640
- ------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 42,590 2,138,870
========================================================================
3,389,510
========================================================================
CONSUMER ELECTRONICS-0.92%
Harman International Industries, Inc. 18,953 1,854,551
========================================================================
CONSUMER FINANCE-1.00%
AmeriCredit Corp.(a) 78,633 2,015,364
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.95%
Alliance Data Systems Corp.(a) 53,558 1,906,665
========================================================================
DEPARTMENT STORES-1.06%
Nordstrom, Inc. 56,862 2,126,639
========================================================================
DIVERSIFIED BANKS-0.80%
Centennial Bank Holdings, Inc.(a)(d) 129,400 1,600,678
========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-4.04%
ChoicePoint Inc.(a) 48,400 2,154,284
- ------------------------------------------------------------------------
Cintas Corp. 22,475 925,520
- ------------------------------------------------------------------------
Corrections Corp. of America(a) 54,800 2,464,356
- ------------------------------------------------------------------------
Global Cash Access, Inc.(a) 15,925 232,346
- ------------------------------------------------------------------------
IHS Inc.-Class A(a) 114,372 2,346,913
========================================================================
8,123,419
========================================================================
DIVERSIFIED METALS & MINING-1.07%
Phelps Dodge Corp. 14,986 2,156,036
========================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DRUG RETAIL-1.12%
Shoppers Drug Mart Corp. (Canada) 59,600 $ 2,251,533
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.11%
Cooper Industries, Ltd.-Class A 27,700 2,022,100
- ------------------------------------------------------------------------
Suntech Power Holdings Co., Ltd.-ADR
(China)(a) 7,378 201,050
========================================================================
2,223,150
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.09%
Amphenol Corp.-Class A 46,160 2,043,042
- ------------------------------------------------------------------------
SunPower Corp.-Class A(a) 4,453 151,357
========================================================================
2,194,399
========================================================================
GAS UTILITIES-0.98%
Questar Corp. 26,000 1,968,200
========================================================================
HEALTH CARE DISTRIBUTORS-1.01%
Schein (Henry), Inc.(a) 46,643 2,035,501
========================================================================
HEALTH CARE EQUIPMENT-3.65%
INAMED Corp.(a) 6,400 561,152
- ------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 20,436 812,535
- ------------------------------------------------------------------------
PerkinElmer, Inc. 88,000 2,073,280
- ------------------------------------------------------------------------
Thermo Electron Corp.(a) 32,840 989,469
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 38,000 1,912,920
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 14,731 993,459
========================================================================
7,342,815
========================================================================
HEALTH CARE FACILITIES-1.37%
Community Health Systems, Inc.(a) 46,000 1,763,640
- ------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 26,242 984,075
========================================================================
2,747,715
========================================================================
HEALTH CARE SERVICES-4.27%
Covance Inc.(a) 27,000 1,310,850
- ------------------------------------------------------------------------
DaVita, Inc.(a) 40,000 2,025,600
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 12,769 1,070,042
- ------------------------------------------------------------------------
Omnicare, Inc. 37,000 2,117,140
- ------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 16,188 1,002,847
- ------------------------------------------------------------------------
Psychiatric Solutions, Inc.(a) 18,000 1,057,320
========================================================================
8,583,799
========================================================================
HEALTH CARE SUPPLIES-0.49%
Cooper Cos., Inc. (The) 19,135 981,625
========================================================================
HOTELS, RESORTS & CRUISE LINES-2.09%
Hilton Hotels Corp. 87,700 2,114,447
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(e) 32,796 2,094,353
========================================================================
4,208,800
========================================================================
HOUSEHOLD APPLIANCES-0.52%
Whirlpool Corp. 12,600 1,055,376
========================================================================
HOUSEWARES & SPECIALTIES-0.83%
Jarden Corp.(a) 55,580 1,675,737
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INDUSTRIAL MACHINERY-1.01%
ITT Industries, Inc. 19,855 $ 2,041,491
========================================================================
INSURANCE BROKERS-1.22%
National Financial Partners Corp. 19,313 1,014,898
- ------------------------------------------------------------------------
Willis Group Holdings Ltd. (United Kingdom) 39,188 1,447,605
========================================================================
2,462,503
========================================================================
INTEGRATED OIL & GAS-0.97%
Murphy Oil Corp. 36,000 1,943,640
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.86%
Qwest Communications International Inc.(a) 305,332 1,725,126
========================================================================
INTERNET SOFTWARE & SERVICES-1.77%
VeriSign, Inc.(a) 79,337 1,739,067
- ------------------------------------------------------------------------
Websense, Inc.(a) 27,674 1,816,521
========================================================================
3,555,588
========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.00%
iShares Nasdaq Biotechnology Index Fund(a)(b) 26,000 2,009,800
========================================================================
IT CONSULTING & OTHER SERVICES-1.06%
Cognizant Technology Solutions Corp.-Class
A(a) 42,555 2,142,644
========================================================================
MANAGED HEALTH CARE-3.68%
Aveta Health, Inc. (Acquired 12/21/05; Cost
$1,822,500)(a)(c)(d) 135,000 1,822,500
- ------------------------------------------------------------------------
CIGNA Corp. 17,247 1,926,490
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 35,459 2,019,745
- ------------------------------------------------------------------------
Humana Inc.(a) 30,000 1,629,900
========================================================================
7,398,635
========================================================================
OIL & GAS DRILLING-2.96%
Nabors Industries Ltd.(a) 26,300 1,992,225
- ------------------------------------------------------------------------
Noble Corp. 29,200 2,059,768
- ------------------------------------------------------------------------
Todco-Class A 50,000 1,903,000
========================================================================
5,954,993
========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.48%
Grant Prideco, Inc.(a) 54,200 2,391,304
- ------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 40,000 2,508,000
- ------------------------------------------------------------------------
Weatherford International Ltd.(a) 58,000 2,099,600
========================================================================
6,998,904
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.25%
CNX Gas Corp. (Acquired 08/01/05; Cost
$510,400)(a)(c) 31,900 661,925
- ------------------------------------------------------------------------
Rosetta Resources, Inc. (Acquired 06/28/05;
Cost $1,857,600)(a)(c) 116,100 2,089,800
- ------------------------------------------------------------------------
Southwestern Energy Co.(a) 49,500 1,779,030
========================================================================
4,530,755
========================================================================
OIL & GAS REFINING & MARKETING-0.54%
Tesoro Corp. 17,600 1,083,280
========================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION-1.22%
Williams Cos., Inc. (The) 106,000 $ 2,456,020
========================================================================
PHARMACEUTICALS-0.50%
Shire PLC-ADR (United Kingdom) 25,886 1,004,118
========================================================================
REAL ESTATE-0.94%
Friedman, Billings, Ramsey Group, Inc.-Class
A(b) 93,686 927,491
- ------------------------------------------------------------------------
People's Choice Financial Corp. (Acquired
12/21/04-06/30/05; Cost $1,729,828)(c) 174,400 959,200
========================================================================
1,886,691
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.34%
CB Richard Ellis Group, Inc.-Class A(a) 45,800 2,695,330
========================================================================
REGIONAL BANKS-0.53%
Signature Bank(a) 37,800 1,061,046
========================================================================
SEMICONDUCTOR EQUIPMENT-1.30%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 54,620 1,096,770
- ------------------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 68,908 1,527,690
========================================================================
2,624,460
========================================================================
SEMICONDUCTORS-6.85%
Analog Devices, Inc. 60,500 2,170,135
- ------------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 68,764 1,168,300
- ------------------------------------------------------------------------
Cree, Inc.(a)(b) 36,811 929,110
- ------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 156,622 2,064,278
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(a) 25,486 1,429,510
- ------------------------------------------------------------------------
Microchip Technology Inc. 59,600 1,916,140
- ------------------------------------------------------------------------
Microsemi Corp.(a) 53,211 1,471,816
- ------------------------------------------------------------------------
National Semiconductor Corp. 55,700 1,447,086
- ------------------------------------------------------------------------
Spansion Inc.-Class A(a) 84,800 1,180,416
========================================================================
13,776,791
========================================================================
SOFT DRINKS-0.50%
Hansen Natural Corp.(a) 12,700 1,000,887
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALIZED FINANCE-1.28%
Chicago Mercantile Exchange Holdings Inc. 6,983 $ 2,566,183
========================================================================
SPECIALTY STORES-1.07%
Office Depot, Inc.(a) 68,754 2,158,876
========================================================================
SYSTEMS SOFTWARE-0.93%
Red Hat, Inc.(a) 69,017 1,880,023
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-4.30%
American Tower Corp.-Class A(a) 165,280 4,479,088
- ------------------------------------------------------------------------
Leap Wireless International, Inc.(a) 53,402 2,022,868
- ------------------------------------------------------------------------
NII Holdings Inc.(a) 49,000 2,140,320
========================================================================
8,642,276
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $156,827,175) 196,527,399
========================================================================
MONEY MARKET FUNDS-2.12%
Liquid Assets Portfolio-Institutional
Class(f) 2,131,393 2,131,393
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 2,131,393 2,131,393
========================================================================
Total Money Market Funds (Cost
$4,262,786) 4,262,786
========================================================================
TOTAL INVESTMENTS-99.86% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $161,089,961) 200,790,185
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.62%
Liquid Assets Portfolio-Institutional
Class(f)(g) 2,628,362 2,628,362
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 2,628,362 2,628,362
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $5,256,724) 5,256,724
========================================================================
TOTAL INVESTMENTS-102.48% (Cost $166,346,685) 206,046,909
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.48%) (4,984,247)
========================================================================
NET ASSETS-100.00% $201,062,662
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 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 value of these securities at December 31, 2005 was $6,534,425,
which represented 3.25% of the Fund's Net Assets. These securities are
considered to be illiquid. The Fund is limited to investing 15% of its Total
Investments in illiquid securities.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2005 was $4,424,178, which represented 2.20% of
the Fund's Total Investments. See Note 1A.
(e) Each unit represents one common share and one Class B share.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $156,827,175)* $196,527,399
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $9,519,510) 9,519,510
=============================================================
Total investments (cost $166,346,685) 206,046,909
=============================================================
Receivables for:
Investments sold 660,284
- -------------------------------------------------------------
Fund shares sold 111,379
- -------------------------------------------------------------
Dividends 252,924
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 33,857
=============================================================
Total assets 207,105,353
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 529,758
- -------------------------------------------------------------
Fund shares reacquired 22,216
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 40,198
- -------------------------------------------------------------
Collateral upon return of securities loaned 5,256,724
- -------------------------------------------------------------
Accrued administrative services fees 124,645
- -------------------------------------------------------------
Accrued distribution fees-Series II 50,477
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 322
- -------------------------------------------------------------
Accrued operating expenses 18,351
=============================================================
Total liabilities 6,042,691
=============================================================
Net assets applicable to shares outstanding $201,062,662
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $157,376,890
- -------------------------------------------------------------
Undistributed net investment income (loss) (35,292)
- -------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 4,020,798
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 39,700,266
=============================================================
$201,062,662
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $117,674,309
_____________________________________________________________
=============================================================
Series II $ 83,388,353
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,315,260
_____________________________________________________________
=============================================================
Series II 5,238,598
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 16.09
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 15.92
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $5,073,648 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$3,503) $ 1,390,975
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$43,248, after compensation to counterparties
of $73,373) 247,299
============================================================
Total investment income 1,638,274
============================================================
EXPENSES:
Advisory fees 1,427,053
- ------------------------------------------------------------
Administrative services fees 506,813
- ------------------------------------------------------------
Custodian fees 31,958
- ------------------------------------------------------------
Distribution fees--Series II 189,905
- ------------------------------------------------------------
Transfer agent fees 16,145
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 20,677
- ------------------------------------------------------------
Other 73,145
============================================================
Total expenses 2,265,696
============================================================
Less: Fees waived and expense offset
arrangement (12,367)
============================================================
Net expenses 2,253,329
============================================================
Net investment income (loss) (615,055)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains from
securities sold to affiliates of $68,488) 15,862,320
- ------------------------------------------------------------
Foreign currencies 2,257
============================================================
15,864,577
============================================================
Change in net unrealized appreciation of:
Investment securities 2,049,711
- ------------------------------------------------------------
Foreign currencies 42
============================================================
2,049,753
============================================================
Net gain from investment securities and foreign
currencies 17,914,330
============================================================
Net increase in net assets resulting from
operations $17,299,275
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (615,055) $ (444,721)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 15,864,577 12,985,972
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 2,049,753 10,570,249
==========================================================================================
Net increase in net assets resulting from operations 17,299,275 23,111,500
==========================================================================================
Share transactions-net:
Series I (5,082,619) 3,400,003
- ------------------------------------------------------------------------------------------
Series II 5,478,755 29,492,919
==========================================================================================
Net increase in net assets resulting from share
transactions 396,136 32,892,922
==========================================================================================
Net increase in net assets 17,695,411 56,004,422
==========================================================================================
NET ASSETS:
Beginning of year 183,367,251 127,362,829
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(35,292) and $(35,887), respectively) $201,062,662 $183,367,251
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. CAPITAL DEVELOPMENT FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
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 replace 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 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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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. 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 year ended December 31, 2005, AIM waived fees of $11,009.
At the request of the Trustees of the Trust, AMVESCAP has 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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $456,813 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 year ended
December 31, 2005, the Fund paid AISI $16,145.
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
AIM V.I. CAPITAL DEVELOPMENT FUND
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 year ended December
31, 2005, the Series II shares paid $189,905.
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 year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-Institutional
Class $2,558,677 $ 52,603,850 $ (53,031,134) $ -- $2,131,393 $ 101,689 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,558,677 52,603,850 (53,031,134) -- 2,131,393 102,362 --
===================================================================================================================================
Subtotal $5,117,354 $105,207,700 $(106,062,268) $ -- $4,262,786 $ 204,051 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-Institutional
Class $ 2,893,043 $ 14,431,463 $ (14,696,144) $ -- $2,628,362 $ 21,526 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,893,043 14,419,817 (14,684,498) -- 2,628,362 21,722 --
==================================================================================================================================
Subtotal $ 5,786,086 $ 28,851,280 $ (29,380,642) $ -- $5,256,724 $ 43,248 $ --
==================================================================================================================================
Total $10,903,440 $134,058,980 $(135,442,910) $ -- $9,519,510 $247,299 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $4,097,838 and sales of $1,771,046, which
resulted in net realized gains of $68,488.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $1,358.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,614
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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2005, securities with an aggregate value of $5,073,648 were
on loan to brokers. The loans were secured by cash collateral of $5,256,724
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $43,248 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital distributions paid during the
years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 261,257
- ----------------------------------------------------------------------------
Undistributed long-term gain 4,111,967
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 39,347,840
- ----------------------------------------------------------------------------
Temporary book/tax differences (35,292)
- ----------------------------------------------------------------------------
Shares of beneficial interest 157,376,890
============================================================================
Total net assets $201,062,662
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and tax straddles. The tax-basis unrealized appreciation on
investments amount includes appreciation on foreign currencies of $42.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
AIM V.I. CAPITAL DEVELOPMENT FUND
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $11,098,243 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward as of December 31, 2005.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $229,896,746 and $230,374,001, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $42,332,722
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,984,924)
===============================================================================
Net unrealized appreciation of investment securities $39,347,798
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $166,699,111.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2005, undistributed net
investment income (loss) was increased by $615,650, undistributed net realized
gain was decreased by $615,650. This reclassification had no effect on the net
assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(a) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,974,458 $ 42,960,820 1,264,587 $ 16,685,624
- ----------------------------------------------------------------------------------------------------------------------
Series II 1,426,079 20,815,915 2,916,252 38,179,047
======================================================================================================================
Reacquired:
Series I (3,289,224) (48,043,439) (1,015,409) (13,285,621)
- ----------------------------------------------------------------------------------------------------------------------
Series II (1,085,094) (15,337,160) (672,418) (8,686,128)
======================================================================================================================
26,219 $ 396,136 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 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.68 $ 12.71 $ 9.39 $ 11.94 $ 12.99
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.03)(a) (0.01) (0.01)(a) (0.02)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.45 2.00 3.33 (2.54) (1.03)
============================================================================================================================
Total from investment operations 1.41 1.97 3.32 (2.55) (1.05)
============================================================================================================================
Net asset value, end of period $ 16.09 $ 14.68 $ 12.71 $ 9.39 $ 11.94
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 9.61% 15.50% 35.36% (21.36)% (8.08)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $117,674 $112,028 $93,813 $70,018 $92,732
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.09%(c) 1.10% 1.13% 1.14% 1.16%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.22)(c) (0.21)% (0.13)% (0.08)% (0.16)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 125% 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 based on average daily net assets of $114,311,856.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------
AUGUST 21, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------------------- 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) (0.07) (0.06)(a) (0.03) (0.03)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.42 1.99 3.31 (2.55) 0.07
=================================================================================================================================
Total from investment operations 1.35 1.93 3.28 (2.58) 0.06
=================================================================================================================================
Net asset value, end of period $ 15.92 $ 14.57 $ 12.64 $ 9.36 $11.94
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.27% 15.27% 35.04% (21.61)% 0.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $83,388 $71,339 $33,550 $14,969 $2,767
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.34%(c) 1.35% 1.38% 1.39% 1.41%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.47)(c) (0.46)% (0.38)% (0.33)% (0.41)(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 125% 93% 95% 121% 125%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less then one year and do not reflect charges assessed in connections
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $75,961,877.
(d) Annualized.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Capital Development Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. CAPITAL DEVELOPMENT FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2001 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William P. Kethler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. CORE EQUITY FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. CORE EQUITY FUND seeks to provide growth of capital.
UNLESS OTHERWISE STATED,INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. CORE EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE volatility in certain market
environments.
=====================================================================================
We consider selling a stock when
PERFORMANCE SUMMARY ========================================
FUND VS. INDEXES o it exceeds our target price
For the year ended December 31, 2005,
the Fund's performance was slightly TOTAL RETURNS, 12/31/04--12/31/05, o we have not seen a demonstrable
higher than the S&P 500 Index due to the EXCLUDING VARIABLE PRODUCT ISSUER improvement in fundamentals during an
Fund's strong stock selection and CHARGES. IF VARIABLE PRODUCT ISSUER 18- to 24-month time horizon
overweight position in the energy CHARGES WERE INCLUDED, RETURNS WOULD
sector. The Fund's performance was lower BE LOWER. o there is a deterioration in company
than the Russell 1000 Index as a result fundamentals
of relatively weak performance in the Series I Shares 5.31%
information technology and consumer o more compelling investment
discretionary sectors. Series II Shares 5.08 opportunities exist
Your Fund's long-term performance Standard & Poor's Composite Index MARKET CONDITIONS AND YOUR FUND
appears on Pages 4 and 5. of 500 Stocks (S&P 500 Index)
(Broad Market Index) 4.91 During the year, economic indicators
were generally positive, pointing to the
Russell 1000 Index health of the U.S. economy. Throughout
(Style-specific Index) 6.27 the year, the nation's gross domestic
product reflected continuing growth.
Lipper Large-Cap Core Fund Index Corporate earnings growth was generally
long-term (Peer Group Index) 5.72 healthy. Manufacturing growth continued
and inflation remained low. However,
SOURCE: LIPPER,INC. many investors focused on the impact
======================================== that record-breaking energy prices
and rising interest rates could have
===================================================================================== on consumer spending, which accounts
for approximately two-thirds of the
HOW WE INVEST We conduct quantitative research to U.S. economy.
identify growing companies whose stock
We manage your Fund as a core fund, prices may be experiencing some Most domestic equity indexes produced
seeking to provide upside potential and near-term distress. By further applying single-digit returns for 2005. In both
a measure of protection in difficult rigorous fundamental research, including the Russell 1000 and S&P 500 indexes,
markets to complement more aggressive analysis of company financial statements energy and utilities were the
value and growth investments. with a special focus on cash flow, we best-performing sectors, providing the
assess the prospects for each business only double-digit returns in the
We believe a portfolio of and its appreciation potential. indexes. Alternatively, consumer
attractively valued companies with discretionary and telecommunication
consistent free cash flow and management We target a well-diversified, services both posted negative returns
teams that effectively allocate excess large-cap core portfolio and attempt to for the year.
cash to the benefit of shareholders can protect against volatility through the
outperform the market over the long size of individual holdings and sector The largest contributor to Fund
term. We believe these companies are weightings. Sector exposure is performance this year was our overweight
best positioned to weather temporary consistent with a core investment to position in the
setbacks and therefore provide the complement value and growth investments.
potential for both long-term capital We may also maintain a cash position as
appreciation and lower downside risk. a means to limit
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 10.9% 1. Merck & Co. Inc 3.2%
Financials 22.0% 2. Property & Casualty Insurance 8.3 2. Microsoft Corp. 2.9
Information Technology 18.1 3. Integrated Oil & Gas 5.6 3. Tyco International Ltd. 2.7
Energy 13.3 4. Oil & Gas Equipment & Services 5.5 4. Berkshire Hathaway Inc.-Class A 2.7
Health Care 12.0 5. Packaged Foods & Meats 5.0 5. Exxon Mobil Corp. 2.5
Consumer Staples 11.9 6. Systems Software 4.2 6. Koninklijke (Royal) Philips
Electronics N.V. (Netherlands) 2.4
Industrials 10.5 7. Industrial Conglomerates 4.1
7. Xerox Corp. 2.3
Consumer Discretionary 7.1 8. Semiconductors 3.7
8. BJ Services Co. 2.2
Telecommunication Services 2.7 9. Communications Equipment 3.4
9. Cisco Systems, Inc. 1.9
Utilities 1.0 10. Investment Banking & Brokerage 2.8
10. GlaxoSmithKline PLC--ADR
Money Market Funds (United Kingdom) 1.9
Plus Other Assets Less Liabilities 1.4 TOTAL NET ASSETS $1.3 BILLION
TOTAL NUMBER OF HOLDINGS* 73
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. CORE EQUITY FUND
energy sector relative to the Russell Administration had approved its advanced RONALD S. SLOAN, Chartered
1000 Index. A number of contributors in defibrillator technology. A [SLOAN Financial Analyst, senior
the sector were names in which we had defibrillator equipped with this PHOTO] portfolio manager, is lead
increased our holdings during fall 2004 technology can indicate to medical manager of AIM V.I. Core
when a pullback in oil prices gave us a personnel whether a patient whose heart Equity Fund. Mr. Sloan has
chance to add to our positions at has stopped suddenly should be treated 35 years of experience in the investment
attractive levels. first with a shock or with industry. He joined AIM in 1998. Mr.
cardiopulmonary resuscitation. Sloan attended the University of
BJ SERVICES, an oil and gas services Missouri, where he received both a B.S.
company, was among the top contributors The consumer discretionary and in business administration and an M.B.A.
to Fund performance for the year. The information technology (IT) sectors
company is engaged in oil and gas detracted from Fund performance. Assisted by the Mid/Large Cap Core Team
drilling, including deep gas drilling in
the Rocky Mountains and Canada. We The print media industry, a segment
selected BJ Services for its clean of the consumer discretionary sector,
balance sheet, high returns on invested suffered from decreased advertising
capital and disciplined management. revenue due to loss of market share to
electronic media--primarily the
The Fund's holdings in the financials Internet--and specialty periodicals.
sector significantly outperformed those This loss of advertising revenue had
in the index. Early in the year, we sold negative implications for many of the
financial stocks in anticipation of old-line media conglomerates. Over the
higher interest rates. Early in the year, we trimmed our exposure to the
second half of the year, we purchased print media industry.
AMERICAN INTERNATIONAL GROUP after a
significant decline in share price due Some well-known large-cap names in IT
to investigations into wrongdoing on the struggled this year. IBM and CISCO
part of prior company executives. The SYSTEMS, both held at year-end,
new management team addressed the issues detracted from performance, but we
and delivered solid results. As of remain confident in their potential to
December 31, 2005, the stock had achieve the price targets we have set
rebounded from its April low. for them.
Finally, several of the Fund's stocks IN CLOSING
in the property and casualty insurance
industry were outperformers. These Thank you for investing in AIM V.I. Core
stocks--long-term holdings ACE LTD. and Equity Fund. We continually strive to
ST. PAUL TRAVELERS, along with CHUBB, provide a fund that can add stability
which we acquired this year--saw price and constancy to more aggressive equity
appreciation partly based on investments. We believe we can provide
anticipation of better times ahead for that to shareholders by choosing from
the industry. As a result of the stocks that the market has temporarily
hurricane devastation in 2005, many punished or undervalued and by
insurers sustained heavy losses. purchasing companies with strong cash
Investors acted on the belief that such flow, clean balance sheets and
losses would put an end to the management teams with a history of being
discounting of premium prices and that a good stewards of cash.
stronger pricing cycle would result in
increased profitability and THE VIEWS AND OPINIONS EXPRESSED IN
corresponding share price increases. MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS,
PHILIPS ELECTRONICS, an international INC. THESE VIEWS AND OPINIONS ARE
stock we added to the portfolio this SUBJECT TO CHANGE AT ANY TIME BASED ON
year, is a new top-10 holding. Philips FACTORS SUCH AS MARKET AND ECONOMIC
was a strong contributor to Fund CONDITIONS. THESE VIEWS AND OPINIONS MAY
performance for the period. Besides NOT BE RELIED UPON AS INVESTMENT ADVICE
being the world's number one producer of OR RECOMMENDATIONS, OR AS AN OFFER FOR A
light bulbs, Philips manufactures TVs, PARTICULAR SECURITY. THE INFORMATION IS
VCRs and electric shavers, as well as NOT A COMPLETE ANALYSIS OF EVERY ASPECT
picture tubes, semi-conductors and OF ANY MARKET, COUNTRY, INDUSTRY,
medical systems. The company recently SECURITY OR THE FUND. STATEMENTS OF FACT
announced that the Food and Drug 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 [RIGHT ARROW GRAPHIC]
HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND,INDEXES USED
IN THIS REPORT AND YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE TURN TO
PAGES 4 AND 5.
3
AIM V.I. CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
<Table>
<Caption>
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. CORE
EQUITY FUND- S&P 500 RUSSELL LIPPER LARGE-CAP
SERIES I SHARES INDEX 1000 INDEX CORE FUND INDEX
12/31/95 $10000 $10000 $10000 $10000
1/96 10221 10340 10323 10294
2/96 10434 10436 10458 10420
3/96 10496 10537 10551 10515
4/96 10757 10692 10712 10667
5/96 10986 10967 10970 10880
6/96 10938 11009 10982 10896
7/96 10371 10523 10452 10451
8/96 10702 10745 10736 10688
9/96 11324 11349 11340 11242
10/96 11412 11662 11591 11466
11/96 12121 12543 12446 12209
12/96 11994 12295 12245 11984
1/97 12697 13062 12971 12639
2/97 12649 13165 13021 12624
3/97 11899 12625 12434 12084
4/97 12489 13378 13107 12753
5/97 13438 14196 13946 13527
6/97 13997 14827 14524 14114
7/97 15258 16006 15713 15228
8/97 14532 15110 14972 14454
9/97 15418 15937 15793 15198
10/97 14748 15406 15281 14729
11/97 15011 16118 15944 15210
12/97 15079 16395 16267 15486
1/98 15191 16576 16389 15639
2/98 16142 17771 17557 16748
3/98 16892 18680 18442 17576
4/98 16868 18871 18632 17754
5/98 16421 18547 18229 17451
6/98 17252 19300 18904 18280
7/98 17268 19096 18676 18132
8/98 14479 16337 15885 15418
9/98 15222 17385 16954 16185
10/98 16548 18797 18294 17399
11/98 17635 19936 19426 18433
12/98 19252 21084 20663 19657
1/99 20297 21965 21401 20345
2/99 19520 21282 20721 19716
3/99 20842 22134 21515 20510
4/99 21133 22991 22415 21059
5/99 20565 22448 21931 20500
6/99 22056 23691 23048 21644
7/99 21244 22954 22344 21009
8/99 21227 22841 22135 20795
9/99 20960 22215 21526 20232
10/99 22215 23621 22974 21471
11/99 23139 24101 23565 21998
12/99 25842 25518 24984 23461
1/00 24886 24236 23961 22512
2/00 25737 23778 23897 22505
3/00 27986 26103 26075 24462
4/00 26136 25318 25206 23663
5/00 24673 24799 24554 23060
6/00 26129 25409 25180 23904
7/00 26186 25012 24761 23532
8/00 28273 26565 26594 25155
9/00 26390 25163 25360 23816
10/00 25303 25056 25054 23540
11/00 21695 23082 22763 21470
12/00 22081 23196 23038 21732
1/01 23026 24018 23796 22348
2/01 19687 21829 21577 20268
3/01 17571 20447 20144 19024
4/01 19586 22035 21762 20470
5/01 19619 22183 21909 20585
6/01 18988 21643 21414 20038
7/01 18304 21430 21122 19748
8/01 16845 20090 19835 18585
9/01 14898 18468 18153 17174
10/01 15555 18820 18530 17579
11/01 16989 20263 19957 18731
12/01 17040 20441 20170 18943
1/02 16728 20143 19914 18644
2/02 16551 19754 19517 18332
3/02 17234 20497 20319 18956
4/02 16669 19255 19155 17964
5/02 16661 19114 18986 17834
6/02 15783 17753 17585 16602
7/02 14534 16369 16284 15368
8/02 14686 16476 16369 15495
9/02 13564 14687 14611 13990
10/02 14323 15979 15825 15077
11/02 15015 16918 16751 15750
12/02 14384 15925 15803 14921
1/03 13910 15509 15420 14529
2/03 13613 15276 15181 14336
3/03 13681 15423 15338 14457
4/03 14656 16693 16577 15522
5/03 15637 17572 17522 16275
6/03 15774 17796 17752 16435
7/03 15994 18110 18106 16695
8/03 16418 18463 18473 17017
9/03 16164 18267 18284 16797
10/03 16705 19300 19356 17619
11/03 17053 19470 19588 17767
12/03 17898 20490 20526 18622
1/04 18095 20866 20917 18885
2/04 18421 21156 21206 19108
3/04 17985 20837 20917 18808
4/04 18155 20510 20539 18516
5/04 18284 20791 20835 18704
6/04 18626 21195 21211 19039
7/04 18045 20494 20466 18365
8/04 17995 20576 20567 18377
9/04 18149 20799 20826 18587
10/04 18354 21117 21162 18839
11/04 18876 21971 22068 19554
12/04 19506 22718 22867 20165
1/05 19083 22165 22291 19709
2/05 19713 22631 22792 20077
3/05 19385 22230 22432 19709
4/05 18988 21809 22018 19270
5/05 19221 22502 22798 19894
6/05 19316 22535 22892 19962
7/05 19997 23372 23782 20672
8/05 19927 23159 23576 20483
9/05 20083 23347 23795 20720
10/05 19617 22957 23378 20471
11/05 20411 23825 24268 21256
12/05 20542 23833 24300 21318
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee This chart, which is a logarithmic segment represents a doubling, or 100%
comparable future results. chart, presents the fluctuations in the change, in the value of the investment.
value of the Fund and its indexes. We In other words, the space between $5,000
believe that a logarithmic chart is more and $10,000 is the same size as the
effective than other types of charts in space between $10,000 and $20,000, and
illustrating changes in value during the the space between $10,000 and $20,000 is
early years shown in the chart. The the same as that between $20,000 and
vertical axis, the one that indicates $40,000, and so on.
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each
4
AIM V.I. CORE EQUITY FUND
<Table>
========================================
AVERAGE ANNUAL TOTAL RETURNS 12b-1 FEES APPLICABLE TO THE SERIES II FIGURES GIVEN REPRESENT THE FUND AND ARE
SHARES. THE SERIES I AND SERIES II NOT INTENDED TO REFLECT ACTUAL VARIABLE
As of 12/31/05 SHARES INVEST IN THE SAME PORTFOLIO OF PRODUCT VALUES. THEY DO NOT REFLECT
SECURITIES AND WILL HAVE SUBSTANTIALLY SALES CHARGES, EXPENSES AND FEES
SERIES I SHARES SIMILAR PERFORMANCE, EXCEPT TO THE ASSESSED IN CONNECTION WITH A VARIABLE
Inception (5/2/94) 9.06% EXTENT THAT EXPENSES BORNE BY EACH CLASS PRODUCT. SALES CHARGES, EXPENSES AND
10 Years 7.46 DIFFER. FEES, WHICH ARE DETERMINED BY THE
5 Years -1.44 VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 5.31 THE PERFORMANCE DATA QUOTED REPRESENT WILL LOWER THE TOTAL RETURN.
PAST PERFORMANCE AND CANNOT GUARANTEE
SERIES II SHARES COMPARABLE FUTURE RESULTS; CURRENT PER NASD REQUIREMENTS, THE MOST
10 Years 7.20% PERFORMANCE MAY BE LOWER OR HIGHER. RECENT MONTH-END PERFORMANCE DATA AT THE
5 Years -1.68 PLEASE CONTACT YOUR VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 5.08 ISSUER OR FINANCIAL ADVISOR FOR THE MOST CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
RECENT MONTH-END VARIABLE PRODUCT INFORMATION LINE, 866-702-4402. AS
======================================== PERFORMANCE. PERFORMANCE FIGURES REFLECT MENTIONED ABOVE, FOR THE MOST RECENT
FUND EXPENSES, REINVESTED DISTRIBUTIONS MONTH-END PERFORMANCE INCLUDING VARIABLE
CUMULATIVE TOTAL RETURNS AND CHANGES IN NET ASSET VALUE. PRODUCT CHARGES, PLEASE CONTACT YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE VARIABLE PRODUCT ISSUER OR FINANCIAL
Six months ended 12/31/05 WILL FLUCTUATE SO THAT YOU MAY HAVE A ADVISOR.
Series I 6.35% GAIN OR LOSS WHEN YOU SELL SHARES.
Series II 6.21
AIM V.I. CORE EQUITY FUND, A SERIES
======================================== PORTFOLIO OF AIM VARIABLE INSURANCE
FUNDS, IS CURRENTLY OFFERED THROUGH
RETURNS SINCE OCTOBER 24, 2001, THE INSURANCE COMPANIES ISSUING VARIABLE
INCEPTION DATE OF SERIES II SHARES, ARE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
HISTORICAL. ALL OTHER RETURNS ARE THE THE FUND DIRECTLY. PERFORMANCE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF THE FUND'S SERIES II
SHARES SINCE THEIR INCEPTION AND THE
RESTATED HISTORICAL PERFORMANCE OF THE
FUND'S SERIES I SHARES (FOR PERIODS
PRIOR TO INCEPTION OF THE SERIES II
SHARES) ADJUSTED TO REFLECT THE HIGHER
RULE
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Fund may invest up to 25% of its The unmanaged LIPPER LARGE-CAP CORE principles require adjustments to be
assets in the securities of non-U.S. FUND INDEX represents an average of the made to the net assets of the Fund at
issuers. International investing performance of the 30 largest period end for financial reporting
presents certain risks not associated large-capitalization core equity funds purposes, and as such, the net asset
with investing solely in the United tracked by Lipper, Inc., an independent values for shareholder transactions and
States. These include risks relating to mutual fund performance monitor. the returns based on those net asset
fluctuations in the value of the U.S. values may differ from the net asset
dollar relative to the values of other The Fund is not managed to track the values and returns reported in the
currencies, the custody arrangements performance of any particular index, Financial Highlights. Additionally, the
made for the Fund's foreign holdings, including the indexes defined here, and returns and net asset values shown
differences in accounting, political consequently, the performance of the throughout this report are at the Fund
risks and the lesser degree of public Fund may deviate significantly from the level only and do not include variable
information required to be provided by performance of the indexes. product issuer charges. If such charges
non-U.S. companies. were included, the total returns would
A direct investment cannot be made in be lower.
ABOUT INDEXES USED IN THIS REPORT an index. Unless otherwise indicated,
index results include reinvested Industry classifications used in this
The unmanaged Standard & Poor's dividends, and they do not reflect sales report are generally according to the
Composite Index of 500 Stocks (the S&P charges. Performance of an index of Global Industry Classification Standard,
500--REGISTERED TRADEMARK-- INDEX) is an funds reflects fund expenses; which was developed by and is the
index of common stocks frequently used performance of a market index does not. exclusive property and a service mark of
as a general measure of U.S. stock Morgan Stanley Capital International
market performance. OTHER INFORMATION Inc. and Standard & Poor's.
The unmanaged RUSSELL The returns shown in management's
1000--REGISTERED TRADEMARK-- INDEX discussion of Fund performance are based
represents the performance of the stocks on net asset values calculated for
of large-capitalization companies. shareholder transactions. Generally
accepted accounting
5
AIM V.I. CORE EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES total returns at net asset value after
expenses for the six months ended
As a shareholder of the Fund, you incur The table below provides information December 31, 2005, appear in the table
ongoing costs, including management about actual account values and actual "Cumulative Total Returns" on Page 5.
fees; distribution and/or service fees expenses. You may use the information in
(12b-1); and other Fund expenses. This this table, together with the amount you The hypothetical account values and
example is intended to help you invested, to estimate the expenses that expenses may not be used to estimate the
understand your ongoing costs (in you paid over the period. Simply divide actual ending account balance or
dollars) of investing in the Fund and to your account value by $1,000 (for expenses you paid for the period. You
compare these costs with ongoing costs example, an $8,600 account value divided may use this information to compare the
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the ongoing costs of investing in the Fund
example is based on an investment of result by the number in the table under and other funds. To do so, compare this
$1,000 invested at the beginning of the the heading entitled "Actual Expenses 5% hypothetical example with the 5%
period and held for the entire period Paid During Period" to estimate the hypothetical examples that appear in the
July 1, 2005, through December 31, 2005. expenses you paid on your account during shareholder reports of the other funds.
this period.
The actual and hypothetical expenses Please note that the expenses shown
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON in the table are meant to highlight your
the effect of any fees or other expenses PURPOSES ongoing costs. Therefore, the
assessed in connection with a variable hypothetical information is useful in
product; if they did, the expenses shown The table below also provides comparing ongoing costs, and will not
would be higher while the ending account information about hypothetical account help you determine the relative total
values shown would be lower. values and hypothetical expenses based costs of owning different funds.
on the Fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the Fund's
actual return. The Fund's actual
cumulative
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,063.50 $4.68 $1,020.67 $4.58 0.90%
Series II 1,000.00 1,062.10 5.98 1,019.41 5.85 1.15
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. CORE EQUITY FUND
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 unaffiliated mutual fund were higher
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the than the advisory fee rate for the Fund.
the management of AIM V.I. Core Equity credentials and experience of the The Board noted that AIM has agreed to
Fund (the "Fund") and, as required by officers and employees of AIM who will waive advisory fees of the Fund and to
law, determines annually whether to provide investment advisory services to limit the Fund's total operating
approve the continuance of the Fund's the Fund. In reviewing the expenses, as discussed below. Based on
advisory agreement with A I M Advisors, qualifications of AIM to provide this review, the Board concluded that
Inc. ("AIM"). Based upon the investment advisory services, the Board the advisory fee rate for the Fund under
recommendation of the Investments reviewed the qualifications of AIM's the Advisory Agreement was fair and
Committee of the Board, which is investment personnel and considered such reasonable.
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 comparable
2005, the Board, including all of the support functions provided by AIM and funds with other advisors. The Board
independent trustees, approved the AIM's equity and fixed income trading reviewed the advisory fee rate for the
continuance of the advisory agreement operations. Based on the review of these Fund under the Advisory Agreement. The
(the "Advisory Agreement") between the and other factors, the Board concluded Board compared effective contractual
Fund and AIM for another year, effective that the quality of services to be advisory fee rates at a common asset
July 1, 2005. provided by AIM was appropriate and that level and noted that the Fund's rate was
AIM currently is providing satisfactory above the median rate of the funds
The Board considered the factors services in accordance with the terms of advised by other advisors with
discussed below in evaluating the the Advisory Agreement. investment strategies comparable to
fairness and reasonableness of the those of the Fund that the Board
Advisory Agreement at the meeting on o The performance of the Fund relative reviewed. The Board noted that AIM has
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed agreed to waive advisory fees of the
ongoing oversight of the Fund. In their the performance of the Fund during the Fund and to limit the Fund's total
deliberations, the Board and the past one, three and five calendar years operating expenses, as discussed below.
independent trustees did not identify against the performance of funds advised Based on this review, the Board
any particular factor that was by other advisors with investment concluded that the advisory fee rate for
controlling, and each trustee attributed strategies comparable to those of the the Fund under the Advisory Agreement
different weights to the various Fund. The Board noted that the Fund's was fair and reasonable.
factors. performance was below the median
performance of such comparable funds for o Expense limitations and fee waivers.
One of the responsibilities of the the one and five year periods and above The Board noted that AIM has
Senior Officer of the Fund, who is such median performance for the three contractually agreed to waive advisory
independent of AIM and AIM's affiliates, year period. Based on this review, the fees of the Fund through June 30, 2006
is to manage the process by which the Board concluded that no changes should to the extent necessary so that the
Fund's proposed management fees are be made to the Fund and that it was not advisory fees payable by the Fund do not
negotiated to ensure that they are necessary to change the Fund's portfolio exceed a specified maximum advisory fee
negotiated in a manner which is at arm's management team at this time. rate, which maximum rate includes
length and reasonable. To that end, the breakpoints and is based on net asset
Senior Officer must either supervise a o The performance of the Fund relative levels. The Board considered the
competitive bidding process or prepare to indices. The Board reviewed the contractual nature of this fee waiver
an independent written evaluation. The performance of the Fund during the past and noted that it remains in effect
Senior Officer has recommended an one, three and five calendar years until June 30, 2006. The Board noted
independent written evaluation in lieu against the performance of the Lipper that AIM has contractually agreed to
of a competitive bidding process and, Large-Cap Core Index. The Board noted waive fees and/or limit expenses of the
upon the direction of the Board, has that the Fund's performance was Fund through April 30, 2006 in an amount
prepared such an independent written comparable to the performance of such necessary to limit total annual
evaluation. Such written evaluation also Index for the one year period, above operating expenses to a specified
considered certain of the factors such Index for the three year period, percentage of average daily net assets
discussed below. In addition, as and below such Index for the five year for each class of the Fund. The Board
discussed below, the Senior Officer made period. Based on this review, the Board considered the contractual nature of
certain recommendations to the Board in concluded that no changes should be made this fee waiver/expense limitation and
connection with such written evaluation. to the Fund and that it was not noted that it remains in effect through
necessary to change the Fund's portfolio April 30, 2006. The Board considered the
The discussion below serves as a management team at this time. effect these fee waivers/expense
summary of the Senior Officer's limitations would have on the Fund's
independent written evaluation and o Meeting with the Fund's portfolio estimated expenses and concluded that
recommendations to the Board in managers and investment personnel. With the levels of fee waivers/expense
connection therewith, as well as a respect to the Fund, the Board is limitations for the Fund were fair and
discussion of the material factors and meeting periodically with such Fund's reasonable.
the conclusions with respect thereto portfolio managers and/or other
that formed the basis for the Board's investment personnel and believes that o Breakpoints and economies of scale.
approval of the Advisory Agreement. such individuals are competent and able The Board reviewed the structure of the
After consideration of all of the to continue to carry out their Fund's advisory fee under the Advisory
factors below and based on its informed responsibilities under the Advisory Agreement, noting that it includes one
business judgment, the Board determined Agreement. breakpoint. The Board reviewed the level
that the Advisory Agreement is in the of the Fund's advisory fees, and noted
best interests of the Fund and its o Overall performance of AIM. The Board that such fees, as a percentage of the
shareholders and that the compensation considered the overall performance of Fund's net assets, have decreased as net
to AIM under the Advisory Agreement is AIM in providing investment advisory and assets increased because the Advisory
fair and reasonable and would have been portfolio administrative services to the Agreement includes a breakpoint. The
obtained through arm's length Fund and concluded that such performance Board noted that AIM has contractually
negotiations. was satisfactory. agreed to waive advisory fees of the
Fund through June 30, 2006 to the extent
o The nature and extent of the advisory o Fees relative to those of clients of necessary so that the advisory fees
services to be provided by AIM. The AIM with comparable investment payable by the Fund do not exceed a
Board reviewed the services to be strategies. The Board reviewed the specified maximum advisory fee rate,
provided by AIM under the Advisory advisory fee rate for the Fund under the which maximum rate includes breakpoints
Agreement. Based on such review, the Advisory Agreement. The Board noted that and is based on net asset levels. The
Board concluded that the range of this rate (i) was comparable to the Board concluded that the Fund's fee
services to be provided by AIM under the advisory fee rates for a mutual fund levels under the Advisory Agreement
Advisory Agreement was appropriate and advised by AIM with investment therefore reflect economies of scale and
that AIM currently is providing services strategies comparable to those of the that it was not necessary to change the
in accordance with the terms of the Fund; and (ii) was higher than the advisory fee breakpoints in the Fund's
Advisory Agreement. sub-advisory fee rates for an advisory fee schedule.
unaffiliated mutual fund for which an
AIM affiliate serves as sub-advisor,
although the total management fees paid
by such
(continued)
7
AIM V.I. CORE EQUITY FUND
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized
the fact that uninvested cash and cash by AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements (collectively, "cash dollar" arrangements. Under these
balances") of the Fund may be invested arrangements, brokerage commissions paid
in money market funds advised by AIM by the Fund and/or other funds advised
pursuant to the terms of an SEC by AIM are used to pay for research and
exemptive order. The Board found that execution services. This research is
the Fund may realize certain benefits used by AIM in making investment
upon investing cash balances in AIM decisions for the Fund. The Board
advised money market funds, including a concluded that such arrangements were
higher net return, increased liquidity, appropriate.
increased diversification or decreased
transaction costs. The Board also found o AIM's financial soundness in light of
that the Fund will not receive reduced the Fund's needs. The Board considered
services if it invests its cash balances whether AIM is financially sound and has
in such money market funds. The Board the resources necessary to perform its
noted that, to the extent the Fund obligations under the Advisory
invests in affiliated money market Agreement, and concluded that AIM has
funds, AIM has voluntarily agreed to the financial resources necessary to
waive a portion of the advisory fees it fulfill its obligations under the
receives from the Fund attributable to Advisory Agreement.
such investment. The Board further
determined that the proposed securities o Historical relationship between the
lending program and related procedures Fund and AIM. In determining whether to
with respect to the lending Fund 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. The prior relationship between AIM and the
Board therefore concluded that the Fund, as well as the Board's knowledge
investment of cash collateral received of AIM's operations, and concluded that
in connection with the securities it was beneficial to maintain the
lending program in the money market current relationship, in part, because
funds according to the procedures is in of such knowledge. The Board also
the best interests of the lending Fund reviewed the general nature of the
and its respective shareholders. non-investment advisory services
currently performed by AIM and its
o Independent written evaluation and affiliates, such as administrative,
recommendations of the Fund's Senior transfer agency and distribution
Officer. The Board noted that, upon services, and the fees received by AIM
their direction, the Senior Officer of and its affiliates for performing such
the Fund, who is independent of AIM and services. In addition to reviewing such
AIM's affiliates, had prepared an services, the trustees also considered
independent written evaluation in order the organizational structure employed by
to assist the Board in determining the AIM and its affiliates to provide those
reasonableness of the proposed services. Based on the review of these
management fees of the AIM Funds, and other factors, the Board concluded
including the Fund. The Board noted that that AIM and its affiliates were
the Senior Officer's written evaluation qualified to continue to provide
had been relied upon by the Board in non-investment advisory services to the
this regard in lieu of a competitive Fund, including administrative, transfer
bidding process. In determining whether agency and distribution services, and
to continue the Advisory Agreement for that AIM and its affiliates currently
the Fund, the Board considered the are providing satisfactory
Senior Officer's written evaluation and non-investment advisory services.
the recommendation made by the Senior
Officer to the Board that the Board o Other factors and current trends. In
consider implementing a process to determining whether to continue the
assist them in more closely monitoring Advisory Agreement for the Fund, the
the performance of the AIM Funds. The Board considered the fact that AIM,
Board concluded that it would be along with others in the mutual fund
advisable to implement such a process as industry, is subject to regulatory
soon as reasonably practicable. inquiries and litigation related to a
wide range of issues. The Board also
o Profitability of AIM and its considered the governance and compliance
affiliates. The Board reviewed reforms being undertaken by AIM and its
information concerning the profitability affiliates, including maintaining an
of AIM's (and its affiliates') internal controls committee and
investment advisory and other activities retaining an independent compliance
and its financial condition. The Board consultant, and the fact that AIM has
considered the overall profitability of undertaken to cause the Fund to operate
AIM, as well as the profitability of AIM in accordance with certain governance
in connection with managing the Fund. policies and practices. The Board
The Board noted that AIM's operations concluded that these actions indicated a
remain profitable, although increased good faith effort on the part of AIM to
expenses in recent years have reduced adhere to the highest ethical standards,
AIM's profitability. Based on the review and determined that the current
of the profitability of AIM's and its regulatory and litigation environment to
affiliates' investment advisory and which AIM is subject should not prevent
other activities and its financial the Board from continuing the Advisory
condition, the Board concluded that the Agreement for the Fund.
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-82.81%
AEROSPACE & DEFENSE-1.51%
Northrop Grumman Corp. 314,567 $ 18,908,622
=========================================================================
APPAREL RETAIL-0.55%
TJX Cos., Inc. (The) 295,751 6,870,296
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.38%
Bank of New York Co., Inc. (The) 541,384 17,243,080
=========================================================================
BIOTECHNOLOGY-1.05%
Amgen Inc.(a) 167,000 13,169,620
=========================================================================
BUILDING PRODUCTS-1.06%
Masco Corp. 438,822 13,248,036
=========================================================================
COMMUNICATIONS EQUIPMENT-1.90%
Cisco Systems, Inc.(a) 1,387,000 23,745,440
=========================================================================
COMPUTER HARDWARE-1.32%
International Business Machines Corp. 200,258 16,461,208
=========================================================================
COMPUTER STORAGE & PERIPHERALS-1.51%
Lexmark International, Inc.-Class A(a) 421,600 18,900,328
=========================================================================
DIVERSIFIED BANKS-1.05%
Bank of America Corp. 284,523 13,130,736
=========================================================================
ELECTRIC UTILITIES-0.98%
FPL Group, Inc. 295,000 12,260,200
=========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.46%
Waste Management, Inc. 602,302 18,279,866
=========================================================================
FOOD RETAIL-1.27%
Kroger Co. (The)(a) 841,451 15,886,595
=========================================================================
HOMEFURNISHING RETAIL-1.01%
Bed Bath & Beyond Inc.(a) 349,954 12,650,837
=========================================================================
INDUSTRIAL CONGLOMERATES-4.09%
General Electric Co. 492,386 17,258,129
- -------------------------------------------------------------------------
Tyco International Ltd. 1,172,845 33,848,307
=========================================================================
51,106,436
=========================================================================
INDUSTRIAL MACHINERY-1.02%
Dover Corp. 314,761 12,744,673
=========================================================================
INSURANCE BROKERS-1.02%
Marsh & McLennan Cos., Inc. 402,000 12,767,520
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
INTEGRATED OIL & GAS-3.80%
Exxon Mobil Corp. 546,771 $ 30,712,127
- -------------------------------------------------------------------------
Murphy Oil Corp. 312,377 16,865,234
=========================================================================
47,577,361
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.75%
AT&T Inc. 909,513 22,273,973
- -------------------------------------------------------------------------
Verizon Communications Inc. 401,812 12,102,577
=========================================================================
34,376,550
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.83%
Merrill Lynch & Co., Inc. 261,396 17,704,351
- -------------------------------------------------------------------------
Morgan Stanley 311,204 17,657,715
=========================================================================
35,362,066
=========================================================================
IT CONSULTING & OTHER SERVICES-1.09%
Accenture Ltd.-Class A 470,215 13,575,107
=========================================================================
MOVIES & ENTERTAINMENT-1.93%
News Corp.-Class A 1,157,000 17,991,350
- -------------------------------------------------------------------------
Walt Disney Co. (The) 256,000 6,136,320
=========================================================================
24,127,670
=========================================================================
MULTI-LINE INSURANCE-2.40%
American International Group, Inc. 248,000 16,921,040
- -------------------------------------------------------------------------
Genworth Financial Inc.-Class A 377,000 13,036,660
=========================================================================
29,957,700
=========================================================================
OFFICE ELECTRONICS-2.29%
Xerox Corp.(a) 1,954,600 28,634,890
=========================================================================
OIL & GAS DRILLING-1.16%
Nabors Industries Ltd.(a)(b) 191,200 14,483,400
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-4.97%
BJ Services Co.(b) 738,000 27,062,460
- -------------------------------------------------------------------------
Schlumberger Ltd. 141,037 13,701,745
- -------------------------------------------------------------------------
Smith International, Inc. 575,441 21,354,616
=========================================================================
62,118,821
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.06%
Apache Corp. 192,800 13,210,656
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.33%
Citigroup Inc. 343,800 16,684,614
=========================================================================
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
PACKAGED FOODS & MEATS-2.70%
Campbell Soup Co. 306,620 $ 9,128,077
- -------------------------------------------------------------------------
ConAgra Foods, Inc. 298,000 6,043,440
- -------------------------------------------------------------------------
General Mills, Inc. 378,197 18,652,676
=========================================================================
33,824,193
=========================================================================
PERSONAL PRODUCTS-2.58%
Avon Products, Inc. 498,000 14,217,900
- -------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 540,326 18,090,114
=========================================================================
32,308,014
=========================================================================
PHARMACEUTICALS-7.58%
Bristol-Myers Squibb Co. 839,000 19,280,220
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 462,400 18,810,432
- -------------------------------------------------------------------------
Merck & Co. Inc. 1,241,800 39,501,658
- -------------------------------------------------------------------------
Wyeth 372,050 17,140,344
=========================================================================
94,732,654
=========================================================================
PROPERTY & CASUALTY INSURANCE-8.31%
ACE Ltd. 350,865 18,750,226
- -------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A(a) 375 33,232,500
- -------------------------------------------------------------------------
Chubb Corp. (The) 181,111 17,685,489
- -------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 380,845 17,012,346
- -------------------------------------------------------------------------
XL Capital Ltd.-Class A 255,698 17,228,931
=========================================================================
103,909,492
=========================================================================
PUBLISHING-1.27%
Gannett Co., Inc. 262,554 15,902,896
=========================================================================
RAILROADS-1.34%
Union Pacific Corp. 207,700 16,721,927
=========================================================================
REGIONAL BANKS-2.08%
Fifth Third Bancorp 329,400 12,424,968
- -------------------------------------------------------------------------
North Fork Bancorp., Inc. 495,232 13,549,548
=========================================================================
25,974,516
=========================================================================
SEMICONDUCTORS-3.71%
Analog Devices, Inc. 484,313 17,372,307
- -------------------------------------------------------------------------
Intel Corp. 688,500 17,184,960
- -------------------------------------------------------------------------
Xilinx, Inc. 469,500 11,836,095
=========================================================================
46,393,362
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
SOFT DRINKS-1.26%
Coca-Cola Co. (The) 391,909 $ 15,797,852
=========================================================================
SYSTEMS SOFTWARE-4.19%
Computer Associates International, Inc. 582,838 16,430,203
- -------------------------------------------------------------------------
Microsoft Corp. 1,374,700 35,948,405
=========================================================================
52,378,608
=========================================================================
Total Domestic Common Stocks (Cost
$927,798,119) 1,035,425,842
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-15.75%
ARGENTINA-0.49%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 53,428 6,117,506
=========================================================================
FINLAND-1.52%
Nokia Oyj-ADR (Communications Equipment) 1,037,783 18,991,429
=========================================================================
FRANCE-1.84%
TOTAL S.A. (Integrated Oil & Gas)(c) 91,278 22,971,767
=========================================================================
ISRAEL-1.49%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 433,022 18,624,276
=========================================================================
JAPAN-0.54%
Nintendo Co., Ltd. (Home Entertainment
Software)(c) 55,500 6,746,533
=========================================================================
NETHERLANDS-5.45%
Heineken N.V. (Brewers)(a)(c) 691,249 21,907,958
- -------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics) 961,100 29,867,204
- -------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(c) 240,000 16,435,719
=========================================================================
68,210,881
=========================================================================
SWITZERLAND-0.53%
UBS A.G. (Diversified Capital Markets) 70,000 6,664,384
=========================================================================
UNITED KINGDOM-3.89%
Barclays PLC (Diversified Banks) 1,244,899 13,086,696
- -------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats) 1,295,000 12,243,121
- -------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 461,800 23,311,664
=========================================================================
48,641,481
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $166,518,648) 196,968,257
=========================================================================
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
- -------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED-0.00%
OIL & GAS DRILLING-0.00%
Nabors Industries Ltd. 1,310 $60.0 Jan-06 $ 1,441
=================================================================================================
OIL & GAS EQUIPMENT & SERVICES-0.00%
BJ Services Co. 5,300 27.5 Jan-06 0
=================================================================================================
Total Put Options Purchased
(Cost $1,207,781) 1,441
=================================================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
MONEY MARKET FUNDS-1.63%
Liquid Assets Portfolio-Institutional
Class(d) 10,200,588 $ 10,200,588
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 10,200,588 10,200,588
=========================================================================
Total Money Market Funds (Cost
$20,401,176) 20,401,176
=========================================================================
TOTAL INVESTMENTS-100.19% (Cost
$1,115,925,724) 1,252,796,716
=========================================================================
OTHER ASSETS LESS LIABILITIES-(0.19%) (2,409,837)
=========================================================================
NET ASSETS-100.00% $1,250,386,879
_________________________________________________________________________
=========================================================================
</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 1I
and Note 8.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $68,061,977,
which represented 5.44% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,095,524,548) $1,232,395,540
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $20,401,176) 20,401,176
=============================================================
Total investments (cost $1,115,925,724) 1,252,796,716
=============================================================
Foreign currencies, at value (cost $18,742) 18,752
- -------------------------------------------------------------
Receivables for:
Fund shares sold 11,437
- -------------------------------------------------------------
Dividends 1,704,960
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 98,673
- -------------------------------------------------------------
Other assets 99,106
=============================================================
Total assets 1,254,729,644
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,293,380
- -------------------------------------------------------------
Options written, at value (premiums
received $703,775) 1,944,868
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 185,820
- -------------------------------------------------------------
Accrued administrative services fees 886,199
- -------------------------------------------------------------
Accrued distribution fees-Series II 2,391
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 218
- -------------------------------------------------------------
Accrued transfer agent fees 2,006
- -------------------------------------------------------------
Accrued operating expenses 27,883
=============================================================
Total liabilities 4,342,765
=============================================================
Net assets applicable to shares outstanding $1,250,386,879
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,309,481,431
- -------------------------------------------------------------
Undistributed net investment income 7,410,542
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (202,233,465)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 135,728,371
=============================================================
$1,250,386,879
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,246,528,951
_____________________________________________________________
=============================================================
Series II $ 3,857,928
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 53,158,035
_____________________________________________________________
=============================================================
Series II 165,382
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 23.45
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 23.33
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$396,261) $ 23,913,699
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$89,868, after compensation to counterparties
of $166,515) 2,848,267
=============================================================
Total investment income 26,761,966
=============================================================
EXPENSES:
Advisory fees 8,283,089
- -------------------------------------------------------------
Administrative services fees 3,555,685
- -------------------------------------------------------------
Custodian fees 104,719
- -------------------------------------------------------------
Distribution fees-Series II 9,800
- -------------------------------------------------------------
Transfer agent fees 24,048
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 56,245
- -------------------------------------------------------------
Other 124,185
=============================================================
Total expenses 12,157,771
=============================================================
Less: Fees waived (24,520)
=============================================================
Net expenses 12,133,251
=============================================================
Net investment income 14,628,715
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from
securities sold to affiliates of $689,175) 109,897,698
- -------------------------------------------------------------
Foreign currencies (9,393)
=============================================================
109,888,305
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (56,991,544)
- -------------------------------------------------------------
Foreign currencies (635)
- -------------------------------------------------------------
Option contracts written (1,241,093)
=============================================================
(58,233,272)
=============================================================
Net gain from investment securities, foreign
currencies and
option contracts 51,655,033
=============================================================
Net increase in net assets resulting from
operations $ 66,283,748
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 14,628,715 $ 18,752,512
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 109,888,305 97,933,629
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (58,233,272) 10,319,904
==============================================================================================
Net increase in net assets resulting from operations 66,283,748 127,006,045
==============================================================================================
Distributions to shareholders from net investment income:
Series I (18,751,304) (14,182,082)
- ----------------------------------------------------------------------------------------------
Series II (48,282) (32,455)
==============================================================================================
Decrease in net assets resulting from distributions (18,799,586) (14,214,537)
==============================================================================================
Share transactions-net:
Series I (288,279,283) (180,502,395)
- ----------------------------------------------------------------------------------------------
Series II (453,871) 63,621
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (288,733,154) (180,438,774)
==============================================================================================
Net increase (decrease) in net assets (241,248,992) (67,647,266)
==============================================================================================
NET ASSETS:
Beginning of year 1,491,635,871 1,559,283,137
==============================================================================================
End of year (including undistributed net investment income
of $7,410,542 and $11,590,806, respectively) $1,250,386,879 $1,491,635,871
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. CORE EQUITY FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
J. 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
AIM V.I. CORE EQUITY FUND
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
K. 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 replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) Rule 12b-1 plan
fees, if any (ii) interest; (iii) taxes; (iv) dividend expense on short sales;
(v) extraordinary items; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, 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. 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 year ended December 31, 2005, AIM waived fees of $24,520.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $322,726 for
accounting and fund administrative services and reimbursed $3,232,959 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 year ended
December 31, 2005, the Fund paid AISI $24,048.
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 year ended December
31, 2005, the Series II shares paid $9,800.
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 year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 66,319,755 $191,333,659 $(247,452,826) $ -- $10,200,588 $1,373,820 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 66,319,755 191,333,659 (247,452,826) -- 10,200,588 1,384,579 --
===================================================================================================================================
Subtotal $132,639,510 $382,667,318 $(494,905,652) $ -- $20,401,176 $2,758,399 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 34,389,740 $ (34,389,740) $ -- $ -- $ 22,505 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 4,769,488 54,918,795 (59,688,283) -- -- 67,363 --
===================================================================================================================================
Subtotal $ 4,769,488 $ 89,308,535 $ (94,078,023) $ -- $ -- $ 89,868 $ --
===================================================================================================================================
Total $137,408,998 $471,975,853 $(588,983,675) $ -- $20,401,176 $2,848,267 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $15,583,781 and sales of $7,413,198, which
resulted in net realized gains of $689,175.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $9,349
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. CORE 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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2005, there were no securities on loan to brokers. For the
year ended December 31, 2005, the Fund received dividends on cash collateral of
$89,868 for securities lending transactions, which are net of compensation to
counterparties.
NOTE 8 -- OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 6,610 703,775
===================================================================================
End of year 6,610 $703,775
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/05 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 $35 5,300 $377,175 $1,114,590 $ (737,415)
- ---------------------------------------------------------------------------------------------------------------------------------
Nabors Industries Ltd. Jan-06 70 1,310 326,600 830,278 (503,678)
=================================================================================================================================
6,610 $703,775 $1,944,868 $(1,241,093)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $18,799,586 $14,214,537
________________________________________________________________________________________
========================================================================================
</Table>
AIM V.I. CORE EQUITY FUND
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 14,723,880
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 113,818,377
- ----------------------------------------------------------------------------
Temporary book/tax differences (158,239)
- ----------------------------------------------------------------------------
Capital loss carryforward (187,377,082)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (101,488)
- ----------------------------------------------------------------------------
Shares of beneficial interest 1,309,481,431
============================================================================
Total net assets $1,250,386,879
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and defaulted bonds. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies of $(635), option contracts written of $(1,241,093) and
excludes remaining proceeds to be received on Candescent Technologies Corp. of
$99,107.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $108,878,170 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $166,159,229
- -----------------------------------------------------------------------------
December 31, 2011 21,217,853
=============================================================================
Total capital loss carryforward $187,377,082
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $652,762,057 and $835,881,817 respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 154,752,131
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (39,791,133)
===============================================================================
Net unrealized appreciation of investment securities $ 114,960,998
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $1,137,835,718.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income was
decreased by $9,393 and undistributed net realized gain (loss) was increased by
$9,393. This reclassification had no effect on the net assets of the Fund.
AIM V.I. CORE EQUITY FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2005(A) 2004
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,782,887 $ 128,067,074 706,992 $ 15,076,577
- --------------------------------------------------------------------------------------------------------------------------
Series II 46,605 1,038,635 46,375 984,768
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 791,528 18,751,304 633,129 14,182,082
- --------------------------------------------------------------------------------------------------------------------------
Series II 2,048 48,282 1,456 32,454
==========================================================================================================================
Reacquired:
Series I (19,247,047) (435,097,661) (9,797,694) (209,761,054)
- --------------------------------------------------------------------------------------------------------------------------
Series II (68,927) (1,540,788) (44,856) (953,601)
==========================================================================================================================
(12,692,906) $(288,733,154) (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 78% 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 entities are also owned beneficially.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005
and December 7, 2005, for AIM V.I. Premier Equity Fund and AIM V.I. Core Stock
Fund ("Selling Funds"), respectively, Plans of Reorganization pursuant to which
the Fund would acquire all of the assets of the Selling Funds, each a series of
the Trust (the "Reorganizations"). Upon closing of the Reorganizations,
shareholders of Selling Funds will receive a corresponding class of shares of
the Fund in exchange for their shares of the Selling Funds, and the Selling
Funds will cease operations.
The Plans of Reorganization requires approval of each of the Selling Funds'
shareholders. The Selling Funds currently intend to submit the Plans of
Reorganization to the shareholders for their consideration at a meeting to be
held on or around April 4, 2006. Additional information regarding the Plans of
Reorgasnization will be included in proxy materials to be mailed to shareholders
for consideration. If the Plans of Reorganization are approved by the
shareholders of Selling Funds and certain conditions required by the Plans of
Reorganization are satisfied, the Reorganizations are expected to become
effective on or around May 1, 2006.
AIM V.I. CORE EQUITY FUND
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.60 $ 20.94 $ 16.99 $ 20.20 $ 26.19
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.30(b) 0.17(a) 0.12(a) 0.03(c)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.96 1.58 3.97 (3.27) (6.01)
==================================================================================================================
Total from investment operations 1.20 1.88 4.14 (3.15) (5.98)
==================================================================================================================
Less dividends from net investment income (0.35) (0.22) (0.19) (0.06) (0.01)
==================================================================================================================
Net asset value, end of period $ 23.45 $ 22.60 $ 20.94 $ 16.99 $ 20.20
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(d) 5.31% 8.97% 24.42% (15.58)% (22.83)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,246,529 $1,487,462 $1,555,475 $1,385,050 $1,916,875
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 0.89%(e) 0.91% 0.81%(f) 0.78% 0.82%
==================================================================================================================
Ratio of net investment income to average
net assets 1.08%(e) 1.25%(b) 0.91% 0.67% 0.12%(c)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 52% 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 $0.23 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%.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(e) Ratios are based on average daily net assets of $1,355,761,500.
(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%
<Table>
<Caption>
SERIES II
------------------------------------------------------------------
OCTOBER 24, 2001
YEAR ENDED DECEMBER 31, (DATE SALES
--------------------------------------------- COMMENCED) TO
2005 2004 2003 2002 DECEMBER 31, 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) 0.18(a) 0.21(b) 0.12(a) 0.07(a) (0.00)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.60 3.96 (3.26) 1.23
================================================================================================================================
Total from investment operations 1.14 1.81 4.08 (3.19) 1.23
================================================================================================================================
Less dividends from net investment income (0.29) (0.18) (0.17) (0.06) (0.01)
================================================================================================================================
Net asset value, end of period $23.33 $22.48 $20.85 $ 16.94 $20.19
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 5.08% 8.67% 24.15% (15.79)% 6.49%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,858 $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) average net assets 0.83%(d) 1.00%(b) 0.66% 0.42% (0.10)%(f)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 52% 52% 31% 113% 73%
________________________________________________________________________________________________________________________________
================================================================================================================================
</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 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 based on average daily net assets of $3,920,079.
(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.
AIM V.I. CORE EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
AIM V.I. CORE EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Core Equity Fund, (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. CORE EQUITY FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURE
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. CORE EQUITY FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. CORE EQUITY FUND
AIM V.I. CORE STOCK FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. CORE STOCK FUND seeks to provide a high total return
through both growth and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. CORE STOCK FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
==================================================================================
PERFORMANCE SUMMARY ======================================== We consider selling a stock when:
FUND VS. INDEXES
For the year ended December 31, 2005, o it exceeds our target price
the Fund underperformed the indexes TOTAL RETURNS, 12/31/04--12/31/05,
against which it is compared. The EXCLUDING VARIABLE PRODUCT ISSUER o we have not seen a demonstrable
underperformance was driven by holdings CHARGES. IF VARIABLE PRODUCT ISSUER improvement in fundamentals during an
in the financials and information CHARGES WERE INCLUDED, RETURNS WOULD BE 18- to 24-month time horizon
technology sectors. LOWER.
o there is a deterioration in company
Your Fund's long-term performance Series I Shares 3.35% fundamentals
appears on Pages 4 of 5.
Series II Shares 3.05 o more compelling investment
opportunities exist
Standard & Poor's Composite
Index of 500 Stocks (S&P 500 Index)
(Broad Market and MARKET CONDITIONS AND YOUR FUND
Style-specific Index) 4.91
During the year, economic indicators
Lipper Large-Cap Core Fund Index were generally positive, pointing to the
(Peer Group Index) 5.72 health of the U.S. economy. Throughout
the year, the nation's gross domestic
SOURCE: LIPPER,INC. product reflected continuing growth.
======================================== Corporate earnings growth was generally
healthy. Manufacturing growth continued
================================================================================== and inflation remained low. However,
HOW WE INVEST many investors focused on the impact
that record-breaking energy prices and
We manage your Fund as a core fund, We conduct quantitative research to rising interest rates could have on
seeking to provide upside potential with identify growing companies whose stock consumer spending, which accounts for
a measure of protection in difficult prices may be experiencing some approximately two-thirds of the U.S.
markets to complement more aggressive near-term distress. By further applying economy.
value and growth investments. rigorous fundamental research, including
analysis of company financial statements Most domestic equity indexes produced
We believe a portfolio of with a special focus on cash flow, we single-digit returns for 2005. In the
attractively valued companies with assess the prospects for each business S&P 500 Index, energy and utilities were
consistent free cash flow and management and its appreciation potential. the highest-performing sectors,
teams that effectively allocate excess providing the only double-digit sector
cash to the benefit of shareholders can We target a well-diversified, returns in the index. Alternatively,
outperform the market over the long large-cap core portfolio and attempt to consumer discretionary and
term. We believe these companies are protect against volatility through the telecommunication services both posted
best positioned to weather temporary size of individual holdings and sector negative returns for the year.
setbacks and therefore provide the weightings. Sector exposure is
potential for both long-term capital consistent with a core investment to Your Fund's holdings in the health
appreciation and lower downside risk. complement value and growth investments. care sector accounted for the largest
We may also maintain a cash position as contribution to performance for the
a means to limit volatility in certain year. The Fund's health
market environments.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 10.9% 1. Merck & Co. Inc. 3.2%
Financials 21.9% 2. Property & Casualty Insurance 8.3 2. Microsoft Corp. 2.9
Information Technology 18.0 3. Integrated Oil & Gas 5.6 3. Tyco International Ltd. 2.7
Energy 13.2 4. Oil & Gas Equipment & Services 5.4 4. Berkshire Hathaway Inc. 2.7
-Class A
Health Care 11.9 5. Packaged Foods & Meats 4.9 5. Exxon Mobil Corp. 2.4
Consumer Staples 11.7 6. Systems Software 4.2 6. Koninklijke (Royal) Philips
Electronics N.V. (Netherlands) 2.4
Industrials 10.4 7. Industrial Conglomerates 4.0
7. Xerox Corp. 2.3
Consumer Discretionary 7.2 8. Semiconductors 3.7
8. BJ Services Co. 2.2
Telecommunication Services 2.7 9. Communications Equipment 3.4
9. Cisco Systems,Inc. 1.9
Utilities 1.0 10. Investment Banking & Brokerage 2.8
10. GlaxoSmithKline PLC-ADR
Money Market Funds (United Kingdom) 1.8
Plus Other Assets Less Liabilities 2.0 TOTAL NET ASSETS $83.7 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.
======================================== ======================================== ========================================
2
AIM V.I. CORE STOCK FUND
care stocks more than doubled the return confident in their potential to achieve RONALD S. SLOAN,
of the stocks that make up the sector in the price targets we set for them. Chartered Financial Analyst,
the S&P 500 Index. This outperformance [SLOAN senior portfolio manager, is
was primarily a result of contributions Other key detractors came from the PHOTO] lead portfolio manager of
from biotech stock AMGEN and financials sector. AMERICAN AIM V.I. Core Stock Fund.
pharmaceutical stocks WYETH, INTERNATIONAL GROUP (AIG) was one of the Mr. Sloan has 35 years of experience in
GLAXOSMITHKLINE and TEVA. financials sector stocks owned by your the investment industry. He joined AIM
Fund at the beginning of the year. The in 1998. Mr. Sloan attended the
Teva, the world's leading generic company's stock experienced a University of Missouri, where he
drug manufacturer, was among the significant decline due to received both a B.S. in business
Fund's top contributors. The generic investigations into wrongdoing on the administration and an M.B.A.
drug business has benefited from the part of prior company executives. The
centralized buying power of medical new management team addressed these Assisted by the Mid/Large Cap Core Team
benefits providers. Teva has a issues and proceeded to deliver solid
particular advantage because of the results. As of December 31, 2005, the
large number of generic drugs that it stock had rebounded from the year's low.
markets. The company's stock has However, because this stock was owned by
approached our price target on several the Fund during 2004, the 2005 price
occasions, but because of additional decline caused the stock to be a
prospects for the company, our valuation detractor to Fund performance for the
work has resulted in increased price year. Although renewed investor interest
targets and our retention of the stock. had buoyed its share price, at the end
of the year, this stock had not reached
The second largest contributor to our valuation target, and we continued
Fund performance for the period were to own the stock.
energy stocks. We hold a number of
stocks from the oil and gas equipment IN CLOSING
and services industry based on our
favorable outlook for the group. One Thank you for investing in AIM V.I. Core
such company, BJ SERVICES, was among the Stock Fund. We continually strive to
top contributors to Fund performance for provide a fund that can be at the core
the year. The company is engaged in oil of the investor's portfolio, one which
and gas drilling, including deep gas can add stability and constancy to more
drilling in the Rocky Mountains and aggressive equity investments. We
Canada. We selected BJ Services for its believe we can provide that to
clean balance sheet, high returns on shareholders by choosing from stocks
invested capital and disciplined that the market has temporarily punished
management. or undervalued and by purchasing
companies with strong cash flow, clean
PHILIPS ELECTRONICS, an international balance sheets and management teams with
stock we added to the portfolio this a history of being good stewards of
year, is a new top 10 holding. Philips cash.
was a strong contributor to Fund
performance for the period. Besides ========================================
being the world's number one producer of In December 2005, your Fund's board
light bulbs, Philips manufactures TVs, approved--subject to shareholder
VCRs and electric shavers, as well as approval--the proposed merger of AIM
picture tubes, semiconductors and V.I. Core Stock Fund into AIM V.I. Core
medical systems. The company recently Equity Fund.
announced that the Food and Drug ========================================
Administration had approved its advanced
defibrillator technology. A THE VIEWS AND OPINIONS EXPRESSED IN
defibrillator equipped with this MANAGEMENT'S DISCUSSION OF FUND
technology can indicate to medical PERFORMANCE ARE THOSE OF A I M ADVISORS,
personnel whether a patient whose heart INC. THESE VIEWS AND OPINIONS ARE
has stopped suddenly should be treated SUBJECT TO CHANGE AT ANY TIME BASED ON
first with a shock or with FACTORS SUCH AS MARKET AND ECONOMIC
cardiopulmonary resuscitation. CONDITIONS. THESE VIEWS AND OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE
Some well-known large-cap names in OR RECOMMENDATIONS, OR AS AN OFFER FOR A
information technology (IT) struggled PARTICULAR SECURITY. THE INFORMATION IS
this year. In the S&P 500 Index, the IT NOT A COMPLETE ANALYSIS OF EVERY ASPECT
sector lagged seven of the other nine OF ANY MARKET, COUNTRY, INDUSTRY,
sectors. IBM and CISCO SYSTEMS, both SECURITY OR THE FUND. STATEMENTS OF FACT
held at fiscal year-end, detracted from ARE FROM SOURCES CONSIDERED RELIABLE,
Fund performance, but we remained BUT A I M ADVISORS, INC. MAKES NO [RIGHT ARROW GRAPHIC]
REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH FOR A DISCUSSION OF THE RISKS OF
HISTORICAL PERFORMANCE IS NO GUARANTEE INVESTING IN YOUR FUND,INDEXES USED IN
OF FUTURE RESULTS, THESE INSIGHTS MAY THIS REPORT AND YOUR FUND'S LONG-TERM
HELP YOU UNDERSTAND OUR INVESTMENT PERFORMANCE, PLEASE TURN TO PAGES 4 AND
MANAGEMENT PHILOSOPHY. 5.
3
AIM V.I. CORE STOCK FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/9/94, index data from 7/31/94
================================================================================
[MOUNTAIN CHART]
AIM V.I. CORE STOCK S&P 500 LIPPER LARGE-CAP
DATE FUND-SERIES I SHARES INDEX CORE FUND INDEX
7/31/94 $10000 $10000
8/94 $9990 10409 10357
9/94 9990 10155 10140
10/94 9990 10383 10303
11/94 10020 10005 9940
12/94 10123 10153 10033
1/95 10234 10416 10210
2/95 10464 10822 10560
3/95 10704 11140 10823
4/95 10985 11468 11061
5/95 11325 11926 11419
6/95 11506 12202 11719
7/95 11686 12607 12118
8/95 11817 12638 12137
9/95 12068 13171 12591
10/95 12279 13124 12532
11/95 12770 13700 13022
12/95 13083 13964 13219
1/96 13384 14439 13607
2/96 13456 14573 13773
3/96 13476 14713 13899
4/96 13820 14930 14101
5/96 14267 15314 14382
6/96 14559 15373 14403
7/96 14195 14694 13814
8/96 14620 15004 14128
9/96 15047 15848 14861
10/96 15297 16285 15156
11/96 16233 17515 16139
12/96 15996 17168 15841
1/97 16566 18240 16707
2/97 16789 18383 16687
3/97 16297 17629 15973
4/97 16866 18681 16858
5/97 17524 19823 17881
6/97 18250 20704 18656
7/97 19567 22351 20130
8/97 19121 21100 19105
9/97 20058 22255 20089
10/97 19611 21512 19469
11/97 20191 22507 20105
12/97 20500 22893 20471
1/98 20631 23146 20673
2/98 21702 24815 22138
3/98 22459 26085 23233
4/98 22567 26352 23468
5/98 22231 25899 23067
6/98 22591 26951 24163
7/98 22230 26666 23968
8/98 19836 22813 20381
9/98 20883 24276 21394
10/98 21869 26247 22999
11/98 22868 27838 24366
12/98 23634 29441 25984
1/99 24014 30671 26893
2/99 23722 29718 26062
3/99 24419 30907 27111
4/99 25918 32104 27837
5/99 25729 31347 27099
6/99 26884 33081 28611
7/99 26376 32053 27771
8/99 25780 31894 27488
9/99 25133 31021 26743
10/99 26365 32983 28382
11/99 27142 33654 29078
12/99 27142 35633 31012
1/00 26431 33843 29758
2/00 26032 33203 29749
3/00 28190 36449 32335
4/00 27725 35353 31279
5/00 27478 34628 30483
6/00 27594 35481 31598
7/00 27812 34927 31106
8/00 29322 37095 33252
9/00 28727 35137 31481
10/00 28816 34988 31116
11/00 26911 32232 28380
12/00 28458 32390 28727
1/01 29007 33538 29540
2/01 27360 30482 26791
3/01 25877 28552 25147
4/01 27264 30769 27058
5/01 27730 30976 27210
6/01 26934 30222 26487
7/01 26824 29924 26104
8/01 25754 28053 24566
9/01 23747 25788 22702
10/01 23954 26280 23237
11/01 25348 28295 24759
12/01 25908 28543 25040
1/02 25755 28127 24645
2/02 25588 27584 24232
3/02 26591 28622 25057
4/02 25224 26887 23746
5/02 25086 26690 23573
6/02 23859 24789 21946
7/02 21683 22858 20315
8/02 21614 23007 20482
9/02 19675 20509 18493
10/02 20889 22312 19929
11/02 22046 23624 20819
12/02 20957 22237 19723
1/03 20490 21656 19205
2/03 20049 21330 18950
3/03 20147 21537 19110
4/03 21666 23310 20518
5/03 22758 24537 21513
6/03 23113 24851 21725
7/03 23652 25289 22068
8/03 24007 25781 22494
9/03 23481 25508 22204
10/03 24517 26950 23290
11/03 24475 27187 23486
12/03 25691 28612 24615
1/04 25951 29137 24963
2/04 26008 29542 25257
3/04 25563 29096 24862
4/04 24860 28640 24476
5/04 25290 29033 24725
6/04 25720 29597 25167
7/04 24717 28617 24276
8/04 24603 28732 24291
9/04 24817 29043 24570
10/04 25319 29487 24902
11/04 26066 30680 25847
12/04 26782 31723 26655
1/05 25944 30950 26053
2/05 26336 31601 26539
3/05 25728 31042 26053
4/05 25177 30454 25472
5/05 26003 31422 26297
6/05 25784 31467 26387
7/05 26942 32637 27325
8/05 26869 32339 27075
9/05 27028 32601 27388
10/05 26406 32057 27060
11/05 27491 33268 28097
12/05 $27691 $33280 $28179
================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, the space between $10,000 and
$20,000 is the same as that between
$20,000 and $40,000, and so on.
4
AIM V.I. CORE STOCK FUND
<Table>
========================================
AVERAGE ANNUAL TOTAL RETURNS THE HIGHER RULE 12b-1 FEES APPLICABLE TO INSURANCE COMPANIES ISSUING VARIABLE
THE SERIES II SHARES. SERIES I AND PRODUCTS. YOU CANNOT PURCHASE SHARES OF
As of 12/31/05 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 (8/9/94) 9.35% EXCEPT TO THE EXTENT THAT EXPENSES BORNE PRODUCT VALUES. THEY DO NOT REFLECT
10 Years 7.79 BY EACH CLASS DIFFER. SALES CHARGES, EXPENSES AND FEES
5 Years -0.55 ASSESSED IN CONNECTION WITH A VARIABLE
1 Year 3.35 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 7.51% PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
5 Years -0.81 PLEASE CONTACT YOUR VARIABLE PRODUCT
1 Year 3.05 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 FUND LEVEL, EXCLUDING VARIABLE PRODUCT
REFLECT FUND EXPENSES, REINVESTED CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS DISTRIBUTIONS AND CHANGES IN NET ASSET INFORMATION LINE, 866-702-4402. AS
VALUE. INVESTMENT RETURN AND PRINCIPAL MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 VALUE WILL FLUCTUATE SO THAT YOU MAY MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 7.36% HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 7.22 SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
======================================== AIM V.I. CORE STOCK FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE
RETURNS SINCE APRIL 30, 2004, THE FUNDS, IS CURRENTLY OFFERED THROUGH
INCEPTION DATE OF SERIES II SHARES, ARE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
PRINCIPAL RISKS OF INVESTING IN THE FUND
ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
The Fund may invest up to 25% of its
assets in debt securities of non-U.S. The unmanaged Standard & Poor's The returns shown in management's
issuers, provided that all such Composite Index of 500 Stocks (the S&P discussion of Fund performance are based
securities are denominated and pay 500--REGISTERED TRADEMARK-- INDEX) is an on net asset values calculated for
interest in U.S. dollars (such as index of common stocks frequently used shareholder transactions. Generally
Eurobonds and Yankee Bonds). Securities as a general measure of U.S. stock accepted accounting principles require
of Canadian issuers and American market performance. adjustments to be made to the net assets
Depositary Receipts are not subject to of the Fund at period end for financial
this 25% limitation. International The unmanaged LIPPER LARGE-CAP CORE reporting purposes, and as such, the net
investing presents certain risks not FUND INDEX represents an average of the asset values for shareholder
associated with investing solely in the performance of the 30 largest transactions and the returns based on
United States. These include risks large-capitalization core equity funds those net asset values may differ from
relating to fluctuations in the value of tracked by Lipper, Inc., an independent the net asset values and returns
the U.S. dollar relative to the values mutual fund performance monitor. reported in the Financial Highlights.
of other currencies, the custody Additionally, the returns and net asset
arrangements made for the Fund's foreign The Fund is not managed to track the values shown throughout this report are
holdings, differences in accounting, performance of any particular index, at the Fund level only and do not
political risks and the lesser degree of including the indexes defined here, and include variable product issuer charges.
public information required to be consequently, the performance of the If such charges were included, the total
provided by non-U.S. companies. Fund may deviate significantly from the returns would be lower.
performance of the indexes.
At any given time, the Fund may be Industry classifications used in this
subject to sector risk, which means a A direct investment cannot be made in report are generally according to the
certain sector may underperform other an index. Unless otherwise indicated, Global Industry Classification Standard,
sectors or the market as a whole. The index results include reinvested which was developed by and is the
Fund is not limited with respect to the dividends, and they do not reflect sales exclusive property and a service mark of
sectors in which it can invest. charges. Performance of an index of Morgan Stanley Capital International
funds reflects fund expenses; Inc. and Standard & Poor's.
performance of a market index does not.
5
AIM V.I. CORE STOCK FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR
the effect of any fees or other expenses COMPARISON PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,073.60 $4.76 $1,020.62 $4.63 0.91%
Series II 1,000.00 1,072.20 6.06 1,019.36 5.90 1.16
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. CORE STOCK FUND
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. Core Stock 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 Advisory Agreement. The Board noted that
approve the continuance of the Fund's to the Fund. In reviewing the this rate was higher than the advisory
advisory agreement with A I M qualifications of AIM to provide fee rates for a mutual fund advised by
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board AIM with investment strategies
recommendation of the Investments reviewed the qualifications of AIM's comparable to those of the Fund. The
Committee of the Board, which is investment personnel and considered such Board noted that AIM has agreed to waive
comprised solely of independent issues as AIM's portfolio and product advisory fees of the Fund and to limit
trustees, at a meeting held on June 30, review process, various back office the Fund's total operating expenses, as
2005, the Board, including all of the support functions provided by AIM and discussed below. Based on this review,
independent trustees, approved the AIM's equity and fixed income trading the Board concluded that the advisory
continuance of the advisory agreement operations. Based on the review of these fee rate for the Fund under the Advisory
(the "Advisory Agreement") between the and other factors, the Board concluded Agreement was fair and reasonable.
Fund and AIM for another year, effective that the quality of services to be pro-
July 1, 2005. vided by AIM was appropriate and that o Fees relative to those of comparable
AIM currently is providing satisfactory funds with other advisors. The Board
The Board considered the factors services in accordance with the terms of reviewed the advisory fee rate for the
discussed below in evaluating the the Advisory Agreement. Fund under the Advisory Agreement. The
fairness and reasonableness of the Board compared effective contractual
Advisory Agreement at the meeting on o The performance of the Fund relative advisory fee rates at a common asset
June 30, 2005 and as part of the Board's to comparable funds. The Board level and noted that the Fund's rate was
ongoing oversight of the Fund. In their reviewed the performance of the Fund above the median rate of the funds
deliberations, the Board and the inde- during the past one, three and five advised by other advisors with
pendent trustees did not identify any calendar years against the performance investment strategies comparable to
particular factor that was controlling, of funds advised by other advisors with those of the Fund that the Board
and each trustee attributed different investment strategies comparable to reviewed. The Board noted that AIM has
weights to the various factors. those of the Fund. The Board noted that agreed to waive advisory fees of the
the Fund's performance was below the Fund and to limit the Fund's total
One of the responsibilities of the median performance of such comparable operating expenses, as discussed below.
Senior Officer of the Fund, who is funds for the one and three year periods Based on this review, the Board
independent of AIM and AIM's affili- and above such median performance for concluded that the advisory fee rate for
ates, is to manage the process by which the five year period. The Board also the Fund under the Advisory Agreement
the Fund's proposed management fees are noted that AIM began serving as was fair and reasonable.
negotiated to ensure that they are investment advisor to the Fund in April
negotiated in a manner which is at arm's 2004. Based on this review, the Board o Expense limitations and fee waivers.
length and reasonable. To that end, the concluded that no changes should be made The Board noted that AIM has
Senior Officer must either supervise a to the Fund and that it was not contractually agreed to waive advisory
competitive bidding process or prepare necessary to change the Fund's portfolio fees of the Fund through December 31,
an independent written evaluation. The management team at this time. 2009 to the extent necessary so that the
Senior Officer has recommended an advisory fees payable by the Fund do not
independent written evaluation in lieu o The performance of the Fund relative exceed a specified maximum advisory
of a competitive bidding process and, to indices. The Board reviewed the fee rate, which maximum rate includes
upon the direction of the Board, has performance of the Fund during the breakpoints and is based on net asset
prepared such an independent written past one, three and five calendar years levels. The Board considered the
evaluation. Such written evaluation also against the performance of the Lipper contractual nature of this fee waiver
considered certain of the factors Large Cap Core Index. The Board noted and noted that it remains in effect
discussed below. In addition, as that the Fund's performance was below until December 31, 2009. The Board noted
discussed below, the Senior Officer made the performance of such Index for the that AIM has contractually agreed to
certain recommendations to the Board in one and three year periods and above waive fees and/or limit expenses of the
connection with such written evaluation. such Index for the five year period. The Fund through June 30, 2006 in an amount
Board also noted that AIM began serving necessary to limit total annual
The discussion below serves as a as investment advisor to the Fund in operating expenses to a specified
summary of the Senior Officer's April 2004. Based on this review, the percentage of average daily net assets
independent written evaluation and Board concluded that no changes should for each class of the Fund. The Board
recommendations to the Board in be made to the Fund and that it was not considered the contractual nature of
connection therewith, as well as a necessary to change the Fund's portfolio this fee waiver/expense limitation and
discussion of the material factors and management team at this time. noted that it remains in effect until
the conclusions with respect thereto June 30, 2006. The Board considered the
that formed the basis for the Board's o Meeting with the Fund's portfolio effect these fee waivers/expense
approval of the Advisory Agreement. managers and investment personnel. With limitations would have on the Fund's
After consideration of all of the respect to the Fund, the Board is estimated expenses and concluded that
factors below and based on its informed meeting periodically with such Fund's the levels of fee waivers/expense
business judgment, the Board determined portfolio managers and/or other limitations for the Fund were fair and
that the Advisory Agreement is in the investment personnel and believes that reasonable.
best interests of the Fund and its such individuals are competent and able
shareholders and that the compensation to continue to carry out their o Breakpoints and economies of scale.
to AIM under the Advisory Agreement is responsibilities under the Advisory The Board reviewed the structure of the
fair and reasonable and would have been Agreement. Fund's advisory fee under the Advisory
obtained through arm's length Agreement, noting that it does not
negotiations. o Overall performance of AIM. The Board include any breakpoints. The Board
considered the overall performance of considered whether it would be
o The nature and extent of the advisory AIM in providing investment advisory and appropriate to add advisory fee
services to be provided by AIM. The portfolio administrative services to the breakpoints for the Fund or whether, due
Board reviewed the services to be Fund and concluded that such performance to the nature of the Fund and the
provided by AIM under the Advisory was satisfactory. advisory fee structures of comparable
Agreement. Based on such review, the funds, it was reasonable to structure
Board concluded that the range of the advisory fee without breakpoints.
services to be provided by AIM under the Based on this review, the Board
Advisory Agreement was appropriate and concluded that it was not necessary to
that AIM currently is providing services add advisory fee breakpoints to the
in accordance with the terms of the Fund's advisory fee sched-
Advisory Agreement.
(Continued)
7
AIM V.I. CORE STOCK FUND
ule. The Board reviewed the level of the o Profitability of AIM and its o Other factors and current trends. In
Fund's advisory fees, and noted that affiliates. The Board reviewed determining whether to continue the
such fees, as a percentage of the Fund's information concerning the profitability Advisory Agreement for the Fund, the
net assets, would remain constant under of AIM's (and its affiliates') Board considered the fact that AIM,
the Advisory Agreement because the investment advisory and other activities along with others in the mutual fund
Advisory Agreement does not include any and its financial condition. The Board industry, is subject to regulatory
breakpoints. The Board noted that AIM considered the overall profitability of inquiries and litigation related to a
has contractually agreed to waive AIM, as well as the profitability of AIM wide range of issues. The Board also
advisory fees of the Fund through in connection with managing the Fund. considered the governance and
December 31, 2009 to the extent The Board noted that AIM's operations compliance reforms being undertaken by
necessary so that the advisory fees remain profitable, although increased AIM and its affiliates, including
payable by the Fund do not exceed a expenses in recent years have reduced maintaining an internal controls
specified maximum advisory fee rate, AIM's profitability. Based on the review committee and retaining an independent
which maximum rate includes breakpoints of the profitability of AIM's and its compliance consultant, and the fact that
and is based on net asset levels. The affiliates' investment advisory and AIM has undertaken to cause the Fund to
Board concluded that the Fund's fee other activities and its financial operate in accordance with certain
levels under the Advisory Agreement condition, the Board concluded that the governance policies and practices. The
therefore would not reflect economies of compensation to be paid by the Fund to Board concluded that these actions
scale, although the advisory fee waiver AIM under its Advisory Agreement was not indicated a good faith effort on the
reflects economies of scale. excessive. part of AIM to adhere to the highest
ethical standards, and determined that
o Investments in affiliated money market o Benefits of soft dollars to AIM. The the current regulatory and litigation
funds. The Board also took into account Board considered the benefits realized environment to which AIM is subject
the fact that uninvested cash and cash by AIM as a result of brokerage should not prevent the Board from
collateral from securities lending transactions executed through "soft continuing the Advisory Agreement for
arrangements (collectively, "cash dollar" arrangements. Under these the Fund.
balances") of the Fund may be invested arrangements, brokerage commissions paid
in money market funds advised by AIM by the Fund and/or other funds advised
pursuant to the terms of an SEC by AIM are used to pay for research and
exemptive order. The Board found that execution services. This research is
the Fund may realize certain benefits used by AIM in making investment
upon investing cash balances in AIM decisions for the Fund. The Board
advised money market funds, including a concluded that such arrangements were
higher net return, increased liquidity, appropriate.
increased diversification or decreased
transaction costs. The Board also found o AIM's financial soundness in light of
that the Fund will not receive reduced the Fund's needs. The Board considered
services if it invests its cash balances whether AIM is financially sound and
in such money market funds. The Board has the resources necessary to perform
noted that, to the extent the Fund its obligations under the Advisory
invests in affiliated money market Agreement, and concluded that AIM has
funds, AIM has voluntarily agreed to the financial resources necessary to
waive a portion of the advisory fees it fulfill its obligations under the
receives from the Fund attributable to Advisory Agreement.
such investment. The Board further
determined that the proposed securities o Historical relationship between the
lending program and related procedures Fund and AIM. In determining whether to
with respect to the lending Fund 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. The prior relationship between AIM and the
Board therefore concluded that the Fund, as well as the Board's knowledge
investment of cash collateral received of AIM's operations, and concluded that
in connection with the securities it was beneficial to maintain the cur-
lending program in the money market rent relationship, in part, because of
funds according to the procedures is in such knowledge. The Board also reviewed
the best interests of the lending Fund the general nature of the non-investment
and its respective shareholders. advisory services currently performed by
AIM and its affiliates, such as
o Independent written evaluation and administrative, transfer agency and
recommendations of the Fund's Senior distribution services, and the fees
Officer. The Board noted that, upon received by AIM and its affiliates for
their direction, the Senior Officer of performing such services. In addition to
the Fund, who is independent of AIM and reviewing such services, the trustees
AIM's affiliates, had prepared an also considered the organizational
independent written evaluation in order structure employed by AIM and its
to assist the Board in determining the affiliates to provide those services.
reasonableness of the proposed Based on the review of these and other
management fees of the AIM Funds, factors, the Board concluded that AIM
including the Fund. The Board noted that and its affiliates were qualified to
the Senior Officer's written evaluation continue to provide non-investment
had been relied upon by the Board in advisory services to the Fund, including
this regard in lieu of a competitive administrative, transfer agency and
bidding process. In determining whether distribution services, and that AIM and
to continue the Advisory Agreement for its affiliates currently are providing
the Fund, the Board considered the satisfactory non-investment advisory
Senior Officer's written evaluation and services.
the recommendation made by the Senior
Officer to the Board that the Board
consider implementing a process to
assist them in more closely monitoring
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
-------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-82.27%
AEROSPACE & DEFENSE-1.50%
Northrop Grumman Corp. 20,841 $ 1,252,753
-------------------------------------------------------------------------
APPAREL RETAIL-0.54%
TJX Cos., Inc. (The) 19,594 455,169
-------------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-1.36%
Bank of New York Co., Inc. (The) 35,868 1,142,396
-------------------------------------------------------------------------
BIOTECHNOLOGY-1.05%
Amgen Inc./(a)/ 11,173 881,103
-------------------------------------------------------------------------
BUILDING PRODUCTS-1.05%
Masco Corp. 29,073 877,714
-------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.90%
Cisco Systems, Inc./(a)/ 92,914 1,590,688
-------------------------------------------------------------------------
Lucent Technologies Inc.-Wts., expiring 12/10/07/(b)/ 2 1
-------------------------------------------------------------------------
1,590,689
-------------------------------------------------------------------------
COMPUTER HARDWARE-1.31%
International Business Machines Corp. 13,398 1,101,316
-------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-1.51%
Lexmark International, Inc.-Class A/(a)/ 28,207 1,264,520
-------------------------------------------------------------------------
DIVERSIFIED BANKS-1.04%
Bank of America Corp. 18,850 869,928
-------------------------------------------------------------------------
ELECTRIC UTILITIES-0.98%
FPL Group, Inc. 19,737 820,270
-------------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES-1.45%
Waste Management, Inc. 39,904 1,211,086
-------------------------------------------------------------------------
FOOD RETAIL-1.26%
Kroger Co. (The)/(a)/ 55,748 1,052,522
-------------------------------------------------------------------------
HOMEFURNISHING RETAIL-1.05%
Bed Bath & Beyond Inc./(a)/ 24,303 878,553
-------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.04%
General Electric Co. 32,622 1,143,401
-------------------------------------------------------------------------
Tyco International Ltd. 77,703 2,242,509
-------------------------------------------------------------------------
3,385,910
-------------------------------------------------------------------------
INDUSTRIAL MACHINERY-1.01%
Dover Corp. 20,854 844,378
-------------------------------------------------------------------------
INSURANCE BROKERS-1.02%
Marsh & McLennan Cos., Inc. 26,900 854,344
-------------------------------------------------------------------------
INTEGRATED OIL & GAS-3.78%
Exxon Mobil Corp. 36,225 2,034,758
-------------------------------------------------------------------------
Murphy Oil Corp. 20,899 1,128,337
-------------------------------------------------------------------------
3,163,095
-------------------------------------------------------------------------
SHARES VALUE
---------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-2.72%
AT&T Inc. 60,257 $ 1,475,694
---------------------------------------------------------------
Verizon Communications Inc. 26,621 801,825
---------------------------------------------------------------
2,277,519
---------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-2.80%
Merrill Lynch & Co., Inc. 17,318 1,172,948
---------------------------------------------------------------
Morgan Stanley 20,618 1,169,865
---------------------------------------------------------------
2,342,813
---------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.07%
Accenture Ltd.-Class A 31,153 899,387
---------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.92%
News Corp.-Class A 77,407 1,203,679
---------------------------------------------------------------
Walt Disney Co. (The) 17,000 407,490
---------------------------------------------------------------
1,611,169
---------------------------------------------------------------
MULTI-LINE INSURANCE-2.39%
American International Group, Inc. 16,592 1,132,072
---------------------------------------------------------------
Genworth Financial Inc.-Class A 25,200 871,416
---------------------------------------------------------------
2,003,488
---------------------------------------------------------------
OFFICE ELECTRONICS-2.29%
Xerox Corp./(a)/ 130,770 1,915,781
---------------------------------------------------------------
OIL & GAS DRILLING-1.14%
Nabors Industries Ltd./(a)(c)/ 12,600 954,450
---------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-4.94%
BJ Services Co./(c)/ 49,375 1,810,581
---------------------------------------------------------------
Schlumberger Ltd. 9,344 907,770
---------------------------------------------------------------
Smith International, Inc. 38,124 1,414,782
---------------------------------------------------------------
4,133,133
---------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.05%
Apache Corp. 12,899 883,839
---------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.33%
Citigroup Inc. 23,001 1,116,239
---------------------------------------------------------------
PACKAGED FOODS & MEATS-2.65%
Campbell Soup Co. 19,934 593,435
---------------------------------------------------------------
ConAgra Foods, Inc. 19,100 387,348
---------------------------------------------------------------
General Mills, Inc. 25,056 1,235,762
---------------------------------------------------------------
2,216,545
---------------------------------------------------------------
PERSONAL PRODUCTS-2.56%
Avon Products, Inc. 33,000 942,150
---------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 35,798 1,198,517
---------------------------------------------------------------
2,140,667
---------------------------------------------------------------
PHARMACEUTICALS-7.55%
Bristol-Myers Squibb Co. 56,132 1,289,913
---------------------------------------------------------------
Forest Laboratories, Inc./(a)/ 30,936 1,258,476
---------------------------------------------------------------
AIM V.I. CORE STOCK FUND
SHARES VALUE
-------------------------------------------------------------------------
PHARMACEUTICALS-(CONTINUED)
Merck & Co. Inc. 83,081 $ 2,642,807
-------------------------------------------------------------------------
Wyeth 24,649 1,135,579
-------------------------------------------------------------------------
6,326,775
-------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-8.28%
ACE Ltd. 23,539 1,257,924
-------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A/(a)/ 25 2,215,500
-------------------------------------------------------------------------
Chubb Corp. (The) 11,999 1,171,702
-------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 25,232 1,127,113
-------------------------------------------------------------------------
XL Capital Ltd.-Class A 17,230 1,160,957
-------------------------------------------------------------------------
6,933,196
-------------------------------------------------------------------------
PUBLISHING-1.26%
Gannett Co., Inc. 17,395 1,053,615
-------------------------------------------------------------------------
RAILROADS-1.34%
Union Pacific Corp. 13,896 1,118,767
-------------------------------------------------------------------------
REGIONAL BANKS-2.04%
Fifth Third Bancorp 21,400 807,208
-------------------------------------------------------------------------
North Fork Bancorp., Inc. 32,810 897,682
-------------------------------------------------------------------------
1,704,890
-------------------------------------------------------------------------
SEMICONDUCTORS-3.68%
Analog Devices, Inc. 31,915 1,144,791
-------------------------------------------------------------------------
Intel Corp. 46,063 1,149,732
-------------------------------------------------------------------------
Xilinx, Inc. 31,411 791,871
-------------------------------------------------------------------------
3,086,394
-------------------------------------------------------------------------
SOFT DRINKS-1.25%
Coca-Cola Co. (The) 25,965 1,046,649
-------------------------------------------------------------------------
SYSTEMS SOFTWARE-4.16%
Computer Associates International, Inc. 38,614 1,088,529
-------------------------------------------------------------------------
Microsoft Corp. 91,500 2,392,725
-------------------------------------------------------------------------
3,481,254
-------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $67,555,308) 68,892,316
-------------------------------------------------------------------------
FOREIGN STOCKS-15.70%
ARGENTINA-0.49%
Tenaris S.A.-ADR (Oil & Gas Equipment & Services) 3,575 409,338
-------------------------------------------------------------------------
FINLAND-1.51%
Nokia Oyj-ADR (Communications Equipment) 68,937 1,261,547
-------------------------------------------------------------------------
FRANCE-1.82%
TOTAL S.A. (Integrated Oil & Gas)/(d)/ 6,047 1,521,838
-------------------------------------------------------------------------
ISRAEL-1.47%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 28,689 1,233,914
-------------------------------------------------------------------------
JAPAN-0.54%
Nintendo Co., Ltd. (Home Entertainment Software)/(d)/ 3,700 $ 449,769
-------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------------------
NETHERLANDS-5.45%
Heineken N.V. (Brewers)/(d)/ 46,247 $ 1,465,720
--------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V. (Consumer
Electronics) 64,301 1,998,222
--------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)/(d)/ 16,057 1,099,618
--------------------------------------------------------------------------
4,563,560
--------------------------------------------------------------------------
SWITZERLAND-0.57%
UBS A.G. (Diversified Capital Markets) 5,000 476,027
--------------------------------------------------------------------------
UNITED KINGDOM-3.85%
Barclays PLC (Diversified Banks) 82,477 867,019
--------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods & Meats) 86,100 814,002
--------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 30,600 1,544,688
--------------------------------------------------------------------------
3,225,709
--------------------------------------------------------------------------
Total Foreign Stocks
(Cost $12,236,106) 13,141,702
--------------------------------------------------------------------------
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
-------------------------------------------------------------------
PUT OPTIONS
PURCHASED-0.00%
OIL & GAS
DRILLING-0.00%
Nabors Industries Ltd. 90 $60.0 Jan-06 99
-------------------------------------------------------------------
OIL & GAS
EQUIPMENT &
SERVICES-0.00%
BJ Services Co. 340 27.5 Jan-06 -
-------------------------------------------------------------------
Total Put Options
Purchased
(Cost $79,632) 99
-------------------------------------------------------------------
SHARES
MONEY MARKET FUNDS-2.25%
Premier Portfolio-Institutional Class
(Cost $1,880,961)/(e)/ 1,880,961 1,880,961
-------------------------------------------------------------------
TOTAL INVESTMENTS-100.22% (Cost $81,752,007) 83,915,078
-------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.22%) (179,809)
-------------------------------------------------------------------
NET ASSETS-100.00% $83,735,269
-------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
Wts.- Warrants
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Non-income producing security acquired through a corporate action.
/(c)/A portion of this security is subject to call options written. See Note 1I
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 aggregate value of these securities at December 31, 2005 was
$4,536,945, which represented 5.42% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of
the financial statements.
AIM V.I. CORE STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $79,871,046) $82,034,117
- -------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,880,961) 1,880,961
- -------------------------------------------------------------------------------------
Total investments (cost $81,752,007) 83,915,078
- -------------------------------------------------------------------------------------
Foreign currencies, at value (cost $1,218) 1,219
- -------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 37,150
- -------------------------------------------------------------------------------------
Dividends 113,505
- -------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 13,666
- -------------------------------------------------------------------------------------
Total assets 84,080,618
- -------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 64,983
- -------------------------------------------------------------------------------------
Options written, at market value (premiums received $46,631) 128,544
- -------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 17,928
- -------------------------------------------------------------------------------------
Accrued administrative services fees 82,789
- -------------------------------------------------------------------------------------
Accrued distribution fees-Series II 14
- -------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 107
- -------------------------------------------------------------------------------------
Accrued transfer agent fees 641
- -------------------------------------------------------------------------------------
Accrued operating expenses 50,343
- -------------------------------------------------------------------------------------
Total liabilities 345,349
- -------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $83,735,269
- -------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $84,072,520
- -------------------------------------------------------------------------------------
Undistributed net investment income 591,376
- -------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (3,009,743)
- -------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign currencies and
option contracts 2,081,116
- -------------------------------------------------------------------------------------
$83,735,269
- -------------------------------------------------------------------------------------
NET ASSETS:
Series I $83,724,187
- -------------------------------------------------------------------------------------
Series II $ 11,082
- -------------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,396,122
- -------------------------------------------------------------------------------------
Series II 583.6
- -------------------------------------------------------------------------------------
Series I:
Net asset value per share $ 19.05
- -------------------------------------------------------------------------------------
Series II:
Net asset value per share $ 18.99
- -------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,444) $ 1,347,123
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds 87,467
- ----------------------------------------------------------------------------------------
Total investment income 1,434,590
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 659,961
- ----------------------------------------------------------------------------------------
Administrative services fees 264,580
- ----------------------------------------------------------------------------------------
Custodian fees 1,474
- ----------------------------------------------------------------------------------------
Distribution fees-Series II 27
- ----------------------------------------------------------------------------------------
Transfer agent fees 7,556
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 17,624
- ----------------------------------------------------------------------------------------
Other 76,517
- ----------------------------------------------------------------------------------------
Total expenses 1,027,739
- ----------------------------------------------------------------------------------------
Less: Fees waived (142,926)
- ----------------------------------------------------------------------------------------
Net expenses 884,813
- ----------------------------------------------------------------------------------------
Net investment income 549,777
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from securities sold to affiliates
of $24,609) 7,170,533
- ----------------------------------------------------------------------------------------
Foreign currencies 47,034
- ----------------------------------------------------------------------------------------
7,217,567
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (5,169,502)
- ----------------------------------------------------------------------------------------
Foreign currencies (42)
- ----------------------------------------------------------------------------------------
Option contracts written (81,913)
- ----------------------------------------------------------------------------------------
(5,251,457)
- ----------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and option
contracts 1,966,110
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 2,515,887
- ----------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. CORE STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005 2004
------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 549,777 $ 360,597
------------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 7,217,567 5,342,026
------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies and option contracts (5,251,457) (2,081,386)
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 2,515,887 3,621,237
------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Series I (360,685) (822,681)
------------------------------------------------------------------------------
Series II (31) (92)
------------------------------------------------------------------------------
Decrease in net assets resulting from
distributions (360,716) (822,773)
------------------------------------------------------------------------------
Share transactions-net:
Series I (14,338,847) (16,092,813)
------------------------------------------------------------------------------
Series II 31 10,092
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (14,338,816) (16,082,721)
------------------------------------------------------------------------------
Net increase (decrease) in net assets (12,183,645) (13,284,257)
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 95,918,914 109,203,171
------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $591,376 and $355,507,
respectively) $ 83,735,269 $ 95,918,914
------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Core Stock 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-seven separate portfolios. The Fund currently offers two classes of
shares, Series I and Series II, both of which are offered to insurance company
separate accounts funding variable annuity contracts and variable life
insurance policies ("variable products"). Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. Current Securities and Exchange Commission ("SEC") guidance, however,
requires participating insurance companies offering separate accounts to vote
shares proportionally in accordance with the instructions of the contract
owners whose investments are funded by shares of each portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund.
The Fund's investment objective is to seek to provide a high total return
through both growth and current income.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
AIM V.I. CORE STOCK FUND
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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. CORE STOCK FUND
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
J. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
K. 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 replace 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 at the annual rate of 0.75% of the Fund's
average daily net assets.
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:
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%
-------------------------
Under the terms of a master sub-advisory agreement between AIM and INVESCO
Institutional (N.A.), Inc. ("INVESCO"), AIM paid INVESCO 40% of the amount paid
by the Fund to AIM. Effective June 1, 2005, the sub-advisory agreement between
AIM and INVESCO was terminated.
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. This agreement has been renewed through April 30, 2007. 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 numbers
reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $142,926.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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,
AIM V.I. CORE STOCK FUND
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 the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the year ended
December 31, 2005, AIM was paid $50,000 for accounting and fund administrative
services and reimbursed $214,580 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 year ended
December 31, 2005, the Fund paid AISI $7,556.
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 year ended
December 31, 2005, the Series II shares paid $27.
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 an
affiliated money market funds for the year ended December 31, 2005.
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------
Premier Portfolio $ -- $27,224,606 $(25,343,645) $ -- $1,880,961 $87,467 $ --
- ---------------------------------------------------------------------------------------------------
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended December 31,
2005, the Fund engaged in securities purchases of $195,346 and sales of
$247,325, which resulted in net realized gains of $24,609.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,234
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
AIM V.I. CORE STOCK FUND
NOTE 7--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of year -- $ --
---------------------------------------
Written 430 46,631
---------------------------------------
End of year 430 $46,631
---------------------------------------
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------
CHANGE IN
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE UNREALIZED
MONTH PRICE CONTRACTS RECEIVED 12/31/05 DEPRECIATION
- ------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 $35 340 $24,201 $ 71,502 $(47,301)
- ------------------------------------------------------------------------------------------
Nabors Industries, Ltd. Jan-06 70 90 22,430 57,042 (34,612)
- ------------------------------------------------------------------------------------------
Total outstanding options written 430 $46,631 $128,544 $(81,913)
- ------------------------------------------------------------------------------------------
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2005 and 2004 was as follows:
2005 2004
---------------------------------------------------------
Distributions paid from ordinary income $360,716 $822,773
---------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-------------------------------------------------
Undistributed ordinary income $ 611,024
-------------------------------------------------
Unrealized appreciation--investments 2,053,542
-------------------------------------------------
Temporary book/tax differences (12,939)
-------------------------------------------------
Capital loss carryforward (2,860,240)
-------------------------------------------------
Post-October capital loss deferral (121,928)
-------------------------------------------------
Post-October currency loss deferral (6,710)
-------------------------------------------------
Shares of beneficial interest 84,072,520
-------------------------------------------------
Total net assets $83,735,269
-------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation (depreciation) on foreign currencies of $(42) and
option contracts written of $(81,913).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $7,257,948 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $2,860,240
-------------------------------
* 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. CORE STOCK FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $101,355,658 and $116,621,009, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 4,570,766
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,435,269)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 2,135,497
-------------------------------------------------------------------------
Cost of investments for tax purposes is $81,779,581.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and return of capital on securities sold , on December 31, 2005,
undistributed net investment income (loss) was increased by $46,808,
undistributed net realized gain (loss) was decreased by $46,806 and shares of
beneficial interest decreased by $2. This reclassification had no effect on the
net assets of the Fund.
NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005/(A)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Sold:
Series I 326,318 $ 5,966,933 389,317 $ 6,962,451
- ----------------------------------------------------------------------------------------
Series II/(b)/ -- -- 577 10,000
- ----------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 18,737 360,685 44,638 822,681
- ----------------------------------------------------------------------------------------
Series II/(b)/ 2 31 5 92
- ----------------------------------------------------------------------------------------
Reacquired:
Series I (1,129,874) (20,666,465) (1,349,682) (23,877,945)
- ----------------------------------------------------------------------------------------
(784,817) $(14,338,816) (915,145) $(16,082,721)
- ----------------------------------------------------------------------------------------
/(a)/There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 85% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units 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 entities are also owned
beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
NOTE 12--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on December 7, 2005, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM V.I. Core Equity Fund ("Buying Fund"), a series of the Trust (the
"Reorganization"). Upon closing of the Reorganization, shareholders of the Fund
will receive a corresponding class of shares of Buying Fund in exchange for
their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around April 4, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
AIM V.I. CORE STOCK FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.51 $ 17.91 $ 14.77 $ 18.58 $ 20.71
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14 0.09/(a)/ 0.13 0.21 0.20
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.48 0.67 3.20 (3.76) (2.06)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.62 0.76 3.33 (3.55) (1.86)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08) (0.16) (0.19) (0.26) (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.08) (0.16) (0.19) (0.26) (0.27)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.05 $ 18.51 $ 17.91 $ 14.77 $ 18.58
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 3.35% 4.24% 22.60% (19.11)% (8.97)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $83,724 $95,908 $109,203 $95,531 $133,754
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.01%/(c)(d)/ 1.21% 1.10% 1.12% 1.09%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.62%/(c)/ 0.36%/(a)/ 0.82% 0.99% 1.27%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 118% 40% 93% 49% 29%
- --------------------------------------------------------------------------------------------------------------------------------
/(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 paid
by 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 $0.04 and 0.08%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $87,984,211.
/(d)/After fees waivers and/or reimbursements. Ratio of expenses to average net
assets prior to fee waivers and/or reimbursements was 1.17%.
SERIES II
-----------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED)
DECEMBER 31, TO DECEMBER 31,
2005 2004
------------ ---------------
Net asset value, beginning of period $18.48 $17.33
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.11/(a)/
- ------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.49 1.20
- ------------------------------------------------------------------------------------------------
Total from investment operations 0.56 1.31
- ------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.05) (0.16)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $18.99 $18.48
- ------------------------------------------------------------------------------------------------
Total return /(b)/ 3.05% 7.56%
- ------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 11
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.26%/(c)(d)/ 1.45%/(d)(e)/
- ------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.37%/(c)/ 0.12%/(a)(e)/
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate 118% 40%
- ------------------------------------------------------------------------------------------------
/(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 paid
by Microsoft Corp. on December 2, 2004. Net investment income per share
and the ratio of net investment income (loss) to average net assets
excluding the special dividend are $0.06 and (0.16)%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $10,610.
/(d)/After fee waivers and/or reimbursements. Ratio of expenses to average net
assets prior to fee waivers and/or reimbursements were 1.42% and 1.46% for
the years ended December 31, 2005 and 2004, respectively.
/(e)/Annualized.
AIM V.I. CORE STOCK FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
AIM V.I. CORE STOCK FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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 STOCK FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Core Stock Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Core Stock Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
As described in Note 12, the Board of Trustees has approved a plan of
reorganization under which the Fund will merge with AIM V.I. Core Equity Fund.
This merger is expected to take place following the approval by the Fund's
shareholders, at which time the Fund will cease to operate.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. CORE STOCK FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. CORE STOCK FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. CORE STOCK FUND
AIM V.I. DEMOGRAPHIC TRENDS FUND
Annual Report to Shareholders o December 31, 2005
EFFECTIVE JULY 1,2005,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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE boomers age and require greater health
care services
=======================================================================================
PERFORMANCE SUMMARY o information technology companies may
benefit because their products and
For the year ended December 31, 2005, AIM ========================================== services facilitate advances and enhance
V.I. Demographic Trends Fund delivered FUND VS. INDEXES productivity throughout the economy
positive returns that exceeded those of
its broad market and style-specific TOTAL RETURNS, 12/31/04-12/31/05, Quantitative analysis focuses on the
indexes. Fund performance relative to the EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. level, growth rate and sustainability of
broad market was helped by strong stock IF VARIABLE PRODUCT ISSUER CHARGES WERE earnings, revenue and cash flow, ranking
selection. In each of the four sectors in INCLUDED, RETURNS WOULD BE LOWER. investment candidates on absolute and
which the Fund invests the bulk of its relative attractiveness. Fundamental
assets, Fund holdings outperformed those Series I Shares 6.21% analysis seeks to define a company's key
of the S&P 500 Index. drivers of success and to assess their
Series II Shares 6.07 durability. We review financial statements
The Fund outperformed its and earnings reports; the company's
style-specific index largely on the basis Standard & Poor's Composite Index structure, business model and management
of its financials holdings. Returns for of 500 Stocks (S&P 500 Index) team; the competitive environment and
the Fund's financials sector holdings (Broad Market Index) 4.91 market opportunities.
averaged more than three times higher than
those in the Russell 3000 Growth Index. Russell 3000 Growth Index We may reduce or eliminate exposure to
The Fund's consumer discretionary, health (Style-specific Index) 5.17 a stock if we see:
care and information technology (IT)
holdings also, on average, out- Lipper Multi-Cap Growth Fund Index o a deterioration in business prospects
performed those of our style-specific (Peer Group Index) 9.13
index. o a worsening competitive position
SOURCE: LIPPER, INC.
========================================== o slowing earnings growth
Your Fund's long-term performance o overvaluation of the stock
appears on Pages 4 and 5.
=======================================================================================
MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST believe these trends will affect the
following four market sectors in which we Despite widespread concern about the
We believe changing demographics creates invest the bulk of Fund assets: potential impact of rising short-term
investment opportunities. Our investment interest rates and historically high
process combines quantitative and o consumer discretionary businesses may energy prices, the U.S. economy showed
fundamental analysis to uncover companies benefit from the growth of disposable signs of strength for the year. Economic
exhibiting long-term, sustainable earnings income as baby boomers pay off obligations activity expanded, inflation remained
and cash flow growth that is not yet such as children's college tuition and contained and corporate profits generally
reflected in investor expectations or home mortgages rose. Late in the year, some worried that
equity valuations. higher energy prices and rising interest
o financial firms may benefit as baby rates might crimp consumer spending, which
The Fund focuses on companies likely to boomers accumulate assets for their accounts for approximately two-thirds of
benefit from certain demographic trends. retirement the U.S. economy. Initial data suggested
We that holiday sales were solid.
o health care businesses may benefit as
baby
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Semiconductors 8.3% 1. Aetna Inc. 3.2%
Information Technology 27.2% 2. Pharmaceuticals 8.1 2. Goldman Sachs Group, Inc. (The) 2.7
Health Care 23.0 3. Managed Health Care 5.8 3. Analog Devices, Inc. 2.6
Consumer Discretionary 13.7 4. Investment Banking & Brokerage 5.3 4. Yahoo! Inc. 2.6
Financials 12.8 5. Internet Software & Services 4.7 5. QUALCOMM Inc. 2.5
Industrials 11.1 6. Biotechnology 4.6 6. Johnson & Johnson 2.4
Energy 4.5 7. Communications Equipment 4.3 7. Amgen Inc. 2.1
Materials 4.1 8. Aerospace & Defense 3.8 8. Google Inc.-Class A 2.1
Consumer Staples 2.4 9. Computer Hardware 2.8 9. Apple Computer, Inc. 2.0
Money Market Funds 10. Department Stores 2.6 10. BJ Services Co. 2.0
Plus Other Assets Less Liabilities 1.2
The Fund's holdings are subject to change, and there is no assurance that the Fund TOTAL NET ASSETS $67.8 MILLION
will continue to hold any particular security. TOTAL NUMBER OF HOLDINGS* 83
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
2
AIM V.I. DEMOGRAPHIC TRENDS FUND
Because your Fund invests primarily in ues to benefit from the phenomenal success THE VIEWS AND OPINIONS EXPRESSED IN
four economic sectors, its performance is of its iPod music player. In recent MANAGEMENT'S DISCUSSION OF FUND
dependent on the performance of those quarters, we've seen evidence that PERFORMANCE ARE THOSE OF A I M ADVISORS,
sectors. For the year covered by this consumers are buying more INC. THESE VIEWS AND OPINIONS ARE SUBJECT
report, the financials, health care and IT Macintosh--Registered Trademark-- TO CHANGE AT ANY TIME BASED ON FACTORS
sectors showed positive returns, while the computers to go with their new iPods. We SUCH AS MARKET AND ECONOMIC CONDITIONS.
consumer discretionary sector declined. believe Apple's earnings estimates are THESE VIEWS AND OPINIONS MAY NOT BE RELIED
The Fund's performance relative to its still conservative, and the stock remained UPON AS INVESTMENT ADVICE OR
indexes was hindered by its smaller a top Fund holding at the close of the RECOMMENDATIONS, OR AS AN OFFER FOR A
exposure to the energy and utilities year. PARTICULAR SECURITY. THE INFORMATION IS
sectors, which led the market for 2005. NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
Security software manufacturer SYMANTEC ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
The Fund's financials stocks performed detracted from Fund performance. Best THE FUND. STATEMENTS OF FACT ARE FROM
especially well. Fund holdings GOLDMAN known for its Norton anti-virus software, SOURCES CONSIDERED RELIABLE, BUT A I M
SACHS and LEHMAN BROTHERS benefited from Symantec acquired VERITAS Software in a ADVISORS, INC. MAKES NO REPRESENTATION OR
increased merger and acquisition activity, controversial move. Many investors feared WARRANTY AS TO THEIR COMPLETENESS OR
a trend that helped many other major the acquisition could distract management. ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
investment banking and brokerage stocks. We shared those concerns and reduced, but IS NO GUARANTEE OF FUTURE RESULTS, THESE
An unprecedented hurricane season did not eliminate, our stake during the INSIGHTS MAY HELP YOU UNDERSTAND OUR
initially was negative for many property year. INVESTMENT MANAGEMENT PHILOSOPHY.
and casualty stocks such as HARTFORD
FINANCIAL SERVICES, but investors quickly We added to the Fund's consumer LANNY H. SACHNOWITZ,
embraced such stocks as the likelihood of discretionary holdings targeting retailers [SACHNOWITZ senior portfolio
higher insurance premiums resulting in that cater to higher-end PHOTO] manager, is lead
improved revenues increased. consumers--consumers less likely to be portfolio manager of
affected by higher energy costs. NORDSTROM AIM V.I. Demographic
In the health care sector, our research and FEDERATED DEPARTMENT STORES were among Trends Fund. He joined AIM in 1987 as a
led us to managed health care stocks. Many the stocks that we added to the Fund, and money market trader and research analyst.
managed health care companies reported we did so at what we believe were very In 1990, Mr. Sachnowitz's trading
strong earnings in recent quarters by reasonable prices. responsibilities were expanded to include
aggressively controlling costs. This was a head of equity trading. He was named a
function of lower hospital utilization One consumer discretionary stock that portfolio manager in 1991. Mr. Sachnowitz
rates and plan participants switching from hindered Fund performance was online received a B.S. in finance from the
name-brand to generic drugs. AETNA and auction company EBAY. In September, the University of Southern California and an
WELLPOINT were among the managed health company proposed acquiring an Internet M.B.A. from the University of Houston.
care companies that aided Fund phone company. Like many other investors,
performance. we questioned the strategic value of the KIRK L. ANDERSON,
proposed acquisition, which hurt eBay's [ANDERSON portfolio manager, is
We generally avoided stocks of a number short-term performance. But we held the PHOTO] a portfolio manager of
of U.S. pharmaceutical companies due to stock at the close of the year because we AIM V.I. Demographic
their weak product pipelines, patent believed the company's core business Trends Fund. He joined
expiration and litigation risk. We remains strong, it continues to generate AIM in 1994 and assumed his current
increased our ownership of non-U.S. significant cash flow, and it continues to position in 2003. Mr. Anderson earned a
pharmaceutical stocks, including two Swiss grow faster than most companies. B.A. in political science from Texas A&M
stocks: University and M.S. in finance from the
IN CLOSING University of Houston.
o NOVARTIS, which boasts a promising
product pipeline, including some exciting We were pleased that the Fund provided JAMES G. BIRDSALL,
new cancer treatments. positive returns that exceeded its broad [BIRDSALL portfolio manager, is
market and style-specific indexes. We were PHOTO] a portfolio manager of
o ALCON, which manufactures and markets particularly pleased that stocks from all AIM V.I. Demographic
drugs, surgical equipment and consumer four sectors in which we invest the bulk Trends Fund. He has
products to treat diseases and disorders of our assets contributed positively to been associated with AIM Investments since
of the eyes. In October, the company Fund performance in a challenging market. 1997 and was named a portfolio manager in
reported exceptionally strong At the close of the year, we remained 1999. Mr. Birdsall received his B.B.A.
third-quarter revenue and earnings growth. optimistic that long-term demographic with a concentration in finance from
trends were likely to continue to create Stephen F. Austin State University before
Our bottom-up research helped us exciting investment opportunities for earning his M.B.A. with a concentration in
identify attractive investment long-term investors. We thank you for your finance and international business from
opportunities in the IT sector. IT stocks continued investment in AIM V.I. the University of St. Thomas.
helping your Fund's performance included Demographic Trends Fund.
Internet search engine GOOGLE and APPLE Assisted by the Large Cap Growth Team
COMPUTER. As more people worldwide go
online, Google offers advertisers a [RIGHT ARROW GRAPHIC]
cost-effective way to reach consumers.
Apple contin- FOR A DISCUSSION OF THE RISKS OF INVESTING
IN YOUR FUND, INDEXES USED IN THIS REPORT
AND YOUR FUND'S LONG-TERM PERFORMANCE,
PLEASE TURN TO PAGES 4 AND 5.
3
AIM V.I. DEMOGRAPHIC TRENDS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 12/29/99, index data from 12/31/99
[MOUNTAIN CHART]
AIM V.I. DEMOGRAPHIC RUSSELL 3000 LIPPER MULTI-CAP
TRENDS FUND- S&P 500 GROWTH GROWTH FUND
DATE SERIES I SHARES INDEX INDEX INDEX
12/29/99 10000
01/00 9800 9498 9558 9899
02/00 11120 9318 10155 11481
03/00 11110 10229 10729 11436
04/00 10210 9921 10178 10477
05/00 9400 9718 9639 9771
06/00 10410 9957 10404 10740
07/00 10340 9802 9938 10402
08/00 11451 10410 10848 11529
09/00 10771 9861 9854 10829
10/00 9900 9819 9365 10200
11/00 8040 9045 7963 8529
12/00 8211 9090 7758 8795
01/01 8491 9412 8301 8973
02/01 6571 8554 6911 7660
03/01 5621 8013 6168 6839
04/01 6441 8635 6946 7673
05/01 6381 8693 6863 7632
06/01 6441 8481 6731 7496
07/01 6051 8398 6534 7092
08/01 5461 7873 6008 6479
09/01 4520 7237 5384 5517
10/01 4891 7375 5681 5912
11/01 5561 7941 6222 6481
12/01 5591 8010 6236 6582
01/02 5480 7893 6118 6396
02/02 5090 7741 5854 5999
03/02 5460 8032 6077 6357
04/02 5080 7546 5606 5971
05/02 4920 7490 5457 5797
06/02 4470 6957 4955 5257
07/02 4010 6415 4649 4763
08/02 3970 6457 4662 4727
09/02 3590 5756 4187 4360
10/02 3880 6262 4560 4693
11/02 4160 6630 4820 4987
12/02 3790 6241 4488 4619
01/03 3781 6077 4378 4543
02/03 3751 5986 4352 4512
03/03 3811 6044 4432 4583
04/03 4131 6542 4765 4918
05/03 4461 6886 5022 5280
06/03 4551 6974 5093 5341
07/03 4701 7097 5237 5507
08/03 4831 7235 5379 5727
09/03 4691 7159 5315 5616
10/03 5071 7563 5626 6014
11/03 5161 7630 5694 6124
12/03 5212 8030 5877 6253
01/04 5392 8177 6012 6409
02/04 5462 8291 6046 6494
03/04 5372 8166 5945 6474
04/04 5152 8038 5858 6257
05/04 5301 8148 5967 6405
06/04 5402 8306 6051 6542
07/04 4961 8031 5693 6080
08/04 4851 8063 5657 5995
09/04 5011 8151 5731 6226
10/04 5141 8275 5825 6360
11/04 5381 8610 6049 6702
12/04 5641 8903 6285 6958
01/05 5471 8686 6069 6707
02/05 5481 8868 6135 6782
03/05 5411 8712 6013 6639
04/05 5231 8546 5875 6395
05/05 5571 8818 6170 6789
06/05 5631 8831 6166 6825
07/05 5821 9159 6479 7229
08/05 5671 9076 6395 7194
09/05 5811 9149 6426 7310
10/05 5761 8996 6348 7177
11/05 6001 9336 6629 7561
12/05 5990 9340 6609 7593
SOURCE: LIPPER, INC.
Past performance cannot guarantee ==========================================
comparable future results. AIM V.I. Demographic Trends Fund invests
the bulk of its assets in stocks from four
This chart, which is a logarithmic market sectors--financials, health care,
chart, presents the fluctuations in the information technology and consumer
value of the Fund and its indexes. We discretionary--that may benefit from
believe that a logarithmic chart is more long-term demographic trends. The table
effective than other types of charts in below illustrates the one-year performance
illustrating changes in value during the of those four market sectors for the year
early years shown in the chart. The ended December 31, 2005. The S&P 500
vertical axis, the one that indicates the Index, representing the broad market,
dollar value of an investment, is returned 4.91% for the year.
constructed with each segment representing
a percent change in the value of the
investment. In this chart, each segment CUMULATIVE TOTAL RETURNS,
represents a doubling, or 100% change, in SELECTED S&P 500 INDEX SECTORS
the value of the investment. In other
words, the space between $3,000 and $6,000 12/31/04-12/31/05
is the same size as the space between
$6,000 and $12,000, and so on. Financials 6.47%
Health Care 6.46
Information Technology 0.99
Consumer Discretionary -6.36
SOURCE: LIPPER,INC.
==========================================
4
AIM V.I. DEMOGRAPHIC TRENDS FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES. THE INCEPTION DATE OF SERIES I THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 SHARES IS DECEMBER 29, 1999. SERIES I AND VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SERIES II SHARES INVEST IN THE SAME SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES PORTFOLIO OF SECURITIES AND WILL HAVE FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (12/29/99) -8.18% SUBSTANTIALLY SIMILAR PERFORMANCE, EXCEPT NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years -6.11 TO THE EXTENT THAT EXPENSES BORNE BY EACH PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 6.21 CLASS DIFFER. CHARGES, EXPENSES AND FEES ASSESSED IN
CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES II SHARES THE PERFORMANCE DATA QUOTED REPRESENT CHARGES, EXPENSES AND FEES, WHICH ARE
Inception -8.38% PAST PERFORMANCE AND CANNOT GUARANTEE DETERMINED BY THE VARIABLE PRODUCT
5 Years -6.31 COMPARABLE FUTURE RESULTS; CURRENT ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 6.07 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE TOTAL RETURN.
CONTACT YOUR VARIABLE PRODUCT ISSUER OR
========================================== FINANCIAL ADVISOR FOR THE MOST RECENT PER NASD REQUIREMENTS, THE MOST RECENT
CUMULATIVE TOTAL RETURNS MONTH-END VARIABLE PRODUCT PERFORMANCE. MONTH-END PERFORMANCE DATA AT THE FUND
PERFORMANCE FIGURES REFLECT FUND EXPENSES, LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
Six months ended 12/31/05 REINVESTED DISTRIBUTIONS AND CHANGES IN IS AVAILABLE ON AIM'S AUTOMATED
Series I Shares 6.39% NET ASSET VALUE. INVESTMENT RETURN AND INFORMATION LINE, 866-702-4402. AS
Series II Shares 6.45 PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MENTIONED ABOVE, FOR THE MOST RECENT
MAY HAVE A GAIN OR LOSS WHEN YOU SELL MONTH-END PERFORMANCE INCLUDING VARIABLE
========================================== SHARES. PRODUCT CHARGES, PLEASE CONTACT YOUR
VARIABLE PRODUCT ISSUER OR FINANCIAL
RETURNS SINCE NOVEMBER 7, 2001, THE AIM V.I. DEMOGRAPHIC TRENDS FUND, A ADVISOR.
INCEPTION DATE OF SERIES II SHARES, ARE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
HISTORICAL. ALL OTHER RETURNS ARE THE FUNDS, IS CURRENTLY OFFERED
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF 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
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in smaller companies involves
greater risk than investing in more
established companies, such as business
risk, significant stock price fluctuations The unmanaged RUSSELL 3000--Registered OTHER INFORMATION
and illiquidity. Trademark-- GROWTH INDEX is a subset of
the RUSSELL 3000--Registered Trademark-- The returns shown in the management's
The Fund may invest up to 25% of its INDEX, an index of common stocks that discussion of Fund performance are based
assets in the securities of non-U.S. measures performance of the largest 3,000 on net asset values calculated for
issuers. International investing presents U.S. companies based on market shareholder transactions. Generally
certain risks not associated with capitalization; the Growth subset measures accepted accounting principles require
investing solely in the United States. the performance of Russell 3000 companies adjustments to be made to the net assets
These include risks relating to with higher price/book ratios and higher of the Fund at period end for financial
fluctuations in the value of the U.S. forecasted growth values. reporting purposes, and as such, the net
dollar relative to the values of other asset values for shareholder transactions
currencies, the custody arrangements made The unmanaged Standard & Poor's and the returns based on those net asset
for the Fund's foreign holdings, Composite Index of 500 Stocks (the S&P 500 values may differ from the net asset
differences in accounting, political risks --Registered Trademark-- INDEX) is an values and returns reported in the
and the lesser degree of public index of common stocks frequently used as Financial Highlights. Additionally, the
information required to be provided by a general measure of U.S. stock market returns and net asset values shown
non-U.S. companies. performance. throughout this report are at the Fund
level only and do not include variable
ABOUT INDEXES USED IN THIS REPORT The Fund is not managed to track the product issuer charges. If such charges
performance of any particular index, were included, the total returns would be
The unmanaged LIPPER MULTI-CAP GROWTH FUND including the indexes defined here, and lower.
INDEX represents an average of the consequently, the performance of the Fund
performance of the 30 largest may deviate significantly from the Industry classifications used in this
multi-capitalization growth funds tracked performance of the indexes. report are generally according to the
by Lipper, Inc., an independent mutual Global Industry Classification Standard,
fund performance monitor. A direct investment cannot be made in which was developed by and is the
an index. Unless otherwise indicated, exclusive property and a service mark of
index results include reinvested Morgan Stanley Capital International Inc.
dividends, and they do not reflect sales and Standard & Poor's.
charges. Performance of an index of funds
reflects fund expenses; performance of a
market index does not.
5
AIM V.I. DEMOGRAPHIC TRENDS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not
the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual cumulative total returns at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service fees (12b-1); You may use the information in this table, months ended December 31, 2005, appear in
and other Fund expenses. This example is together with the amount you invested, to the table "Cumulative Total Returns" on
intended to help you understand your estimate the expenses that you paid over Page 5.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 THE HYPOTHETICAL ACCOUNT VALUES AND
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), EXPENSES MAY NOT BE USED TO ESTIMATE THE
funds. The example is based on an then multiply the result by the number in ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
investment of $1,000 invested at the the table under the heading entitled YOU PAID FOR THE PERIOD. YOU MAY USE THIS
beginning of the period and held for the "Actual Expenses Paid During Period" to INFORMATION TO COMPARE THE ONGOING COSTS
entire period July 1, 2005, through estimate the expenses you paid on your OF INVESTING IN THE FUND AND OTHER FUNDS.
December 31, 2005. The actual and account during this period. TO DO SO, COMPARE THIS 5% HYPOTHETICAL
hypothetical expenses in the examples EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
below do not represent the effect of any HYPOTHETICAL EXAMPLE FOR THAT APPEAR IN THE SHAREHOLDER REPORTS OF
fees or other expenses assessed in COMPARISON PURPOSES THE OTHER FUNDS.
connection with a variable product; if
they did, the expenses shown would be The table below also provides information Please note that the expenses shown in
higher while the ending account values about hypothetical account values and the table are meant to highlight your
shown would be lower. hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of costs, and will not help you determine the
relative total costs of owning different
funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,063.90 $ 5.25 $ 1,020.11 $ 5.14 1.01%
Series II 1,000.00 1,064.50 6.56 1,018.85 6.41 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. DEMOGRAPHIC TRENDS FUND
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 AIM
Insurance Funds (the "Board") oversees the by AIM. The Board reviewed the credentials with comparable investment strategies. The
management of AIM V.I. Demographic Trends and experience of the officers and Board reviewed the advisory fee rate for
Fund (formerly known as "AIM V.I. Dent employees of AIM who will provide the Fund under the Advisory Agreement. The
Demographic Trends Fund") (the "Fund") investment advisory services to the Fund. Board noted that this rate (i) was the
and, as required by law, determines In reviewing the qualifications of AIM to same as the advisory fee rates for a
annually whether to approve the provide investment advisory services, the mutual fund advised by AIM with investment
continuance of the Fund's advisory Board reviewed the qualifications of AIM's strategies comparable to those of the
agreement with A I M Advisors, Inc. investment personnel and considered such Fund; and (ii) was higher than the
("AIM"). Based upon the recommendation of issues as AIM's portfolio and product sub-advisory fee rates for an unaffiliated
the Investments Committee of the Board, review process, various back office mutual fund for which an AIM affiliate
which is comprised solely of independent support functions provided by AIM and serves as sub-advisor, although the total
trustees, at a meeting held on June 30, AIM's equity and fixed income trading management fees paid by such unaffiliated
2005, the Board, including all of the operations. Based on the review of these mutual fund were the same as the advisory
independent trustees, approved the and other factors, the Board concluded fee rate for the Fund. The Board noted
continuance of the advisory agreement (the that the quality of services to be that AIM has agreed to waive advisory fees
"Advisory Agreement") between the Fund and provided by AIM was appropriate and that of the Fund and to limit the Fund's total
AIM for another year, effective July 1, AIM currently is providing satisfactory operating expenses, as discussed below.
2005. services in accordance with the terms of Based on this review, the Board concluded
the Advisory Agreement. that the advisory fee rate for the Fund
The Board considered the factors under the Advisory Agreement was fair and
discussed below in evaluating the fairness o The performance of the Fund relative to reasonable.
and reasonableness of the Advisory comparable funds. The Board reviewed the
Agreement at the meeting on June 30, 2005 performance of the Fund during the past o Fees relative to those of comparable
and as part of the Board's ongoing one, three and five calendar years against funds with other advisors. The Board
oversight of the Fund. In their the performance of funds advised by other reviewed the advisory fee rate for the
deliberations, the Board and the advisors with investment strategies Fund under the Advisory Agreement. The
independent trustees did not identify any comparable to those of the Fund. The Board Board compared effective contractual
particular factor that was controlling, noted that the Fund's performance in such advisory fee rates at a common asset level
and each trustee attributed different periods was below the median performance and noted that the Fund's rate was above
weights to the various factors. of such comparable funds. The Board noted the median rate of the funds advised by
that AIM has acknowledged that the Fund other advisors with investment strategies
One of the responsibilities of the continues to require a long-term solution comparable to those of the Fund that the
Senior Officer of the Fund, who is to its under-performance, and that Board reviewed. The Board noted that AIM
independent of AIM and AIM's affiliates, management is continuing to closely has agreed to waive advisory fees of the
is to manage the process by which the monitor the performance of the Fund and Fund and to limit the Fund's total
Fund's proposed management fees are analyze various possible long-term operating expenses, as discussed below.
negotiated to ensure that they are solutions. Based on this review, the Board Based on this review, the Board concluded
negotiated in a manner which is at arm's concluded that no changes should be made that the advisory fee rate for the Fund
length and reasonable. To that end, the to the Fund and that it was not necessary under the Advisory Agreement was fair and
Senior Officer must either supervise a to change the Fund's portfolio management reasonable.
competitive bidding process or prepare an team at this time.
independent written evaluation. The Senior o Expense limitations and fee waivers. The
Officer has recommended an independent o The performance of the Fund relative to Board noted that AIM has contractually
written evaluation in lieu of a indices. The Board reviewed the agreed to waive advisory fees of the Fund
competitive bidding process and, upon the performance of the Fund during the past through December 31, 2009 to the extent
direction of the Board, has prepared such one, three and five calendar years against necessary so that the advisory fees
an independent written evaluation. Such the performance of the Lipper Multi Cap payable by the Fund do not exceed a
written evaluation also considered certain Growth Index. The Board noted that the specified maximum advisory fee rate, which
of the factors discussed below. In Fund's performance in such periods was maximum rate includes breakpoints and is
addition, as discussed below, the Senior below the performance of such Index. The based on net asset levels. The Board
Officer made certain recommendations to Board noted that AIM has acknowledged that considered the contractual nature of this
the Board in connection with such written the Fund continues to require a long-term fee waiver and noted that it remains in
evaluation. solution to its under-performance, and effect until December 31, 2009. The Board
that management is continuing to closely noted that AIM has contractually agreed to
The discussion below serves as a monitor the performance of the Fund and waive fees and/or limit expenses of the
summary of the Senior Officer's analyze various possible long-term Fund through June 30, 2006 in an amount
independent written evaluation and solutions. Based on this review, the Board necessary to limit total annual operating
recommendations to the Board in connection concluded that no changes should be made expenses to a specified percentage of
therewith, as well as a discussion of the to the Fund and that it was not necessary average daily net assets for each class of
material factors and the conclusions with to change the Fund's portfolio management the Fund. The Board considered the
respect thereto that formed the basis for team at this time. contractual nature of this fee
the Board's approval of the Advisory waiver/expense limitation and noted that
Agreement. After consideration of all of o Meeting with the Fund's portfolio it remains in effect until June 30, 2006.
the factors below and based on its managers and investment personnel. With The Board considered the effect these fee
informed business judgment, the Board respect to the Fund, the Board is meeting waivers/expense limitations would have on
determined that the Advisory Agreement is periodically with such Fund's portfolio the Fund's estimated expenses and
in the best interests of the Fund and its managers and/or other investment personnel concluded that the levels of fee
shareholders and that the compensation to and believes that such individuals are waivers/expense limitations for the Fund
AIM under the Advisory Agreement is fair competent and able to continue to carry were fair and reasonable.
and reasonable and would have been out their responsibilities under the
obtained through arm's length Advisory Agreement. o Breakpoints and economies of scale. The
negotiations. Board reviewed the structure of the Fund's
o Overall performance of AIM. The Board advisory fee under the Advisory Agreement,
o The nature and extent of the advisory considered the overall performance of AIM noting that it includes one breakpoint.
services to be provided by AIM. The Board in providing investment advisory and The Board reviewed the level of the Fund's
reviewed the services to be provided by portfolio administrative services to the advisory fees, and noted that such fees,
AIM under the Advisory Agreement. Based on Fund and concluded that such performance as a percentage of the Fund's net assets,
such review, the Board concluded that the was satisfactory. would decrease as net assets increase
range of services to be provided by AIM because the Advisory Agreement
under the Advisory Agreement was
appropriate and that AIM currently is
providing services in accordance with the (continued)
terms of the Advisory Agreement.
7
AIM V.I. DEMOGRAPHIC TRENDS FUND
includes a breakpoint. The Board noted o Profitability of AIM and its affiliates. o Other factors and current trends. In
that, due to the Fund's current asset The Board reviewed information concerning determining whether to continue the
levels and the way in which the advisory the profitability of AIM's (and its Advisory Agreement for the Fund, the Board
fee breakpoints have been structured, the affiliates') investment advisory and other considered the fact that AIM, along with
Fund has yet to benefit from the activities and its financial condition. others in the mutual fund industry, is
breakpoint. The Board noted that AIM has The Board considered the overall subject to regulatory inquiries and
contractually agreed to waive advisory profitability of AIM, as well as the litigation related to a wide range of
fees of the Fund through December 31, 2009 profitability of AIM in connection with issues. The Board also considered the
to the extent necessary so that the managing the Fund. The Board noted that governance and compliance reforms being
advisory fees payable by the Fund do not AIM's operations remain profitable, undertaken by AIM and its affiliates,
exceed a specified maximum advisory fee although increased expenses in recent including maintaining an internal controls
rate, which maximum rate includes years have reduced AIM's profitability. committee and retaining an independent
breakpoints and is based on net asset Based on the review of the profitability compliance consultant, and the fact that
levels. The Board concluded that the of AIM's and its affiliates' investment AIM has undertaken to cause the Fund to
Fund's fee levels under the Advisory advisory and other activities and its operate in accordance with certain
Agreement therefore would reflect financial condition, the Board concluded governance policies and practices. The
economies of scale at higher asset levels that the compensation to be paid by the Board concluded that these actions
and that it was not necessary to change Fund to AIM under its Advisory Agreement indicated a good faith effort on the part
the advisory fee breakpoints in the Fund's was not excessive. of AIM to adhere to the highest ethical
advisory fee schedule. standards, and determined that the current
o Benefits of soft dollars to AIM. The regulatory and litigation environment to
o Investments in affiliated money market Board considered the benefits realized by which AIM is subject should not prevent
funds. The Board also took into account AIM as a result of brokerage transactions the Board from continuing the Advisory
the fact that uninvested cash and cash executed through "soft dollar" Agreement for the Fund.
collateral from securities lending arrangements. Under these arrangements,
arrangements (collectively, "cash brokerage commissions paid by the Fund
balances") of the Fund may be invested in and/or other funds advised by AIM are used
money market funds advised by AIM pursuant to pay for research and execution
to the terms of an SEC exemptive order. services. This research is used by AIM in
The Board found that the Fund may realize making investment decisions for the Fund.
certain benefits upon investing cash The Board concluded that such arrangements
balances in AIM advised money market were appropriate.
funds, including a higher net return,
increased liquidity, increased o AIM's financial soundness in light of
diversification or decreased transaction the Fund's needs. The Board considered
costs. The Board also found that the Fund whether AIM is financially sound and has
will not receive reduced services if it the resources necessary to perform its
invests its cash balances in such money obligations under the Advisory Agreement,
market funds. The Board noted that, to the and concluded that AIM has the financial
extent the Fund invests in affiliated resources necessary to fulfill its
money market funds, AIM has voluntarily obligations under the Advisory Agreement.
agreed to waive a portion of the advisory
fees it receives from the Fund o Historical relationship between the Fund
attributable to such investment. The Board and AIM. In determining whether to
further determined that the proposed continue the Advisory Agreement for the
securities lending program and related Fund, the Board also considered the prior
procedures with respect to the lending relationship between AIM and the Fund, as
Fund is in the best interests of the well as the Board's knowledge of AIM's
lending Fund and its respective operations, and concluded that it was
shareholders. The Board therefore beneficial to maintain the current
concluded that the investment of cash relationship, in part, because of such
collateral received in connection with the knowledge. The Board also reviewed the
securities lending program in the money general nature of the non-investment
market funds according to the procedures advisory services currently performed by
is in the best interests of the lending AIM and its affiliates, such as
Fund and its respective shareholders. administrative, transfer agency and
distribution services, and the fees
o Independent written evaluation and received by AIM and its affiliates for
recommendations of the Fund's Senior performing such services. In addition to
Officer. The Board noted that, upon their reviewing such services, the trustees also
direction, the Senior Officer of the Fund, considered the organizational structure
who is independent of AIM and AIM's employed by AIM and its affiliates to
affiliates, had prepared an independent provide those services. Based on the
written evaluation in order to assist the review of these and other factors, the
Board in determining the reasonableness of Board concluded that AIM and its
the proposed management fees of the AIM affiliates were qualified to continue to
Funds, including the Fund. The Board noted provide non-investment advisory services
that the Senior Officer's written to the Fund, including administrative,
evaluation had been relied upon by the transfer agency and distribution services,
Board in this regard in lieu of a and that AIM and its affiliates currently
competitive bidding process. In are providing satisfactory non-investment
determining whether to continue the advisory services.
Advisory Agreement for the Fund, the Board
considered the Senior Officer's written
evaluation and the recommendation made by
the Senior Officer to the Board that the
Board consider implementing a process to
assist them in more closely monitoring the
performance of the AIM Funds. The Board
concluded that it would be advisable to
implement such a process as soon as
reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
DOMESTIC COMMON STOCKS-86.11%
AEROSPACE & DEFENSE-3.79%
Boeing Co. (The) 16,547 $ 1,162,261
- --------------------------------------------------------------------
General Dynamics Corp. 5,986 682,703
- --------------------------------------------------------------------
Precision Castparts Corp. 14,000 725,340
====================================================================
2,570,304
====================================================================
APPAREL RETAIL-1.00%
Chico's FAS, Inc.(a) 15,500 680,915
====================================================================
APPLICATION SOFTWARE-1.94%
Amdocs Ltd.(a) 47,879 1,316,672
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.06%
Legg Mason, Inc. 6,000 718,140
====================================================================
BIOTECHNOLOGY-4.59%
Amgen Inc.(a) 18,000 1,419,480
- --------------------------------------------------------------------
Genzyme Corp.(a) 9,000 637,020
- --------------------------------------------------------------------
Gilead Sciences, Inc.(a) 20,000 1,052,600
====================================================================
3,109,100
====================================================================
COMMUNICATIONS EQUIPMENT-3.55%
Cisco Systems, Inc.(a) 39,911 683,276
- --------------------------------------------------------------------
QUALCOMM Inc. 40,000 1,723,200
====================================================================
2,406,476
====================================================================
COMPUTER & ELECTRONICS RETAIL-0.51%
Best Buy Co., Inc. 8,000 347,840
====================================================================
COMPUTER HARDWARE-2.81%
Apple Computer, Inc.(a) 19,000 1,365,910
- --------------------------------------------------------------------
Dell Inc.(a) 18,000 539,820
====================================================================
1,905,730
====================================================================
COMPUTER STORAGE & PERIPHERALS-1.80%
EMC Corp.(a) 89,782 1,222,831
====================================================================
CONSUMER FINANCE-0.49%
American Express Co. 6,500 334,490
====================================================================
DEPARTMENT STORES-2.58%
Federated Department Stores, Inc. 5,000 331,650
- --------------------------------------------------------------------
J.C. Penney Co., Inc. 10,000 556,000
- --------------------------------------------------------------------
Nordstrom, Inc. 23,000 860,200
====================================================================
1,747,850
====================================================================
DIVERSIFIED BANKS-1.04%
Bank of America Corp. 15,233 703,003
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
DIVERSIFIED CHEMICALS-0.52%
Dow Chemical Co. (The) 8,000 $ 350,560
====================================================================
DIVERSIFIED METALS & MINING-1.06%
Phelps Dodge Corp. 5,000 719,350
====================================================================
DRUG RETAIL-0.06%
CVS Corp. 1,649 43,567
====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.05%
Emerson Electric Co. 9,500 709,650
====================================================================
FOOTWEAR-0.55%
NIKE, Inc.-Class B 4,300 373,197
====================================================================
GENERAL MERCHANDISE STORES-1.14%
Target Corp. 14,000 769,580
====================================================================
HEALTH CARE DISTRIBUTORS-0.76%
Cardinal Health, Inc. 7,500 515,625
====================================================================
HEALTH CARE EQUIPMENT-0.51%
Varian Medical Systems, Inc.(a) 6,875 346,087
====================================================================
HEALTH CARE SERVICES-1.36%
Caremark Rx, Inc.(a) 17,800 921,862
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.87%
Electronic Arts Inc.(a) 11,250 588,487
====================================================================
HOME IMPROVEMENT RETAIL-1.93%
Home Depot, Inc. (The) 32,300 1,307,504
====================================================================
HOUSEHOLD PRODUCTS-1.67%
Procter & Gamble Co. (The) 19,500 1,128,660
====================================================================
INDUSTRIAL CONGLOMERATES-2.34%
Textron Inc. 9,522 733,004
- --------------------------------------------------------------------
Tyco International Ltd. 29,500 851,370
====================================================================
1,584,374
====================================================================
INDUSTRIAL MACHINERY-2.08%
ITT Industries, Inc. 7,000 719,740
- --------------------------------------------------------------------
Parker Hannifin Corp. 10,500 692,580
====================================================================
1,412,320
====================================================================
INTEGRATED OIL & GAS-2.49%
ConocoPhillips 16,000 930,880
- --------------------------------------------------------------------
Occidental Petroleum Corp. 9,500 758,860
====================================================================
1,689,740
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
INTERNET RETAIL-1.97%
Amazon.com, Inc.(a) 7,500 $ 353,625
- --------------------------------------------------------------------
eBay Inc.(a) 22,695 981,559
====================================================================
1,335,184
====================================================================
INTERNET SOFTWARE & SERVICES-4.66%
Google Inc.-Class A(a) 3,406 1,413,013
- --------------------------------------------------------------------
Yahoo! Inc.(a) 44,500 1,743,510
====================================================================
3,156,523
====================================================================
INVESTMENT BANKING & BROKERAGE-5.34%
Goldman Sachs Group, Inc. (The) 14,500 1,851,795
- --------------------------------------------------------------------
Lehman Brothers Holdings Inc. 8,564 1,097,648
- --------------------------------------------------------------------
Schwab (Charles) Corp. (The) 45,500 667,485
====================================================================
3,616,928
====================================================================
MANAGED HEALTH CARE-5.76%
Aetna Inc. 23,000 2,169,130
- --------------------------------------------------------------------
CIGNA Corp. 6,000 670,200
- --------------------------------------------------------------------
WellPoint, Inc.(a) 13,335 1,064,000
====================================================================
3,903,330
====================================================================
MOVIES & ENTERTAINMENT-0.51%
Pixar(a) 6,500 342,680
====================================================================
MULTI-LINE INSURANCE-1.14%
Hartford Financial Services Group, Inc. (The) 9,000 773,010
====================================================================
OIL & GAS EQUIPMENT & SERVICES-1.97%
BJ Services Co. 36,489 1,338,052
====================================================================
PHARMACEUTICALS-3.37%
Allergan, Inc. 6,000 647,760
- --------------------------------------------------------------------
Johnson & Johnson 27,185 1,633,819
====================================================================
2,281,579
====================================================================
PROPERTY & CASUALTY INSURANCE-1.04%
Allstate Corp. (The) 13,000 702,910
====================================================================
RAILROADS-1.30%
Burlington Northern Santa Fe Corp. 12,439 880,930
====================================================================
RESTAURANTS-0.96%
YUM! Brands, Inc. 13,883 650,835
====================================================================
SEMICONDUCTOR EQUIPMENT-0.81%
KLA-Tencor Corp. 11,138 549,438
====================================================================
SEMICONDUCTORS-6.04%
Analog Devices, Inc. 49,000 1,757,630
- --------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 26,500 667,005
- --------------------------------------------------------------------
Microchip Technology Inc. 28,728 923,605
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-(CONTINUED)
National Semiconductor Corp. 19,000 $ 493,620
- --------------------------------------------------------------------
NVIDIA Corp.(a) 6,856 250,655
====================================================================
4,092,515
====================================================================
SOFT DRINKS-0.70%
PepsiCo, Inc. 8,000 472,640
====================================================================
SPECIALIZED FINANCE-0.87%
Chicago Mercantile Exchange Holdings Inc. 1,597 586,882
====================================================================
SPECIALTY CHEMICALS-0.71%
Rohm and Haas Co. 10,000 484,200
====================================================================
SPECIALTY STORES-2.56%
Office Depot, Inc.(a) 34,000 1,067,600
- --------------------------------------------------------------------
Tiffany & Co. 17,500 670,075
====================================================================
1,737,675
====================================================================
SYSTEMS SOFTWARE-1.73%
Oracle Corp.(a) 54,500 665,445
- --------------------------------------------------------------------
Symantec Corp.(a) 29,000 507,500
====================================================================
1,172,945
====================================================================
THRIFTS & MORTGAGE FINANCE-1.12%
MGIC Investment Corp. 11,515 757,917
====================================================================
Total Domestic Common Stocks (Cost
$49,281,728) 58,360,087
====================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-12.64%
AUSTRALIA-0.54%
BHP Billiton Ltd. (Diversified Metals &
Mining)(b) 22,000 367,527
====================================================================
BRAZIL-0.88%
Companhia Vale do Rio Doce-ADR (Steel) 14,500 596,530
====================================================================
FINLAND-0.77%
Nokia Oyj-ADR (Communications Equipment) 28,500 521,550
====================================================================
ISRAEL-1.01%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 16,000 688,160
====================================================================
SINGAPORE-1.32%
Marvell Technology Group Ltd.
(Semiconductors)(a) 15,959 895,140
====================================================================
SOUTH KOREA-0.66%
Kookmin Bank (Diversified Banks)(a)(b) 6,000 448,767
====================================================================
SWITZERLAND-5.53%
ABB Ltd. (Heavy Electrical Equipment)(a)(b) 38,000 369,149
- --------------------------------------------------------------------
Alcon, Inc. (Health Care Supplies) 10,000 1,296,000
- --------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 16,200 850,176
- --------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 8,200 1,231,248
====================================================================
3,746,573
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
TAIWAN-0.91%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 62,000 $ 614,420
====================================================================
UNITED KINGDOM-1.02%
Rio Tinto PLC (Diversified Metals &
Mining)(b) 5,100 232,860
- --------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 11,782 457,024
====================================================================
689,884
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $7,251,883) 8,568,551
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-0.97%
Liquid Assets Portfolio-Institutional
Class(c) 329,174 $ 329,174
- --------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 329,174 329,174
====================================================================
Total Money Market Funds (Cost $658,348) 658,348
====================================================================
TOTAL INVESTMENTS-99.72% (Cost $57,191,959) 67,586,986
====================================================================
OTHER ASSETS LESS LIABILITIES-0.28% 189,930
====================================================================
NET ASSETS-100.00% $67,776,916
____________________________________________________________________
====================================================================
</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 value of these securities at December 31, 2005 was $1,418,303,
which represented 2.09% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $56,533,611) $ 66,928,638
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $658,348) 658,348
=============================================================
Total investments (cost $57,191,959) 67,586,986
=============================================================
Receivables for:
Investments sold 898,730
- -------------------------------------------------------------
Fund shares sold 29,320
- -------------------------------------------------------------
Dividends 42,821
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,504
=============================================================
Total assets 68,582,361
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 648,271
- -------------------------------------------------------------
Fund shares reacquired 11,206
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 28,859
- -------------------------------------------------------------
Accrued administrative services fees 79,642
- -------------------------------------------------------------
Accrued distribution fees -- Series II 7,628
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 105
- -------------------------------------------------------------
Accrued transfer agent fees 1,290
- -------------------------------------------------------------
Accrued operating expenses 28,444
=============================================================
Total liabilities 805,445
=============================================================
Net assets applicable to shares outstanding $ 67,776,916
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 70,665,874
- -------------------------------------------------------------
Undistributed net investment income (loss) (25,071)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
option contracts (13,258,292)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 10,394,405
=============================================================
$ 67,776,916
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 65,661,339
=============================================================
Series II $ 2,115,577
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 10,963,363
_____________________________________________________________
=============================================================
Series II 356,423
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 5.99
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 5.94
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$10,041) $ 669,364
- -------------------------------------------------------------
Dividends from affiliated money market funds 96,584
=============================================================
Total investment income 765,948
=============================================================
EXPENSES:
Advisory fees 891,181
- -------------------------------------------------------------
Administrative services fees 330,968
- -------------------------------------------------------------
Custodian fees 20,001
- -------------------------------------------------------------
Distribution fees -- Series II 118,911
- -------------------------------------------------------------
Transfer agent fees 15,384
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 18,694
- -------------------------------------------------------------
Other 61,332
=============================================================
Total expenses 1,456,471
=============================================================
Less: Fees waived and expenses reimbursed (154,090)
=============================================================
Net expenses 1,302,381
=============================================================
Net investment income (loss) (536,433)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from
securities sold to affiliates of $70,920) 21,314,882
- -------------------------------------------------------------
Foreign currencies 10,144
- -------------------------------------------------------------
Option contracts written 75,032
=============================================================
21,400,058
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (16,311,111)
- -------------------------------------------------------------
Foreign currencies (622)
=============================================================
(16,311,733)
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 5,088,325
=============================================================
Net increase in net assets resulting from
operations $ 4,551,892
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (536,433) $ (738,517)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 21,400,058 4,627,433
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (16,311,733) 6,264,074
==========================================================================================
Net increase in net assets resulting from operations 4,551,892 10,152,990
==========================================================================================
Share transactions-net:
Series I (14,201,030) 5,206,868
- ------------------------------------------------------------------------------------------
Series II (67,782,840) 5,328,383
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (81,983,870) 10,535,251
==========================================================================================
Net increase (decrease) in net assets (77,431,978) 20,688,241
==========================================================================================
NET ASSETS:
Beginning of year 145,208,894 124,520,653
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(25,071) and $(21,905), respectively) $ 67,776,916 $145,208,894
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. DEMOGRAPHIC TRENDS FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
J. 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
AIM V.I. DEMOGRAPHIC TRENDS FUND
may be a security or a futures contract. Put options may be used by the Fund to
hedge securities it owns by locking in a minimum price at which the Fund can
sell. If security prices fall, the put option could be exercised to offset all
or a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged. A risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
K. 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 replace 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. The sub-advisory agreement between AIM and H.S.
Dent 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. This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $154,090.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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:
AIM V.I. DEMOGRAPHIC TRENDS FUND
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $280,968 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 year ended
December 31, 2005, the Fund paid AISI $15,384.
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 year ended December 31, 2005, the
Series II shares paid $118,911.
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 year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,563,954 $30,919,773 $(33,154,553) $ -- $329,174 $48,121 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,563,954 30,919,773 (33,154,553) -- 329,174 48,463 --
===============================================================================================================================
Total $5,127,908 $61,839,546 $(66,309,106) $ -- $658,348 $96,584 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $753,586 and sales of $843,050, which
resulted in net realized gains of $70,920.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,395
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
AIM V.I. DEMOGRAPHIC TRENDS FUND
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 380 77,316
- -----------------------------------------------------------------------------------
Closed (297) (56,756)
- -----------------------------------------------------------------------------------
Expired (83) (20,560)
===================================================================================
End of year -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income & long-term capital gain distributions paid during
the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Undistributed long-term gain $ 1,196,138
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments 10,132,536
- -----------------------------------------------------------------------------
Temporary book/tax differences (25,071)
- -----------------------------------------------------------------------------
Capital loss carryforward (14,192,561)
- -----------------------------------------------------------------------------
Shares of beneficial interest 70,665,874
=============================================================================
Total net assets $ 67,776,916
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(622).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $2,838,512 of capital loss carryforward in the fiscal year
ended December 31, 2006.
AIM V.I. DEMOGRAPHIC TRENDS FUND
The Fund utilized $11,907,723 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 590,799
- -----------------------------------------------------------------------------
December 31, 2010 13,601,762
=============================================================================
Total capital loss carryforward $14,192,561
_____________________________________________________________________________
=============================================================================
</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.
On September 23, 2005, 10,393,669 Series II shares valued at $58,932,102
were redeemed by a significant shareholder and settled through a redemption-
in-kind transaction, which resulted in a realized gain of $7,823,348 to the Fund
for book purposes. From a federal income tax perspective, the realized gains are
not recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $124,947,973 and $202,796,047, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $11,167,335
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,034,177)
===============================================================================
Net unrealized appreciation of investment securities $10,133,158
_______________________________________________________________________________
===============================================================================
</Table>
Cost of investments for tax purposes is $57,453,828.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
foreign currency transactions and a redemption-in-kind transaction, on December
31, 2005, undistributed net investment income (loss) was increased by $533,267,
undistributed net realized gain (loss) was decreased by $756,545 and shares of
beneficial interest increased by $223,278. This reclassification had no effect
on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005(A) 2004
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,629,070 $ 20,081,064 3,599,332 $ 19,023,172
- -----------------------------------------------------------------------------------------------------------------------
Series II 483,710 2,637,149 4,811,300 25,774,483
=======================================================================================================================
Reacquired:
Series I (6,149,473) (34,282,094) (2,626,910) (13,816,304)
- -----------------------------------------------------------------------------------------------------------------------
Series II (12,475,751) (70,419,989) (3,910,303) (20,446,100)
=======================================================================================================================
(14,512,444) $(81,983,870) 1,873,419 $ 10,535,251
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more the 5% of
the outstanding shares of the Fund and in the aggregate they own 83% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.02)(a)(b) (0.03)(a) (0.03)(a) (0.05)(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 0.45 1.45 (1.77) (2.57)
================================================================================================================
Total from investment operations 0.35 0.43 1.42 (1.80) (2.62)
================================================================================================================
Net asset value, end of period $ 5.99 $ 5.64 $ 5.21 $ 3.79 $ 5.59
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) 6.21% 8.25% 37.47% (32.20)% (31.91)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,661 $76,040 $65,162 $26,747 $39,226
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.02%(d) 1.18% 1.30% 1.30% 1.38%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.15%(d) 1.19% 1.30% 1.43% 1.44%
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(d) (0.42)%(b) (0.61)% (0.67)% (0.79)%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 113% 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 $(0.03) 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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $68,173,243.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------------------------
NOVEMBER 7, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------------------- 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) (0.03)(a) (0.03)(a)(b) (0.03)(a) (0.04)(a) (0.01)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.37 0.44 1.44 (1.76) 0.26
=================================================================================================================================
Total from investment operations 0.34 0.41 1.41 (1.80) 0.25
=================================================================================================================================
Net asset value, end of period $ 5.94 $ 5.60 $ 5.19 $ 3.78 $ 5.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.07% 7.90% 37.30% (32.26)% 4.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,116 $69,169 $59,358 $11,498 $ 3,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.27%(d) 1.43% 1.45% 1.45% 1.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.40%(d) 1.44% 1.55% 1.68% 1.61%(e)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.61)%(d) (0.67)%(b) (0.76)% (0.82)% (0.85)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 113% 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 based on average daily net assets of $47,564,534.
(e) Annualized.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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,
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Demographic Trends Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Demographic Trends Fund,
formerly known as AIM V.I. Dent Demographic Trends Fund, (one of the funds
constituting AIM Variable Insurance Funds, hereafter referred to as the "Fund"),
at December 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. DEMOGRAPHIC TRENDS FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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. DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
AIM V.I. DIVERSIFIED INCOME FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. DIVERSIFIED INCOME FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE that sector emphasis should be changed
===================================================================================== o fundamentals, such as credit quality
ratings, deteriorate for an individual
PERFORMANCE SUMMARY ======================================== issuer or a sector
FUND VS. INDEXES
Series I and Series II shares of AIM o an unanticipated change occurs
V.I. Diversified Income Fund enjoyed a TOTAL RETURNS, 12/31/04-12/31/05, involving an individual issuer or sector
strong year, outperforming the Fund's EXCLUDING VARIABLE PRODUCT ISSUER
broad market and style-specific indexes CHARGES. IF VARIABLE PRODUCT ISSUER MARKET CONDITIONS AND YOUR FUND
for the year ended December 31, 2005. CHARGES WERE INCLUDED, RETURNS WOULD BE
Please turn to Pages 4 and 5 for LOWER. In an effort to contain inflation as the
long-term performance results. economy grew, broad the U.S. Federal
Series I Shares 2.90% Reserve (the Fed) continued its measured
Rising short-term interest rates and pace of raising the federal funds target
the flattening of the yield curve Series II Shares 2.67 rate, which is the interest rate at which
created a difficult year for bonds as a banks make overnight loans to one another.
whole. However, your Fund outperformed Lehman Brothers U.S. Aggregate The Fed raised the rate eight times during
its benchmarks because of its broad Bond Index (Broad Market Index) 2.43 the fiscal year in 0.25% increments,
diversification, our investment in and the rate stood at 4.25% on December
Treasury bonds and our avoidance of Lehman Brothers U.S. Credit 31, 2005.
long-maturity automobile company bonds. Index (Style-specific Index) 1.96
While short-term interest rates rose
Lipper BBB-Rated Fund Index in step with the Fed's tightening during
(Peer Group Index) 2.24 the period, yields on 30-year Treasury
bonds fell, creating an inversion of the
SOURCE: LIPPER,INC. yield curve. (The yield curve shows the
======================================== relationship between yields and maturity
dates for a set of similar bonds at a
===================================================================================== given point in time.) In comparison to
Treasuries, high yield bonds and
HOW WE INVEST We make allocation decisions based on government agency bonds outperformed,
performance and valuations among the while corporate bonds suffered because
We seek to provide consistent returns different areas of the bond market. Our of the downgrading of GENERAL MOTORS and
while minimizing risk. Our security focus is on bonds that are attractively FORD to junk status. Spreads between
selection process involves both top-down valued relative to the rest of the bond Treasury bonds and corporate bonds
analysis, which takes account of overall market. widened because of the underperformance
economic and market trends; and of corporate bonds.
bottom-up analysis, which includes an In evaluating the credit quality of a
evaluation of individual bond issuers. security, we use input from various AIM V.I. Diversified Income Fund
rating agencies and Wall Street invested primarily in fixed-rate
We look for potential investments in fixed-income and equity analysts, and corporate bonds of both U.S. and
all sectors of the bond market: domestic conduct our own internal credit non-U.S. issuers. The majority of the
and foreign governments, U.S. corporate analysis. Fund's holdings were domestic corporate
bonds, mortgages, asset-backed bonds, and the Fund also invested in
securities, money markets, high yield We consider selling a bond when: international
debt and convertible corporate bonds.
o it becomes fully valued
o overall market and economic trends
indicate
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 FIXED-INCOME ISSUERS*
Based on total investments 1. U.S. Mortgage-Backed Securities 15.2% 1. Federal Home Loan Mortgage
Corp. (FHLMC) 8.3%
U.S. Denominated Corporate Bonds 2. Other Diversified Financial
& Notes 69.2% Services 14.8 2. Federal National Mortgage
Association (FNMA) 6.3
U.S. Mortgage Back Securities 13.6 3. Consumer Finance 9.0
3. General Motors Acceptance Corp. 4.1
Asset-Backed Securities 5.4 4. Diversified Banks 7.3
4. Ford Motor Credit Co. 3.2
Stocks & Other Equity Interests 5.0 5. Integrated Telecommunication
Services 4.8 5. Patrons' Legacy 2.7
Foreign Denominated Corporate
Bonds & Notes 2.8 6. Comcast Corp. 2.3
TOTAL NET ASSETS $56.0 MILLION
U.S. Treasury Securities 2.0 TOTAL NUMBER OF HOLDINGS* 230 7. Pemex Project Funding Master
Trust (Mexico) 1.9
U.S. Government Agency Securities 1.4
8. Regional Diversified Funding
Money Market Funds 0.4 (Cayman Islands) 1.8
Bundled Securities 0.2 9. Husky Oil Ltd. (Canada) 1.6
10. Citicorp Lease Pass-Through
Trust 1.5
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. DIVERSIFIED INCOME FUND
corporate bonds, mortgage-backed bonds, We invested less than 1% of Fund JAN H. FRIEDLI is lead
Treasury bonds and other assets in Treasury Inflation-Protected [FRIEDLI manager of AIM V.I.
government-backed bonds. The Fund was Securities (TIPs). This was the first PHOTO] Diversified Income Fund. He
slightly overweight versus the time we have invested in TIPs, which are began his investment career
style-specific benchmark in U.S. and identical to Treasury bonds except that in 1990 and joined AIM in
non-U.S. government bonds and the principal and coupon (interest) 1999. Mr. Friedli graduated cum laude
mortgage-backed securities because the payments are adjusted to reduce the from Villanova University with a B.S. in
Fund's benchmark is comprised only of effects of inflation. TIPs computer science and earned an M.B.A.
investment-grade U.S. corporate bonds. underperformed during the year because with honors from the University of
inflation did not rise as much as we Chicago.
We succeeded in outperforming our anticipated.
indexes by broadly diversifying our CAROLYN L. GIBBS, Chartered
investment strategy in relation to such IN CLOSING [GIBBS Financial Analyst, is a
factors as duration and sectors. PHOTO] portfolio manager of AIM
Strategies that produced positive We believe a relatively flat yield curve V.I. Diversified Income
results for your Fund during the year may persist for most of 2006, and that Fund. She has been in the
included: the curve may rise if the Fed ends its investment business since 1983. Ms.
short-term interest rate increases. Gibbs is a Phi Beta Kappa graduate of
o Keeping the Fund's duration shorter or Valuations in mortgage-backed securities Texas Christian University, where she
about the same as the style-specific may be relatively inexpensive as received a B.A. in English. She also
benchmark for most of the year, but mortgage rates rise. We continue to received an M.B.A. in finance from The
adding more long-duration bonds near the believe that bond funds are an important Wharton School of the University of
end of the period. That benefited Fund part of a well-diversified investment Pennsylvania.
performance because long-term bond portfolio. Thank you for investing in
prices rose (and yields fell) at the end AIM V.I. Diversified Income Fund and for SCOT W. JOHNSON, Chartered
of the year. sharing our long-term investment [JOHNSON Financial Analyst, is a
horizon. PHOTO] portfolio manager of
o Using a "barbell" approach (buying AIM V.I. Diversified Income
more short- and long-duration bonds THE VIEWS AND OPINIONS EXPRESSED IN Fund. He joined AIM in 1994.
instead of intermediate-duration bonds). MANAGEMENT'S DISCUSSION OF FUND He received both a B.A. in economics and
This helped us take advantage of PERFORMANCE ARE THOSE OF A I M ADVISORS, an M.B.A. in finance from Vanderbilt
long-term price appreciation and INC. THESE VIEWS AND OPINIONS ARE University.
short-term yields. SUBJECT TO CHANGE AT ANY TIME BASED ON
FACTORS SUCH AS MARKET AND ECONOMIC Assisted by the Taxable Investment Grade
o Maintaining an overweight position in CONDITIONS. THESE VIEWS AND OPINIONS MAY Bond and Taxable High Yield Teams
U.S. Treasury bonds which, as noted NOT BE RELIED UPON AS INVESTMENT ADVICE
earlier, outperformed corporates. OR RECOMMENDATIONS, OR AS AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS
o Reducing our exposure to corporate NOT A COMPLETE ANALYSIS OF EVERY ASPECT
bonds (although corporate bonds OF ANY MARKET, COUNTRY, INDUSTRY,
continued to make up the majority of SECURITY OR THE FUND. STATEMENTS OF FACT
Fund holdings) as valuations became too ARE FROM SOURCES CONSIDERED RELIABLE,
high in our opinion. In addition, we BUT A I M ADVISORS, INC. MAKES NO
avoided long-dated automobile bonds, REPRESENTATION OR WARRANTY AS TO THEIR
which was among the worst performing COMPLETENESS OR ACCURACY. ALTHOUGH
sectors in the Lehman Brothers U.S. HISTORICAL PERFORMANCE IS NO GUARANTEE
Credit Index. OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT
o Adding high yield emerging market MANAGEMENT PHILOSOPHY.
bonds, including bonds issued by the
Republic of Brazil. The price of these
bonds rose during the year.
o Reducing our exposure to bonds issued
in foreign currencies. We hedged most of
these bonds by purchasing them in U.S.
dollars to reduce currency fluctuation
risk.
Our investment in mortgage-backed
securities had a neutral effect on the
Fund, because mortgage-backed bonds
underperformed in the early part of the
year and outperformed in the latter
portion. Although our mortgage-backed
investments neither helped nor hurt Fund [RIGHT ARROW GRAPHIC]
performance, they did help diversify the
portfolio and reduce risk. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND,INDEXES USED
IN THIS REPORT AND YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE TURN TO
PAGES 4 AND 5.
3
AIM V.I. DIVERSIFIED INCOME FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
<Table>
<Caption>
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. DIVERSIFIED INCOME LEHMAN BROTHERS U.S. LEHMAN BROTHERS LIPPER BBB-RATED
FUND-SERIES I SHARES AGGREGATE BOND INDEX U.S. CREDIT INDEX FUND INDEX
12/95 $10000 $10000 $10000 $10000
1/96 10060 10066 10065 10081
2/96 9990 9891 9825 9869
3/96 10000 9823 9742 9796
4/96 10020 9767 9661 9733
5/96 10050 9748 9644 9727
6/96 10209 9879 9786 9838
7/96 10230 9906 9804 9863
8/96 10299 9889 9774 9858
9/96 10499 10061 9981 10055
10/96 10749 10284 10254 10296
11/96 11000 10460 10473 10526
12/96 11019 10363 10328 10424
1/97 10955 10395 10343 10457
2/97 11052 10421 10386 10517
3/97 10839 10305 10225 10354
4/97 10988 10459 10380 10507
5/97 11158 10558 10497 10628
6/97 11329 10684 10646 10786
7/97 11638 10972 11035 11159
8/97 11521 10878 10872 11011
9/97 11831 11039 11063 11205
10/97 11884 11199 11203 11319
11/97 11927 11250 11266 11374
12/97 12054 11364 11385 11496
1/98 12257 11509 11520 11643
2/98 12300 11501 11517 11639
3/98 12460 11540 11559 11698
4/98 12471 11601 11632 11748
5/98 12556 11711 11770 11848
6/98 12556 11810 11857 11935
7/98 12577 11835 11846 11926
8/98 12299 12028 11902 11839
9/98 12417 12309 12287 12083
10/98 12204 12244 12098 11934
11/98 12503 12314 12326 12155
12/98 12486 12351 12361 12185
1/99 12657 12439 12484 12291
2/99 12384 12222 12187 12025
3/99 12498 12289 12274 12159
4/99 12600 12328 12310 12246
5/99 12316 12220 12145 12081
6/99 12236 12181 12082 12018
7/99 12201 12130 12015 11957
8/99 12121 12123 11985 11913
9/99 12212 12264 12116 12015
10/99 12167 12309 12171 12039
11/99 12201 12308 12184 12068
12/99 12247 12249 12120 12049
1/00 12198 12209 12077 12013
2/00 12332 12357 12189 12161
3/00 12345 12519 12293 12273
4/00 12089 12484 12185 12124
5/00 11870 12478 12140 12032
6/00 12125 12737 12444 12336
7/00 12162 12853 12595 12389
8/00 12320 13039 12759 12615
9/00 12320 13121 12826 12651
10/00 12186 13208 12839 12610
11/00 12125 13424 13005 12727
12/00 12331 13673 13258 12994
1/01 12760 13897 13620 13308
2/01 12850 14018 13739 13439
3/01 12642 14088 13824 13431
4/01 12460 14030 13774 13357
5/01 12577 14114 13901 13478
6/01 12499 14168 13971 13494
7/01 12798 14484 14336 13800
8/01 12929 14650 14528 13965
9/01 12682 14821 14507 13846
10/01 12994 15131 14867 14139
11/01 12916 14923 14738 14048
12/01 12774 14828 14637 13962
1/02 12802 14948 14760 14038
2/02 12731 15093 14872 14106
3/02 12563 14842 14597 13921
4/02 12703 15129 14800 14134
5/02 12745 15258 14996 14245
6/02 12576 15390 15021 14178
7/02 12268 15576 15013 14107
8/02 12535 15839 15402 14393
9/02 12730 16095 15694 14522
10/02 12534 16022 15513 14419
11/02 12716 16018 15714 14626
12/02 13065 16348 16177 14967
1/03 13157 16362 16230 15066
2/03 13385 16589 16554 15319
3/03 13430 16576 16566 15346
4/03 13704 16713 16872 15655
5/03 14084 17024 17405 16065
6/03 14144 16991 17362 16086
7/03 13597 16419 16622 15538
8/03 13688 16528 16752 15661
9/03 14114 16966 17337 16143
10/03 14037 16808 17152 16079
11/03 14098 16848 17231 16190
12/03 14273 17019 17423 16426
1/04 14434 17156 17599 16575
2/04 14548 17342 17820 16721
3/04 14661 17472 17993 16836
4/04 14305 17017 17426 16407
5/04 14241 16949 17303 16283
6/04 14305 17045 17376 16379
7/04 14434 17214 17591 16550
8/04 14725 17542 18006 16886
9/04 14806 17590 18107 16991
10/04 14935 17737 18282 17159
11/04 14854 17596 18099 17102
12/04 14989 17758 18335 17297
1/05 15093 17869 18481 17388
2/05 15042 17764 18372 17360
3/05 14905 17673 18143 17165
4/05 15110 17912 18386 17305
5/05 15299 18106 18644 17485
6/05 15420 18204 18792 17633
7/05 15317 18039 18603 17552
8/05 15540 18270 18886 17770
9/05 15352 18082 18603 17592
10/05 15197 17938 18400 17440
11/05 15282 18018 18512 17512
12/05 15428 18189 18694 17683
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee with each segment representing a percent
comparable future results. change in the value of the investment.
In this chart, each segment represents a
This chart, which is a logarithmic doubling, or 100% change, in the value
chart, presents the fluctuations in the of the investment. In other words, the
value of the Fund and its indexes. We space between $5,000 and $10,000 is the
believe that a logarithmic chart is more same size as the space between $10,000
effective than other types of charts in and $20,000 and so on.
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed
4
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES) ADJUSTED TO REFLECT THE HIGHER INSURANCE FUNDS, IS CURRENTLY OFFERED
RULE 12b-1 FEES APPLICABLE TO SERIES II THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 SHARES. THE INCEPTION DATE OF SERIES I VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SHARES IS MAY 5, 1993. SERIES I AND SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES SERIES II SHARES INVEST IN THE SAME FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/5/93) 4.97% PORTFOLIO OF SECURITIES AND WILL HAVE NOT INTENDED TO REFLECT ACTUAL VARIABLE
10 Years 4.43 SUBSTANTIALLY SIMILAR PERFORMANCE, PRODUCT VALUES. THEY DO NOT REFLECT
5 Years 4.58 EXCEPT TO THE EXTENT THAT EXPENSES BORNE SALES CHARGES, EXPENSES AND FEES
1 Year 2.90 BY EACH CLASS DIFFER. ASSESSED IN CONNECTION WITH A VARIABLE
PRODUCT. SALES CHARGES, EXPENSES AND
SERIES II SHARES THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
Inception (3/14/02) 4.71% PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
10 Years 4.17 COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
5 Years 4.32 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 2.67 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
======================================== RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 0.04% WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares -0.09 GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
======================================== AIM V.I. DIVERSIFIED INCOME FUND, A
SERIES PORTFOLIO OF AIM VARIABLE
RETURNS SINCE MARCH 14, 2002, THE
INCEPTION DATE OF SERIES II SHARES, ARE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT reflect sales charges. Performance of an
index of funds reflects fund expenses;
U.S. Treasury securities such as bills, The unmanaged LEHMAN BROTHERS U.S. performance of a market index does not.
notes and bonds offer a high degree of AGGREGATE BOND INDEX (the Lehman
safety, and they guarantee the payment Aggregate), which represents the U.S. OTHER INFORMATION
of principal and any applicable interest investment-grade fixed-rate bond market
if held to maturity. Fund shares are not (including government and corporate The returns shown in the Management's
insured, and their value and yield will securities, mortgage pass-through Discussion of Fund performance are based
vary with market conditions. securities and asset-backed securities), on net asset values calculated for
is compiled by Lehman Brothers, a global shareholder transactions. Generally
The fund may invest up to 50% 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 LIPPER BBB-RATED FUND of the Fund at period end for financial
presents certain risks not associated INDEX represents an average of the 30 reporting purposes, and as such, the net
with investing solely in the United largest BBB-rated bond funds tracked by asset values for shareholder
States. These include risks relating to Lipper, Inc., an independent mutual fund transactions and the returns based on
fluctuations in the value of the U.S. performance monitor. 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 LEHMAN BROTHERS U.S. CREDIT INDEX reported in the Financial Highlights.
made for the fund's foreign holdings, consists of publicly issued U.S. Additionally, the returns and net asset
differences in accounting, political corporate and specified foreign values shown throughout this report are
risks and the lesser degree of public debentures and secured notes that meet at the Fund level only and do not
information required to be provided by the specified maturity, liquidity, and include variable product issuer charges.
non-U.S. companies. quality requirements. It is compiled by If such charges were included, the total
Lehman Brothers, a global investment returns would be lower.
The Fund invests in higher-yielding, bank. To qualify, bonds must be
lower-rated corporate bonds, commonly SEC-registered. Industry classifications used in this
known as junk bonds, which have a report are generally according to the
greater risk of price fluctuation and The Fund is not managed to track the Global Industry Classification Standard,
loss of principal and income than do performance of any particular index, which was developed by and is the
U.S. government securities such as U.S. including the indexes defined here, and exclusive property and a service mark of
Treasury bills, notes and bonds, for consequently, the performance of the Morgan Stanley Capital International
which principal and any applicable Fund may deviate significantly from the Inc. and Standard & Poor's.
interest are guaranteed by the performance of the indexes.
government if held to maturity.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not
5
AIM V.I. DIVERSIFIED INCOME FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31,2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON
the effect of any fees or other expenses PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,000.40 $3.78 $1,021.42 $3.82 0.75%
Series II 1,000.00 999.10 5.04 1,020.16 5.09 1.00
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. DIVERSIFIED INCOME FUND
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
the management of AIM V.I. Diversified credentials and experience of the AIM in providing investment advisory and
Income 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 was higher than the advisory
independent trustees, approved the AIM's equity and fixed income trading fee rates for a mutual fund advised by
continuance of the advisory agreement operations. Based on the review of these AIM 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 limit
July 1, 2005. provided by AIM was appropriate and that the Fund's total operating expenses, as
AIM currently is providing satisfactory discussed below. Based on this review,
The Board considered the factors services in accordance with the terms of the Board concluded that the advisory
discussed below in evaluating the the Advisory Agreement. fee rate for the Fund under the Advisory
fairness and reasonableness of the Agreement was fair and reasonable.
Advisory Agreement at the meeting on o The performance of the Fund relative
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed o Fees relative to those of comparable
ongoing oversight of the Fund. In their the performance of the Fund during the funds with other advisors. The Board
deliberations, the Board and the past one, three and five calendar years reviewed the advisory fee rate for the
independent trustees did not identify against the performance of funds advised Fund under the Advisory Agreement. The
any particular factor that was by other advisors with investment Board compared effective contractual
controlling, and each trustee attributed strategies comparable to those of the advisory fee rates at a common asset
different weights to the various Fund. The Board noted that the Fund's level and noted that the Fund's rate was
factors. performance in such periods was below above the median rate of the funds
the median performance of such advised by other advisors with
One of the responsibilities of the comparable funds. Based on this review investment strategies comparable to
Senior Officer of the Fund, who is and after taking account of all of the those of the Fund that the Board
independent of AIM and AIM's affiliates, other factors that the Board considered reviewed. The Board noted that AIM has
is to manage the process by which the in determining whether to continue the agreed to limit the Fund's total
Fund's proposed management fees are Advisory Agreement for the Fund, the operating expenses, as discussed below.
negotiated to ensure that they are Board concluded that no changes should Based on this review, the Board
negotiated in a manner which is at arm's be made to the Fund and that it was not concluded that the advisory fee rate for
length and reasonable. To that end, the necessary to change the Fund's portfolio the Fund under the Advisory Agreement
Senior Officer must either supervise a management team at this time. However, was fair and reasonable.
competitive bidding process or prepare due to the Fund's under-performance, the
an independent written evaluation. The Board also concluded that it would be o Expense limitations and fee waivers.
Senior Officer has recommended an appropriate for management and the Board The Board noted that AIM has
independent written evaluation in lieu to continue to closely monitor the contractually agreed to waive fees
of a competitive bidding process and, performance of the Fund. and/or limit expenses of the Fund
upon the direction of the Board, has through June 30, 2006 so that total
prepared such an independent written o The performance of the Fund relative annual operating expenses are limited to
evaluation. Such written evaluation also to indices. The Board reviewed the a specified percentage of average daily
considered certain of the factors performance of the Fund during the past net assets for each class of the Fund.
discussed below. In addition, as one, three and five calendar years The Board considered the contractual
discussed below, the Senior Officer made against the performance of the Lipper nature of this fee waiver and noted that
certain recommendations to the Board in BBB-Rated Fund Index. The Board noted it remains in effect until June 30,
connection with such written evaluation. that the Fund's performance for the 2006. The Board considered the effect
three and five year periods was below this fee waiver/expense limitation would
The discussion below serves as a the performance of such Index and have on the Fund's estimated expenses
summary of the Senior Officer's comparable to such Index for the one and concluded that the levels of fee
independent written evaluation and year period. Based on this review and waivers/expense limitations for the Fund
recommendations to the Board in after taking account of all of the other were fair and reasonable.
connection therewith, as well as a factors that the Board considered in
discussion of the material factors and determining whether to continue the o Breakpoints and economies of scale.
the conclusions with respect thereto Advisory Agreement for the Fund, the The Board reviewed the structure of the
that formed the basis for the Board's Board concluded that no changes should Fund's advisory fee under the Advisory
approval of the Advisory Agreement. be made to the Fund and that it was not Agreement, noting that it includes one
After consideration of all of the necessary to change the Fund's portfolio breakpoint. The Board reviewed the level
factors below and based on its informed management team at this time. However, of the Fund's advisory fees, and noted
business judgment, the Board determined due to the Fund's under-performance, the that such fees, as a percentage of the
that the Advisory Agreement is in the Board also concluded that it would be Fund's net assets, would decrease as net
best interests of the Fund and its appropriate for management and the Board assets increase because the Advisory
shareholders and that the compensation to continue to closely monitor the Agreement includes a breakpoint. The
to AIM under the Advisory Agreement is performance of the Fund. Board noted that, due to the Fund's
fair and reasonable and would have been current asset levels and the way in
obtained through arm's length o Meeting with the Fund's portfolio which the advisory fee breakpoints have
negotiations. managers and investment personnel. With been structured, the Fund has yet to
respect to the Fund, the Board is benefit from the breakpoint. The Board
o The nature and extent of the advisory meeting periodically with such Fund's concluded that the Fund's fee levels
services to be provided by AIM. The portfolio managers and/or other under the Advisory Agreement therefore
Board reviewed the services to be investment personnel and believes that would reflect economies of scale at
provided by AIM under the Advisory such individuals are competent and able higher asset levels and that it was not
Agreement. Based on such review, the to continue to carry out their necessary to change the advisory fee
Board concluded that the range of responsibilities under the Advisory breakpoints in the Fund's advisory fee
services to be provided by AIM under the Agreement. schedule.
Advisory Agreement was appropriate and
that AIM currently is providing services
in accordance with the terms of the
Advisory Agreement.
(continued)
7
AIM V.I. DIVERSIFIED INCOME FUND
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized
the fact that uninvested cash and cash by AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements (collectively, "cash dollar" arrangements. Under these
balances") of the Fund may be invested arrangements, brokerage commissions paid
in money market funds advised by AIM by the Fund and/or other funds advised
pursuant to the terms of an SEC by AIM are used to pay for research and
exemptive order. The Board found that execution services. This research is
the Fund may realize certain benefits used by AIM in making investment
upon investing cash balances in AIM decisions for the Fund. The Board
advised money market funds, including a concluded that such arrangements were
higher net return, increased liquidity, appropriate.
increased diversification or decreased
transaction costs. The Board also found o AIM's financial soundness in light of
that the Fund will not receive reduced the Fund's needs. The Board considered
services if it invests its cash balances whether AIM is financially sound and has
in such money market funds. The Board the resources necessary to perform its
noted that, to the extent the Fund obligations under the Advisory
invests in affiliated money market Agreement, and concluded that AIM has
funds, AIM has voluntarily agreed to the financial resources necessary to
waive a portion of the advisory fees it fulfill its obligations under the
receives from the Fund attributable to Advisory Agreement.
such investment. The Board further
determined that the proposed securities o Historical relationship between the
lending program and related procedures Fund and AIM. In determining whether to
with respect to the lending Fund 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. The prior relationship between AIM and the
Board therefore concluded that the Fund, as well as the Board's knowledge
investment of cash collateral received of AIM's operations, and concluded that
in connection with the securities it was beneficial to maintain the
lending program in the money market current relationship, in part, because
funds according to the procedures is in of such knowledge. The Board also
the best interests of the lending Fund reviewed the general nature of the
and its respective shareholders. non-investment advisory services
currently performed by AIM and its
o Independent written evaluation and affiliates, such as administrative,
recommendations of the Fund's Senior transfer agency and distribution
Officer. The Board noted that, upon services, and the fees received by AIM
their direction, the Senior Officer of and its affiliates for performing such
the Fund, who is independent of AIM and services. In addition to reviewing such
AIM's affiliates, had prepared an services, the trustees also considered
independent written evaluation in order the organizational structure employed by
to assist the Board in determining the AIM and its affiliates to provide those
reasonableness of the proposed services. Based on the review of these
management fees of the AIM Funds, and other factors, the Board concluded
including the Fund. The Board noted that that AIM and its affiliates were
the Senior Officer's written evaluation qualified to continue to provide
had been relied upon by the Board in non-investment advisory services to the
this regard in lieu of a competitive Fund, including administrative, transfer
bidding process. In determining whether agency and distribution services, and
to continue the Advisory Agreement for that AIM and its affiliates currently
the Fund, the Board considered the are providing satisfactory
Senior Officer's written evaluation and non-investment advisory services.
the recommendation made by the Senior
Officer to the Board that the Board o Other factors and current trends. In
consider implementing a process to determining whether to continue the
assist them in more closely monitoring Advisory Agreement for the Fund, the
the performance of the AIM Funds. The Board considered the fact that AIM,
Board concluded that it would be along with others in the mutual fund
advisable to implement such a process as industry, is subject to regulatory
soon as reasonably practicable. inquiries and litigation related to a
wide range of issues. The Board also
o Profitability of AIM and its considered the governance and compliance
affiliates. The Board reviewed reforms being undertaken by AIM and its
information concerning the profitability affiliates, including maintaining an
of AIM's (and its affiliates') internal controls committee and
investment advisory and other activities retaining an independent compliance
and its financial condition. The Board consultant, and the fact that AIM has
considered the overall profitability of undertaken to cause the Fund to operate
AIM, as well as the profitability of AIM in accordance with certain governance
in connection with managing the Fund. policies and practices. The Board
The Board noted that AIM's operations concluded that these actions indicated a
remain profitable, although increased good faith effort on the part of AIM to
expenses in recent years have reduced adhere to the highest ethical standards,
AIM's profitability. Based on the review and determined that the current
of the profitability of AIM's and its regulatory and litigation environment to
affiliates' investment advisory and which AIM is subject should not prevent
other activities and its financial the Board from continuing the Advisory
condition, the Board concluded that the Agreement for the Fund.
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-77.06%
ASSET MANAGEMENT & CUSTODY BANKS-0.78%
Bank of New York Institutional Capital Trust-
Series A, Trust Pfd. Bonds, 7.78%, 12/01/26
(Acquired 06/12/03; Cost $298,178)(a)(b) $ 250,000 $ 264,987
- -------------------------------------------------------------------------
Janus Capital Group Inc., Sr. Unsec. Notes,
7.00%, 11/01/06(a) 50,000 50,750
- -------------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub
Notes, 5.50%, 09/15/15(a) 125,000 123,094
=========================================================================
438,831
=========================================================================
AUTOMOBILE MANUFACTURERS-1.58%
DaimlerChrysler North America Holding Corp.,
Gtd. Global Notes, 6.40%, 05/15/06(a) 170,000 170,823
- -------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp.,
Unsec. Gtd. Unsub. Global Notes, 7.25%,
01/18/06(a) 75,000 75,060
- -------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp.-
Series D, Gtd. Floating Rate Medium Term
Notes, 4.99%, 05/24/06(a)(c) 240,000 240,185
- -------------------------------------------------------------------------
General Motors Corp., Unsec. Notes, 7.10%,
03/15/06(a) 400,000 396,500
=========================================================================
882,568
=========================================================================
BROADCASTING & CABLE TV-4.69%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(a)(d) 320,000 184,000
- -------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06(a) 140,000 142,418
- -------------------------------------------------------------------------
Cablevision Systems Corp.-Series B, Sr.
Floating Rate Global Notes, 8.72%,
04/01/09(a)(e) 125,000 127,500
- -------------------------------------------------------------------------
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) 160,000 161,200
- -------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(a) 150,000 188,217
- -------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Sub. Notes, 10.50%,
06/15/06(a) 535,000 550,483
- -------------------------------------------------------------------------
Comcast Corp., Unsec. Gtd. Global Notes,
9.46%, 11/15/22(a) 420,000 551,237
- -------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
7.75%, 08/15/06(a) 20,000 20,304
- -------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(a) 315,000 315,652
- -------------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes, 7.88%,
12/15/07(a) 155,000 158,100
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
CSC Holdings, Inc.-Series B, Sr. Unsec.
Unsub. Notes, 7.63%, 04/01/11(a) $ 55,000(f) $ 55,000
- -------------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(a) 150,000 172,975
=========================================================================
2,627,086
=========================================================================
COMMERCIAL PRINTING-0.27%
Deluxe Corp., Medium Term Notes, 2.75%,
09/15/06(a) 155,000 152,667
=========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.00%
Terex Corp., Sr. Unsec. Gtd. Sub Global
Notes, 7.38%, 01/15/14(a) 1,000 997
=========================================================================
CONSUMER FINANCE-8.16%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 5.80%, 02/01/27 (Acquired
09/15/04-09/16/04; Cost $279,609)(a)(b)(c) 275,000 275,399
- -------------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes, 7.25%, 05/01/06(a) 179,000 180,423
- -------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Global Notes,
6.88%, 02/01/06(a) 1,655,000 1,651,028
- -------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Notes, 6.13%,
01/09/06(a) 138,000 137,994
- -------------------------------------------------------------------------
General Motors Acceptance Corp., Floating
Rate Medium Term Notes, 5.24%,
05/18/06(a)(c) 2,355,000(f) 2,320,664
=========================================================================
4,565,508
=========================================================================
DISTILLERS & VINTNERS-0.32%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) 170,000 178,925
=========================================================================
DIVERSIFIED BANKS-6.38%
AB Spintab (Sweden), Bonds, 7.50%, (Acquired
02/12/04; Cost $334,806)(a)(b)(g) 300,000 305,148
- -------------------------------------------------------------------------
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%(a)(g) 250,000 257,082
- -------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $66,543)(a)(b) 60,000 60,092
- -------------------------------------------------------------------------
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) 475,000 594,700
- -------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes, 8.85%, 06/01/27 (Acquired 05/22/03;
Cost $632,715)(a)(b) 500,000 543,155
- -------------------------------------------------------------------------
Corporacion Andina de Fomento, Unsec. Global
Notes, 6.88%, 03/15/12(a) 175,000 190,753
- -------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91%, (Acquired 06/07/04; Cost
$195,000)(a)(b)(g) 195,000 202,145
- -------------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
First Empire Capital Trust I, Gtd. Trust Pfd.
Notes, 8.23%, 02/01/27(a) $ 260,000 $ 278,153
- -------------------------------------------------------------------------
Golden State Bancorp Inc., Sub Deb., 10.00%,
10/01/06(a) 35,000 36,224
- -------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
4.94%,(a)(e)(g) 180,000 158,623
- -------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 4.19%, 08/29/87(a)(e) 200,000 169,415
- -------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 4.25%,(a)(e)(g) 280,000 244,078
- -------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub Deb.,
8.25%, 11/01/24(a) 140,000 181,671
- -------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%,(a)(g) 120,000 120,677
- -------------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 5.25%, 09/21/07 (Acquired 12/14/05;
Cost $230,000)(a)(b)(c) 230,000 230,460
=========================================================================
3,572,376
=========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.57%
Cendant Corp., Sr. Unsec. Global Notes,
6.88%, 08/15/06(a) 315,000 318,345
- -------------------------------------------------------------------------
United Rentals North America, Inc., Sr.
Unsec. Sub Global Notes, 7.75%, 11/15/13(a) 12 12
=========================================================================
318,357
=========================================================================
ELECTRIC UTILITIES-3.80%
Consolidated Edison Co. of New York-Series A,
Unsec. Deb., 7.75%, 06/01/26(a) 300,000 308,988
- -------------------------------------------------------------------------
Duke Capital LLC, Sr. Unsec. Notes, 4.30%,
05/18/06(a) 250,000 249,617
- -------------------------------------------------------------------------
Korea Electric Power Corp. (South Korea),
Unsec. Gtd. Putable Disc. Yankee Deb.,
7.95%, 04/01/16(a)(h) 485,000(f) 302,873
- -------------------------------------------------------------------------
Pepco Holdings, Inc., Unsec. Unsub. Notes,
3.75%, 02/15/06(a) 398,000 397,562
- -------------------------------------------------------------------------
Pinnacle West Capital Corp., Sr. Unsec.
Notes, 6.40%, 04/01/06(a) 120,000 120,395
- -------------------------------------------------------------------------
Progress Energy, Inc., Sr. Unsec. Notes,
6.75%, 03/01/06(a) 745,000 747,287
=========================================================================
2,126,722
=========================================================================
FOOD RETAIL-0.66%
Couche-Tard U.S. L.P./Couche-Tard Finance
Corp., Sr. Sub. Global Notes, 7.50%,
12/15/13(a) 160,000 164,800
- -------------------------------------------------------------------------
Kroger Co. (The), Sr. Unsec. Gtd. Notes,
7.63%, 09/15/06(a) 183,000 186,041
- -------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 6.15%,
03/01/06(a) 20,000 20,043
=========================================================================
370,884
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.39%
Cardinal Health, Inc., Sr. Unsec. Notes,
7.30%, 10/15/06(a) $ 215,000 $ 218,855
=========================================================================
HEALTH CARE SERVICES-0.95%
Caremark Rx, Inc., Sr. Unsec. Notes,
7.38%, 10/01/06(a) 325,000 330,125
- -------------------------------------------------------------------------
Orlando Lutheran Towers Inc., Bonds,
7.75%, 07/01/11(a) 200,000 199,206
=========================================================================
529,331
=========================================================================
HOMEBUILDING-1.25%
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
8.00%, 02/01/09(a) 200,000 212,910
- -------------------------------------------------------------------------
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(a) 400,000 434,480
- -------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 8.00%, 08/15/06(a) 50,000 50,752
=========================================================================
698,142
=========================================================================
HOTELS, RESORTS & CRUISE LINES-0.33%
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(a) 180,000 183,150
=========================================================================
HOUSEHOLD APPLIANCES-0.28%
Stanley Works Capital Trust I, Bonds, 5.90%,
12/01/45 (Acquired 11/15/05; Cost
$155,000)(a)(b) 155,000 154,706
=========================================================================
HOUSEWARES & SPECIALTIES-1.43%
American Greetings Corp., Unsec. Putable
Deb., 6.10%, 08/01/08(a) 790,000 800,388
=========================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.62%
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) 164,782 182,084
- -------------------------------------------------------------------------
NRG Energy, Inc., Sr. Sec. Gtd. Global Notes,
8.00%, 12/15/13(a) 1,000 1,121
- -------------------------------------------------------------------------
TXU Corp.-Series O, Sr. Unsec. Global Notes,
4.80%, 11/15/09(a) 170,000 164,405
=========================================================================
347,610
=========================================================================
INDUSTRIAL CONGLOMERATES-1.47%
Tyco International Group S.A. (Luxembourg),
Sr. Unsec. Gtd. Unsub. Yankee Notes, 6.38%,
02/15/06(a) 314,000 314,546
- -------------------------------------------------------------------------
Tyco International Group S.A. (Luxembourg),
Unsec. Gtd. Unsub. Yankee Notes, 5.80%,
08/01/06(a) 430,000 431,879
- -------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$84,920)(a)(b) 75,000 75,966
=========================================================================
822,391
=========================================================================
INTEGRATED OIL & GAS-2.16%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(a) 300,000 315,201
- -------------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
INTEGRATED OIL & GAS-(CONTINUED)
Husky Oil Ltd. (Canada), Sr. Unsec. Yankee
Notes, 7.13%, 11/15/06(a) $ 300,000 $ 305,112
- -------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(a) 540,000 589,275
=========================================================================
1,209,588
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-4.77%
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 7.20%, 03/01/06(a) 60,000 60,259
- -------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31(a) 260,000 351,450
- -------------------------------------------------------------------------
GTE California Inc.-Series G, Unsec. Deb.,
5.50%, 01/15/09(a) 160,000 158,952
- -------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06(a) 100,000 100,000
- -------------------------------------------------------------------------
Qwest Communications International Inc., Sr.
Unsec. Gtd. Sub. Global Notes, 7.25%,
02/15/11(a) 200,000 205,000
- -------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd.
Global Notes, 7.13%, 01/30/06(a) 125,000 125,217
- -------------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(a) 180,000 235,359
- -------------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(a) 300,000 304,668
- -------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(a) 400,000 505,748
- -------------------------------------------------------------------------
Verizon Maryland Inc.-Series A, Unsec. Global
Notes, 6.13%, 03/01/12(a) 265,000 271,233
- -------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(a) 180,000 187,675
- -------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(a) 175,000 162,414
=========================================================================
2,667,975
=========================================================================
LEISURE PRODUCTS-0.78%
Brunswick Corp., Unsec. Unsub. Notes, 6.75%,
12/15/06(a) 430,000 436,076
=========================================================================
LIFE & HEALTH INSURANCE-1.50%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $93,875)(a)(b) 95,000(f) 98,182
- -------------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost $588,417)(a)(b)(i) 500,000 589,215
- -------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(a) 150,000 154,006
=========================================================================
841,403
=========================================================================
METAL & GLASS CONTAINERS-0.44%
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%,
05/15/13(a) 235,000 243,813
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.22%
Time Warner Cos., Inc., Unsec. Deb., 9.15%,
02/01/23(a) $ 480,000 $ 593,126
- -------------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06(a) 90,000 90,304
=========================================================================
683,430
=========================================================================
MULTI-LINE INSURANCE-0.61%
Hanover Insurance Group Inc., Sr. Unsec.
Unsub. Deb., 7.63%, 10/15/25(a) 330,000 339,983
=========================================================================
MULTI-UTILITIES-0.22%
DTE Energy Co., Sr. Unsec. Unsub. Notes,
6.45%, 06/01/06(a) 120,000 120,784
=========================================================================
MUNICIPALITIES-4.47%
Brownsville (City of), Texas; Refunding &
Improvement Utilities System Series 2005 A
RB, (INS-Ambac Assurance Corp.) 5.00%,
09/01/31(a)(i) 50,000 51,875
- -------------------------------------------------------------------------
Dallas (City of), Texas; Taxable Pension
Limited Tax Series 2005 A GO,
4.61%, 02/15/14(a) 75,000 73,125
- -------------------------------------------------------------------------
5.20%, 02/15/35(a) 125,000 123,863
- -------------------------------------------------------------------------
Detroit (City of), Michigan; Taxable Capital
Improvement Limited Tax Series 2005 A-1 GO,
(INS-Ambac Assurance Corp.) 4.96%,
04/01/20(a)(i) 130,000 125,613
- -------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Taxable Series 2005
A RB,
4.87%, 07/15/16(a) 100,000 98,500
- -------------------------------------------------------------------------
5.22%, 07/15/20(a) 125,000 124,871
- -------------------------------------------------------------------------
5.28%, 01/15/22(a) 100,000 100,000
- -------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 RB, (INS-MBIA
Insurance Corp.) 6.10%, 05/01/24(a)(i) 650,000 675,188
- -------------------------------------------------------------------------
Michigan (State of), Western Michigan
University; Series 2005 RB, (INS-Ambac
Assurance Corp.) 4.41%, 11/15/14(a)(i) 90,000 89,651
- -------------------------------------------------------------------------
New Hampshire (State of); Taxable Unlimited
Tax Series 2005 B GO, 4.65%, 05/15/15(a) 125,000 123,906
- -------------------------------------------------------------------------
Oregon (State of) Community College
Districts; Taxable Pension Limited Tax
Series 2005 GO, (INS-Ambac Assurance Corp.)
4.83%, 06/30/28(a)(i) 185,000 176,331
- -------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB, (INS-Financial Guaranty Insurance
Co.) 3.69%, 07/01/07(a)(i) 225,000 221,735
- -------------------------------------------------------------------------
4.21%, 07/01/08(a)(i) 300,000 296,238
- -------------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
MUNICIPALITIES-(CONTINUED)
Sacramento (County of), California; Taxable
Pension Funding CARS Series 2004 C-1 RB,
(INS-MBIA Insurance Corp.) 3.42%,
07/10/30(a)(i)(j) $ 225,000 $ 219,537
=========================================================================
2,500,433
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.28%
Devon Energy Corp., Sr. Unsec. Notes, 2.75%,
08/01/06(a) 205,000 202,587
- -------------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico),
Unsec. Gtd. Unsub. Global Notes, 8.63%,
02/01/22(a) 675,000 826,943
- -------------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico)-
Series 12, Unsec. Gtd. Unsub. Notes, 5.75%,
12/15/15 (Acquired 06/27/05; Cost
$243,278)(a)(b) 245,000 244,020
=========================================================================
1,273,550
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-7.49%
ING Capital Funding Trust III, Gtd. Trust
Pfd. Global Bonds, 8.44%(a)(g) 250,000 285,003
- -------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87%, (Acquired 06/16/04-07/28/05;
Cost $678,447)(a)(b)(g) 600,000 658,518
- -------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico), Sr. Unsec.
Global Notes, 8.02%, 05/15/07(a) 190,000 193,971
- -------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico)-Series 1999-2,
Class A1, Global Bonds, 9.69%, 08/15/09(a) 356,250 386,446
- -------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $399,732)(a)(b) 400,000 381,496
- -------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 01/10/03-09/22/04; Cost
$525,327)(a)(b) 453,889 534,300
- -------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands)- Class A-1a, Sr. Floating Rate
Notes, 4.53%, 01/25/36 (Acquired 03/21/05;
Cost $500,000)(a)(b)(c)(k) 500,000 495,859
- -------------------------------------------------------------------------
Toll Road Investors Partnership II,
L.P.-Series A, Bonds, (INS-MBIA Insurance
Corp.) 5.56%, 02/15/45 (Acquired
03/11/05-05/03/05; Cost
$561,927)(a)(b)(i)(l) 4,800,000 586,210
- -------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 5.36%, (Acquired
12/07/04; Cost $400,000)(a)(b)(g)(m) 400,000 400,428
- -------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub
Second Tier Euro Bonds, 8.75%,(a)(g) 250,000 271,708
=========================================================================
4,193,939
=========================================================================
PAPER PRODUCTS-0.00%
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd.
Global Notes, 8.50%, 02/01/11(a) 524 293
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-3.84%
ACE INA Holdings, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.30%, 08/15/06(a) $ 130,000 $ 132,570
- -------------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(a) 125,000 134,554
- -------------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(a) 700,000 762,783
- -------------------------------------------------------------------------
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) 410,000 416,581
- -------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Sr. Unsec.
Floating Rate Notes, 4.51%, 10/06/06
(Acquired 10/12/05; Cost $158,800)(a)(b)(m) 160,000 158,660
- -------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired
01/21/04-06/09/05; Cost $569,573)(a)(b) 550,000 543,169
=========================================================================
2,148,317
=========================================================================
RAILROADS-0.11%
Union Pacific Corp., Unsec. Notes, 6.40%,
02/01/06(a) 60,000 60,080
=========================================================================
REAL ESTATE-1.02%
Health Care Property Investors, Inc., Notes,
5.63%, 05/01/17(a) 200,000 197,170
- -------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(a) 125,000 123,404
- -------------------------------------------------------------------------
Summit Properties Partnership, L.P., Medium
Term Notes, 7.04%, 05/09/06(a) 100,000 100,567
- -------------------------------------------------------------------------
Ventas Realty L.P./Ventas Capital Corp., Sr.
Unsec. Gtd. Global Notes, 8.75%,
05/01/09(a) 140,000 151,900
=========================================================================
573,041
=========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.59%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(a) 325,000 330,054
=========================================================================
REGIONAL BANKS-1.97%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 5.96%, 03/01/34(a)(c) 600,000 618,588
- -------------------------------------------------------------------------
Frost National Bank (The), Unsec. Sub. Notes,
6.88%, 08/01/11(a) 200,000 215,526
- -------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 4.98%, 06/01/28(a)(c) 100,000 97,919
- -------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(a) 175,000 172,715
=========================================================================
1,104,748
=========================================================================
REINSURANCE-1.57%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.75%, 06/15/30(a) 175,000 214,874
- -------------------------------------------------------------------------
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(a) 165,000 167,264
- -------------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
REINSURANCE-(CONTINUED)
Stingray Pass-Through Trust, Pass Through
Ctfs., 5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $493,840)(a)(b) $ 500,000 $ 494,365
=========================================================================
876,503
=========================================================================
RESTAURANTS-0.11%
YUM! Brands, Inc., Sr. Unsec. Notes, 8.50%,
04/15/06(a) 60,000 60,581
=========================================================================
SEMICONDUCTOR EQUIPMENT-0.00%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13(a) 12 11
=========================================================================
SOVEREIGN DEBT-2.09%
Federative Republic of Brazil (Brazil)-Series
EI-L, Floating Rate Bonds, 5.19%,
04/15/06(a)(e) 64,000 64,042
- -------------------------------------------------------------------------
Russian Federation (Russia), Unsec. Unsub.
Euro Bonds-REGS, 10.00%, 06/26/07 (Acquired
05/14/04; Cost $364,406)(a)(b) 325,000 348,238
- -------------------------------------------------------------------------
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) 500,000 591,800
=========================================================================
1,168,255
=========================================================================
SPECIALTY CHEMICALS-0.75%
Stauffer Chemical, Deb., 5.73%, 04/15/18
(Acquired 07/25/05; Cost $418,171)(b)(k)(n) 830,000 420,287
=========================================================================
SPECIALTY STORES-0.14%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 80,000 80,400
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.82%
Countrywide Home Loans, Inc.-Series J, Gtd.
Medium Term Global Notes, 5.50%,
08/01/06(a) 716,000 718,735
- -------------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(a) 275,000 301,199
=========================================================================
1,019,934
=========================================================================
TOBACCO-0.31%
Altria Group, Inc., Unsec. Notes, 6.38%,
02/01/06(a) 175,000 175,214
=========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.14%
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) 575,000 638,647
=========================================================================
TRUCKING-1.24%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(a) 650,000 692,439
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-0.49%
Telephone & Data Systems, Inc., Unsec. Notes,
7.00%, 08/01/06(a) $ 275,000 $ 277,186
=========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $43,552,843) 43,126,458
=========================================================================
U.S. MORTGAGE-BACKED SECURITIES-15.20%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-8.31%
Pass Through Ctfs.,
8.50%, 03/01/10(a) 1,084 1,117
- -------------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32(a) 37,925 38,959
- -------------------------------------------------------------------------
6.00%, 05/01/17 to 11/01/33(a) 310,738 314,856
- -------------------------------------------------------------------------
5.50%, 09/01/17(a) 126,475 127,349
- -------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21(a) 1,869,580 1,850,884
- -------------------------------------------------------------------------
5.50%, 01/01/36(a) 2,337,694 2,316,509
=========================================================================
4,649,674
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.26%
Pass Through Ctfs.,
7.00%, 02/01/16 to 09/01/32(a) 62,494 65,163
- -------------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/35(a) 231,255 237,927
- -------------------------------------------------------------------------
6.00%, 05/01/17 to 07/01/17(a) 40,008 40,909
- -------------------------------------------------------------------------
5.00%, 11/01/18(a) 113,762 112,744
- -------------------------------------------------------------------------
7.50%, 04/01/29 to 10/01/29(a) 111,915 117,475
- -------------------------------------------------------------------------
8.00%, 04/01/32(a) 26,767 28,595
- -------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 01/01/21 to 01/01/36(a)(p) 2,138,565 2,124,837
- -------------------------------------------------------------------------
6.00%, 01/01/36(a)(p) 771,075 778,304
=========================================================================
3,505,954
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.63%
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32(a) 30,589 32,372
- -------------------------------------------------------------------------
8.50%, 11/15/24(a) 25,306 27,572
- -------------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31(a) 7,242 7,605
- -------------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32(a) 55,177 57,684
- -------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32(a) 76,417 78,362
- -------------------------------------------------------------------------
5.50%, 02/15/34(a) 145,480 146,525
=========================================================================
350,120
=========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $8,466,797) 8,505,748
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
ASSET-BACKED SECURITIES-6.05%
AEROSPACE & DEFENSE-0.66%
Systems 2001 Asset Trust LLC (Cayman
Islands)- Series 2001, Class G, Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13 (Acquired
02/09/05-10/27/05; Cost $375,106)(a)(b)(i) $ 341,548 $ 367,451
=========================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS-0.24%
Federal Home Loan Bank (FHLB)-Series TQ-2015,
Class A, Pass Through Ctfs., 5.07%,
10/20/15(a) 136,811 136,941
=========================================================================
MULTI-SECTOR HOLDINGS-0.36%
Longport Funding Ltd.-Series 2005-2A, Class
A1J, Floating Rate Bonds, 4.76%, 02/03/40
(Acquired 03/31/05; Cost $200,000)(b)(c)(k) 200,000 200,000
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.17%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
07/14/00-07/27/05; Cost $781,505)(a)(b) 675,000 816,671
- -------------------------------------------------------------------------
Patrons' Legacy 2003-III-Series A, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$512,705)(b)(k) 500,000 504,240
- -------------------------------------------------------------------------
Patrons' Legacy-2004-I-Series A, Ctfs.,
6.67%, 02/04/17 (Acquired 04/30/04; Cost
$1,000,000)(b)(k) 1,000,000 1,016,570
=========================================================================
2,337,481
=========================================================================
PROPERTY & CASUALTY INSURANCE-0.62%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$351,994)(a)(b) 350,000 345,454
=========================================================================
Total Asset-Backed Securities (Cost
$3,350,275) 3,387,327
=========================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-5.52%
DIVERSIFIED BANKS-0.34%
HSBC Capital Funding L.P. (United Kingdom),
4.61% Pfd. (Acquired 11/05/03; Cost
$186,504)(a)(b) 200,000 189,212
=========================================================================
DIVERSIFIED CAPITAL MARKETS-0.77%
UBS Preferred Funding Trust I, 8.62% Pfd(a) 375,000 432,990
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(b)(k)(q)(r) 275 0
=========================================================================
LIFE & HEALTH INSURANCE-0.34%
Aegon N.V. (Netherlands), 6.38% Pfd. 7,500 189,450
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
SHARES VALUE
OTHER DIVERSIFIED FINANCIAL SERVICES-3.09%
Auction Pass-Through Trust-Series 2001-1,
Class A, 5.30% Floating Rate Pfd. (Acquired
10/03/05; Cost $500,000) (Cost
$500,000)(b)(c)(k) 2 $ 500,000
- -------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 4.80%
Floating Rate Pfd. (Acquired
06/03/04-09/28/04; Cost $586,361)(a)(b)(c) 600 597,637
- -------------------------------------------------------------------------
Zurich RegCaPS Funding Trust IV, 4.87%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$244,120)(a)(b)(c) 250 244,539
- -------------------------------------------------------------------------
Zurich RegCaPS Funding Trust VI, 5.05%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$388,587)(a)(b)(c) 400 390,106
=========================================================================
1,732,282
=========================================================================
U.S. AGENCY SECURITIES-0.98%
Fannie Mae-Series J, 4.72% Floating Rate
Pfd.(s) 5,550 277,056
- -------------------------------------------------------------------------
Fannie Mae-Series K, 5.40% Floating Rate
Pfd.(s) 5,450 270,320
=========================================================================
547,376
=========================================================================
Total Stocks & Other Equity Interests
(Cost $3,110,614) 3,091,310
=========================================================================
<Caption>
PRINCIPAL
AMOUNT
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-3.14%(O)
AUSTRALIA-1.05%
New South Wales Treasury Corp. (Sovereign
Debt)- Series 14RG, Gtd. Euro Bonds, 5.50%,
08/01/14(a) AUD 800,000 589,973
=========================================================================
JAPAN-0.85%
Takefuji Corp. (Consumer Finance), Sr. Unsec.
Medium Term Euro Notes, 1.02%,
03/01/34(a)(e) JPY 100,000,000 473,036
=========================================================================
LUXEMBOURG-0.55%
International Bank for Reconstruction &
Development (The) (Diversified
Banks)-Series E, Sr. Unsec. Medium Term
Global Notes, 12.30%, 08/20/07 (a)(n) NZD 500,000 306,066
=========================================================================
UNITED KINGDOM-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 200,029 385,975
=========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $1,663,195) 1,755,050
=========================================================================
U.S. TREASURY SECURITIES-2.23%
U.S. TREASURY INFLATION-INDEXED BONDS-0.28%
2.00%, 07/15/14(a) $ 158,498(f)(t) 157,662
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
U.S. TREASURY NOTES-0.67%
3.13%, 01/31/07(a) $ 200,000 $ 197,250
- -------------------------------------------------------------------------
3.38%, 02/28/07(a) 180,000 177,835
=========================================================================
375,085
=========================================================================
U.S. TREASURY STRIPS-1.28%
4.63%, 11/15/24(a)(u) 325,000 136,246
- -------------------------------------------------------------------------
4.54%, 05/15/25(a)(u) 610,000 248,191
- -------------------------------------------------------------------------
4.71%, 08/15/28(a)(u) 925,000 329,244
=========================================================================
713,681
=========================================================================
Total U.S. Treasury Securities (Cost
$1,254,334) 1,246,428
=========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-1.53%
FEDERAL HOME LOAN BANK (FHLB)-0.53%
Unsec. Global Bonds,
4.10%, 06/13/08(a) 300,000 295,599
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-1.00%
Unsec. Floating Rate Global Notes,
5.83%, 02/17/09(a)(m) 575,000 560,510
=========================================================================
Total U.S. Government Agency Securities
(Cost $873,470) 856,109
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
BUNDLED SECURITIES-0.20%
Targeted Return Index Securities Index Trust-
Series HY 2005-1, Sec. Bonds, 7.65%,
06/15/15 (Acquired 07/20/05; Cost
$115,826)(a)(b) $ 113,689 $ 112,960
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-0.44%
Liquid Assets Portfolio-Institutional
Class(v) 124,432 124,432
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(v) 124,432 124,432
=========================================================================
Total Money Market Funds (Cost $248,864) 248,864
=========================================================================
TOTAL INVESTMENTS-111.37% (Cost $62,636,218) 62,330,254
=========================================================================
OTHER ASSETS LESS LIABILITIES-(11.37%) (6,363,121)
=========================================================================
NET ASSETS-100.00% $55,967,133
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
AUD - Australian Dollar
CARS - Convertible Auction Rate Security
Ctfs. - Certificates
Deb. - Debentures
GBP - British Pound Sterling
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurance
JPY - Japanese Yen
Jr. - Junior
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 Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
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 value of these securities at December 31,
2005 was $58,703,467, which represented 104.89% of the Fund's Net Assets.
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 value of these securities at December 31, 2005 was
$15,546,948, which represented 27.78% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(c) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2005.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The value of this security at December 31, 2005
represented 0.33% of the Fund's Net Assets.
(e) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2005.
(f) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1J and Note 8.
(g) Perpetual bond with no specified maturity date.
(h) Step coupon bond. The interest rate represents the coupon rate at which the
bond will accrue at a specified future date.
(i) Principal and/or interest payments are secured by the bond insurance company
listed.
(j) Bond issued at a discount with a zero coupon. The rate shown represents the
yield at issue to the remarketing date of July 10, 2006. The Bond will be
remarketed or converted to a fixed coupon rate on that date.
(k) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2005 was
$3,136,956, which represented 5.60% of the Fund's Net Assets.
(l) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at time of purchase.
(m) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2005.
(n) Zero coupon bond issued at a discount. The interest rate represents the
coupon rate at which the bond will accrue at a specified future date.
(o) Foreign denominated security. Par value is denominated in currency
indicated.
(p) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1G.
(q) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2005 represented 0.00% of the Fund's Net Assets. See Note 1A.
(r) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(s) Dividend rate is redetermined bi-annually. Rate shown is the rate in effect
on December 31, 2005.
(t) Principal amount of security and interest payments are adjusted for
inflation.
(u) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(v) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $62,387,354) $ 62,081,390
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $248,864) 248,864
=============================================================
Total investments (cost $62,636,218) 62,330,254
=============================================================
Receivables for:
Investments sold 971
- -------------------------------------------------------------
Fund shares sold 6,540
- -------------------------------------------------------------
Dividends and interest 753,510
- -------------------------------------------------------------
Foreign currency contracts outstanding 25,725
- -------------------------------------------------------------
Principal paydowns 12,282
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 44,884
- -------------------------------------------------------------
Other assets 369
=============================================================
Total assets 63,174,535
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 7,035,781
- -------------------------------------------------------------
Fund shares reacquired 54,266
- -------------------------------------------------------------
Variation margin 14,826
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 50,329
- -------------------------------------------------------------
Accrued administrative services fees 27,683
- -------------------------------------------------------------
Accrued distribution fees -- Series II 584
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 104
- -------------------------------------------------------------
Accrued transfer agent fees 663
- -------------------------------------------------------------
Accrued operating expenses 23,166
=============================================================
Total liabilities 7,207,402
=============================================================
Net assets applicable to shares outstanding $ 55,967,133
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 73,525,487
- -------------------------------------------------------------
Undistributed net investment income 2,867,820
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts and futures
contracts (20,168,968)
- -------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities, foreign currencies,
foreign currency contracts and futures
contracts (257,206)
=============================================================
$ 55,967,133
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 55,064,992
_____________________________________________________________
=============================================================
Series II $ 902,141
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,529,767
_____________________________________________________________
=============================================================
Series II 107,895
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 8.43
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 8.36
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $ 3,196,010
- ------------------------------------------------------------
Dividends 95,739
- ------------------------------------------------------------
Dividends from affiliated money market funds 21,063
============================================================
Total investment income 3,312,812
============================================================
EXPENSES:
Advisory fees 365,805
- ------------------------------------------------------------
Administrative services fees 154,692
- ------------------------------------------------------------
Custodian fees 24,882
- ------------------------------------------------------------
Distribution fees -- Series II 2,382
- ------------------------------------------------------------
Transfer agent fees 8,531
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,796
- ------------------------------------------------------------
Professional services fees 49,248
- ------------------------------------------------------------
Other 36,469
============================================================
Total expenses 658,805
============================================================
Less: Fees waived (111,016)
============================================================
Net expenses 547,789
============================================================
Net investment income 2,765,023
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities 432,659
- ------------------------------------------------------------
Foreign currencies (749)
- ------------------------------------------------------------
Foreign currency contracts 101,217
- ------------------------------------------------------------
Futures contracts (4,049)
============================================================
529,078
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,671,587)
- ------------------------------------------------------------
Foreign currencies (6,159)
- ------------------------------------------------------------
Foreign currency contracts 178,123
- ------------------------------------------------------------
Futures contracts (63,257)
============================================================
(1,562,880)
============================================================
Net gain (loss) from investment securities,
foreign currencies, foreign currency
contracts and futures contracts (1,033,802)
============================================================
Net increase in net assets resulting from
operations $ 1,731,221
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,765,023 $ 2,790,905
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and futures
contracts 529,078 889,949
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (1,562,880) (318,536)
=========================================================================================
Net increase in net assets resulting from operations 1,731,221 3,362,318
=========================================================================================
Distributions to shareholders from net investment income:
Series I (3,444,080) (3,692,613)
- -----------------------------------------------------------------------------------------
Series II (56,114) (55,546)
=========================================================================================
Decrease in net assets resulting from distributions (3,500,194) (3,748,159)
=========================================================================================
Share transactions-net:
Series I (8,266,475) (6,418,302)
- -----------------------------------------------------------------------------------------
Series II (46,419) 231,857
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (8,312,894) (6,186,445)
=========================================================================================
Net increase (decrease) in net assets (10,081,867) (6,572,286)
=========================================================================================
NET ASSETS:
Beginning of year 66,049,000 72,621,286
=========================================================================================
End of year (including undistributed net investment income
of $2,867,820 and $3,434,766, respectively) $ 55,967,133 $66,049,000
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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. DIVERSIFIED INCOME 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 are 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 recorded at amortized cost which approximates 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. Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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. Based on the typical structure of dollar roll
transactions by the Fund, fee income is agreed upon amongst the parties at
the commencement of the dollar roll. This fee income is amortized to income
ratably over the term of the dollar roll. During the period between the
sale and purchase settlement dates, the Fund will not be entitled to
receive interest and principal payments on securities purchased and not yet
settled. 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.
H. 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.
I. 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.
J. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are 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.
K. 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.
L. 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 replace 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 V.I. DIVERSIFIED INCOME 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 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 numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on
short sales; (iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $111,016.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $104,692 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 year ended
December 31, 2005, the Fund paid AISI $8,531.
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 year ended December
31, 2005, the Series II shares paid $2,382.
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 year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 866,287 $12,887,799 $(13,629,654) $ -- $124,432 $10,492 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 866,287 12,887,799 (13,629,654) -- 124,432 10,571 --
==================================================================================================================================
Total $1,732,574 $25,775,598 $(27,259,308) $ -- $248,864 $21,063 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $310,415.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,116
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------------
CONTRACT TO
SETTLEMENT ---------------------- UNREALIZED
DATE CURRENCY DELIVER RECEIVE VALUE APPRECIATION
- -------------------------------------------------------------------------------------
01/20/06 Australian Dollar 770,000 $ 573,473 $ 564,114 $ 9,359
- -------------------------------------------------------------------------------------
03/13/06 Great British Pound 225,000 394,875 387,085 7,790
- -------------------------------------------------------------------------------------
03/13/06 New Zealand Dollar 435,000 303,821 295,245 8,576
=====================================================================================
1,430,000 $1,272,169 $1,246,444 $25,725
_____________________________________________________________________________________
=====================================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 8--FUTURES CONTRACTS
On December 31, 2005, $1,700,000 principal amount of U.S. Treasury and corporate
obligations were pledged as collateral to cover margin requirements for open
futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/05 (DEPRECIATION)
- -----------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 8 March-07/Long $1,905,000 $ (2,778)
- -----------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 6 September-06/Long 1,427,400 (6,255)
- -----------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 24 December-06/Long 5,712,300 (26,582)
- -----------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 62 March-06/Long 12,721,625 3,034
- -----------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 3 March-06/Short (319,031) (765)
- -----------------------------------------------------------------------------------------
U.S. Treasury 10 Year
Notes 29 March-06/Long 3,172,781 47,199
- -----------------------------------------------------------------------------------------
U.S. Treasury 30 Year
Bonds 4 March-06/Long 456,750 8,355
- -----------------------------------------------------------------------------------------
Japan 10 Year Bond 1 March-06/Short (1,164,674) 1,643
=========================================================================================
$23,912,151 $ 23,851
_________________________________________________________________________________________
=========================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $3,500,194 $3,748,159
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,918,580
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) -- investments (300,511)
- ----------------------------------------------------------------------------
Temporary book/tax differences (55,421)
- ----------------------------------------------------------------------------
Capital loss carryforward (20,121,002)
- ----------------------------------------------------------------------------
Shares of beneficial interest 73,525,487
============================================================================
Total net assets $ 55,967,133
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, defaulted bonds and partnership items. The tax-basis unrealized
appreciation (depreciation) on investments amount includes appreciation
(depreciation) on foreign currencies, futures contracts and defaulted bonds of
$9,811.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $20,121,003 of capital loss carryforward in the fiscal
year ended December 31, 2006.
AIM V.I. DIVERSIFIED INCOME FUND
The Fund utilized $168,342 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2006 $ 116,458
- -----------------------------------------------------------------------------
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 $20,121,002
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $55,045,898 and $62,040,808, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 647,565
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (957,887)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $ (310,322)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $62,640,576.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and paydown reclassifications, on December 31, 2005, undistributed
net investment income was increased by $168,225 and undistributed net realized
gain (loss) was decreased by $168,225. This reclassification had no effect on
the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(A) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 4,117,347 $ 35,952,572 731,021 $ 6,558,756
- ----------------------------------------------------------------------------------------------------------------------
Series II 91,797 794,699 25,137 224,174
======================================================================================================================
Issued as reinvestment of dividends:
Series I 411,971 3,444,080 422,495 3,692,613
- ----------------------------------------------------------------------------------------------------------------------
Series II 6,769 56,114 6,399 55,546
======================================================================================================================
Reacquired:
Series I (5,441,529) (47,663,127) (1,857,496) (16,669,671)
- ----------------------------------------------------------------------------------------------------------------------
Series II (103,637) (897,232) (5,373) (47,863)
======================================================================================================================
(917,282) $ (8,312,894) (677,817) $ (6,186,445)
______________________________________________________________________________________________________________________
======================================================================================================================
</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 entities are also owned beneficially.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.74 $ 8.82 $ 8.60 $ 9.13 $ 9.49
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40(a) 0.36(a) 0.42(a) 0.55(a) 0.67(a)(b)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.15) 0.08 0.37 (0.35) (0.35)
====================================================================================================================
Total from investment operations 0.25 0.44 0.79 0.20 0.32
====================================================================================================================
Less dividends from net investment income (0.56) (0.52) (0.57) (0.73) (0.68)
====================================================================================================================
Net asset value, end of period $ 8.43 $ 8.74 $ 8.82 $ 8.60 $ 9.13
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 2.90% 5.03% 9.24% 2.30% 3.48%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,065 $65,069 $71,860 $70,642 $79,875
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 0.89%(d)(e) 1.01% 0.95% 0.94% 0.93%
====================================================================================================================
Ratio of net investment income to average net assets 4.54%(d) 4.01% 4.71% 6.15% 6.87%(b)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 92% 113% 153% 86% 79%
____________________________________________________________________________________________________________________
====================================================================================================================
</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%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $60,014,856.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.08%.
<Table>
<Caption>
SERIES II
--------------------------------------------------
MARCH 14, 2002
YEAR ENDED DECEMBER 31, (DATE SALES
----------------------------- COMMENCED) TO
2005 2004 2003 DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.67 $8.78 $8.58 $ 8.97
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38(a) 0.33(a) 0.40(a) 0.42(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.15) 0.08 0.37 (0.08)
================================================================================================================
Total from investment operations 0.23 0.41 0.77 0.34
================================================================================================================
Less dividends from net investment income (0.54) (0.52) (0.57) (0.73)
================================================================================================================
Net asset value, end of period $8.36 $8.67 $8.78 $ 8.58
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 2.67% 4.69% 9.02% 3.90%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 902 $ 980 $ 762 $ 124
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets 1.14%(c)(d) 1.26% 1.20% 1.19%(e)
================================================================================================================
Ratio of net investment income to average net assets 4.29%(c) 3.76% 4.46% 5.90%(e)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 92% 113% 153% 86%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average net assets of $952,698.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.33%.
(e) Annualized.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Diversified Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Diversified Income Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. DIVERSIFIED INCOME FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations.
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2001 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William P. Kethler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. DYNAMICS FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. DYNAMICS FUND seeks to provide long-term capital growth.
UNLESS OTHERWISE STATED,INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. DYNAMICS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE improved processes which may lead to
rapid sales or earnings growth.
===================================================================================
PERFORMANCE SUMMARY We strive to control volatility and
======================================== risk by diversifying Fund holdings
Our focus on mid-cap stocks, the FUND VS. INDEXES across sectors.
best-performing domestic equity category
for the year, helped your Fund post TOTAL RETURNS, 12/31/04-12/31/05, We consider selling a stock if:
double-digit gains for the year. EXCLUDING VARIABLE PRODUCT ISSUER
CHARGES. IF VARIABLE PRODUCT ISSUER o a company's fundamentals deteriorate
The Fund outperformed the large-cap CHARGES WERE INCLUDED, RETURNS WOULD BE
oriented S&P 500 Index largely due to LOWER. o a stock's price reaches our valuation
strong returns by investments in the target.
consumer discretionary, energy and Series I Shares 10.72%
telecommunication services sectors. o a company moves into the large
However, the Fund underperformed the Series II Shares 10.44 capitalization range
Russell Midcap Growth Index, as many
of our health care and industrials Standard & Poor's Composite o we find a more attractive investment
holdings underperformed those of the Index of 500 Stocks (S&P 500 option
index. Index) (Broad Market Index) 4.91
MARKET CONDITIONS AND YOUR FUND
For long-term performance, see Pages Russell Midcap Growth Index
4 and 5. (Style-specific Index) 12.10 While higher gasoline prices, rising
short-term interest rates and the
Lipper Mid-Cap Growth Fund ongoing concern of a housing bubble
Index (Peer Group Index) 9.58 seemed to dominate the popular press,
the U.S. economy continued its expansion
SOURCE: LIPPER,INC. and inflation remained low. Against this
======================================== diverse backdrop, equity markets
delivered single digit gains during
================================================================================ 2005.
HOW WE INVEST of companies with large potential In this environment, the sectors that
markets, cash-generating business contributed the most to Fund performance
We select stocks based on an analysis of models, improving balance sheets and were energy, consumer discretionary and
individual companies, focusing on solid management teams; telecommunication services. Holdings in
mid-cap growth companies that are the health care and industrials sectors
favorably priced relative to the rest of o Using a variety of valuation detracted from the Fund's performance
the market. techniques to determine target buy relative to the Russell Midcap Growth
prices and a stock's valuation upside Index.
Our investment process involves: and downside potential.
The energy sector was the leading
o Identifying medium-sized companies The resulting portfolio contains both contributor to Fund returns during the
with sustainable revenue and earnings "core holdings," industry leaders year. Oil services holdings
growth and that have low stock prices serving growing, non-cyclical markets NATIONAL-OILWELL VARCO, and GRANT
relative to their projected growth whose earnings tend to be less variable PRIDECO benefited from strong demand for
rates; with economic conditions; and their products and services as companies
"earnings-acceleration" holdings driven moved quickly to take advantage of high
o Applying fundamental research, by near-term catalysts such as new oil prices. Other key contributors in
including financial statement analysis, products or this sector included WILLIAMS COMPANIES
to identify stocks and MURPHY OIL CORP.
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Semiconductors 7.0% 1. American Tower Corp.-Class A 2.5%
Information Technology 22.5% 2. Application Software 4.9 2. Polo Ralph Lauren Corp. 1.6
Consumer Discretionary 19.8 3. Wireless Telecommunication 3. CB Richard Ellis Group,
Services 4.6 Inc.-Class A 1.5
Health Care 15.9
4. Health Care Equipment 4.1 4. Grant Prideco, Inc. 1.4
Energy 12.7
5. Oil & Gas Equipment & 5. National Semiconductor Corp. 1.3
Industrials 9.1 Services 3.8
6. Chicago Mercantile Exchange
Financials 8.9 Holdings Inc. 1.3
TOTAL NET ASSETS $111.7 MILLION
Telecommunication Services 5.4 TOTAL NUMBER OF HOLDINGS* 110 7. National-Oilwell Varco Inc. 1.3
Consumer Staples 2.7 8. Corrections Corp. of America 1.3
Materials 1.1 9. Microchip Technology Inc. 1.3
Money Market Funds 10. Williams Cos., Inc. (The) 1.3
Plus Other Assets Less
Liabilities 1.9
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.
======================================= ======================================= =========================================
2
AIM V.I. DYNAMICS FUND
attractive. PAUL J. RASPLICKA,
[RASPLICKA Chartered Financial Analyst
The consumer discretionary sector was While the overall performance of our PHOTO] and senior portfolio
another area of strength for the Fund. health care holdings was disappointing, manager, is lead portfolio
While many consumer discretionary stocks there was a noteworthy exception. manager of AIM V.I. Dynamics
were negatively affected by rising oil EXPRESS SCRIPTS, a pharmacy benefits Fund. Mr. Rasplicka began
and gas prices during the year, we management company, was our his investment career in 1982. A native
focused on companies whose customers best-performing stock for the year. The of Denver, Mr. Rasplicka is a magna cum
were less likely to be affected by these company benefited from increased use of laude graduate of the University of
trends. Examples of holdings that generic drugs and home delivery of Colorado at Boulder with a B.S. in
performed well for the Fund included pharmaceutical products. business administration. He received an
NORDSTROM, ABERCROMBIE & FITCH and POLO M.B.A. from the University of Chicago.
RALPH LAUREN. A second area that detracted from the
Fund's relative performance was the KARL F. FARMER, Chartered
ADVANCE AUTO PARTS, another key industrials sector. Within this sector, [FARMER Financial Analyst, and
contributor in the consumer Fund holding AMERICAN STANDARD was one PHOTO] portfolio manager, is
discretionary sector, is particularly of the most significant detractors. The portfolio manager of AIM
reflective of our investment discipline. stock price of this company declined V.I. Dynamics Fund. He spent
This auto parts retailer is led by a after the company reported weak sales of six years as a pension
talented management team that has been its kitchen and bath plumbing fixtures actuary, focusing on retirement plans
highly successful in orchestrating a line. Other significant detractors in and other benefit programs prior to
turnaround, leading to improvements in the industrials sector included joining AIM in 1998. He earned a B.S. in
profit margins and growth in revenues. temporary employee staffing company economics from Texas A&M University,
The company also continues to gain MANPOWER and truckload carrier SWIFT graduating magna cum laude. He
market share and is now the second TRANSPORTATION. All three holdings were subsequently earned his M.B.A. in
largest auto parts retailer in the U.S. subsequently sold. finance from The Wharton School at the
Despite the recent run-up in market University of Pennsylvania.
prices, our long-term view of Advance IN CLOSING
Auto Parts remains favorable, and we Assisted by the Mid-Cap Growth/GARP
believe the shares have potential for We are pleased to have provided positive (Growth-at-a Reasonable Price) Team
further increases as the company returns for our investors for the
continues to remodel existing stores, reporting period. We remain committed to
open new stores in attractive markets our investment process of focusing on
and improve sales margins. the attractively priced stocks of
mid-cap companies with growing earnings.
Several telecommunication services We believe our strategy has the
holdings also made significant potential to provide investors with
contributions to performance during the attractive returns over the long term
year, including communications tower and thank your for your commitment to
operator AMERICAN TOWER. The stock price AIM V.I. Dynamics Fund.
of this holding appreciated during the
year, as the company merged with former THE VIEWS AND OPINIONS EXPRESSED IN
rival SpectraSite and benefited from MANAGEMENT'S DISCUSSION OF FUND
strong demand from wireless PERFORMANCE ARE THOSE OF A I M ADVISORS,
communication companies that lease space INC. THESE VIEWS AND OPINIONS ARE
on its towers. We retained most of the SUBJECT TO CHANGE AT ANY TIME BASED ON
shares in the "new" American Tower, FACTORS SUCH AS MARKET AND ECONOMIC
which explains the large position held CONDITIONS. THESE VIEWS AND OPINIONS MAY
by the Fund. NOT BE RELIED UPON AS INVESTMENT ADVICE
OR RECOMMENDATIONS, OR AS AN OFFER FOR A
Despite achieving a positive return PARTICULAR SECURITY. THE INFORMATION IS
in the health care sector, the Fund lost NOT A COMPLETE ANALYSIS OF EVERY ASPECT
ground to its style-specific Russell OF ANY MARKET, COUNTRY, INDUSTRY,
Midcap Growth Index largely due to SECURITY OR THE FUND. STATEMENTS OF FACT
underperformance by several holdings. ARE FROM SOURCES CONSIDERED RELIABLE,
One example is equipment manufacturer BUT A I M ADVISORS, INC. MAKES NO
KINETIC CONCEPTS. Its stock price REPRESENTATION OR WARRANTY AS TO THEIR
declined after a government agency COMPLETENESS OR ACCURACY. ALTHOUGH [RIGHT ARROW GRAPHIC]
reduced the company's reimbursement for HISTORICAL PERFORMANCE IS NO GUARANTEE
some of its products. We continued to OF FUTURE RESULTS, THESE INSIGHTS MAY FOR A DISCUSSION OF THE RISKS OF
own the stock as we believe the company HELP YOU UNDERSTAND OUR INVESTMENT INVESTING IN YOUR FUND, INDEXES USED IN
will eventually resolve this issue and MANAGEMENT PHILOSOPHY. THIS REPORT AND YOUR FUND'S LONG-TERM
that its business fundamentals will PERFORMANCE, PLEASE TURN TO PAGES 4 AND
remain 5.
3
AIM V.I. DYNAMICS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/22/97, index data from 8/31/97
====================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. LIPPER MID-CAP RUSSELL S&P 500
DYNAMICS FUND- GROWTH FUND MIDCAP GROWTH INDEX
SERIES I SHARES INDEX INDEX
8/22/97 $10000
8/97 9930 $10000 $10000 $10000
9/97 10610 10716 10506 10547
10/97 10240 10116 9980 10196
11/97 10190 9954 10085 10667
12/97 10340 10187 10217 10850
1/98 10290 9995 10033 10970
2/98 11240 10843 10977 11761
3/98 11889 11405 11437 12363
4/98 12069 11455 11592 12489
5/98 11609 10787 11115 12275
6/98 12179 11283 11430 12773
7/98 11619 10532 10940 12638
8/98 8959 8261 8852 10812
9/98 9749 9123 9522 11505
10/98 10550 9458 10223 12440
11/98 10980 10177 10912 13193
12/98 12341 11490 12043 13953
1/99 13184 12060 12404 14536
2/99 12462 11124 11797 14085
3/99 13549 11917 12454 14648
4/99 14148 12405 13022 15215
5/99 14077 12354 12854 14856
6/99 14849 13350 13751 15679
7/99 14524 13167 13314 15191
8/99 14229 13100 13175 15116
9/99 14412 13483 13063 14702
10/99 15682 14675 14073 15632
11/99 16855 16515 15530 15950
12/99 19201 19960 18220 16888
1/00 18917 19618 18216 16040
2/00 23001 24534 22046 15736
3/00 21985 22807 22068 17275
4/00 20085 19798 19926 16755
5/00 18926 18019 18473 16412
6/00 21822 20819 20434 16816
7/00 21141 19955 19140 16553
8/00 24158 22565 22026 17581
9/00 24047 21480 20949 16653
10/00 22056 19743 19516 16582
11/00 17298 15615 15275 15276
12/00 18518 16740 16079 15351
1/01 19147 16968 16998 15895
2/01 15527 14422 14057 14447
3/01 13240 12892 12046 13532
4/01 15416 14592 14053 14583
5/01 15162 14712 13987 14681
6/01 14989 14655 13995 14323
7/01 13881 13884 13051 14182
8/01 12518 12954 12105 13295
9/01 9864 11086 10104 12222
10/01 10912 11703 11167 12455
11/01 12366 12664 12369 13410
12/01 12754 13213 12839 13528
1/02 12570 12708 12422 13330
2/02 11401 12076 11718 13073
3/02 12316 12837 12612 13565
4/02 11502 12410 11944 12743
5/02 11024 11996 11588 12649
6/02 9773 10919 10309 11749
7/02 8827 9741 9308 10833
8/02 8633 9625 9275 10904
9/02 7942 9027 8538 9720
10/02 8765 9482 9200 10575
11/02 9345 10045 9920 11197
12/02 8684 9451 9320 10539
1/03 8684 9311 9229 10264
2/03 8542 9167 9149 10109
3/03 8633 9299 9319 10207
4/03 9233 9951 9953 11048
5/03 9925 10774 10911 11629
6/03 10066 10942 11067 11778
7/03 10412 11374 11462 11985
8/03 10920 11933 12094 12219
9/03 10554 11533 11859 12089
10/03 11480 12438 12815 12773
11/03 11836 12733 13158 12885
12/03 11968 12799 13301 13560
1/04 12253 13122 13741 13809
2/04 12375 13303 13971 14001
3/04 12294 13300 13944 13790
4/04 12141 12878 13551 13574
5/04 12344 13158 13870 13760
6/04 12517 13475 14091 14027
7/04 11663 12517 13158 13563
8/04 11491 12301 12996 13617
9/04 11969 12827 13481 13765
10/04 12253 13206 13938 13975
11/04 13006 13940 14658 14540
12/04 13565 14595 15360 15035
1/05 13311 14123 14949 14669
2/05 13546 14305 15328 14977
3/05 13363 14020 15104 14712
4/05 12621 13345 14506 14433
5/05 13313 14137 15337 14892
6/05 13730 14460 15622 14913
7/05 14594 15292 16534 15468
8/05 14615 15245 16433 15327
9/05 14646 15511 16645 15451
10/05 14117 15080 16155 15193
11/05 14850 15895 17032 15767
12/05 $15022 $15992 $17219 $15773
====================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. DYNAMICS FUND
=======================================
AVERAGE ANNUAL TOTAL RETURNS INCEPTION DATE OF SERIES I SHARES IS PRODUCTS. YOU CANNOT PURCHASE SHARES OF
AUGUST 22, 1997. SERIES I AND SERIES II THE FUND DIRECTLY. PERFORMANCE FIGURES
As of 12/31/05 SHARES INVEST IN THE SAME PORTFOLIO OF GIVEN REPRESENT THE FUND AND ARE NOT
SECURITIES AND WILL HAVE SUBSTANTIALLY INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES SIMILAR PERFORMANCE, EXCEPT TO THE PRODUCT VALUES. THEY DO NOT REFLECT
Inception (8/22/97) 4.99% EXTENT THAT EXPENSES BORNE BY EACH CLASS SALES CHARGES, EXPENSES AND FEES
5 Years -4.10 DIFFER. ASSESSED IN CONNECTION WITH A VARIABLE
1 Year 10.72 PRODUCT. SALES CHARGES, EXPENSES AND
THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
Inception 4.73% COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
5 Years -4.34 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 10.44 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST RECENT
ISSUER OR FINANCIAL ADVISOR FOR THE MOST MONTH-END PERFORMANCE DATA AT THE FUND
======================================= RECENT MONTH-END VARIABLE PRODUCT LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 9.41% WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 9.29 GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
======================================= AIM V.I. DYNAMICS FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE
RETURNS SINCE APRIL 30, 2004, THE FUNDS, IS CURRENTLY OFFERED THROUGH
INCEPTION DATE OF SERIES II SHARES, ARE INSURANCE COMPANIES ISSUING VARIABLE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF 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
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT include reinvested dividends, and they
do not reflect sales charges.
At any given time, the Fund may be The unmanaged Standard & Poor's Performance of an index of funds
subject to sector risk, which means a Composite Index of 500 Stocks (the S&P reflects fund expenses; performance of a
certain sector may underperform other 500 --REGISTERED TRADEMARK-- INDEX) is market index does not.
sectors or the market as a whole. The an index of common stocks frequently
Fund is not limited with respect to the used as a general measure of U.S. stock OTHER INFORMATION
sectors in which it can invest. market performance.
The returns shown in the Management's
Investing in smaller companies The unmanaged LIPPER MID-CAP GROWTH Discussion of Fund Performance are based
involves greater risk than investing in FUND INDEX represents an average of the on net asset values calculated for
more established companies, such as performance of the 30 largest shareholder transactions. Generally
business risk, significant stock price mid-capitalization growth funds tracked accepted accounting principles require
fluctuations and illiquidity. by Lipper, Inc., an independent mutual adjustments to be made to the net assets
fund performance monitor. of the Fund at period end for financial
The Fund may invest up to 25% of its reporting purposes, and as such, the net
assets in the securities of non-U.S. The unmanaged RUSSELL asset value for shareholder transactions
issuers. Securities of Canadian issuers MIDCAP--REGISTERED TRADEMARK-- GROWTH and the returns based on those net asset
and American Depositary Receipts are not INDEX is a subset of the RUSSELL values may differ from the net asset
subject to this 25% limitation. MIDCAP--REGISTERED TRADEMARK-- INDEX, values and returns reported in the
International investing presents certain which represents the performance of the Financial Highlights. Additionally, the
risks not associated with investing stocks of domestic mid-capitalization returns and net asset values shown
solely in the United States. These companies; the Growth subset measures throughout this report are at the Fund
include risks relating to fluctuations the performance of Russell Midcap level only and do not include variable
in the value of the U.S. dollar relative companies with higher price/book ratios product issuer charges. If such charges
to the values of other currencies, the and higher forecasted growth values. were included, the total returns would
custody arrangements made for the Fund's be lower.
foreign holdings, differences in The Fund is not managed to track the
accounting, political risks and the performance of any particular index, Industry classifications used in this
lesser degree of public information including the indexes defined here, and report are generally according to the
required to be provided by non-U.S. consequently, the performance of the Global Industry Classification Standard,
companies. Fund may deviate significantly from the which was developed by and is the
performance of the indexes. exclusive property and a service mark of
Portfolio turnover is greater than Morgan Stanley Capital International
that of most funds, which may affect A direct investment cannot be made in Inc. and Standard & Poor's.
performance. an index. Unless otherwise indicated,
index results
5
AIM V.I. DYNAMICS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES year before expenses, which is not the
Fund's actual return. The Fund's actual
As a shareholder of the Fund, you incur The table below provides information cumulative total returns at net asset
ongoing costs, including management about actual account values and actual value after expenses for the six months
fees; distribution and/or service fees expenses. You may use the information in ended December 31, 2005, appear in the
(12b-1); and other Fund expenses. This this table, together with the amount you table "Cumulative Total Returns" on
example is intended to help you invested, to estimate the expenses that Page 5.
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
July 1, 2005, through December 31, 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 in
product; if they did, the expenses shown The table below also provides 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 help you determine the relative total
costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,094.10 $6.18 $1,019.31 $5.96 1.17%
Series II 1,000.00 1,092.90 7.49 1,018.05 7.22 1.42
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. DYNAMICS FUND
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
the management of AIM V.I. Dynamics Fund credentials and experience of the AIM 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 was satisfactory.
agreement with A I M Advisors, Inc. qualifications of AIM to provide
("AIM"). Based upon the recommendation investment advisory services, the Board o Fees relative to those of clients of
of the Investments Committee of the reviewed the qualifications of AIM's AIM with comparable investment
Board, which is comprised solely of investment personnel and considered such strategies. The Board reviewed the
independent trustees, at a meeting held issues as AIM's portfolio and product advisory fee rate for the Fund under the
on June 30, 2005, the Board, including review process, various back office Advisory Agreement. The Board noted that
all of the independent trustees, support functions provided by AIM and this rate (i) was higher than the
approved the continuance of the advisory AIM's equity and fixed income trading advisory fee rates for a mutual fund
agreement (the "Advisory Agreement") operations. Based on the review of these advised by AIM with investment
between the Fund and AIM for another and other factors, the Board concluded strategies comparable to those of the
year, effective July 1, 2005. that the quality of services to be Fund; and (ii) was higher than the
provided by AIM was appropriate and that sub-advisory fee rates for two
The Board considered the factors AIM currently is providing satisfactory unaffiliated mutual funds for which an
discussed below in evaluating the services in accordance with the terms of AIM affiliate serves as sub-advisor,
fairness and reasonableness of the the Advisory Agreement. although the total management fees paid
Advisory Agreement at the meeting on by such unaffiliated mutual funds were
June 30, 2005 and as part of the Board's o The performance of the Fund relative higher than the advisory fee rate for
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed the Fund. The Board noted that AIM has
deliberations, the Board and the the performance of the Fund during the agreed to waive advisory fees of the
independent trustees did not identify past one, three and five calendar years Fund and to limit the Fund's total
any particular factor that was against the performance of funds advised operating expenses, as discussed below.
controlling, and each trustee attributed by other advisors with investment Based on this review, the Board
different weights to the various strategies comparable to those of the concluded that the advisory fee rate for
factors. Fund. The Board noted that the Fund's the Fund under the Advisory Agreement
performance in such periods was below was fair and reasonable.
One of the responsibilities of the the median performance of such
Senior Officer of the Fund, who is comparable funds. The Board also noted o Fees relative to those of comparable
independent of AIM and AIM's affiliates, that AIM began serving as investment funds with other advisors. The Board
is to manage the process by which the advisor to the Fund in April 2004. The reviewed the advisory fee rate for the
Fund's proposed management fees are Board noted that AIM has recently made Fund under the Advisory Agreement. The
negotiated to ensure that they are changes to the Fund's portfolio Board compared effective contractual
negotiated in a manner which is at arm's management team, which appear to be advisory fee rates at a common asset
length and reasonable. To that end, the producing encouraging early results but level and noted that the Fund's rate was
Senior Officer must either supervise a need more time to be evaluated before a above the median rate of the funds
competitive bidding process or prepare conclusion can be made that the changes advised by other advisors with
an independent written evaluation. The have addressed the Fund's investment strategies comparable to
Senior Officer has recommended an under-performance. Based on this review, those of the Fund that the Board
independent written evaluation in lieu the Board concluded that no changes reviewed. The Board noted that AIM has
of a competitive bidding process and, should be made to the Fund and that it agreed to waive advisory fees of the
upon the direction of the Board, has was not necessary to change the Fund's Fund and to limit the Fund's total
prepared such an independent written portfolio management team at this time. operating expenses, as discussed below.
evaluation. Such written evaluation also Based on this review, the Board
considered certain of the factors o The performance of the Fund relative concluded that the advisory fee rate for
discussed below. In addition, as to indices. The Board reviewed the the Fund under the Advisory Agreement
discussed below, the Senior Officer made performance of the Fund during the past was fair and reasonable.
certain recommendations to the Board in one, three and five calendar years
connection with such written evaluation. against the performance of the Lipper o Expense limitations and fee waivers.
Mid-Cap Growth Index. The Board noted The Board noted that AIM has
The discussion below serves as a that the Fund's performance was contractually agreed to waive advisory
summary of the Senior Officer's comparable to the performance of such fees of the Fund through June 30, 2006
independent written evaluation and Index for the one year period and below to the extent necessary so that the
recommendations to the Board in such Index for the three and five year advisory fees payable by the Fund do not
connection therewith, as well as a periods. The Board also noted that AIM exceed a specified maximum advisory fee
discussion of the material factors and began serving as investment advisor to rate, which maximum rate includes
the conclusions with respect thereto the Fund in April 2004. The Board noted breakpoints and is based on net asset
that formed the basis for the Board's that AIM has recently made changes to levels. The Board considered the
approval of the Advisory Agreement. the Fund's portfolio management team, contractual nature of this fee waiver
After consideration of all of the which appear to be producing encouraging and noted that it remains in effect
factors below and based on its informed early results but need more time to be until June 30, 2006. The Board noted
business judgment, the Board determined evaluated before a conclusion can be that AIM has contractually agreed to
that the Advisory Agreement is in the made that the changes have addressed the waive fees and/or limit expenses of the
best interests of the Fund and its Fund's under-performance. Based on this Fund through April 30, 2006 in an amount
shareholders and that the compensation review, the Board concluded that no necessary to limit total annual
to AIM under the Advisory Agreement is changes should be made to the Fund and operating expenses to a specified
fair and reasonable and would have been that it was not necessary to change the percentage of average daily net assets
obtained through arm's length Fund's portfolio management team at this for each class of the Fund. The Board
negotiations. time. considered the contractual nature of
this fee waiver/expense limitation and
o The nature and extent of the advisory o Meeting with the Fund's portfolio noted that it remains in effect until
services to be provided by AIM. The managers and investment personnel. With April 30, 2006. The Board considered the
Board reviewed the services to be respect to the Fund, the Board is effect these fee waivers/expense
provided by AIM under the Advisory meeting periodically with such Fund's limitations would have on the Fund's
Agreement. Based on such review, the portfolio managers and/or other estimated expenses and concluded that
Board concluded that the range of investment personnel and believes that the levels of fee waivers/expense
services to be provided by AIM under the such individuals are competent and able limitations for the Fund were fair and
Advisory Agreement was appropriate and to continue to carry out their reasonable.
that AIM currently is providing services responsibilities under the Advisory
in accordance with the terms of the Agreement.
Advisory Agreement.
(continued)
7
AIM V.I. DYNAMICS FUND
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 does not their direction, the Senior Officer of Fund, the Board also considered the
include any breakpoints. The Board the Fund, who is independent of AIM and prior relationship between AIM and the
considered whether it would be AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
appropriate to add advisory fee independent written evaluation in order of AIM's operations, and concluded that
breakpoints for the Fund or whether, due to assist the Board in determining the it was beneficial to maintain the
to the nature of the Fund and the reasonableness of the proposed current relationship, in part, because
advisory fee structures of comparable management fees of the AIM Funds, of such knowledge. The Board also
funds, it was reasonable to structure including the Fund. The Board noted that reviewed the general nature of the
the advisory fee without breakpoints. the Senior Officer's written evaluation non-investment advisory services
Based on this review, the Board had been relied upon by the Board in currently performed by AIM and its
concluded that it was not necessary to this regard in lieu of a competitive affiliates, such as administrative,
add advisory fee breakpoints to the bidding process. In determining whether transfer agency and distribution
Fund's advisory fee schedule. The Board to continue the Advisory Agreement services, and the fees received by AIM
reviewed the level of the Fund's for the Fund, the Board considered the and its affiliates for performing such
advisory fees, and noted that such fees, Senior Officer's written evaluation and services. In addition to reviewing such
as a percentage of the Fund's net the recommendation made by the Senior services, the trustees also considered
assets, would remain constant under the Officer to the Board that the Board the organizational structure employed by
Advisory Agreement because the Advisory consider implementing a process to AIM and its affiliates to provide those
Agreement does not include any assist them in more closely monitoring services. Based on the review of these
breakpoints. The Board noted that AIM the performance of the AIM Funds. The and other factors, the Board concluded
has contractually agreed to waive Board concluded that it would be that AIM and its affiliates were
advisory fees of the Fund through June advisable to implement such a process as qualified to continue to provide
30, 2006 to the extent necessary so that soon as reasonably practicable. non-investment advisory services to the
the advisory fees payable by the Fund do Fund, including administrative, transfer
not exceed a specified maximum advisory o Profitability of AIM and its agency and distribution services, and
fee rate, which maximum rate includes affiliates. The Board reviewed that AIM and its affiliates currently
breakpoints and is based on net asset information concerning the profitability are providing satisfactory
levels. The Board concluded that the of AIM's (and its affiliates') non-investment advisory services.
Fund's fee levels under the Advisory investment advisory and other activities
Agreement therefore would not reflect and its financial condition. The Board o Other factors and current trends. In
economies of scale, although the considered the overall profitability of determining whether to continue the
advisory fee waiver reflects economies AIM, as well as the profitability of AIM Advisory Agreement for the Fund, the
of scale. in connection with managing the Fund. Board considered the fact that AIM,
The Board noted that AIM's operations along with others in the mutual fund
o Investments in affiliated money market remain profitable, although increased industry, is subject to regulatory
funds. The Board also took into account expenses in recent years have reduced inquiries and litigation related to a
the fact that uninvested cash and cash AIM's profitability. Based on the review wide range of issues. The Board also
collateral from securities lending of the profitability of AIM's and its considered the governance and compliance
arrangements (collectively, "cash affiliates' investment advisory and reforms being undertaken by AIM and its
balances") of the Fund may be invested other activities and its financial affiliates, including maintaining an
in money market funds advised by AIM condition, the Board concluded that the internal controls committee and
pursuant to the terms of an SEC compensation to be paid by the Fund to retaining an independent compliance
exemptive order. The Board found that AIM under its Advisory Agreement was not consultant, and the fact that AIM has
the Fund may realize certain benefits excessive. undertaken to cause the Fund to operate
upon investing cash balances in AIM in accordance with certain governance
advised money market funds, including a o Benefits of soft dollars to AIM. The policies and practices. The Board
higher net return, increased liquidity, Board considered the benefits realized concluded that these actions indicated a
increased diversification or decreased by AIM as a result of brokerage good faith effort on the part of AIM to
transaction costs. The Board also found transactions executed through "soft adhere to the highest ethical standards,
that the Fund will not receive reduced dollar" arrangements. Under these and determined that the current
services if it invests its cash balances arrangements, brokerage commissions paid regulatory and litigation environment to
in such money market funds. The Board by the Fund and/or other funds advised which AIM is subject should not prevent
noted that, to the extent the Fund by AIM are used to pay for research and the Board from continuing the Advisory
invests in affiliated money market execution services. This research is Agreement for the Fund.
funds, AIM has voluntarily agreed to used by AIM in making investment
waive a portion of the advisory fees it decisions for the Fund. The Board
receives from the Fund attributable to concluded that such arrangements were
such investment. The Board further appropriate.
determined that the proposed securities
lending program and related procedures o AIM's financial soundness in light of
with respect to the lending Fund is in the Fund's needs. The Board considered
the best interests of the lending Fund whether AIM is financially sound and has
and its respective shareholders. The the resources necessary to perform its
Board therefore concluded that the obligations under the Advisory
investment of cash collateral received Agreement, and concluded that AIM has
in connection with the securities the financial resources necessary to
lending program in the money market fulfill its obligations under the
funds according to the procedures is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-98.10%
ADVERTISING-2.88%
Clear Channel Outdoor Holdings, Inc.-Class A/(a)/ 58,742 $ 1,177,777
----------------------------------------------------------------------
Omnicom Group Inc. 14,071 1,197,864
----------------------------------------------------------------------
R.H. Donnelley Corp./(a)/ 13,613 838,833
----------------------------------------------------------------------
3,214,474
----------------------------------------------------------------------
AEROSPACE & DEFENSE-0.48%
Aviall, Inc./(a)/ 18,548 534,182
----------------------------------------------------------------------
AGRICULTURAL PRODUCTS-1.04%
Archer-Daniels-Midland Co. 47,316 1,166,813
----------------------------------------------------------------------
AIR FREIGHT & LOGISTICS-1.27%
Robinson (C.H.) Worldwide, Inc. 38,194 1,414,324
----------------------------------------------------------------------
APPAREL RETAIL-2.37%
Abercrombie & Fitch Co.-Class A 21,120 1,376,602
----------------------------------------------------------------------
Ross Stores, Inc. 43,882 1,268,190
----------------------------------------------------------------------
2,644,792
----------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-2.55%
Coach, Inc./(a)/ 32,972 1,099,287
----------------------------------------------------------------------
Polo Ralph Lauren Corp. 31,222 1,752,803
----------------------------------------------------------------------
2,852,090
----------------------------------------------------------------------
APPLICATION SOFTWARE-4.85%
Amdocs Ltd./(a)/ 42,178 1,159,895
----------------------------------------------------------------------
Business Objects S.A.-ADR (France)/(a)/ 15,886 641,953
----------------------------------------------------------------------
Cadence Design Systems, Inc./(a)/ 31,035 525,112
----------------------------------------------------------------------
Citrix Systems, Inc./(a)/ 45,740 1,316,397
----------------------------------------------------------------------
Hyperion Solutions Corp./(a)/ 16,168 579,138
----------------------------------------------------------------------
Synopsys, Inc./(a)/ 59,440 1,192,366
----------------------------------------------------------------------
5,414,861
----------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-1.22%
Legg Mason, Inc. 11,382 1,362,312
----------------------------------------------------------------------
AUTOMOTIVE RETAIL-0.99%
Advance Auto Parts, Inc./(a)/ 25,486 1,107,622
----------------------------------------------------------------------
BIOTECHNOLOGY-0.26%
Cephalon, Inc./(a)/ 4,500 291,330
----------------------------------------------------------------------
BROADCASTING & CABLE TV-1.01%
Univision Communications Inc.-Class A/(a)/ 38,344 1,126,930
----------------------------------------------------------------------
CASINOS & GAMING-2.04%
Scientific Games Corp.-Class A/(a)/ 41,416 1,129,829
----------------------------------------------------------------------
Station Casinos, Inc. 16,892 1,145,278
----------------------------------------------------------------------
2,275,107
----------------------------------------------------------------------
SHARES VALUE
-----------------------------------------------------------------------
COAL & CONSUMABLE FUELS-0.51%
Aventine Renewable Energy Holdings, Inc. (Acquired
12/12/05; Cost $568,100)/(a)(b)(c)/ 43,700 $ 568,100
-----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.10%
Comverse Technology, Inc./(a)/ 46,024 1,223,778
-----------------------------------------------------------------------
COMPUTER HARDWARE-0.90%
Palm, Inc./(a)(d)/ 31,784 1,010,731
-----------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-2.03%
Emulex Corp./(a)/ 28,192 557,920
-----------------------------------------------------------------------
Network Appliance, Inc./(a)/ 19,672 531,144
-----------------------------------------------------------------------
QLogic Corp./(a)/ 36,320 1,180,763
-----------------------------------------------------------------------
2,269,827
-----------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-1.07%
Chicago Bridge & Iron Co. N.V.-New York Shares 47,646 1,201,156
-----------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY &
HEAVY TRUCKS-0.65%
Joy Global Inc. 18,183 727,320
-----------------------------------------------------------------------
CONSUMER ELECTRONICS-0.97%
Harman International Industries, Inc. 11,021 1,078,405
-----------------------------------------------------------------------
CONSUMER FINANCE-1.02%
AmeriCredit Corp./(a)/ 44,581 1,142,611
-----------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-0.99%
Alliance Data Systems Corp./(a)/ 30,968 1,102,461
-----------------------------------------------------------------------
DEPARTMENT STORES-1.09%
Nordstrom, Inc. 32,538 1,216,921
-----------------------------------------------------------------------
DIVERSIFIED BANKS-0.98%
Centennial Bank Holdings, Inc./(a)(b)/ 88,700 1,097,219
-----------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-3.37%
ChoicePoint Inc./(a)/ 31,200 1,388,712
-----------------------------------------------------------------------
Cintas Corp. 12,880 530,398
-----------------------------------------------------------------------
Corrections Corp. of America/(a)/ 32,255 1,450,507
-----------------------------------------------------------------------
Global Cash Access, Inc./(a)/ 9,361 136,577
-----------------------------------------------------------------------
IHS Inc.-Class A/(a)/ 12,544 257,403
-----------------------------------------------------------------------
3,763,597
-----------------------------------------------------------------------
DIVERSIFIED METALS & MINING-1.12%
Phelps Dodge Corp. 8,672 1,247,641
-----------------------------------------------------------------------
DRUG RETAIL-1.18%
Shoppers Drug Mart Corp. (Canada) 34,991 1,321,869
-----------------------------------------------------------------------
AIM V.I. DYNAMICS FUND
SHARES VALUE
----------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-1.23%
Cooper Industries, Ltd.-Class A 17,294 $ 1,262,462
----------------------------------------------------------------------
Suntech Power Holdings Co., Ltd.-ADR (China)/(a)/ 4,130 112,543
----------------------------------------------------------------------
1,375,005
----------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-1.04%
Amphenol Corp.-Class A 26,347 1,166,118
----------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.06%
Schein (Henry), Inc./(a)/ 27,044 1,180,200
----------------------------------------------------------------------
HEALTH CARE EQUIPMENT-4.05%
INAMED Corp./(a)/ 3,714 325,644
----------------------------------------------------------------------
Kinetic Concepts, Inc./(a)/ 15,586 619,699
----------------------------------------------------------------------
PerkinElmer, Inc. 56,783 1,337,807
----------------------------------------------------------------------
Thermo Electron Corp./(a)/ 18,363 553,277
----------------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 22,000 1,107,480
----------------------------------------------------------------------
Zimmer Holdings, Inc./(a)/ 8,542 576,072
----------------------------------------------------------------------
4,519,979
----------------------------------------------------------------------
HEALTH CARE FACILITIES-1.52%
Community Health Systems, Inc./(a)/ 14,698 563,521
----------------------------------------------------------------------
LifePoint Hospitals, Inc./(a)/ 30,178 1,131,675
----------------------------------------------------------------------
1,695,196
----------------------------------------------------------------------
HEALTH CARE SERVICES-3.78%
DaVita, Inc./(a)/ 24,300 1,230,552
----------------------------------------------------------------------
Express Scripts, Inc./(a)/ 7,147 598,919
----------------------------------------------------------------------
Omnicare, Inc. 20,707 1,184,855
----------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 9,386 581,463
----------------------------------------------------------------------
Psychiatric Solutions, Inc./(a)/ 10,600 622,644
----------------------------------------------------------------------
4,218,433
----------------------------------------------------------------------
HEALTH CARE SUPPLIES-0.50%
Cooper Cos., Inc. (The) 10,990 563,787
----------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-2.33%
Hilton Hotels Corp. 53,628 1,292,971
----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(e)/ 20,570 1,313,600
----------------------------------------------------------------------
2,606,571
----------------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.59%
Whirlpool Corp. 7,854 657,851
----------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.84%
Jarden Corp./(a)/ 30,973 933,836
----------------------------------------------------------------------
INDUSTRIAL MACHINERY-1.04%
ITT Industries, Inc. 11,255 1,157,239
----------------------------------------------------------------------
INSURANCE BROKERS-1.26%
National Financial Partners Corp. 10,804 567,750
----------------------------------------------------------------------
Willis Group Holdings Ltd. (United Kingdom) 22,807 842,491
----------------------------------------------------------------------
1,410,241
----------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
INTEGRATED OIL & GAS-1.02%
Murphy Oil Corp. 21,192 $ 1,144,156
- ---------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-0.87%
Qwest Communications International Inc./(a)/ 172,066 972,173
- ---------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.89%
VeriSign, Inc./(a)/ 48,446 1,061,936
- ---------------------------------------------------------------------------------
Websense, Inc./(a)/ 16,042 1,052,997
- ---------------------------------------------------------------------------------
2,114,933
- ---------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.12%
Cognizant Technology Solutions Corp.-Class A/(a)/ 24,745 1,245,911
- ---------------------------------------------------------------------------------
MANAGED HEALTH CARE-3.81%
Aveta, Inc. (Acquired 12/21/05; Cost $1,012,500)/(a)(b)(c)/ 75,000 1,012,500
- ---------------------------------------------------------------------------------
CIGNA Corp. 10,000 1,117,000
- ---------------------------------------------------------------------------------
Coventry Health Care, Inc./(a)/ 20,560 1,171,098
- ---------------------------------------------------------------------------------
Humana Inc./(a)/ 17,500 950,775
- ---------------------------------------------------------------------------------
4,251,373
- ---------------------------------------------------------------------------------
OIL & GAS DRILLING-3.07%
Nabors Industries Ltd./(a)/ 14,924 1,130,493
- ---------------------------------------------------------------------------------
Noble Corp. 17,312 1,221,188
- ---------------------------------------------------------------------------------
Todco-Class A 28,200 1,073,292
- ---------------------------------------------------------------------------------
3,424,973
- ---------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-3.82%
Grant Prideco, Inc./(a)/ 35,818 1,580,290
- ---------------------------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 23,282 1,459,781
- ---------------------------------------------------------------------------------
Weatherford International Ltd./(a)/ 34,000 1,230,800
- ---------------------------------------------------------------------------------
4,270,871
- ---------------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-2.38%
CNX Gas Corp. (Acquired 08/01/05; Cost $297,600)/(a)(c)/ 18,600 385,950
- ---------------------------------------------------------------------------------
Rosetta Resources, Inc. (Acquired 06/28/05;
Cost $1,091,200)/(a)(c)/ 68,200 1,227,600
- ---------------------------------------------------------------------------------
Southwestern Energy Co./(a)/ 28,923 1,039,493
- ---------------------------------------------------------------------------------
2,653,043
- ---------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-0.56%
Tesoro Corp. 10,200 627,810
- ---------------------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-1.28%
Williams Cos., Inc. (The) 61,488 1,424,677
- ---------------------------------------------------------------------------------
PHARMACEUTICALS-0.89%
MGI Pharma, Inc./(a)/ 23,879 409,764
- ---------------------------------------------------------------------------------
Shire PLC-ADR (United Kingdom) 15,009 582,199
- ---------------------------------------------------------------------------------
991,963
- ---------------------------------------------------------------------------------
REAL ESTATE-1.00%
Friedman, Billings, Ramsey Group, Inc.-Class A/(d)/ 53,717 531,798
- ---------------------------------------------------------------------------------
People's Choice Financial Corp. (Acquired 12/21/04;
Cost $1,069,000)/(c)/ 106,900 587,950
- ---------------------------------------------------------------------------------
1,119,748
- ---------------------------------------------------------------------------------
AIM V.I. DYNAMICS FUND
SHARES VALUE
-------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT-1.48%
CB Richard Ellis Group, Inc.-Class A/(a)/ 28,093 $ 1,653,273
-------------------------------------------------------------------------
REGIONAL BANKS-0.64%
Signature Bank /(a)/ 25,541 716,936
-------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.58%
ASML Holding N.V.-New York Shares (Netherlands)/(a)/ 32,135 645,271
-------------------------------------------------------------------------
SEMICONDUCTORS-7.01%
Analog Devices, Inc. 29,892 1,072,226
-------------------------------------------------------------------------
ATI Technologies Inc. (Canada)/(a)/ 39,996 679,532
-------------------------------------------------------------------------
Cree, Inc./(a)/ 21,146 533,725
-------------------------------------------------------------------------
Integrated Device Technology, Inc./(a)/ 87,645 1,155,161
-------------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)/(a)/ 14,223 797,768
-------------------------------------------------------------------------
Microchip Technology Inc. 44,394 1,427,267
-------------------------------------------------------------------------
National Semiconductor Corp. 57,900 1,504,242
-------------------------------------------------------------------------
Spansion Inc.-Class A/(a)/ 47,400 659,808
-------------------------------------------------------------------------
7,829,729
-------------------------------------------------------------------------
SOFT DRINKS-0.50%
Hansen Natural Corp./(a)/ 7,066 556,871
-------------------------------------------------------------------------
SPECIALIZED FINANCE-1.34%
Chicago Mercantile Exchange Holdings Inc. 4,059 1,491,642
-------------------------------------------------------------------------
SPECIALTY STORES-2.15%
Office Depot, Inc./(a)/ 38,341 1,203,907
-------------------------------------------------------------------------
Staples, Inc. 52,533 1,193,024
-------------------------------------------------------------------------
2,396,931
-------------------------------------------------------------------------
SHARES VALUE
-----------------------------------------------------------------------------
SYSTEMS SOFTWARE-0.94%
Red Hat, Inc./(a)/ 38,529 $ 1,049,530
-----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-4.57%
American Tower Corp.-Class A/(a)/ 101,591 2,753,116
-----------------------------------------------------------------------------
Leap Wireless International, Inc./(a)/ 29,884 1,132,006
-----------------------------------------------------------------------------
NII Holdings Inc./(a)/ 28,016 1,223,739
-----------------------------------------------------------------------------
5,108,861
-----------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $93,030,680) 109,551,604
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-0.86%
Premier Portfolio-Institutional Class
(Cost $958,574)/(f)/ 958,574 958,574
-----------------------------------------------------------------------------
Total Investments-98.96% (excluding investments
purchased with cash collateral from securities
loaned) (Cost $93,989,254) 110,510,178
-----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.28%
Premier Portfolio-Institutional Class/(f)(g)/ 307,262 307,262
-----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash collateral
from securities loaned) (Cost $307,262) 307,262
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-99.24% (Cost $94,296,516) 110,817,440
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.76% 850,332
-----------------------------------------------------------------------------
NET ASSETS-100.00% $111,667,772
-----------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2005 was $2,677,819, which represented 2.40% of
the Fund's Net Assets. 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 value of these securities at December 31,
2005 was $3,782,100, which represented 3.39% of the Fund's Net Assets.
These securities are considered to be illiquid. The Fund is limited to
investing 15% of net assets in illiquid securities at the time of purchase.
/(d)/All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
/(e)/Each unit represents one common share and one Class B share.
/(f)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(g)/The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $93,030,680)* $109,551,604
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,265,836) 1,265,836
- -----------------------------------------------------------------------------------
Total investments (cost $94,296,516) 110,817,440
- -----------------------------------------------------------------------------------
Receivables for:
Investments sold 1,449,365
- -----------------------------------------------------------------------------------
Fund shares sold 10,962
- -----------------------------------------------------------------------------------
Dividends 149,586
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 12,362
- -----------------------------------------------------------------------------------
Total assets 112,439,715
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 197,061
- -----------------------------------------------------------------------------------
Fund shares reacquired 128,282
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 17,130
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 307,262
- -----------------------------------------------------------------------------------
Accrued administrative services fees 72,484
- -----------------------------------------------------------------------------------
Accrued distribution fees-Series II 15
- -----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 109
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 3,468
- -----------------------------------------------------------------------------------
Accrued operating expenses 46,132
- -----------------------------------------------------------------------------------
Total liabilities 771,943
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $111,667,772
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $187,796,775
- -----------------------------------------------------------------------------------
Undistributed net investment income (loss) (12,078)
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (92,637,874)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 16,520,949
- -----------------------------------------------------------------------------------
$111,667,772
- -----------------------------------------------------------------------------------
NET ASSETS:
Series I $111,655,452
- -----------------------------------------------------------------------------------
Series II $ 12,320
- -----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,558,556
- -----------------------------------------------------------------------------------
Series II 837.5
- -----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 14.77
- -----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 14.71
- -----------------------------------------------------------------------------------
* At December 31, 2005, securities with an aggregate value of $291,653 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,074) $ 876,206
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities
lending income of $3,868, after compensation to counterparties of
$7,827) 113,692
- ----------------------------------------------------------------------------------------
Total investment income 989,898
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 859,238
- ----------------------------------------------------------------------------------------
Administrative services fees 335,943
- ----------------------------------------------------------------------------------------
Custodian fees 28,832
- ----------------------------------------------------------------------------------------
Distribution fees-Series II 29
- ----------------------------------------------------------------------------------------
Transfer agent fees 17,062
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 18,380
- ----------------------------------------------------------------------------------------
Other 75,710
- ----------------------------------------------------------------------------------------
Total expenses 1,335,194
- ----------------------------------------------------------------------------------------
Less: Fees waived and expense offset arrangement (8,354)
- ----------------------------------------------------------------------------------------
Net expenses 1,326,840
- ----------------------------------------------------------------------------------------
Net investment income (loss) (336,942)
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates
of $149,366) 13,558,862
- ----------------------------------------------------------------------------------------
Foreign currencies (16,901)
- ----------------------------------------------------------------------------------------
13,541,961
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,315,652)
- ----------------------------------------------------------------------------------------
Foreign currencies 21
- ----------------------------------------------------------------------------------------
(2,315,631)
- ----------------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 11,226,330
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $10,889,388
- ----------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (336,942)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 13,541,961
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (2,315,631)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,889,388
- -----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (22,841,394)
- -----------------------------------------------------------------------------------------------------------------------------
Series II --
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (22,841,394)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (11,952,006)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 123,619,778
- -----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(12,078) and $(10,751), respectively) $111,667,772
- -----------------------------------------------------------------------------------------------------------------------------
2004
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (858,459)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 28,100,633
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (12,380,350)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,861,824
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (60,521,334)
- ----------------------------------------------------------------------------------------------------------------------------
Series II 10,000
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (60,511,334)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (45,649,510)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 169,269,288
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(12,078) and $(10,751), respectively) $123,619,778
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. DYNAMICS FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Dynamics Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 long-term capital growth.
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. The risk of material loss as a result of such indemnification is
considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. DYNAMICS FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
I. 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.
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 replace 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. DYNAMICS FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% 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:
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%
-------------------------
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.
This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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.
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 year ended December 31, 2005, AIM waived fees of $7,530.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $285,943 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 year ended
December 31, 2005, the Fund paid AISI $17,062.
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 year ended
December 31, 2005, the Series II shares paid $29.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or ADI.
AIM V.I. DYNAMICS 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
fund below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in an affiliated money market fund for the year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $3,341,046 $60,325,028 $(62,707,500) $ -- $958,574 $109,824 $ --
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $ 561,100 $ 2,379,546 $ (2,633,384) $ -- $ 307,262 $ 3,868 $ --
- -------------------------------------------------------------------------------------------------------------------------
Total $3,902,146 $62,704,574 $(65,340,884) $ -- $1,265,836 $113,692 $ --
- -------------------------------------------------------------------------------------------------------------------------
* 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 year ended December 31,
2005, the Fund engaged in securities purchases of $2,530,635 and sales of
$2,890,509, which resulted in net realized gains of $149,366.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $824.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,325
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.
AIM V.I. DYNAMICS FUND
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2005, securities with an aggregate value of $291,653 were on
loan to brokers. The loans were secured by cash collateral of $307,262 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended December 31, 2005, the Fund received dividends on cash
collateral of $3,868 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
--------------------------------------------------
Unrealized appreciation--investments $ 16,229,097
--------------------------------------------------
Temporary book/tax differences (12,078)
--------------------------------------------------
Capital loss carryforward (92,346,022)
--------------------------------------------------
Shares of beneficial interest 187,796,775
--------------------------------------------------
Total net assets $111,667,772
--------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales and straddles. The tax-basis unrealized appreciation on investments
amount includes appreciation on foreign currencies of $25.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $12,873,997 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2009 $21,720,093
---------------------------------------------
December 31, 2010 70,625,929
---------------------------------------------
Total capital loss carryforward $92,346,022
---------------------------------------------
* 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. DYNAMICS FUND
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $122,021,003 and $143,588,735, respectively.
At the request of the Trustees, AIM recovered third party research credits,
during the year ended December 31, 2005, in the amount of $2,905. These
research credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $18,562,655
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,333,583)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $16,229,072
-------------------------------------------------------------------------
Cost of investments for tax purposes is $94,588,368.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions and distributions from Real Estate Investment
Trust, on December 31, 2005, undistributed net investment income (loss) was
increased by $335,615, undistributed net realized gain (loss) was increased by
$20,615 and shares of beneficial interest decreased by $356,230. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005/(A)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
Sold:
Series I 1,388,856 $ 19,000,517 3,083,564 $ 37,510,555
---------------------------------------------------------------------
Series II/(b)/ -- -- 838 10,000
---------------------------------------------------------------------
Reacquired:
Series I (3,095,326) (41,841,911) (8,198,618) (98,031,889)
---------------------------------------------------------------------
(1,706,470) $(22,841,394) (5,114,216) $(60,511,334)
---------------------------------------------------------------------
/(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 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 entities
are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. DYNAMICS FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.34 $ 11.77 $ 8.54 $ 12.54
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.09) (0.07) (0.00)/(a)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.47 1.66 3.30 (4.00)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.43 1.57 3.23 (4.00)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.77 $ 13.34 $ 11.77 $ 8.54
- ------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 10.72% 13.34% 37.82% (31.90)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $111,655 $123,609 $169,269 $116,135
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%/(c)/ 1.14% 1.14% 1.12%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.17%/(c)/ 1.14% 1.15% 1.12%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.29)%/(c)/ (0.62)% (0.70)% (0.75)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 110% 64% 129% 110%
- ------------------------------------------------------------------------------------------------------------------------
---------
---------
2001
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.21
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (5.67)
- ---------------------------------------------------------------------------------
Total from investment operations (5.67)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 12.54
- ---------------------------------------------------------------------------------
Total return/(b)/ (31.14)%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $174,716
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.08%
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.08%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.54)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 62%
- ---------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.08) and $(0.06) for
the years ended December 31, 2002 and 2001, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(c)/Ratios are based on average daily net assets of $114,553,559.
SERIES II
----------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED)
DECEMBER 31, TO DECEMBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.32 $11.94
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.07)
- ----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.46 1.45
- ----------------------------------------------------------------------------------------------
Total from investment operations 1.39 1.38
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $14.71 $13.32
- ----------------------------------------------------------------------------------------------
Total return/(a)/ 10.44% 11.56%
- ----------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 12 $ 11
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.41%/(b)/ 1.40%/(c)/
- ----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.42%/(b)/ 1.40%/(c)/
- ----------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.54)%/(b)/ (0.88)%/(c)/
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate 110% 64%
- ----------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(b)/Ratios are based on average daily net assets of $11,429.
/(c)/Annualized.
AIM V.I. DYNAMICS FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
AIM V.I. DYNAMICS FUND
NOTE 14--LEGAL PROCEEDINGS-(CONTINUED)
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. DYNAMICS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
of AIM Variable Insurance Funds and Shareholders of AIM V.I. Dynamics Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Dynamics Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2005, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. DYNAMICS FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. DYNAMICS FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
AIM V.I. DYNAMICS FUND
AIM V.I. FINANCIAL SERVICES FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. FINANCIAL SERVICES FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. FINANCIAL SERVICES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE we focus on "quality" including
competitive position, management and
==================================================================================== financial strength.
PERFORMANCE SUMMARY
======================================= The result is normally a 35- to
For the year ended December 31, 2005, FUND VS. INDEXES 50-stock portfolio with investments
AIM V.I. Financial Services Fund that are attractive from both a
produced positive returns. These TOTAL RETURNS, 12/31/04-12/31/05, valuation and capital discipline
returns were roughly in line with the EXCLUDING VARIABLE PRODUCT ISSUER perspective representing top holdings.
Fund's broad market index and behind CHARGES. IF VARIABLE PRODUCT ISSUER In constructing a portfolio, we
its style-specific index. Two CHARGES WERE INCLUDED, RETURNS WOULD attempt to mitigate risk by
government-sponsored mortgage BE LOWER. diversifying holdings in multiple ways
companies, FANNIE MAE and FREDDIE MAC, including across industries and
were meaningful detractors from Fund Series I Shares 5.91% businesses that react in different
performance during the period. Fund ways to changes in interest rates and
holdings of insurance stocks were the Series II Shares 5.61 economic cycles.
largest contributors to performance.
Standard & Poor's Composite We believe a diversified
Your Fund's long-term performance Index of 500 Stocks (S&P 500 portfolio of undervalued and
appears on Pages 4 and 5. Index)(Broad Market Index) 4.91 capital-disciplined quality financial
companies that profitably grow cash
S&P 500 Financials Index flows over time provides the best
(Style-specific Index) 6.47 opportunity for superior long-term
investment results.
Lipper Financial Services Fund
Index (Peer Group Index) 5.93 MARKET CONDITIONS AND YOUR FUND
SOURCE: LIPPER, INC. The U.S. stock market secured a third
======================================= consecutive year of gains in 2005,
despite continued tightening by the
==================================================================================== U.S. Federal Reserve Board (the Fed)
and high energy prices. In 2005,
HOW WE INVEST returning excess capital to financial investors worried about the
shareholders in the form of dividends impact that rising interest rates and
Our goal is to create wealth for and share repurchases. a flattening yield curve could have on
shareholders. We maintain a long-term financial company profits as well as
investment horizon and invest in the We maintain a proprietary an overheating of home prices. After a
two primary opportunities we believe database of intrinsic value estimates sharp decline early in the year,
have historically resulted in superior and screen financial companies for financial stocks recovered to end
investment returns within the those of acceptable quality. Purchase strongly as the Fed appeared to be
financial sector: candidates are subject to exhaustive almost finished pushing short-term
fundamental analysis. We focus on the interest rates higher.
o Financial companies trading at a drivers of intrinsic value such as
significant discount to our normalized earnings power, marginal Fund performance benefited during
determination of intrinsic value returns on economic equity which the period from investments in
because of excessive short-term adjusts for distortions present in insurance and capital markets
investor pessimism. Intrinsic value is accounting numbers, and sustainable sensitive stocks. The portfolio had an
a measure based primarily on the growth. Additionally, we strive to overweight exposure to
estimated future cash flows generated understand a company's ability and property-casualty and life insurance
by the businesses. willingness to grow capital returned stocks during the entire
to shareholders in the future. Finally,
o Reasonably valued financial companies
that demonstrate superior capital
discipline by
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $141.3 MILLION
By industry 1. JPMorgan Chase & Co. 6.2% TOTAL NUMBER OF HOLDINGS* 35
Diversified Banks 13.9% 2. Citigroup Inc. 5.8 The Fund's holdings are subject to
change, and there is no assurance that
Thrifts & Mortgage Finance 13.1 3. Fannie Mae 5.6 the Fund will continue to hold any
particular security.
Other Diversified Financial 4. Merrill Lynch & Co., Inc. 5.2
Services 12.0 *Excluding money market fund holdings.
5. Bank of America Corp. 4.9
Investment Banking & Brokerage 11.1
6. Hartford Financial Services
Asset Management & Custody Group, Inc. (The) 4.9
Banks 9.0
7. Bank of New York Co.,
Property & Casualty Insurance 8.5 Inc. (The) 4.7
Multi-Line Insurance 7.9 8. ACE Ltd. 4.5
Regional Banks 7.6 9. Freddie Mac 4.1
Insurance Brokers 5.7 10. Morgan Stanley 4.0
Consumer Finance 3.2
Three other industries each with
less than 3% of total net assets 4.7
Money Market Funds Plus Other
Assets Less Liabilities 3.3
======================================= ======================================= =========================================
2
AIM V.I. FINANCIAL SERVICES FUND
period. While property-casualty about net interest margin pressure and MICHAEL J. SIMON, Chartered
insurance benefited from a more the integration of a recent [SIMON Financial Analyst, senior
optimistic outlook for higher acquisition provided an opportunity to PHOTO] portfolio manager, is the lead
insurance prices in the wake of invest in this premier regional bank portfolio manager of AIM V.I.
Hurricane Katrina, the specific with a good history of returning Financial Services Fund.
insurance investments in the portfolio excess capital via both growing He started his investment career in
reflected our investment process and dividends and share repurchases. We 1989 and joined AIM in 2001. Mr. Simon
comprised companies able to return also added HUDSON CITY BANCORP, a New received his B.B.A. in finance from
growing excess capital to shareholders Jersey-based savings bank, to the Texas Christian University and his M.B.A.
as well as stocks that we considered portfolio as part of a secondary from the University of Chicago. He has
to be significantly undervalued. offering by the company. Hudson City served as Occasional Faculty in the
has an attractive market presence and Finance and Decision Sciences Department
PRUDENTIAL FINANCIAL, a life substantial excess capital. of Texas Christian University's M.J.
insurance giant, added to Fund Neeley School of Business.
performance as the company's capital The impact of changes on the
discipline became evident to investors overall portfolio was to increase MEGGAN M. WALSH, Chartered
with the considerable improvement in exposure to regional banks and to [WALSH Financial Analyst, senior
return on equity. ACE LIMITED, a decrease exposure to property-casualty PHOTO] portfolio manager, is a
writer of property and casualty insurance. We continue to have portfolio manager of AIM V.I.
insurance, was another strong significant weights relative to the Financial Services Fund. She
contributor to performance as overall sector in property-casualty has worked in the investment industry
investors revalued the shares upward insurance and mortgage finance, mostly since 1987. She joined AIM in 1991 as
amid evidence of strong risk represented by Fannie Mae and Freddie a trader of short-term taxable fixed
management and the ability to take Mac. The portfolio remains well income securities. In 1998, Ms. Walsh
advantage of firmer insurance prices. diversified within the financial assumed portfolio management duties in
sector. AIM's equities department. Ms. Walsh
Investment bank and retail received her bachelor's degree in
brokerage firm MERRILL LYNCH was among IN CLOSING finance from the University of
holdings of capital markets-sensitive Maryland and her M.B.A. from Loyola
companies that added to performance Historically, an end to the Fed College.
during the period. raising short-term interest rates has
led to strong performance by financial Assisted by the Basic Value Team and
Fund performance was negatively stocks, especially when the sector the Diversified Dividend Team
affected by declines in two large appeared undervalued. Given the sharp
holdings, Fannie Mae and Freddie Mac, rise in financial stocks in the fourth
both of which are government-sponsored quarter of 2005, we believe investors
mortgage companies that operate have anticipated an end to Fed
attractive businesses vital to the tightening. As a result, our attention
U.S. housing market. Both stocks fell is now on what might cause the Fed to
amid uncertainty over the potential tighten longer than expected. We are
for far-reaching regulatory changes. also beginning to keep an eye on
Additionally, it has taken longer than credit risk as the economic cycle
expected for Fannie Mae to restate its ages. We believe the sector is
financial results. reasonably valued today, but with
pockets of opportunity. As always, we
We have considered the potential remain focused on uncovering the most
outcomes of regulatory reform, attractive investment opportunities in
especially on the important issue of the sector. Thank you for your
capital requirements. We believe continued investment in AIM V.I.
Fannie Mae and Freddie Mac are Financial Services Fund.
undervalued even with onerous capital
requirements and that they have THE VIEWS AND OPINIONS EXPRESSED IN
considerable upside potential. We also MANAGEMENT'S DISCUSSION OF FUND
continue to believe that the PERFORMANCE ARE THOSE OF AIM ADVISORS,
companies' underlying business INC. THESE VIEWS AND OPINIONS ARE
economics are understandable despite SUBJECT TO CHANGE AT ANY TIME BASED ON
controversy surrounding application of FACTORS SUCH AS MARKET AND ECONOMIC
accounting standards. We continued to CONDITIONS. THESE VIEWS AND OPINIONS
hold both stocks at the close of the MAY NOT BE RELIED UPON AS INVESTMENT
year. ADVICE OR RECOMMENDATIONS, OR AS AN
OFFER FOR A PARTICULAR SECURITY. THE
Over the course of the year, we INFORMATION IS NOT A COMPLETE ANALYSIS
took profits in insurance stocks as OF EVERY ASPECT OF ANY MARKET,
higher stock prices resulted in less COUNTRY, INDUSTRY, SECURITY OR THE
compelling valuations. We reduced our FUND. STATEMENTS OF FACT ARE FROM
position in Prudential and sold CHUBB SOURCES CONSIDERED RELIABLE, BUT AIM
and SAFECO. We established a new ADVISORS, INC. MAKES NO REPRESENTATION [RIGHT ARROW GRAPHIC]
position in SUNTRUST BANKS, a banking OR WARRANTY AS TO THEIR COMPLETENESS
company with a strong presence from OR ACCURACY. ALTHOUGH HISTORICAL FOR A DISCUSSION OF THE RISKS OF
Maryland through Florida down the PERFORMANCE IS NO GUARANTEE OF FUTURE INVESTING IN YOUR FUND, INDEXES USED
Atlantic coast. Concerns RESULTS, THESE INSIGHTS MAY HELP YOU IN THIS REPORT AND YOUR FUND'S
UNDERSTAND OUR INVESTMENT MANAGEMENT LONG-TERM PERFORMANCE, PLEASE TURN TO
PHILOSOPHY. PAGES 4 AND 5.
3
AIM V.I. FINANCIAL SERVICES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 9/20/99, index data from 9/30/99
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. FINANCIAL LIPPER FINANCIAL S&P 500
SERVICES FUND- SERVICES FUND FINANCIAL S&P 500
SERIES I SHARES INDEX INDEX INDEX
9/20/99 $10000
9/99 9950 $10000 $10000 $10000
10/99 11150 11240 11669 10633
11/99 11009 10763 11097 10849
12/99 11100 10478 10877 11487
1/00 10640 9999 10533 10910
2/00 9560 9030 9392 10703
3/00 10990 10498 11135 11750
4/00 10781 10113 10785 11396
5/00 11391 10709 11508 11163
6/00 11081 10317 10810 11438
7/00 12062 11118 11927 11259
8/00 13012 12135 13073 11958
9/00 13532 12526 13383 11327
10/00 13523 12596 13325 11279
11/00 12583 12070 12539 10390
12/00 13855 13279 13672 10441
1/01 13505 13138 13635 10811
2/01 12815 12529 12739 9826
3/01 12414 12104 12355 9204
4/01 12764 12490 12815 9919
5/01 13365 12989 13332 9985
6/01 13275 12985 13327 9742
7/01 13015 12832 13111 9646
8/01 12275 12204 12312 9043
9/01 11603 11571 11585 8313
10/01 11333 11248 11370 8472
11/01 12235 12022 12182 9121
12/01 12487 12378 12449 9201
1/02 12356 12351 12254 9067
2/02 12205 12307 12076 8892
3/02 12950 12959 12879 9227
4/02 12538 12841 12535 8667
5/02 12558 12873 12514 8604
6/02 12015 12268 11920 7991
7/02 11100 11388 10975 7368
8/02 11271 11684 11199 7417
9/02 10145 10431 9890 6611
10/02 10869 10983 10784 7193
11/02 11151 11390 11228 7616
12/02 10628 10892 10626 7168
1/03 10455 10692 10449 6981
2/03 10122 10412 10122 6876
3/03 10122 10350 10083 6943
4/03 11164 11344 11318 7514
5/03 11772 12070 11916 7910
6/03 11812 12163 11946 8011
7/03 12399 12659 12494 8152
8/03 12267 12725 12368 8311
9/03 12318 12788 12451 8223
10/03 13168 13730 13308 8688
11/03 13107 13861 13271 8764
12/03 13770 14376 13923 9223
1/04 14269 14826 14367 9393
2/04 14646 15239 14748 9523
3/04 14442 15084 14602 9380
4/04 13730 14280 13928 9233
5/04 13893 14550 14184 9359
6/04 13985 14669 14255 9541
7/04 13588 14343 13963 9225
8/04 13974 14713 14432 9262
9/04 13933 14872 14309 9362
10/04 13883 15093 14381 9506
11/04 14330 15736 14807 9890
12/04 14965 16383 15440 10226
1/05 14544 15963 15106 9977
2/05 14524 15947 15026 10187
3/05 13991 15469 14455 10007
4/05 13908 15226 14471 9817
5/05 14329 15706 14867 10129
6/05 14533 16095 15080 10144
7/05 14799 16582 15318 10521
8/05 14462 16257 15050 10425
9/05 14502 16310 15190 10509
10/05 15107 16518 15669 10334
11/05 15804 17282 16404 10724
12/05 $15844 $17354 $16439 $10728
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a
logarithmic chart, presents the
fluctuations in the value of the Fund
and its indexes. We believe that a
logarithmic chart is more effective
than other types of charts in
illustrating changes in value during
the early years shown in the chart.
The vertical axis, the one that
indicates the dollar value of an
investment, is constructed with each
segment representing a percent change
in the value of the investment. In
this chart, each segment represents a
doubling, or 100% change, in the value
of the investment. In other words, the
space between $5,000 and $10,000 is
the same size as the space between
$10,000 and $20,000, and so on.
4
AIM V.I. FINANCIAL SERVICES FUND
=======================================
AVERAGE ANNUAL TOTAL RETURNS APPLICABLE TO SERIES II SHARES. THE INSURANCE FUNDS, IS CURRENTLY OFFERED
INCEPTION DATE OF SERIES I SHARES IS THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 SEPTEMBER 20, 1999. SERIES I AND SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
II SHARES INVEST IN THE SAME PORTFOLIO SHARES OF THE FUND DIRECTLY.
SERIES I SHARES OF SECURITIES AND WILL HAVE PERFORMANCE FIGURES GIVEN REPRESENT
Inception (9/20/99) 7.60% SUBSTANTIALLY SIMILAR PERFORMANCE, THE FUND AND ARE NOT INTENDED TO
5 Years 2.72 EXCEPT TO THE EXTENT THAT EXPENSES REFLECT ACTUAL VARIABLE PRODUCT
1 Year 5.91 BORNE BY EACH CLASS DIFFER. VALUES. THEY DO NOT REFLECT SALES
CHARGES, EXPENSES AND FEES ASSESSED IN
SERIES II SHARES THE PERFORMANCE DATA QUOTED CONNECTION WITH A VARIABLE PRODUCT.
Inception 7.34% REPRESENT PAST PERFORMANCE AND CANNOT SALES CHARGES, EXPENSES AND FEES,
5 Years 2.47 GUARANTEE COMPARABLE FUTURE RESULTS; WHICH ARE DETERMINED BY THE VARIABLE
1 Year 5.61 CURRENT PERFORMANCE MAY BE LOWER OR PRODUCT ISSUERS, WILL VARY AND WILL
HIGHER. PLEASE CONTACT YOUR VARIABLE LOWER THE TOTAL RETURN.
======================================= PRODUCT ISSUER OR FINANCIAL ADVISOR
FOR THE MOST RECENT MONTH-END VARIABLE PER NASD REQUIREMENTS, THE MOST
CUMULATIVE TOTAL RETURNS PRODUCT PERFORMANCE. PERFORMANCE RECENT MONTH-END PERFORMANCE DATA AT
FIGURES REFLECT FUND EXPENSES, THE FUND LEVEL, EXCLUDING VARIABLE
Six months ended 12/31/05 REINVESTED DISTRIBUTIONS AND CHANGES PRODUCT CHARGES, IS AVAILABLE ON AIM'S
Series I Shares 9.04% IN NET ASSET VALUE. INVESTMENT RETURN AUTOMATED INFORMATION LINE,
Series II Shares 8.90 AND PRINCIPAL VALUE WILL FLUCTUATE SO 866-702-4402. AS MENTIONED ABOVE, FOR
THAT YOU MAY HAVE A GAIN OR LOSS WHEN THE MOST RECENT MONTH-END PERFORMANCE
======================================= YOU SELL SHARES. INCLUDING VARIABLE PRODUCT CHARGES,
PLEASE CONTACT YOUR VARIABLE PRODUCT
RETURNS SINCE APRIL 30, 2004, THE AIM V.I. FINANCIAL SERVICES FUND, ISSUER OR FINANCIAL ADVISOR.
INCEPTION DATE OF SERIES II SHARES, A SERIES PORTFOLIO OF AIM VARIABLE
ARE HISTORICAL. ALL OTHER RETURNS ARE
THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO
REFLECT THE HIGHER RULE 12b-1 FEES
PRINCIPAL RISKS OF INVESTING IN THE ABOUT INDEXES USED IN THIS REPORT of funds reflects fund expenses;
FUND performance of a market index does
The unmanaged LIPPER FINANCIAL not.
Investing in a single-sector or SERVICES FUND INDEX represents an
single-region mutual fund involves average of the 10 largest OTHER INFORMATION
greater risk and potential reward than financial-services funds tracked by
investing in a more diversified fund. Lipper, Inc., an independent mutual The returns shown in the management's
fund performance monitor. discussion of Fund performance are
Investing in smaller companies based on net asset values calculated
involves greater risk than investing The S&P 500 FINANCIALS INDEX is a for shareholder transactions.
in more established companies, such as market capitalization weighted index Generally accepted accounting
business risk, significant stock price of companies involved in activities principles require adjustments to be
fluctuations and illiquidity. such as banking, consumer finance, made to the net assets of the Fund at
investment banking and brokerage, period end for financial reporting
The Fund may invest up to 25% of asset management, insurance and purposes, and as such, the net asset
its assets in the securities of investment, and real estate, including values for shareholder transactions
non-U.S. issuers. Securities of REITs. and the returns based on those net
Canadian issuers and American asset values may differ from the net
Depositary Receipts are not subject to The unmanaged Standard & Poor's asset values and returns reported in
this 25% limitation. International Composite Index of 500 Stocks (the S&P the Financial Highlights.
investing presents certain risks not 500--REGISTERED TRADEMARK-- INDEX) is Additionally, the returns and net
associated with investing solely in an index of common stocks frequently asset values shown throughout this
the United States. These include risks used as a general measure of U.S. report are at the Fund level only and
relating to fluctuations in the value stock market performance. do not include variable product issuer
of the U.S. dollar relative to the charges. If such charges were
values of other currencies, the The Fund is not managed to track included, the total returns would be
custody arrangements made for the the performance of any particular lower.
Fund's foreign holdings, differences index, including the indexes defined
in accounting, political risks and the here, and consequently, the Industry classifications used in
lesser degree of public information performance of the Fund may deviate this report are generally according to
required to be provided by non-U.S. significantly from the performance of the Global Industry Classification
companies. the indexes. Standard, which was developed by and
is the exclusive property and a
A direct investment cannot be service mark of Morgan Stanley Capital
made in an index. Unless otherwise International Inc. and Standard &
indicated, index results include Poor's.
reinvested dividends, and they do not
reflect sales charges. Performance of
an index
5
AIM V.I. FINANCIAL SERVICES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is
not the Fund's actual return. The
As a shareholder of the Fund, you The table below provides information Fund's actual cumulative total returns
incur ongoing costs, including about actual account values and actual at net asset value after expenses for
management fees; distribution and/or expenses. You may use the information the six months ended December 31, 2005,
service fees (12b-1); and other Fund in this table, together with the appear in the table "Cumulative Total
expenses. This example is intended to amount you invested, to estimate the Returns" on Page 5.
help you understand your ongoing costs expenses that you paid over the
(in dollars) of investing in the Fund period. Simply divide your account The hypothetical account values
and to compare these costs with value by $1,000 (for example, an and expenses may not be used to
ongoing costs of investing in other $8,600 account value divided by $1,000 estimate the actual ending account
mutual funds. The example is based on = 8.6), then multiply the result by balance or expenses you paid for the
an investment of $1,000 invested at the number in the table under the period. You may use this information
the beginning of the period and held heading entitled "Actual Expenses Paid to compare the ongoing costs of
for the entire period July 1, 2005, During Period" to estimate the investing in the Fund and other funds.
through December 31, 2005. expenses you paid on your account To do so, compare this 5% hypothetical
during this period. example with the 5% hypothetical
The actual and hypothetical examples that appear in the
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other
represent the effect of any fees or PURPOSES funds.
other expenses assessed in connection
with a variable product; if they did, The table below also provides Please note that the expenses
the expenses shown would be higher information about hypothetical account shown in the table are meant to
while the ending account values shown values and hypothetical expenses based highlight your ongoing costs.
would be lower. on the Fund's actual expense ratio and Therefore, the hypothetical
an assumed rate of return of information is useful in comparing
ongoing costs, and will not help you
determine the relative total costs of
owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,090.40 $6.01 $1,090.40 $5.80 1.14%
Series II 1,000.00 1,089.00 7.32 1,018.20 7.07 1.39
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. FINANCIAL SERVICES FUND
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 o Overall performance of AIM. The
Insurance Funds (the "Board") oversees provided by AIM. The Board reviewed Board considered the overall
the management of AIM V.I. Financial the credentials and experience of the performance of AIM in providing
Services Fund (the "Fund") and, as officers and employees of AIM who will investment advisory and portfolio
required by law, determines annually provide investment advisory services administrative services to the Fund
whether to approve the continuance of to the Fund. In reviewing the and concluded that such performance
the Fund's advisory agreement with A I M qualifications of AIM to provide was satisfactory.
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the
recommendation of the Investments Board reviewed the qualifications of o Fees relative to those of clients of
Committee of the Board, which is AIM's investment personnel and AIM with comparable investment
comprised solely of independent considered such issues as AIM's strategies. The Board reviewed the
trustees, at a meeting held on June portfolio and product review process, advisory fee rate for the Fund under
30, 2005, the Board, including all of various back office support functions the Advisory Agreement. The Board
the independent trustees, approved the provided by AIM and AIM's equity and noted that this rate (i) was the same
continuance of the advisory agreement fixed income trading operations. Based as the initial advisory fee rate for a
(the "Advisory Agreement") between the on the review of these and other mutual fund advised by AIM with
Fund and AIM for another year, factors, the Board concluded that the investment strategies comparable to
effective July 1, 2005. quality of services to be provided by those of the Fund, although the
AIM was appropriate and that AIM advisory fee schedule for the mutual
The Board considered the factors currently is providing satisfactory fund included breakpoints; and (ii)
discussed below in evaluating the services in accordance with the terms was higher than the sub-advisory fee
fairness and reasonableness of the of the Advisory Agreement. rates for an unaffiliated mutual fund
Advisory Agreement at the meeting on for which an AIM affiliate serves as
June 30, 2005 and as part of the o The performance of the Fund relative sub-advisor, although the total
Board's ongoing oversight of the Fund. to comparable funds. The Board management fees paid by such
In their deliberations, the Board and reviewed the performance of the Fund unaffiliated mutual fund were higher
the independent trustees did not during the past one, three and five than the advisory fee rate for the
identify any particular factor that calendar years against the performance Fund. The Board noted that AIM has
was controlling, and each trustee of funds advised by other advisors agreed to waive advisory fees of the
attributed different weights to the with investment strategies comparable Fund and to limit the Fund's total
various factors. to those of the Fund. The Board noted operating expenses, as discussed
that the Fund's performance in such below. Based on this review, the Board
One of the responsibilities of periods was below the median concluded that the advisory fee rate
the Senior Officer of the Fund, who is performance of such comparable funds. for the Fund under the Advisory
independent of AIM and AIM's The Board also noted that AIM began Agreement was fair and reasonable.
affiliates, is to manage the process serving as investment advisor to the
by which the Fund's proposed Fund in April 2004. The Board noted o Fees relative to those of comparable
management fees are negotiated to that AIM has recently made changes to funds with other advisors. The Board
ensure that they are negotiated in a the Fund's portfolio management team, reviewed the advisory fee rate for the
manner which is at arm's length and which appear to be producing Fund under the Advisory Agreement. The
reasonable. To that end, the Senior encouraging early results but need Board compared effective contractual
Officer must either supervise a more time to be evaluated before a advisory fee rates at a common asset
competitive bidding process or prepare conclusion can be reached that the level and noted that the Fund's rate
an independent written evaluation. The changes have addressed the Fund's was above the median rate of the funds
Senior Officer has recommended an under-performance. Based on this advised by other advisors with
independent written evaluation in lieu review, the Board concluded that no investment strategies comparable to
of a competitive bidding process and, changes should be made to the Fund and those of the Fund that the Board
upon the direction of the Board, has that it was not necessary to change reviewed. The Board noted that AIM has
prepared such an independent written the Fund's portfolio management team agreed to waive advisory fees of the
evaluation. Such written evaluation at this time. Fund and to limit the Fund's total
also considered certain of the factors operating expenses, as discussed
discussed below. In addition, as o The performance of the Fund relative below. Based on this review, the Board
discussed below, the Senior Officer to indices. The Board reviewed the concluded that the advisory fee rate
made certain recommendations to the performance of the Fund during the for the Fund under the Advisory
Board in connection with such written past one, three and five calendar Agreement was fair and reasonable.
evaluation. years against the performance of the
Lipper Financial Services Fund Index. o Expense limitations and fee waivers.
The discussion below serves as a The Board noted that the Fund's The Board noted that AIM has
summary of the Senior Officer's performance in such periods was below contractually agreed to waive advisory
independent written evaluation and the performance of such Index. The fees of the Fund through June 30, 2006
recommendations to the Board in Board also noted that AIM began to the extent necessary so that the
connection therewith, as well as a serving as investment advisor to the advisory fees payable by the Fund do
discussion of the material factors and Fund in April 2004. The Board noted not exceed a specified maximum advisory
the conclusions with respect thereto that AIM has recently made changes to fee rate, which maximum rate
that formed the basis for the Board's the Fund's portfolio management team, includes breakpoints and is based on
approval of the Advisory Agreement. which appear to be producing net asset levels. The Board considered
After consideration of all of the encouraging early results but need the contractual nature of this fee
factors below and based on its more time to be evaluated before a waiver and noted that it remains in
informed business judgment, the Board conclusion can be reached that the effect until June 30, 2006. The Board
determined that the Advisory Agreement changes have addressed the Fund's noted that AIM has contractually
is in the best interests of the Fund under-performance. Based on this agreed to waive fees and/or limit
and its shareholders and that the review, the Board concluded that no expenses of the Fund through April 30,
compensation to AIM under the Advisory changes should be made to the Fund and 2006 in an amount necessary to limit
Agreement is fair and reasonable and that it was not necessary to change total annual operating expenses to a
would have been obtained through arm's the Fund's portfolio management team specified percentage of average daily
length negotiations. at this time. net assets for each class of the Fund.
The Board considered the contractual
o The nature and extent of the o Meeting with the Fund's portfolio nature of this fee waiver/expense
advisory services to be provided by managers and investment personnel. limitation and noted that it remains
AIM. The Board reviewed the services With respect to the Fund, the Board is in effect until April 30, 2006. The
to be provided by AIM under the meeting periodically with such Fund's Board considered the effect these fee
Advisory Agreement. Based on such portfolio managers and/or other waivers/expense limitations would have
review, the Board concluded that the investment personnel and believes that on the Fund's estimated expenses and
range of services to be provided by such individuals are competent and concluded that the levels of fee
AIM under the Advisory Agreement was able to continue to carry out their waivers/expense limitations for the
appropriate and that AIM currently is responsibilities under the Advisory Fund were fair and reasonable.
providing services in accordance with Agreement.
the terms of the Advisory Agreement.
7
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
does not include any breakpoints. The the Fund, who is independent of AIM the prior relationship between AIM and
Board considered whether it would be and AIM's affiliates, had prepared an the Fund, as well as the Board's
appropriate to add advisory fee independent written evaluation in knowledge of AIM's operations, and
breakpoints for the Fund or whether, order to assist the Board in concluded that it was beneficial to
due to the nature of the Fund and the determining the reasonableness of the maintain the current relationship, in
advisory fee structures of comparable proposed management fees of the AIM part, because of such knowledge. The
funds, it was reasonable to structure Funds, including the Fund. The Board Board also reviewed the general nature
the advisory fee without breakpoints. noted that the Senior Officer's of the non-investment advisory
Based on this review, the Board written evaluation had been relied services currently performed by AIM
concluded that it was not necessary to upon by the Board in this regard in and its affiliates, such as
add advisory fee breakpoints to the lieu of a competitive bidding administrative, transfer agency and
Fund's advisory fee schedule. The process. In determining whether to distribution services, and the fees
Board reviewed the level of the Fund's continue the Advisory Agreement for received by AIM and its affiliates for
advisory fees, and noted that such the Fund, the Board considered the performing such services. In addition
fees, as a percentage of the Fund's Senior Officer's written evaluation to reviewing such services, the
net assets, would remain constant and the recommendation made by the trustees also considered the
under the Advisory Agreement because Senior Officer to the Board that the organizational structure employed by
the Advisory Agreement does not Board consider implementing a process AIM and its affiliates to provide
include any breakpoints. The Board to assist them in more closely those services. Based on the review of
noted that AIM has contractually monitoring the performance of the AIM these and other factors, the Board
agreed to waive advisory fees of the Funds. The Board concluded that it concluded that AIM and its affiliates
Fund through June 30, 2006 to the would be advisable to implement such a were qualified to continue to provide
extent necessary so that the advisory process as soon as reasonably non-investment advisory services to
fees payable by the Fund do not exceed practicable. the Fund, including administrative,
a specified maximum advisory fee transfer agency and distribution
rate, which maximum rate includes o Profitability of AIM and its services, and that AIM and its
breakpoints and is based on net asset affiliates. The Board reviewed affiliates currently are providing
levels. The Board concluded that the information concerning the satisfactory non-investment advisory
Fund's fee levels under the Advisory profitability of AIM's (and its services.
Agreement therefore would not reflect affiliates') investment advisory and
economies of scale, although the other activities and its financial o Other factors and current trends. In
advisory fee waiver reflects economies condition. The Board considered the determining whether to continue the
of scale. overall profitability of AIM, as well Advisory Agreement for the Fund, the
as the profitability of AIM in Board considered the fact that AIM,
o Investments in affiliated money connection with managing the Fund. The along with others in the mutual fund
market funds. The Board also took into Board noted that AIM's operations industry, is subject to regulatory
account the fact that uninvested cash remain profitable, although increased inquiries and litigation related to a
and cash collateral from securities expenses in recent years have reduced wide range of issues. The Board also
lending arrangements (collectively, AIM's profitability. Based on the considered the governance and
"cash balances") of the Fund may be review of the profitability of AIM's compliance reforms being undertaken by
invested in money market funds advised and its affiliates' investment AIM and its affiliates, including
by AIM pursuant to the terms of an SEC advisory and other activities and its maintaining an internal controls
exemptive order. The Board found that financial condition, the Board committee and retaining an independent
the Fund may realize certain benefits concluded that the compensation to be compliance consultant, and the fact
upon investing cash balances in AIM paid by the Fund to AIM under its that AIM has undertaken to cause the
advised money market funds, including Advisory Agreement was not excessive. Fund to operate in accordance with
a higher net return, increased certain governance policies and
liquidity, increased diversification o Benefits of soft dollars to AIM. The practices. The Board concluded that
or decreased transaction costs. The Board considered the benefits these actions indicated a good faith
Board also found that the Fund will realized by AIM as a result of broker effort on the part of AIM to adhere to
not receive reduced services if it age transactions executed through the highest ethical standards, and
invests its cash balances in such "soft dollar" arrangements. Under determined that the current regulatory
money market funds. The Board noted these arrangements, brokerage and litigation environment to which
that, to the extent the Fund invests commissions paid by the Fund and/or AIM is subject should not prevent the
in affiliated money market funds, AIM other funds advised by AIM are used to Board from continuing the Advisory
has voluntarily agreed to waive a pay for research and execution Agreement for the Fund.
portion of the advisory fees it services. This research is used by AIM
receives from the Fund attributable to in making investment decisions for
such investment. The Board further the Fund. The Board concluded that
determined that the proposed such arrangements were appropriate.
securities lending program and related
procedures with respect to the lending o AIM's financial soundness in light
Fund is in the best interests of the of the Fund's needs. The Board
lending Fund and its respective considered whether AIM is financially
shareholders. The Board therefore sound and has the resources necessary
concluded that the investment of cash to perform its obligations under the
collateral received in connection with Advisory Agreement, and concluded
the securities lending program in the that AIM has the financial resources
money market funds according to the necessary to fulfill its obligations
procedures is in the best interests of under the Advisory Agreement.
the lending Fund and its respective
shareholders.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
------------------------------------------------------------------
COMMON STOCKS-96.68%
ASSET MANAGEMENT & CUSTODY
BANKS-8.97%
Bank of New York Co., Inc. (The) 208,388 $ 6,637,158
------------------------------------------------------------------
Federated Investors, Inc.-Class B 100,211 3,711,815
------------------------------------------------------------------
Franklin Resources, Inc. 6,413 602,886
------------------------------------------------------------------
State Street Corp. 30,912 1,713,761
------------------------------------------------------------------
12,665,620
------------------------------------------------------------------
CONSUMER FINANCE-3.15%
Capital One Financial Corp. 51,441 4,444,502
------------------------------------------------------------------
DIVERSIFIED BANKS-13.93%
Anglo Irish Bank Corp. PLC (Ireland)/(a)/ 77,213 1,179,966
------------------------------------------------------------------
Bank of America Corp. 151,166 6,976,311
------------------------------------------------------------------
U.S. Bancorp 94,057 2,811,364
------------------------------------------------------------------
Wachovia Corp. 97,399 5,148,511
------------------------------------------------------------------
Wells Fargo & Co. 56,622 3,557,560
------------------------------------------------------------------
19,673,712
------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-1.54%
UBS A.G. (Switzerland) 22,817 2,171,038
------------------------------------------------------------------
INSURANCE BROKERS-5.69%
Aon Corp. 102,015 3,667,439
------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 137,422 4,364,523
------------------------------------------------------------------
8,031,962
------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-11.07%
Lehman Brothers Holdings Inc. 19,886 2,548,789
------------------------------------------------------------------
Merrill Lynch & Co., Inc. 109,557 7,420,296
------------------------------------------------------------------
Morgan Stanley 100,010 5,674,567
------------------------------------------------------------------
15,643,652
------------------------------------------------------------------
LIFE & HEALTH INSURANCE-2.02%
Prudential Financial, Inc. 39,017 2,855,654
------------------------------------------------------------------
MULTI-LINE INSURANCE-7.93%
American International Group, Inc. 31,047 2,118,337
------------------------------------------------------------------
Genworth Financial Inc.-Class A 62,677 2,167,371
------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 80,474 6,911,912
------------------------------------------------------------------
11,197,620
------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-12.01%
Citigroup Inc. 169,249 8,213,654
------------------------------------------------------------------
JPMorgan Chase & Co. 220,461 8,750,097
------------------------------------------------------------------
16,963,751
------------------------------------------------------------------
SHARES VALUE
---------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-8.47%
ACE Ltd. 120,027 $ 6,414,243
---------------------------------------------------------------------
MBIA Inc. 47,293 2,845,147
---------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 60,674 2,710,308
---------------------------------------------------------------------
11,969,698
---------------------------------------------------------------------
REGIONAL BANKS-7.62%
Cullen/Frost Bankers, Inc. 34,704 1,862,911
---------------------------------------------------------------------
Fifth Third Bancorp 99,025 3,735,223
---------------------------------------------------------------------
North Fork Bancorp., Inc. 84,432 2,310,059
---------------------------------------------------------------------
SunTrust Banks, Inc. 20,799 1,513,335
---------------------------------------------------------------------
Zions Bancorp. 17,849 1,348,670
---------------------------------------------------------------------
10,770,198
---------------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-1.21%
H&R Block, Inc. 69,920 1,716,536
---------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-13.07%
Fannie Mae 162,528 7,932,992
---------------------------------------------------------------------
Freddie Mac 88,993 5,815,693
---------------------------------------------------------------------
Hudson City Bancorp, Inc. 119,646 1,450,109
---------------------------------------------------------------------
PMI Group, Inc. (The) 79,333 3,258,206
---------------------------------------------------------------------
18,457,000
---------------------------------------------------------------------
Total Common Stocks
(Cost $116,309,321) 136,560,943
---------------------------------------------------------------------
MONEY MARKET FUNDS-3.58%
Premier Portfolio-Institutional Class
(Cost $5,064,797)/(b)/ 5,064,797 5,064,797
---------------------------------------------------------------------
TOTAL INVESTMENTS-100.26% (Cost $121,374,118) 141,625,740
---------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.26%) (373,077)
---------------------------------------------------------------------
NET ASSETS-100.00% $141,252,663
---------------------------------------------------------------------
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 value of this security at December 31, 2005 represented 0.84% of the
Fund's Net Assets. See Note 1A.
/(b)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $116,309,321) $136,560,943
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $5,064,797) 5,064,797
- -----------------------------------------------------------------------------------
Total investments (cost $121,374,118) 141,625,740
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,697
- -----------------------------------------------------------------------------------
Dividends 185,527
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 14,696
- -----------------------------------------------------------------------------------
Total assets 141,827,660
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 429,440
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 21,905
- -----------------------------------------------------------------------------------
Accrued administrative services fees 85,423
- -----------------------------------------------------------------------------------
Accrued distribution fees--Series II 14
- -----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 112
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 1,634
- -----------------------------------------------------------------------------------
Accrued operating expenses 36,469
- -----------------------------------------------------------------------------------
Total liabilities 574,997
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $141,252,663
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $119,370,858
- -----------------------------------------------------------------------------------
Undistributed net investment income 2,163,085
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (532,938)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 20,251,658
- -----------------------------------------------------------------------------------
$141,252,663
- -----------------------------------------------------------------------------------
NET ASSETS:
Series I $141,241,170
- -----------------------------------------------------------------------------------
Series II $ 11,493
- -----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,252,723
- -----------------------------------------------------------------------------------
Series II 754.8
- -----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 15.26
- -----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 15.23
- -----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $23,712) $ 3,840,953
------------------------------------------------------------------------
Dividends from affiliated money market funds 203,595
------------------------------------------------------------------------
Total investment income 4,044,548
------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,254,039
------------------------------------------------------------------------
Administrative services fees 465,794
------------------------------------------------------------------------
Custodian fees 17,356
------------------------------------------------------------------------
Distribution fees--Series II 27
------------------------------------------------------------------------
Transfer agent fees 15,544
------------------------------------------------------------------------
Trustees' and officer's fees and benefits 20,017
------------------------------------------------------------------------
Other 100,437
------------------------------------------------------------------------
Total expenses 1,873,214
------------------------------------------------------------------------
Less: Fees waived and expense offset arrangement (2,645)
------------------------------------------------------------------------
Net expenses 1,870,569
------------------------------------------------------------------------
Net investment income 2,173,979
------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 12,719,141
------------------------------------------------------------------------
Foreign currencies 329
------------------------------------------------------------------------
12,719,470
------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (10,552,943)
------------------------------------------------------------------------
Foreign currencies (327)
------------------------------------------------------------------------
(10,553,270)
------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 2,166,200
------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 4,340,179
------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,173,979
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 12,719,470
- ------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (10,553,270)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,340,179
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (1,893,397)
- ------------------------------------------------------------------------------------------------------------------------
Series II (135)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,893,532)
- ------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (65,084,200)
- ------------------------------------------------------------------------------------------------------------------------
Series II 135
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (65,084,065)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (62,637,418)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 203,890,081
- ------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $2,163,085 and $1,881,398, respectively) $141,252,663
- ------------------------------------------------------------------------------------------------------------------------
2004
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,889,536
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 15,055,872
- -----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (1,289,821)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,655,587
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (1,438,311)
- -----------------------------------------------------------------------------------------------------------------------
Series II (76)
- -----------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,438,387)
- -----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (20,689,232)
- -----------------------------------------------------------------------------------------------------------------------
Series II 10,076
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (20,679,156)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (6,461,956)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 210,352,037
- -----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $2,163,085 and $1,881,398, respectively) $203,890,081
- -----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Financial Services Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 capital growth.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. FINANCIAL SERVICES FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the Fund's
average daily net assets.
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. This agreement
has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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. 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
AIM V.I. FINANCIAL SERVICES FUND
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 year ended December 31, 2005, AIM waived fees of $2,512.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $415,794 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 year ended
December 31, 2005, the Fund paid AISI $15,544.
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 year ended
December 31, 2005, the Series II shares paid $27.
Certain officers and trustees of the Trust are also 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 an
affiliated money market fund for the year ended December 31, 2005.
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Premier Portfolio--Institutional Class $10,351,853 $49,787,273 $(55,074,329) $ -- $5,064,797 $203,595 $ --
- ---------------------------------------------------------------------------------------------------------------------------
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended December 31,
2005, the Fund engaged in securities purchases of $1,002,321.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $133.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,588
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. FINANCIAL SERVICES FUND
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2005 and 2004 was as follows:
2005 2004
-------------------------------------------------------------
Distributions paid from ordinary income $1,893,532 $1,438,387
-------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
------------
Undistributed ordinary income $ 2,178,377
-------------------------------------------------
Undistributed long-term gain 840,670
-------------------------------------------------
Unrealized appreciation-investments 18,878,051
-------------------------------------------------
Temporary book/tax differences (15,293)
-------------------------------------------------
Shares of beneficial interest 119,370,858
-------------------------------------------------
Total net assets $141,252,663
-------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation
on foreign currencies of $36.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund utilized $8,204,690 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward as of December 31, 2005.
On September 23, 2005, 3,082,094 Series I shares valued at $43,241,778 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $3,346,925 to the Fund for
book purposes. From a federal income tax perspective, the realized gains are
not recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward, if any, available for future utilization by the Fund.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $35,779,904 and $94,885,730, respectively.
At the request of the Trustees, AIM recovered third party research credits,
during the year ended December 31, 2005, in the amount of $807. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $23,628,654
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,750,639)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $18,878,015
-------------------------------------------------------------------------
Cost of investments for tax purposes is $122,747,725.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, redomestication expenses and a redemption-in-kind transaction, on
December 31, 2005, undistributed net investment income was increased by $1,240,
undistributed net realized gain (loss) was decreased by $2,860,293 and shares
of beneficial interest increased by $2,859,053. This reclassification had no
effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------- ---------------------------------------
2005/(A)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
- ----------------------------------------------------------------------------------------
Series I 1,679,434 $ 24,855,189 3,650,703 $ 51,539,943
- ----------------------------------------------------------------------------------------
Series II/(b)/ -- -- 741 10,000
- ----------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
- ----------------------------------------------------------------------------------------
Series I 123,028 1,893,397 99,883 1,438,311
- ----------------------------------------------------------------------------------------
Series II/(b)/ 9 135 5 76
- ----------------------------------------------------------------------------------------
Reacquired:
- ----------------------------------------------------------------------------------------
Series I (6,506,406) (91,832,786) (5,326,890) (73,667,486)
- ----------------------------------------------------------------------------------------
(4,703,935) $(65,084,065) (1,575,558) $(20,679,156)
- ----------------------------------------------------------------------------------------
/(a)/There are 3 entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 82% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate 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, 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)/Series II shares commenced sales on April 30, 2004.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.61 $ 13.54 $ 10.50 $ 12.42 $ 13.84
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 /(a)/ 0.15 0.08 0.08 0.06
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.66 1.02 3.02 (1.93) (1.43)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.85 1.17 3.10 (1.85) (1.37)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.10) (0.06) (0.07) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.20) (0.10) (0.06) (0.07) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.26 $ 14.61 $ 13.54 $ 10.50 $ 12.42
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 5.84% 8.68% 29.58% (14.90)% (9.88)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $141,241 $203,879 $210,352 $142,403 $183,084
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.12%/(c)/ 1.12% 1.09% 1.09% 1.07%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.30%/(c)/ 0.89% 0.87% 0.57% 0.46%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 22% 67% 65% 72% 132%
- ---------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $167,194,553.
SERIES II
----------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES COMMENCED)
DECEMBER 31, 2005 TO DECEMBER 31, 2004
----------------- ----------------------
Net asset value, beginning of period $14.59 $13.50
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15/(a)/ 0.12
- --------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.67 1.07
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.82 1.19
- --------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.18) (0.10)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $15.23 $14.59
- --------------------------------------------------------------------------------------------------
Total return/(b)/ 5.61% 8.85%
- --------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 11
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.37%/(c)/ 1.38%/(d)/
- --------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.05%/(c)/ 0.63%/(d)/
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 22% 67%
- --------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $10,656.
/(d)/Annualized.
AIM V.I. FINANCIAL SERVICES 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 13--LEGAL PROCEEDINGS-(CONTINUED)
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. FINANCIAL SERVICES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Financial Services Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian,
provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. FINANCIAL SERVICES FUND
AIM V.I. GLOBAL HEALTH CARE FUND
Annual Report to Shareholders o December 31, 2005
EFFECTIVE JULY 1, 2005, AIM V.I. HEALTH SCIENCES FUND
WAS RENAMED AIM V.I. GLOBAL HEALTH CARE FUND.
AIM V.I. GLOBAL HEALTH CARE FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330,or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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]
--REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. GLOBAL HEALTH CARE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE MARKET CONDITIONS AND YOUR FUND
========================================================================================= Despite widespread concern about the
PERFORMANCE SUMMARY potential impact of historically high
============================================ energy prices, the majority of world
Health care stocks generally recorded FUND VS. INDEXES markets rose during the year. For the
gains for the year ended December 31, fourth consecutive year, foreign markets
2005, helping your Fund post positive TOTAL RETURNS, 12/31/04-12/31/05, generally outperformed U.S. markets.
returns. EXCLUDING VARIABLE PRODUCT ISSUER
CHARGES. IF VARIABLE PRODUCT ISSUER In Europe, markets rallied as the
The Fund outperformed the S&P 500 CHARGES WERE INCLUDED, RETURNS WOULD BE European Central Bank maintained a low
Index as health care fared better than LOWER. interest rate environment and corporate
most other sectors in this broad-based profits, boosted by restructuring and
benchmark. Our biotechnology holdings Series I Shares 8.15% cost-cutting measures, increased. In
detracted from our performance relative Asia, Japanese stocks climbed to levels
to the Goldman Sachs Health Care Index. Series II Shares 7.90 not witnessed in many years as corporate
earnings continued to improve and
The Fund's long-term performance can Standard & Poor's Composite Index investors reacted favorably to Prime
be found on Pages 4 and 5. of 500 Stocks (S&P 500 Index) Minister Junichiro Koizumi's dramatic
(Broad Market Index) 4.91 election victory. In the United States,
equity markets posted modest can gains
Goldman Sachs Health Care Index as concerns about rising interest rates
(Style-Specific Index) 12.12 and fuel costs muted returns.
Lipper Health/Biotech Health care stocks generally
Fund Index (Peer Group Index) 11.48 performed fairly well as demand for
medical products and services has
SOURCE: LIPPER, INC. historically remained constant
============================================ regardless of economic trends. Health
care services and managed health care
========================================================================================= were two of the better-performing
industries in the sector while
HOW WE INVEST unfilled market segments. pharmaceuticals was the weakest.
We seek health care stocks of all market We seek to manage risk by generally: Over the reporting period, we
capitalizations from around the world reduced the Fund's exposure to
that we believe are attractively priced o limiting investments in a single stock pharmaceutical stocks from about 45% to
and have the potential to benefit from 35% of the portfolio. U.S. drug
long-term earnings and cash flow growth. o diversifying across industries companies faced several challenges,
including a general lack of new
We typically invest in four broad o monitoring political trends that could products, patent expirations and a
segments of the health care sector: negatively affect a specific industry. well-publicized court decision
pharmaceuticals, biotechnology, medical concerning one company's arthritis pain
technology and health care services. We We may sell a holding when: killer. We trimmed the portfolio's
look for companies that are financially holdings in large-cap U.S. drug makers,
healthy and, in our opinion, likely to o we identify a more attractive which were more severely affected by
sustain their profitability. We assess investment opportunity these trends. For example, we
the long-term commercial potential of
each company's current and prospective o we see a deterioration of a company's
products, especially products that fill fundamentals
otherwise
o a company fails to capitalize on a
market opportunity
o a change in management occurs
=========================================== ============================================ =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By country 1. Pharmaceuticals 35.5% 1. Roche Holding A.G. (Switzerland) 8.5%
United States 76.3% 2. Health Care Equipment 19.1 2. Protein Design Labs, Inc. 4.2
Switzerland 11.4 3. Biotechnology 19.0 3. Wyeth 3.8
France 3.0 4. Managed Health Care 10.7 4. Amgen Inc. 2.9
Japan 2.6 5. Health Care Services 5.1 5. Novartis A.G.-ADR (Switzerland) 2.9
United Kingdom 2.1 6. WellPoint,Inc. 2.8
TOTAL NET ASSETS $257.7 MILLION
Canada 1.0 TOTAL NUMBER OF HOLDINGS* 106 7. UnitedHealth Group, Inc. 2.4
Denmark 0.6 8. Guidant Corp. 2.2
Israel 0.6 9. Biogen Idec Inc. 2.1
Germany 0.5 10. Shire PLC-ADR (United Kingdom) 2.1
Netherlands 0.2
Money Market Funds Plus
Other Assets Less Liabilities 1.7
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. GLOBAL HEALTH CARE FUND
reduced our position in PFIZER, a was the leading contributor to MICHAEL YELLEN, senior
leading U.S. drug manufacturer whose Fund performance and one of our top [YELLEN portfolio manager, is the
stock detracted from performance. The holdings. The company reported a 21% PHOTO] lead manager of AIM V.I.
company is facing patent litigation increase in revenue for the third Global Health Care Fund. He
involving one of its key products, quarter of 2005 compared to the same began his investment
Lipitor--REGISTERED TRADEMARK--, used period for the previous year. The industry career in 1991 and joined AIM
to lower cholesterol. Although the company's stock also appreciated because in 1998. Mr. Yellen received his B.A.
company reduced its earnings estimates of its merger with UNITEDHEALTH GROUP. from Stanford University.
for 2005, we continued to hold the stock
because of its attractive valuation and We reduced our exposure to SUNAINA MURTHY, senior
Pfizer's industry-leading position. biotechnology, the industry that [MURTHY analyst, is a senior analyst
detracted the most from Fund PHOTO] with AIM V.I. Global Health
Japanese pharmaceutical company performance. A stock that detracted from Care Fund. Ms. Murthy began
stocks, which benefited from a series of returns was OSI PHARMACEUTICALS, which her career in cancer
corporate consolidations in Japan, is involved in the development of research at the University of
generally performed well for the Fund. chemotherapy and drugs for the treatment Pennsylvania before joining a
Eisai, for example, was a strong of malignant tumors. The company biotechnology-focused venture capital
contributor to Fund returns. Known for reported a loss for the third quarter of firm. Ms. Murthy worked as an analyst at
Aricept--REGISTERED TRADEMARK--, a drug 2005. We reduced our holdings in this the advisor from 2001 to 2004, and
used in treatment of Alzheimer's stock. rejoined the firm in 2005. Ms. Murthy
disease, Eisai reported a more than 9% earned a B.S. in molecular genetics from
increase in earnings for the first half IN CLOSING the University of Rochester and an M.S.
of its fiscal year compared to the same in biotechnology from Northwestern
period in 2004. We are pleased to have provided positive University.
returns for our investors. We remain
We shifted some of the profits from optimistic about the long-term prospects DEREK M. TANER, Chartered
the sale of a portion of our Japanese for health care stocks. As the [TANER Financial Analyst, portfolio
holdings into European drug companies, population ages, we expect the demand PHOTO] manager, is portfolio
which generally have stronger product for health services and products to manager of AIM V.I. Global
pipelines and are facing fewer patent increase. Moreover, we believe this Health Care Fund. Mr. Taner
expirations than their U.S. counter- demand will continue to be largely began his investment career in 1993 with
parts. We also found stocks in this unaffected by economic trends. We thank another employer, where he worked as a
region that we considered attractively you for your investment in AIM V.I. fixed income analyst, assistant
valued. One stock we added was ROCHE Global Health Care Fund. portfolio manger and manager of a health
HOLDING, a Swiss drug company which was care fund. Mr. Taner assumed his current
one of our best performers for the year. THE VIEWS AND OPINIONS EXPRESSED IN position with AIM in 2005. He holds a
The company, which has very few expiring MANAGEMENT'S DISCUSSION OF FUND B.S. in accounting and an M.B.A. from
patents, reported a 17% increase in PERFORMANCE ARE THOSE OF A I M ADVISORS, the Haas School of Business at the
sales for the first nine months of 2005 INC. THESE VIEWS AND OPINIONS ARE University of California at Berkeley.
compared to the same period for the SUBJECT TO CHANGE AT ANY TIME BASED ON
previous year, including strong sales of FACTORS SUCH AS MARKET AND ECONOMIC On January 17, 2006, after the close of
its cancer drug, Avastin--REGISTERED CONDITIONS. THESE VIEWS AND OPINIONS MAY the reporting period, Derek M. Taner
TRADEMARK--. NOT BE RELIED UPON AS INVESTMENT ADVICE became lead portfolio manager of AIM
OR RECOMMENDATIONS, OR AS AN OFFER FOR A V.I. Global Health Care Fund. Michael
We believe the restructuring of our PARTICULAR SECURITY. THE INFORMATION IS Yellen remains on the team as a senior
pharmaceutical holdings was largely NOT A COMPLETE ANALYSIS OF EVERY ASPECT analyst based in Tokyo. Sunaina Murthy
responsible for this industry OF ANY MARKET, COUNTRY, INDUSTRY, has left the team.
contributing positively to our SECURITY OR THE FUND. STATEMENTS OF FACT
performance for the year. ARE FROM SOURCES CONSIDERED RELIABLE,
BUT A I M ADVISORS, INC. MAKES NO
While pharmaceuticals remained the REPRESENTATION OR WARRANTY AS TO THEIR
portfolio's largest industry weighting, COMPLETENESS OR ACCURACY. ALTHOUGH
we increased the Fund's exposure to HISTORICAL PERFORMANCE IS NO GUARANTEE
managed health care, health care OF FUTURE RESULTS, THESE INSIGHTS MAY
facilities and health care services over HELP YOU UNDERSTAND OUR INVESTMENT
the period, and these were the MANAGEMENT PHILOSOPHY. [RIGHT ARROW GRAPHIC]
industries that contributed the most to
Fund performance. Companies in these FOR A DISCUSSION OF THE RISKS OF
industries benefited from efforts to INVESTING IN YOUR FUND, INDEXES USED IN
contain employee health care costs. THIS REPORT AND YOUR FUND'S LONG-TERM
PACIFICARE HEALTH SYSTEMS, one of the PERFORMANCE, PLEASE TURN TO PAGES 4 AND
nation's largest consumer health 5.
organizations with approximately 3.3
million health plan members,
3
AIM V.I. GLOBAL HEALTH CARE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/21/97, index data from 5/31/97
<Table>
<Caption>
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. GLOBAL LIPPER GOLDMAN SACHS
HEALTH CARE FUND- S&P 500 HEALTH/BIOTECH HEALTH CARE
SERIES I SHARES INDEX FUND INDEX INDEX
5/21/97 $10000
05/97 10000 $10000 $10000 $10000
06/97 10000 10445 10505 10781
07/97 9930 11275 10848 11118
08/97 10250 10644 10556 10491
09/97 10610 11227 11402 11066
10/97 10610 10852 11117 10932
11/97 10910 11354 11199 11344
12/97 11040 11549 11252 11676
01/98 11589 11677 11486 12216
02/98 12049 12518 12130 13007
03/98 12699 13159 12586 13598
04/98 12999 13294 12678 13955
05/98 12909 13066 12309 13730
06/98 13629 13596 12666 14519
07/98 13639 13452 12524 14527
08/98 12289 11509 10696 12614
09/98 13618 12247 12007 14036
10/98 14068 13241 12466 14664
11/98 14798 14043 13110 15447
12/98 15768 14852 14177 16376
01/99 15871 15473 14409 16316
02/99 15623 14992 14036 16114
03/99 15984 15592 14396 16606
04/99 15108 16196 13698 15833
05/99 14531 15813 13625 15567
06/99 15108 16689 14286 16225
07/99 14830 16170 14303 15719
08/99 15367 16090 14695 16024
09/99 14428 15649 13634 14595
10/99 15171 16639 14280 15660
11/99 15514 16977 14881 16123
12/99 16536 17976 15644 15713
01/00 17507 17073 16761 16735
02/00 21068 16750 19085 16680
03/00 17187 18388 17120 16567
04/00 16309 17835 16945 17307
05/00 16433 17469 17252 17984
06/00 19664 17899 20199 19941
07/00 18435 17620 19575 19267
08/00 21056 18713 21330 19964
09/00 22180 17726 22265 20844
10/00 21892 17650 21988 21347
11/00 20386 16260 21314 21648
12/00 21587 16340 22477 22431
01/01 19385 16919 20619 20360
02/01 19301 15377 20411 20264
03/01 16956 14404 18090 18457
04/01 18279 15522 19494 19056
05/01 18941 15626 20230 19687
06/01 18961 15246 20485 19188
07/01 18620 15096 19855 19717
08/01 18454 14152 19585 19212
09/01 17803 13009 18528 19063
10/01 18547 13257 19148 19091
11/01 19415 14274 20111 20111
12/01 18868 14399 20125 19731
01/02 17934 14189 18927 18991
02/02 17571 13916 18315 19106
03/02 17821 14439 18824 19344
04/02 17229 13564 17871 18135
05/02 17064 13464 17350 17781
06/02 16059 12506 15944 16089
07/02 15156 11531 15361 15737
08/02 15062 11607 15164 15850
09/02 15031 10346 14654 15003
10/02 15092 11256 15197 15699
11/02 14553 11918 15459 16137
12/02 14252 11218 14851 15579
01/03 14160 10925 14794 15589
02/03 13932 10761 14469 15320
03/03 14553 10865 14985 15786
04/03 15227 11759 15731 16513
05/03 15807 12378 17074 17282
06/03 16532 12536 17474 18024
07/03 16605 12758 18068 18094
08/03 16212 13006 17836 17699
09/03 16346 12868 17911 17725
10/03 16855 13596 18151 17900
11/03 17497 13715 18640 18224
12/03 18212 14434 19385 19196
1/04 18886 14699 20219 19760
2/04 19156 14903 20475 20032
3/04 18938 14678 20396 19453
4/04 18855 14448 20726 20147
5/04 18834 14646 20641 20120
6/04 18949 14931 20702 20116
7/04 17715 14437 19225 18857
8/04 17882 14495 19369 19090
9/04 18078 14652 19886 19037
10/04 17975 14875 19533 18593
11/04 18182 15477 20303 19069
12/04 19591 16004 21660 20399
1/05 18896 15614 20923 19780
2/05 18875 15942 20827 20306
3/05 18397 15660 20442 20324
4/05 18728 15363 20995 21129
5/05 19215 15851 21588 21517
6/05 19360 15874 21920 21613
7/05 20345 16464 23162 22361
8/05 20717 16314 23416 22459
9/05 20883 16446 23630 22313
10/05 20376 16172 23080 21862
11/05 20812 16783 23710 22332
12/05 $21194 $16789 $24146 $22870
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. GLOBAL HEALTH CARE FUND
<Table>
===========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO SERIES II INSURANCE FUNDS, IS CURRENTLY OFFERED
SHARES. THE INCEPTION DATE OF SERIES I THROUGH INSURANCE COMPANIES ISSUING
As of 12/31/05 SHARES IS MAY 21, 1997. SERIES I AND VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SERIES II SHARES INVEST IN THE SAME SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES PORTFOLIO OF SECURITIES AND WILL HAVE FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/21/97) 9.11% SUBSTANTIALLY SIMILAR PERFORMANCE, NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years -0.37 EXCEPT TO THE EXTENT THAT EXPENSES BORNE PRODUCT VALUES. THEY DO NOT REFLECT
1 Year 8.15 BY EACH CLASS DIFFER. SALES CHARGES, EXPENSES AND FEES
ASSESSED IN CONNECTION WITH A VARIABLE
SERIES II SHARES THE PERFORMANCE DATA QUOTED PRODUCT. SALES CHARGES, EXPENSES AND
Inception 8.84% REPRESENT PAST PERFORMANCE AND CANNOT FEES, WHICH ARE DETERMINED BY THE
5 Years -0.62 GUARANTEE COMPARABLE FUTURE RESULTS; VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 7.90 CURRENT PERFORMANCE MAY BE LOWER OR WILL LOWER THE TOTAL RETURN.
HIGHER. PLEASE CONTACT YOUR VARIABLE
=========================================== PRODUCT ISSUER OR FINANCIAL ADVISOR FOR PER NASD REQUIREMENTS, THE MOST
THE MOST RECENT MONTH-END VARIABLE RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS PRODUCT PERFORMANCE. PERFORMANCE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Six months ended 12/31/05 FIGURES REFLECT FUND EXPENSES, RE- INFORMATION LINE, 866-702-4402. AS
Series I Shares 9.42% INVESTED DISTRIBUTIONS AND CHANGES IN MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 9.29 NET ASSET VALUE. INVESTMENT RETURN AND MONTH-END PERFORMANCE INCLUDING VARIABLE
PRINCIPAL VALUE WILL FLUCTUATE SO THAT PRODUCT CHARGES, PLEASE CONTACT YOUR
=========================================== YOU MAY HAVE A GAIN OR LOSS WHEN YOU VARIABLE PRODUCT ISSUER OR FINANCIAL
SELL SHARES. ADVISOR.
RETURNS SINCE APRIL 30, 2004, THE
INCEPTION DATE OF SERIES II SHARES ARE AIM V.I. GLOBAL HEALTH CARE FUND, A
HISTORICAL. ALL OTHER RETURNS ARE THE SERIES PORTFOLIO OF AIM VARIABLE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT reflect sales charges. Performance of an
index of funds reflects fund expenses;
Investing in a single-sector or The unmanaged Standard & Poor's performance of a market index does not.
single-region mutual fund involves Composite Index of 500 Stocks (the S&P
greater risk and potential reward than 500--REGISTERED TRADEMARK-- INDEX) is OTHER INFORMATION
investing in a more diversified fund. an index of common stocks frequently
used as a general measure of U.S. stock The returns shown in management's
Investing in smaller companies market performance. discussion of Fund performance are based
involves greater risk than investing in on net asset values calculated for
more established companies, such as The GOLDMAN SACHS HEALTH CARE INDEX shareholder transactions. Generally
business risk, significant stock price is a modified capitalization-weighted accepted accounting principles require
fluctuations and illiquidity. index designed as a benchmark for U.S. adjustments to be made to the net assets
traded securities in the health care of the Fund at period end for financial
The Fund may invest up to 25% of its sector. The index includes companies in reporting purposes, and as such, the net
assets in the securities of non-U.S. the following categories: providers of asset values for shareholder
issuers. Securities of Canadian issuers health care related services, transactions and the returns based on
and American Depositary Receipts are not researchers, manufacturers, and those net asset values may differ from
subject to this 25% limitation. distributors of pharmaceuticals, drugs the net asset values and returns
International investing presents certain and related sciences, and medical reported in the Financial Highlights.
risks not associated with investing supplies, instruments and products. Additionally, the returns and net asset
solely in the United States. These values shown throughout this report are
include risks relating to fluctuations The unmanaged LIPPER HEALTH/BIOTECH at the Fund level only and do not
in the value of the U.S. dollar relative FUND INDEX represents an average of the include variable product issuer charges.
to the values of other currencies, the 30 largest health and biotechnology If such charges were included, the total
custody arrangements made for the Fund's funds tracked by Lipper, Inc., an returns would be lower.
foreign holdings, differences in independent mutual fund performance
accounting, political risks and the monitor. Industry classifications used in
lesser degree of public information this report are generally according to
required to be provided by non-U.S. The Fund is not managed to track the the Global Industry Classification
companies. performance of any particular index, Standard, which was developed by and is
including the indexes defined here, and the exclusive property and a service
Portfolio turnover is greater than consequently, the performance of the mark of Morgan Stanley Capital
that of most funds, which may affect Fund may deviate significantly from the International Inc. and Standard &
performance. performance of the indexes. Poor's.
A direct investment cannot be made
in an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not
5
AIM V.I. GLOBAL HEALTH CARE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES year before expenses, which is not the
Fund's actual return. The Fund's actual
As a shareholder of the Fund, you incur The table below provides information cumulative total returns at net asset
ongoing costs, including management about actual account values and actual value after expenses for the six months
fees; distribution and/or service fees expenses. You may use the information in ended December 31, 2005, appear in the
(12b-1); and other Fund expenses. This this table, together with the amount you table "Cumulative Total Returns" on Page
example is intended to help you invested, to estimate the expenses that 5.
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
July 1, 2005, through December 31, 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 help you determine the relative total
costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,094.20 $5.81 $1,019.66 $5.60 1.10%
Series II 1,000.00 1,092.90 7.12 1,018.40 6.87 1.35
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. GLOBAL HEALTH CARE FUND
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
the management of AIM V.I. Global Health credentials and experience of the AIM in providing investment advisory and
Care Fund (formerly known as "AIM V.I. officers and employees of AIM who will portfolio administrative services to the
Health Sciences Fund") (the "Fund") and, provide investment advisory services to Fund and concluded that such performance
as required by law, determines annually the Fund. In reviewing the was satisfactory.
whether to approve the continuance of qualifications of AIM to provide
the Fund's advisory agreement with A I M investment advisory services, the Board o Fees relative to those of clients of
Advisors, Inc. ("AIM"). Based upon the reviewed the qualifications of AIM's AIM with comparable investment
recommendation of the Investments investment personnel and considered such strategies. The Board reviewed the
Committee of the Board, which is issues as AIM's portfolio and product advisory fee rate for the Fund under the
comprised solely of independent review process, various back office Advisory Agreement. The Board noted that
trustees, at a meeting held on June 30, support functions provided by AIM and this rate (i) was the same as the
2005, the Board, including all of the AIM's equity and fixed income trading initial advisory fee rates for a mutual
independent trustees, approved the operations. Based on the review of these fund advised by AIM with investment
continuance of the advisory agreement and other factors, the Board concluded strategies comparable to those of the
(the "Advisory Agreement") between the that the quality of services to be Fund, although the advisory fee schedule
Fund and AIM for another year, effective provided by AIM was appropriate and that for the mutual fund included
July 1, 2005. AIM currently is providing satisfactory breakpoints; (ii) was lower than the
services in accordance with the terms of advisory fee rate for two offshore funds
The Board considered the factors the Advisory Agreement. for which an AIM affiliate serves as
discussed below in evaluating the advisor with investment strategies
fairness and reasonableness of the o The performance of the Fund relative comparable to those of the Fund; and
Advisory Agreement at the meeting on to comparable funds. The Board reviewed (iii) was higher than the subadvisory
June 30, 2005 and as part of the Board's the performance of the Fund during the fee rates for three unaffiliated mutual
ongoing oversight of the Fund. In their past one and three calendar years funds for which an AIM affiliate serves
deliberations, the Board and the against the performance of funds advised as sub-advisor, although the total
independent trustees did not identify by other advisors with investment management fees paid by such
any particular factor that was strategies comparable to those of the unaffiliated mutual funds were higher
controlling, and each trustee attributed Fund. The Board noted that the Fund's than the advisory fee rate for the Fund.
different weights to the various performance in such periods was below The Board noted that AIM has agreed to
factors. the median performance of such waive advisory fees of the Fund and to
comparable funds. The Board also noted limit the Fund's total operating
One of the responsibilities of the that AIM began serving as investment expenses, as discussed below. Based on
Senior Officer of the Fund, who is advisor to the Fund in April 2004. The this review, the Board concluded that
independent of AIM and AIM's affiliates, Board noted that AIM has acknowledged the advisory fee rate for the Fund under
is to manage the process by which the that the Fund continues to require a the Advisory Agreement was fair and
Fund's proposed management fees are long-term solution to its reasonable.
negotiated to ensure that they are under-performance, and that management
negotiated in a manner which is at arm's is continuing to closely monitor the o Fees relative to those of comparable
length and reasonable. To that end, the performance of the Fund and analyze funds with other advisors. The Board
Senior Officer must either supervise a various possible long-term solutions. reviewed the advisory fee rate for the
competitive bidding process or prepare Based on this review, the Board Fund under the Advisory Agreement. The
an independent written evaluation. The concluded that no changes should be made Board compared effective contractual
Senior Officer has recommended an to the Fund and that it was not advisory fee rates at a common asset
independent written evaluation in lieu necessary to change the Fund's portfolio level and noted that the Fund's rate was
of a competitive bidding process and, management team at this time. above the median rate of the funds
upon the direction of the Board, has advised by other advisors with
prepared such an independent written o The performance of the Fund relative investment strategies comparable to
evaluation. Such written evaluation also to indices. The Board reviewed the those of the Fund that the Board
considered certain of the factors performance of the Fund during the past reviewed. The Board noted that AIM has
discussed below. In addition, as one, three and five calendar years agreed to waive advisory fees of the
discussed below, the Senior Officer made against the performance of the Lipper Fund and to limit the Fund's total
certain recommendations to the Board in Health/Biotech Fund Index. The Board operating expenses, as discussed below.
connection with such written evaluation. noted that the Fund's performance in Based on this review, the Board
such periods was below the performance concluded that the advisory fee rate for
The discussion below serves as a of such Index. The Board also noted that the Fund under the Advisory Agreement
summary of the Senior Officer's AIM began serving as investment advisor was fair and reasonable.
independent written evaluation and to the Fund in April 2004. The Board
recommendations to the Board in noted that AIM has acknowledged that the o Expense limitations and fee waivers.
connection therewith, as well as a Fund continues to require a long-term The Board noted that AIM has
discussion of the material factors and solution to its under-performance, and contractually agreed to waive advisory
the conclusions with respect thereto that management is continuing to closely fees of the Fund through June 30, 2006
that formed the basis for the Board's monitor the performance of the Fund and to the extent necessary so that the
approval of the Advisory Agreement. analyze various possible long-term advisory fees payable by the Fund do not
After consideration of all of the solutions. Based on this review, the exceed a specified maximum advisory fee
factors below and based on its informed Board concluded that no changes should rate, which maximum rate includes
business judgment, the Board determined be made to the Fund and that it was not breakpoints and is based on net asset
that the Advisory Agreement is in the necessary to change the Fund's portfolio levels. The Board considered the
best interests of the Fund and its management team at this time. contractual nature of this fee waiver
shareholders and that the compensation and noted that it remains in effect
to AIM under the Advisory Agreement is o Meeting with the Fund's portfolio until June 30, 2006. The Board also
fair and reasonable and would have been managers and investment personnel. With noted that AIM has contractually agreed
obtained through arm's length respect to the Fund, the Board is to waive fees and/or limit expenses of
negotiations. meeting periodically with such Fund's the Fund through April 30, 2006 so that
portfolio managers and/or other total annual operating expenses are
o The nature and extent of the advisory investment personnel and believes that limited to a specified percentage of
services to be provided by AIM. The such individuals are competent and able average daily net assets for each class
Board reviewed the services to be to continue to carry out their of the Fund. The Board considered the
provided by AIM under the Advisory responsibilities under the Advisory contractual nature of this fee
Agreement. Based on such review, the Agreement. waiver/expense limitation and noted that
Board concluded that the range of it remains in effect until April 30,
services to be provided by AIM under the 2006. The Board considered the effect
Advisory Agreement was appropriate and these fee waivers/expense limitations
that AIM currently is providing services would have on the Fund's estimated
in accordance with the terms of the expenses and concluded that the levels
Advisory Agreement. of fee waivers/expense limitations for
the Fund were fair and reasonable.
(continued)
7
AIM V.I. GLOBAL HEALTH CARE FUND
o Breakpoints and economies of scale. o Independent written evaluation and concluded that it was beneficial to
The Board reviewed the structure of the recommendations of the Fund's Senior maintain the current relationship, in
Fund's advisory fee under the Advisory Officer. The Board noted that, upon part, because of such knowledge. The
Agreement, noting that it does not their direction, the Senior Officer of Board also reviewed the general nature
include any breakpoints. The Board the Fund, who is independent of AIM and of the non-investment advisory services
considered whether it would be AIM's affiliates, had prepared an currently performed by AIM and its
appropriate to add advisory fee independent written evaluation in order affiliates, such as administrative,
breakpoints for the Fund or whether, due to assist the Board in determining the transfer agency and distribution
to the nature of the Fund and the reasonableness of the proposed services, and the fees received by AIM
advisory fee structures of comparable management fees of the AIM Funds, and its affiliates for performing such
funds, it was reasonable to structure including the Fund. The Board noted that services. In addition to reviewing such
the advisory fee without breakpoints. the Senior Officer's written evaluation services, the trustees also considered
Based on this review, the Board had been relied upon by the Board in the organizational structure employed by
concluded that it was not necessary to this regard in lieu of a competitive AIM and its affiliates to provide those
add advisory fee breakpoints to the bidding process. In determining whether services. Based on the review of these
Fund's advisory fee schedule. The Board to continue the Advisory Agreement for and other factors, the Board concluded
reviewed the level of the Fund's the Fund, the Board considered the that AIM and its affiliates were
advisory fees, and noted that such fees, Senior Officer's written evaluation and qualified to continue to provide
as a percentage of the Fund's net the recommendation made by the Senior non-investment advisory services to the
assets, would remain constant under the Officer to the Board that the Board Fund, including administrative, transfer
Advisory Agreement because the Advisory consider implementing a process to agency and distribution services, and
Agreement does not include any assist them in more closely monitoring that AIM and its affiliates currently
breakpoints. The Board noted that AIM the performance of the AIM Funds. The are providing satisfactory
has contractually agreed to waive Board concluded that it would be non-investment advisory services.
advisory fees of the Fund through June advisable to implement such a process as
30, 2006 to the extent necessary so that soon as reasonably practicable. o Other factors and current trends. In
the advisory fees payable by the Fund do determining whether to continue the
not exceed a specified maximum advisory o Profitability of AIM and its Advisory Agreement for the Fund, the
fee rate, which maximum rate includes affiliates. The Board reviewed Board considered the fact that AIM,
breakpoints and is based on net asset information concerning the profitability along with others in the mutual fund
levels. The Board concluded that the of AIM's (and its affiliates') industry, is subject to regulatory
Fund's fee levels under the Advisory investment advisory and other activities inquiries and litigation related to a
Agreement therefore would not reflect and its financial condition. The Board wide range of issues. The Board also
economies of scale, although the considered the overall profitability of considered the governance and compliance
advisory fee waiver reflects economies AIM, as well as the profitability of AIM reforms being undertaken by AIM and its
of scale. in connection with managing the Fund. affiliates, including maintaining an
The Board noted that AIM's operations internal controls committee and
o Investments in affiliated money market remain profitable, although increased retaining an independent compliance
funds. The Board also took into account expenses in recent years have reduced consultant, and the fact that AIM has
the fact that uninvested cash and cash AIM's profitability. Based on the review undertaken to cause the Fund to operate
collateral from securities lending of the profitability of AIM's and its in accordance with certain governance
arrangements (collectively, "cash affiliates' investment advisory and policies and practices. The Board
balances") of the Fund may be invested other activities and its financial concluded that these actions indicated a
in money market funds advised by AIM condition, the Board concluded that the good faith effort on the part of AIM to
pursuant to the terms of an SEC compensation to be paid by the Fund to adhere to the highest ethical standards,
exemptive order. The Board found that AIM under its Advisory Agreement was not and determined that the current
the Fund may realize certain benefits excessive. regulatory and litigation environment to
upon investing cash balances in AIM which AIM is subject should not prevent
advised money market funds, including a o Benefits of soft dollars to AIM. The the Board from continuing the Advisory
higher net return, increased liquidity, Board considered the benefits realized Agreement for the Fund.
increased diversification or decreased by AIM as a result of brokerage
transaction costs. The Board also found transactions executed through "soft
that the Fund will not receive reduced dollar" arrangements. Under these
services if it invests its cash balances arrangements, brokerage commissions paid
in such money market funds. The Board by the Fund and/or other funds advised
noted that, to the extent the Fund by AIM are used to pay for research and
invests in affiliated money market execution services. This research is
funds, AIM has voluntarily agreed to used by AIM in making investment
waive a portion of the advisory fees it decisions for the Fund. The Board
receives from the Fund attributable to concluded that such arrangements were
such investment. The Board further appropriate.
determined that the proposed securities
lending program and related procedures o AIM's financial soundness in light of
with respect to the lending Fund is in the Fund's needs. The Board considered
the best interests of the lending Fund whether AIM is financially sound and has
and its respective shareholders. The the resources necessary to perform its
Board therefore concluded that the obligations under the Advisory
investment of cash collateral received Agreement, and concluded that AIM has
in connection with the securities the financial resources necessary to
lending program in the money market fulfill its obligations under the
funds according to the procedures is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders. o Historical relationship between the
Fund and AIM. In determining whether to
continue the Advisory Agreement for the
Fund, the Board also considered the
prior relationship between AIM and the
Fund, as well as the Board's knowledge
of AIM's operations, and
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-76.32%
BIOTECHNOLOGY-18.54%
Alexion Pharmaceuticals, Inc./(a)/ 17,707 $ 358,567
------------------------------------------------------------------------
Amgen Inc./(a)/ 94,939 7,486,890
------------------------------------------------------------------------
ARIAD Pharmaceuticals, Inc./(a)/ 92,801 542,886
------------------------------------------------------------------------
Array BioPharma Inc./(a)/ 49,796 349,070
------------------------------------------------------------------------
Biogen Idec Inc./(a)/ 121,530 5,508,955
------------------------------------------------------------------------
Charles River Laboratories International, Inc./(a)/ 54,784 2,321,198
------------------------------------------------------------------------
Coley Pharmaceutical Group, Inc./(a)(b)/ 40,657 616,360
------------------------------------------------------------------------
Cubist Pharmaceuticals, Inc./(a)/ 70,509 1,498,316
------------------------------------------------------------------------
DOV Pharmaceutical, Inc./(a)/ 43,519 638,859
------------------------------------------------------------------------
Encysive Pharmaceuticals Inc./(a)/ 58,000 457,620
------------------------------------------------------------------------
Genzyme Corp./(a)/ 32,756 2,318,470
------------------------------------------------------------------------
Human Genome Sciences, Inc./(a)/ 152,441 1,304,895
------------------------------------------------------------------------
Idenix Pharmaceuticals, Inc./(a)(b)/ 33,870 579,516
------------------------------------------------------------------------
InterMune, Inc./(a)(b)/ 34,284 575,971
------------------------------------------------------------------------
Invitrogen Corp./(a)/ 24,500 1,632,680
------------------------------------------------------------------------
Keryx Biopharmaceuticals, Inc./(a)/ 23,006 336,808
------------------------------------------------------------------------
MannKind Corp./(a)(b)/ 53,748 605,202
------------------------------------------------------------------------
MedImmune, Inc./(a)/ 110,498 3,869,640
------------------------------------------------------------------------
NPS Pharmaceuticals, Inc./(a)/ 37,594 445,113
------------------------------------------------------------------------
OSI Pharmaceuticals, Inc./(a)/ 29,900 838,396
------------------------------------------------------------------------
Panacos Pharmaceuticals, Inc./(a)/ 81,495 564,760
------------------------------------------------------------------------
Protein Design Labs, Inc./(a)/ 383,862 10,909,358
------------------------------------------------------------------------
Rigel Pharmaceuticals, Inc./(a)/ 33,125 276,925
------------------------------------------------------------------------
Serologicals Corp./(a)/ 91,793 1,811,994
------------------------------------------------------------------------
Tercica, Inc./(a)(b)/ 39,763 285,101
------------------------------------------------------------------------
Theravance, Inc./(a)/ 27,042 608,986
------------------------------------------------------------------------
Vertex Pharmaceuticals Inc./(a)/ 16,058 444,325
------------------------------------------------------------------------
ZymoGenetics, Inc./(a)/ 34,884 593,377
------------------------------------------------------------------------
47,780,238
------------------------------------------------------------------------
DRUG RETAIL-0.76%
CVS Corp. 74,055 1,956,533
------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.51%
Cardinal Health, Inc. 30,274 2,081,338
------------------------------------------------------------------------
PSS World Medical, Inc./(a)/ 121,439 1,802,155
------------------------------------------------------------------------
3,883,493
------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-19.09%
Advanced Medical Optics, Inc./(a)/ 54,451 2,276,052
------------------------------------------------------------------------
ATS Medical, Inc./(a)(b)/ 135,377 372,287
------------------------------------------------------------------------
Baxter International Inc. 32,457 1,222,006
------------------------------------------------------------------------
Beckman Coulter, Inc. 19,392 1,103,405
------------------------------------------------------------------------
Biomet, Inc. 70,629 2,582,903
------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Cytyc Corp./(a)/ 73,065 $ 2,062,625
--------------------------------------------------------------
Dionex Corp./(a)/ 46,175 2,266,269
--------------------------------------------------------------
EPIX Pharmaceuticals Inc./(a)/ 36,811 148,716
--------------------------------------------------------------
Fisher Scientific International Inc./(a)/ 30,773 1,903,618
--------------------------------------------------------------
Guidant Corp. 87,620 5,673,395
--------------------------------------------------------------
INAMED Corp./(a)/ 26,090 2,287,571
--------------------------------------------------------------
Medtronic, Inc. 89,244 5,137,777
--------------------------------------------------------------
Mentor Corp. 57,016 2,627,297
--------------------------------------------------------------
SonoSite, Inc./(a)/ 96,714 3,385,957
--------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 66,956 3,361,191
--------------------------------------------------------------
Stryker Corp. 45,301 2,012,723
--------------------------------------------------------------
Thermo Electron Corp./(a)/ 97,504 2,937,796
--------------------------------------------------------------
Varian Inc./(a)/ 60,560 2,409,682
--------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 37,966 1,911,208
--------------------------------------------------------------
Vnus Medical Technologies/(a)/ 51,429 430,975
--------------------------------------------------------------
Waters Corp./(a)/ 45,236 1,709,921
--------------------------------------------------------------
Wright Medical Group, Inc./(a)/ 67,223 1,371,349
--------------------------------------------------------------
49,194,723
--------------------------------------------------------------
HEALTH CARE FACILITIES-4.18%
Community Health Systems, Inc./(a)/ 107,122 4,107,057
--------------------------------------------------------------
HCA Inc. 22,905 1,156,703
--------------------------------------------------------------
Kindred Healthcare, Inc./(a)/ 89,717 2,311,110
--------------------------------------------------------------
LifePoint Hospitals, Inc./(a)/ 85,515 3,206,813
--------------------------------------------------------------
10,781,683
--------------------------------------------------------------
HEALTH CARE SERVICES-5.09%
Caremark Rx, Inc./(a)/ 30,979 1,604,402
--------------------------------------------------------------
DaVita, Inc./(a)/ 21,919 1,109,978
--------------------------------------------------------------
Eclipsys Corp./(a)/ 67,608 1,279,819
--------------------------------------------------------------
HMS Holdings Corp./(a)/ 301,209 2,304,249
--------------------------------------------------------------
Medco Health Solutions, Inc./(a)/ 49,686 2,772,479
--------------------------------------------------------------
Pharmaceutical Product Development, Inc. 65,361 4,049,114
--------------------------------------------------------------
13,120,041
--------------------------------------------------------------
HEALTH CARE SUPPLIES-1.80%
Cooper Cos., Inc. (The) 41,551 2,131,566
--------------------------------------------------------------
Gen-Probe Inc./(a)/ 12,398 604,898
--------------------------------------------------------------
Immucor, Inc./(a)/ 81,242 1,897,813
--------------------------------------------------------------
4,634,277
--------------------------------------------------------------
LIFE & HEALTH INSURANCE-0.51%
Universal American Financial Corp./(a)/ 87,068 1,312,985
--------------------------------------------------------------
MANAGED HEALTH CARE-10.65%
Aetna Inc. 33,713 3,179,473
--------------------------------------------------------------
AIM V.I. GLOBAL HEALTH CARE FUND
SHARES VALUE
-----------------------------------------------------------------------
MANAGED HEALTH CARE-(CONTINUED)
Aveta, Inc. (Acquired 12/21/2005;
Cost $1,683,450)/(a)(c)(d)(e)/ 124,700 $ 1,683,450
-----------------------------------------------------------------------
CIGNA Corp. 22,841 2,551,340
-----------------------------------------------------------------------
Coventry Health Care, Inc./(a)/ 57,315 3,264,662
-----------------------------------------------------------------------
Health Net, Inc./(a)/ 49,742 2,564,200
-----------------------------------------------------------------------
Humana Inc./(a)/ 16,529 898,021
-----------------------------------------------------------------------
UnitedHealth Group Inc. 98,157 6,099,476
-----------------------------------------------------------------------
WellPoint, Inc./(a)/ 90,514 7,222,112
-----------------------------------------------------------------------
27,462,734
-----------------------------------------------------------------------
PHARMACEUTICALS-14.19%
AtheroGenics, Inc./(a)(b)/ 20,532 410,845
-----------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc./(a)/ 60,291 1,824,406
-----------------------------------------------------------------------
Forest Laboratories, Inc./(a)/ 60,465 2,459,716
-----------------------------------------------------------------------
Impax Laboratories, Inc./(a)/ 54,726 585,568
-----------------------------------------------------------------------
IVAX Corp./(a)/ 26,433 828,146
-----------------------------------------------------------------------
Johnson & Johnson 86,475 5,197,148
-----------------------------------------------------------------------
Lilly (Eli) and Co. 73,516 4,160,270
-----------------------------------------------------------------------
Medicines Co. (The)/(a)/ 69,399 1,211,013
-----------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 40,206 1,288,602
-----------------------------------------------------------------------
MGI Pharma, Inc./(a)/ 56,570 970,741
-----------------------------------------------------------------------
Pfizer Inc. 229,455 5,350,891
-----------------------------------------------------------------------
Salix Pharmaceuticals, Ltd./(a)/ 13,034 229,138
-----------------------------------------------------------------------
Sepracor Inc./(a)/ 31,791 1,640,416
-----------------------------------------------------------------------
Wyeth 213,263 9,825,026
-----------------------------------------------------------------------
XenoPort, Inc./(a)/ 33,443 601,305
-----------------------------------------------------------------------
36,583,231
-----------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $181,124,168) 196,709,938
-----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-21.93%
CANADA-1.02%
Biovail Corp. (Pharmaceuticals) 64,577 1,532,412
-----------------------------------------------------------------------
QLT Inc. (Biotechnology)/(a)(b)/ 170,359 1,083,483
-----------------------------------------------------------------------
2,615,895
-----------------------------------------------------------------------
DENMARK-0.57%
Novo Nordisk A.S.-Class B (Pharmaceuticals)/(f)/ 25,914 1,459,100
-----------------------------------------------------------------------
FRANCE-3.03%
Ipsen S.A. (Pharmaceuticals) (Acquired 12/06/2005;
Cost $2,842,297)/(a)(c)/ 108,584 3,074,848
-----------------------------------------------------------------------
Sanofi-Aventis-ADR (Pharmaceuticals) 107,664 4,726,450
-----------------------------------------------------------------------
7,801,298
-----------------------------------------------------------------------
GERMANY-0.52%
Merck KGaA (Pharmaceuticals)/(f)/ 16,146 1,337,907
-----------------------------------------------------------------------
ISRAEL-0.59%
Taro Pharmaceutical Industries Ltd.
(Pharmaceuticals)/(a)/ 50,275 702,342
-----------------------------------------------------------------------
SHARES VALUE
----------------------------------------------------------------------------
ISRAEL-(CONTINUED)
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 19,137 $ 823,082
----------------------------------------------------------------------------
1,525,424
----------------------------------------------------------------------------
JAPAN-2.56%
Astellas Pharma Inc. (Pharmaceuticals)/(b)(f)/ 14,062 545,597
----------------------------------------------------------------------------
Eisai Co., Ltd. (Pharmaceuticals)/(b)(f)/ 91,078 3,841,890
----------------------------------------------------------------------------
Kyorin Pharmaceutical Co., Ltd. (Pharmaceuticals) 8,526 101,216
----------------------------------------------------------------------------
Shionogi & Co., Ltd. (Pharmaceuticals)/(f)/ 149,842 2,115,245
----------------------------------------------------------------------------
6,603,948
----------------------------------------------------------------------------
NETHERLANDS-0.21%
Akzo Nobel N.V.-ADR (Diversified Chemicals) 11,979 551,992
----------------------------------------------------------------------------
SWITZERLAND-11.35%
Novartis A.G.-ADR (Pharmaceuticals) 141,195 7,409,914
----------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 145,468 21,842,341
----------------------------------------------------------------------------
29,252,255
----------------------------------------------------------------------------
UNITED KINGDOM-2.08%
Shire PLC-ADR (Pharmaceuticals) 138,477 5,371,523
----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $49,211,289) 56,519,342
----------------------------------------------------------------------------
MONEY MARKET FUNDS-2.16%
Premier Portfolio-Institutional Class
(Cost $5,568,522)/(g)/ 5,568,522 5,568,522
----------------------------------------------------------------------------
TOTAL INVESTMENTS-100.41% (excluding investments
purchased with cash collateral from securities
loaned) (Cost $235,903,979) 258,797,802
----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.17%
Premier Portfolio-Institutional Class/(g)(h)/ 5,595,032 5,595,032
----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $5,595,032) 5,595,032
----------------------------------------------------------------------------
TOTAL INVESTMENTS-102.58% (Cost $241,499,011) 264,392,834
----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(2.58%) (6,645,997)
----------------------------------------------------------------------------
NET ASSETS-100.00% $257,746,837
----------------------------------------------------------------------------
Investment Abbreviations:
ADR - American Depositary Receipt
AIM V.I. GLOBAL HEALTH CARE FUND
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 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 value of these securities at December 31,
2005 was $4,758,298, which represented 1.85% 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 at the time of purchase. The value of
this security considered illiquid at December 31, 2005 represented 0.65%
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 value of this security
considered illiquid at December 31, 2005 was represented 0.65% of the
Fund's Net Assets. See Note 1A.
/(f)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at December 31, 2005 was
$9,299,739, which represented 3.61% of the Fund's Net Assets. See Note 1A.
/(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 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $230,335,457)* $253,229,280
- ----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $11,163,554) 11,163,554
- ----------------------------------------------------------------------------------
Total investments (cost $241,499,011) 264,392,834
- ----------------------------------------------------------------------------------
Foreign currencies, at value (cost $6,853) 6,713
- ----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 69,022
- ----------------------------------------------------------------------------------
Dividends 62,517
- ----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 22,780
- ----------------------------------------------------------------------------------
Total assets 264,553,866
- ----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 770,283
- ----------------------------------------------------------------------------------
Fund shares reacquired 224,044
- ----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 35,347
- ----------------------------------------------------------------------------------
Collateral upon return of securities loaned 5,595,032
- ----------------------------------------------------------------------------------
Accrued administrative services fees 165,297
- ----------------------------------------------------------------------------------
Accrued distribution fees--Series II 14
- ----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 122
- ----------------------------------------------------------------------------------
Accrued operating expenses 16,890
- ----------------------------------------------------------------------------------
Total liabilities 6,807,029
- ----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $257,746,837
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $255,612,273
- ----------------------------------------------------------------------------------
Undistributed net investment income (loss) (82,929)
- ----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts and option contracts (20,676,150)
- ----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 22,893,643
- ----------------------------------------------------------------------------------
$257,746,837
- ----------------------------------------------------------------------------------
NET ASSETS:
Series I $257,735,652
- ----------------------------------------------------------------------------------
Series II $ 11,185
- ----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 12,612,434
- ----------------------------------------------------------------------------------
Series II 550
- ----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 20.44
- ----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 20.34
- ----------------------------------------------------------------------------------
* At December 31, 2005, securities with an aggregate value of $5,335,575 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $95,995) $ 2,205,817
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities
lending income of $17,492, after compensation to counterparties of
$130,020) 374,957
- ----------------------------------------------------------------------------------------
Total investment income 2,580,774
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,307,364
- ----------------------------------------------------------------------------------------
Administrative services fees 840,377
- ----------------------------------------------------------------------------------------
Custodian fees 49,855
- ----------------------------------------------------------------------------------------
Distribution fees--Series II 26
- ----------------------------------------------------------------------------------------
Transfer agent fees 23,986
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 24,503
- ----------------------------------------------------------------------------------------
Other 92,372
- ----------------------------------------------------------------------------------------
Total expenses 3,338,483
- ----------------------------------------------------------------------------------------
Less: Fees waived and expense offset arrangement (10,180)
- ----------------------------------------------------------------------------------------
Net expenses 3,328,303
- ----------------------------------------------------------------------------------------
Net investment income (loss) (747,529)
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES, FOREIGN
CURRENCY CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates
of $398,691) 29,657,963
- ----------------------------------------------------------------------------------------
Foreign currencies (154,529)
- ----------------------------------------------------------------------------------------
Foreign currency contracts (126,055)
- ----------------------------------------------------------------------------------------
Option contracts written 41,207
- ----------------------------------------------------------------------------------------
29,418,586
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (5,399,558)
- ----------------------------------------------------------------------------------------
Foreign currencies (3,701)
- ----------------------------------------------------------------------------------------
(5,403,259)
- ----------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies, foreign
currency contracts and option contracts 24,015,327
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $23,267,798
- ----------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (747,529)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies, foreign currency contracts and option contracts 29,418,586
- ------------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (5,403,259)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,267,798
- ------------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (120,420,216)
- ------------------------------------------------------------------------------------------------------------------------------------
Series II --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (120,420,216)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (97,152,418)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 354,899,255
- ------------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(82,929) and $(17,730), respectively) $ 257,746,837
- ------------------------------------------------------------------------------------------------------------------------------------
2004
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (611,410)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies, foreign currency contracts and option contracts 49,432,894
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (25,351,228)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,470,256
- ----------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (9,291,803)
- ----------------------------------------------------------------------------------------------------------------------------------
Series II 9,795
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (9,282,008)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 14,188,248
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 340,711,007
- ----------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(82,929) and $(17,730), respectively) $354,899,255
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global Health Care Fund, formerly AIM V.I. Health Sciences Fund, (the
"Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust").
The Trust is a Delaware statutory trust registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of twenty-seven 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 capital growth.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. GLOBAL HEALTH CARE FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
J. 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 replace 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. GLOBAL HEALTH CARE FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the 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:
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%
------------------------
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.
This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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.
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 year ended December 31, 2005, AIM waived fees of $9,866.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $80,759 for
accounting and fund administrative services and reimbursed $759,618 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 year ended
December 31, 2005, the Fund paid AISI $23,986.
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 year ended
December 31, 2005, the Series II shares paid $26.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or ADI.
AIM V.I. GLOBAL HEALTH CARE 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 fund. The Fund and the money market
fund below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in an affiliated money market fund for the year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Premier Portfolio--Institutional Class $17,415,842 $128,833,614 $(140,680,934) $ -- $5,568,522 $357,465 $ --
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio--Institutional Class $ 3,476,275 $161,313,532 $(159,194,775) $ -- $ 5,595,032 $ 17,492 $ --
- ------------------------------------------------------------------------------------------------------------------------------
Total $20,892,117 $290,147,146 $(299,875,709) $ -- $11,163,554 $374,957 $ --
- ------------------------------------------------------------------------------------------------------------------------------
* 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 year ended December 31,
2005, the Fund engaged in securities purchases of $3,454,905 and sales of
$1,563,797, which resulted in net realized gains of $398,691.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $314.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $5,133
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.
AIM V.I. GLOBAL HEALTH CARE 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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2005, securities with an aggregate value of $5,335,575 were
on loan to brokers. The loans were secured by cash collateral of $5,595,032
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $17,492 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------------------------------------
Beginning of year -- $ --
---------------------------------------
Written 369 56,755
---------------------------------------
Closed (169) (20,356)
---------------------------------------
Expired (200) (36,399)
---------------------------------------
End of year -- $ --
---------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
--------------------------------------------------
Unrealized appreciation--investments 22,694,365
--------------------------------------------------
Temporary book/tax differences (24,275)
--------------------------------------------------
Capital loss carryforward (20,476,873)
--------------------------------------------------
Post-October currency loss deferral (58,653)
--------------------------------------------------
Shares of Beneficial Interest 255,612,273
--------------------------------------------------
Total net assets $257,746,837
--------------------------------------------------
AIM V.I. GLOBAL HEALTH CARE FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the
deferral of losses on wash sales. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies of $(180.)
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $19,805,917 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $20,476,873
-------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
On September 23, 2005, 3,903,880 Series I shares valued at $78,428,958 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $7,856,827 to the Fund for
book purposes. From a federal income tax perspective, the realized gains are
not recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $239,682,071 and $344,615,505, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
Aggregate unrealized appreciation of investment securities $32,400,280
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,705,735)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $22,694,545
-------------------------------------------------------------------------
Cost of investments for tax purposes is $241,698,289.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of redemption-in-kind
transactions, foreign currency transactions, net operating losses, and
organizational expenses, on December 31, 2005, undistributed net investment
income (loss) was increased by $682,330, undistributed net realized gain (loss)
was decreased by $7,603,813 and shares of beneficial interest increased by
$6,921,483. This reclassification had no effect on the net assets of the Fund.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 13--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005/(A)/ 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
Sold:
Series I 1,865,466 $ 35,904,906 5,818,123 $ 105,377,219
-----------------------------------------------------------------------
Series II/(b)/ -- -- 550 9,795
-----------------------------------------------------------------------
Reacquired:
Series I (8,032,556) (156,325,122) (6,430,438) (114,669,022)
-----------------------------------------------------------------------
(6,167,090) $(120,420,216) (611,765) $ (9,282,008)
-----------------------------------------------------------------------
/(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 75% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to services
such as, securities brokerage, third party record keeping and account
servicing and administrative services. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these entities
are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.90 $ 17.57 $ 13.75 $ 18.20
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.03) (0.03) (0.00)/(a)/
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.60 1.36 3.85 (4.45)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 1.33 3.82 (4.45)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.44 $ 18.90 $ 17.57 $ 13.75
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 8.15% 7.57% 27.78% (24.45)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $257,736 $354,889 $340,711 $232,681
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.08%/(c)(d)/ 1.11% 1.07% 1.07%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.24)%/(c)/ (0.17)% (0.20)% (0.43)%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 82% 175% 114% 130%
- --------------------------------------------------------------------------------------------------------------------------
---------
---------
2001
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.89
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)/(a)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (2.62)
- ---------------------------------------------------------------------------------
Total from investment operations (2.63)
- ---------------------------------------------------------------------------------
Less distributions from net investment income (0.06)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 18.20
- ---------------------------------------------------------------------------------
Total return/(b)/ (12.59)%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $343,304
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.06%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.38)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 88%
- ---------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operation losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.07) and $(0.07) for
the years ended December 31, 2002 and 2001, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $307,638,105. / /
/(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% for the year ended December 31, 2005.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
SERIES II
-----------------------------
APRIL 30, 2004,
(DATE SALES
YEAR ENDED COMMENCED)
DECEMBER 31, TO DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.86 $18.19
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.05)
- ------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.57 0.72
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.48 0.67
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $20.34 $18.86
- ------------------------------------------------------------------------------------------------
Total return/(a)/ 7.85% 3.68%
- ------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 10
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.33%/(b)(c)/ 1.36%/(d)/
- ------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.49)%/(b)/ (0.42)%/(d)/
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate 82% 175%
- ------------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value for shareholder transactions.
Total returns are not annualized for periods less than one year and do not
reflect charges assessed in connection with a variable product, which if
included would reduce total returns.
/(b)/Ratios are based on average daily net assets of $10,470.
/(c)/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% for the year ended December 31, 2005.
/(d)/Annualized.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. GLOBAL HEALTH CARE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Global Health Care Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Global Health Care Fund,
formerly known as AIM V.I. Health Sciences Fund, (one of the funds constituting
AIM Variable Insurance Funds, hereafter referred to as the "Fund") at December
31, 2005, and the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. GLOBAL HEALTH CARE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. GLOBAL HEALTH CARE FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
AIM V.I. GLOBAL HEALTH CARE FUND
AIM V.I. GOVERNMENT SECURITIES FUND
Annual Report to Shareholders o December 31,2005
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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. GOVERNMENT SECURITIES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE how much principal risk we take
relative to our benchmark.
========================================================================================
PERFORMANCE SUMMARY After our top-down strategic
=========================================== decisions, we identify securities we
For the year ended December 31, 2005, FUND VS. INDEXES believe are undervalued given the
the performance for both Series I prevailing market environment or
and Series II shares of your Fund was TOTAL RETURNS, 12/31/04-12/31/05, EXCLUDING potential future developments.
slightly below that of the Fund's VARIABLE PRODUCT ISSUER CHARGES. IF Examples of this security selection
broad market and style-specific VARIABLE PRODUCT ISSUER CHARGES WERE process include: (1) deciding whether
indexes. The primary difference in the INCLUDED, RETURNS WOULD BE LOWER. to buy callable securities, (2)
Fund's performance and the indexes is deciding how many months or years of
that indexes have no expenses. Series I Shares 1.66% call protection we want, and (3)
identifying mortgage-backed securities
Your Fund's long-term performance Series II Shares 1.41 that might exhibit faster or slower
appears on Pages 4 and 5. refinancing activity than other
Lehman Brothers U.S. Aggregate mortgages with the same coupon and
Bond Index (Broad Market Index) 2.43 maturity.
Lehman Brothers Intermediate U.S. Instances when we sell a security
Government and Mortgage Index include, but are not limited to:
(Style-specific Index) 2.19
o a change in the economic or market
Lipper Intermediate U.S. Government outlook indicates assets should be
Bond Fund Index (Peer Group Index) 1.85 reallocated
SOURCE: LIPPER, INC. o a mortgage security is prepaying
=========================================== faster or slower than we would like
======================================================================================== o a security is likely to be called,
and we prefer to own one with a longer
HOW WE INVEST We begin by assessing the overall maturity date
economic environment and its likely
We believe that in a variety of market impact on the level and direction of o a security has become fully valued
environments, a portfolio of interest rates. We develop a six- to
intermediate-maturity bonds and 12-month strategic outlook, and we MARKET CONDITIONS AND YOUR FUND
mortgage-backed securities (MBS) look to take advantage of shorter-term
guaranteed by the U.S. government and tactical opportunities when they When the year 2005 began, the federal
its agencies has the potential to arise. This strategic outlook helps funds target rate was 2.25%. The
provide a more efficient risk/return determine where we allocate Fund federal funds rate is the interest
tradeoff than a portfolio holding only assets among the three sectors rate at which depository institutions
one of these asset classes. represented in our style-specific lend money overnight to one another
benchmark--U.S. Treasuries, U.S. from their Federal Reserve balances.
We seek to enhance returns agency bonds and U.S. agency MBS--and Changes in this rate affect short-term
relative to our benchmarks by using where we position the Fund's duration interest rates throughout the
calculated risks in sector allocation, within a band of plus or minus 1.50 financial marketplace.
duration management and security years around our benchmark's duration.
selection to take advantage of This duration band places limits on During the course of the year,
prevailing market conditions and the Federal Reserve's Federal Open
likely future developments. Market Committee (FOMC) raised the
overnight target rate eight
========================================== =========================================== ========================================
PORTFOLIO COMPOSITION TOP FIXED INCOME ISSUERS*
By sector, based on total 1. Federal National Mortgage TOTAL NET ASSETS $831.7 MILLION
investments Association (FNMA) 36.8%
TOTAL NUMBER OF HOLDINGS* 644
[PIE CHART] 2. Federal Home Loan
Mortgage Corp. (FHLMC) 32.7
Mortgage U.S. Agency
Obligations 66.8% 3. Federal Home
Loan Bank (FHLB) 14.3
Non-Mortgage U.S. Agency
Obligations 20.3% 4. Government National
Mortgage Association (GNMA) 11.6
U.S. Treasury Obligations 7.7%
5. U.S. Treasury 8.8
Money Market Funds 5.2%
6. Federal Farm
Credit Bank 3.0
7. Tennessee Valley
Authority 1.4
8. Private Export
Funding Company 0.5
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== =========================================== ========================================
2
AIM V.I. GOVERNMENT SECURITIES FUND
times, each time in increments of 25 the benchmark was 3.49 years. Our SCOT W. JOHNSON,
basis points (0.25%), so that by short-duration strategy benefited the [JOHNSON Chartered Financial
year-end, the rate stood at 4.25%. Fund in that its performance would PHOTO] Analyst,senior portfolio
have exceeded that of the benchmark manager, is lead portfolio
This monetary tightening, of had expenses not been included in Fund manager of AIM V.I.
course, affected short-term interest performance. A market index such as Government Securities Fund.
rates in general and short-term the Lehman Brothers Intermediate U.S. Mr. Johnson joined AIM in 1994. He
Treasuries in particular. What Federal Government and Mortgage Index does not received both a B.A. in economics and
Reserve Chairman Alan Greenspan have expenses, and no one can invest an M.B.A. in finance from Vanderbilt
described as a "conundrum" was the in such an index. University.
fact that long-term Treasury rates did
not respond to the committee's actions Another ongoing strategy employed CLINT W. DUDLEY, Chartered
as they have in the past. In fact, by by your Fund is the use of a type of [DUDLEY Financial Analyst, portfolio
the end of 2005, the yields on short-term borrowing known as a PHOTO] manager, is a manager of AIM
long-term maturity Treasuries were reverse repurchase agreement (reverse V.I. Government Securities
lower than they were before this round repo), whereby a fund loans securities Fund. Mr. Dudley joined AIM
of monetary tightening began, and the in exchange for cash according to an in 1998, was promoted to
difference in yield between agreement stipulating when the money market portfolio manager in 2000
three-month and 30-year Treasuries was borrower will return the securities. and assumed his current duties in
less than 50 basis points. That fund can then deploy the cash in 2001. He received both a B.B.A. and an
an effort to enhance total return by M.B.A. from Baylor University.
In this year of continued FOMC purchasing a security either to
rate increases, we did not change our provide additional income or to take Assisted by the Taxable Investment
investment strategies. We continued to advantage of capital appreciation Grade Bond Team
1) keep the duration of the Fund's opportunities. Your Fund uses reverse
portfolio at less than three years, 2) repos to provide ready cash to take
maintain a portfolio duration shorter advantage of tactical opportunities
than the Fund's benchmark, or that may arise.
style-specific index, and 3) invest in
a fairly consistent weighting of IN CLOSING
mortgage-backed securities.
Our ongoing strategy is to position
Our rationale for maintaining the Fund's sector allocations to
these strategies can be summarized as provide an efficient risk/return
follows. relationship so that expected returns
are appropriate for the level of risk
o We maintain a short-duration stance taken. We believe that by managing
during periods of rising interest sector weights and portfolio duration,
rates based on the knowledge that a we can navigate through or take
portfolio of longer duration may advantage of prevailing market
result in somewhat higher returns, but conditions. We are pleased to have
greater share price instability can provided competitive returns while
also result. maintaining a relatively stable share
price over the period. Thank you for
o We maintain a shorter duration than your continued investment in AIM V.I.
the benchmark so as to position the Government Securities Fund.
Fund defensively among our peers. We
believe that our defensive positioning THE VIEWS AND OPINIONS EXPRESSED IN
in a rising-rate environment can MANAGEMENT'S DISCUSSION OF FUND
provide shareholders greater safety of PERFORMANCE ARE THOSE OF A I M
principal. ADVISORS, INC. THESE VIEWS AND
OPINIONS ARE SUBJECT TO CHANGE AT ANY
o While the high-coupon, low-duration, TIME BASED ON FACTORS SUCH AS MARKET
seasoned mortgages in which we invest AND ECONOMIC CONDITIONS. THESE VIEWS
provide the highest yield of any AND OPINIONS MAY NOT BE RELIED UPON AS
sector in which we invest, they also INVESTMENT ADVICE OR RECOMMENDATIONS,
help us manage the duration of the OR AS AN OFFER FOR A PARTICULAR
Fund, enabling us to maintain our SECURITY. THE INFORMATION IS NOT A
defensive positioning. COMPLETE ANALYSIS OF EVERY ASPECT OF
ANY MARKET, COUNTRY, INDUSTRY,
In the Lehman Brothers SECURITY OR THE FUND. STATEMENTS OF
Intermediate U.S. Government and FACT ARE FROM SOURCES CONSIDERED
Mortgage Index (our benchmark), RELIABLE, BUT A I M ADVISORS, INC.
government obligations (Treasuries and MAKES NO REPRESENTATION OR WARRANTY AS
agencies) yielded 1.68%, while TO THEIR COMPLETENESS OR ACCURACY.
mortgage-backed securities yielded ALTHOUGH HISTORICAL PERFORMANCE IS NO
2.61%. We consistently maintained our GUARANTEE OF FUTURE RESULTS, THESE
largest weighting in mortgages, the INSIGHTS MAY HELP YOU UNDERSTAND OUR [RIGHT ARROW GRAPHIC]
highest-yielding securities in the INVESTMENT MANAGEMENT PHILOSOPHY.
index. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
At the end of the fiscal year, THIS REPORT AND YOUR FUND'S LONG-TERM
your Fund's duration was 2.77 years, PERFORMANCE, PLEASE TURN TO PAGES 4
while the duration of AND 5.
3
AIM V.I. GOVERNMENT SECURITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
<Table>
<Caption>
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. GOVERNMENT LEHMAN BROTHERS LEHMAN BROTHERS INTERMEDIATE LIPPER INTERMEDIATE
SECURITIES FUND- U.S. AGGREGATE U.S. GOVERNMENT U.S. GOVERNMENT
SERIES I SHARES BOND INDEX AND MORTGAGE INDEX BOND FUND INDEX
12/31/95 $10000 $10000 $10000 $10000
1/96 10069 10066 10081 10067
2/96 9873 9891 9984 9907
3/96 9804 9823 9942 9839
4/96 9745 9767 9913 9783
5/96 9706 9748 9898 9762
6/96 9824 9879 10014 9872
7/96 9854 9906 10047 9894
8/96 9834 9889 10054 9882
9/96 9981 10061 10201 10036
10/96 10168 10284 10382 10233
11/96 10316 10460 10517 10392
12/96 10230 10363 10461 10303
1/97 10261 10395 10518 10331
2/97 10271 10421 10543 10348
3/97 10188 10305 10466 10250
4/97 10322 10459 10605 10388
5/97 10394 10558 10697 10473
6/97 10498 10684 10803 10584
7/97 10737 10972 11004 10843
8/97 10654 10878 10969 10753
9/97 10788 11039 11097 10901
10/97 10912 11199 11224 11045
11/97 10944 11250 11254 11077
12/97 11063 11364 11350 11181
1/98 11187 11509 11482 11326
2/98 11177 11501 11487 11305
3/98 11218 11540 11529 11340
4/98 11270 11601 11589 11389
5/98 11374 11711 11667 11488
6/98 11467 11810 11735 11582
7/98 11498 11835 11787 11605
8/98 11684 12028 11955 11820
9/98 11923 12309 12170 12101
10/98 11861 12244 12173 12032
11/98 11891 12314 12183 12050
12/98 11918 12351 12232 12094
1/99 11993 12439 12302 12154
2/99 11758 12222 12192 11926
3/99 11821 12289 12274 12003
4/99 11853 12328 12319 12035
5/99 11725 12220 12246 11923
6/99 11672 12181 12233 11884
7/99 11641 12130 12191 11842
8/99 11641 12123 12199 11830
9/99 11758 12264 12352 11958
10/99 11801 12309 12401 11984
11/99 11801 12308 12409 11985
12/99 11760 12249 12375 11926
1/00 11716 12209 12298 11889
2/00 11848 12357 12422 12020
3/00 11970 12519 12560 12173
4/00 11959 12484 12563 12129
5/00 11970 12478 12581 12116
6/00 12169 12737 12819 12349
7/00 12236 12853 12902 12444
8/00 12380 13039 13075 12621
9/00 12479 13121 13201 12706
10/00 12557 13208 13294 12796
11/00 12745 13424 13492 13006
12/00 12951 13673 13718 13259
1/01 13080 13897 13918 13439
2/01 13184 14018 14019 13572
3/01 13208 14088 14108 13634
4/01 13150 14030 14101 13555
5/01 13196 14114 14180 13626
6/01 13230 14168 14216 13668
7/01 13486 14484 14474 13968
8/01 13591 14650 14602 14115
9/01 13834 14821 14859 14323
10/01 14112 15131 15075 14620
11/01 13926 14923 14919 14379
12/01 13781 14828 14856 14263
1/02 13876 14948 14964 14360
2/02 14008 15093 15115 14509
3/02 13816 14842 14927 14245
4/02 14067 15129 15208 14521
5/02 14152 15258 15317 14651
6/02 14259 15390 15470 14805
7/02 14475 15576 15693 15037
8/02 14690 15839 15840 15275
9/02 14989 16095 16017 15546
10/02 14905 16022 16048 15477
11/02 14809 16018 15988 15378
12/02 15104 16348 16209 15689
1/03 15056 16362 16217 15660
2/03 15214 16589 16357 15866
3/03 15129 16576 16359 15833
4/03 15201 16713 16417 15903
5/03 15396 17024 16536 16176
6/03 15346 16991 16539 16130
7/03 14908 16419 16190 15622
8/03 14896 16528 16269 15678
9/03 15225 16966 16578 16046
10/03 15091 16808 16476 15894
11/03 15151 16848 16496 15907
12/03 15265 17019 16653 16031
1/04 15352 17156 16751 16129
2/04 15452 17342 16900 16276
3/04 15513 17472 16993 16384
4/04 15264 17017 16656 16010
5/04 15201 16949 16613 15946
6/04 15288 17045 16714 16006
7/04 15375 17214 16852 16135
8/04 15562 17542 17108 16382
9/04 15562 17590 17125 16396
10/04 15637 17737 17248 16495
11/04 15587 17596 17153 16375
12/04 15654 17758 17261 16488
1/05 15681 17869 17322 16545
2/05 15629 17764 17233 16456
3/05 15602 17673 17196 16404
4/05 15719 17912 17392 16600
5/05 15797 18106 17529 16736
6/05 15836 18204 17590 16804
7/05 15796 18039 17474 16663
8/05 15874 18270 17646 16856
9/05 15821 18082 17534 16782
10/05 15782 17938 17434 16609
11/05 15821 18018 17497 16663
12/05 15919 18189 17639 16792
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a
percent change in the value of the
This chart, which is a investment. In this chart, each
logarithmic chart, presents the segment represents a doubling, or 100%
fluctuations in the value of the Fund change, in the value of the
and its indexes. We believe that a investment. In other words, the space
logarithmic chart is more effective between $5,000 and $10,000 is the same
than other types of charts in size as the space between $10,000 and
illustrating changes in value during $20,000, and so on.
the early years shown in the chart.
The vertical axis, the one that
indicates the dollar
4
AIM V.I. GOVERNMENT SECURITIES FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
II SHARES. SERIES I AND SERIES II SHARES OF THE FUND DIRECTLY.
As of 12/31/05 SHARES INVEST IN THE SAME PORTFOLIO OF PERFORMANCE FIGURES GIVEN REPRESENT
SECURITIES AND WILL HAVE SUBSTANTIALLY THE FUND AND ARE NOT INTENDED TO
SERIES I SHARES SIMILAR PERFORMANCE, EXCEPT TO THE REFLECT ACTUAL VARIABLE PRODUCT
Inception (5/5/93) 4.91% EXTENT THAT EXPENSES BORNE BY EACH VALUES. THEY DO NOT REFLECT SALES
10 Years 4.76 CLASS DIFFER. CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 4.21 CONNECTION WITH A VARIABLE PRODUCT.
1 Year 1.66 THE PERFORMANCE DATA QUOTED SALES CHARGES, EXPENSES AND FEES,
REPRESENT PAST PERFORMANCE AND CANNOT WHICH ARE DETERMINED BY THE VARIABLE
SERIES II SHARES GUARANTEE COMPARABLE FUTURE RESULTS; PRODUCT ISSUERS, WILL VARY AND WILL
10 Years 4.50% CURRENT PERFORMANCE MAY BE LOWER OR LOWER THE TOTAL RETURN.
5 Years 3.95 HIGHER. PLEASE CONTACT YOUR VARIABLE
1 Year 1.41 PRODUCT ISSUER OR FINANCIAL ADVISOR PER NASD REQUIREMENTS, THE MOST
FOR THE MOST RECENT MONTH-END VARIABLE RECENT MONTH-END PERFORMANCE DATA AT
========================================== PRODUCT PERFORMANCE. PERFORMANCE THE FUND LEVEL, EXCLUDING VARIABLE
FIGURES REFLECT FUND EXPENSES, PRODUCT CHARGES, IS AVAILABLE ON AIM'S
CUMULATIVE TOTAL RETURNS REINVESTED DISTRIBUTIONS AND CHANGES AUTOMATED INFORMATION LINE,
IN NET ASSET VALUE. INVESTMENT RETURN 866-702-4402. AS MENTIONED ABOVE, FOR
Six months ended 12/31/05 AND PRINCIPAL VALUE WILL FLUCTUATE SO THE MOST RECENT MONTH-END PERFORMANCE
Series I Shares 0.49% THAT YOU MAY HAVE A GAIN OR LOSS WHEN INCLUDING VARIABLE PRODUCT CHARGES,
Series II Shares 0.40 YOU SELL SHARES. PLEASE CONTACT YOUR VARIABLE PRODUCT
ISSUER OR FINANCIAL ADVISOR.
========================================== AIM V.I. GOVERNMENT SECURITIES
FUND, A SERIES PORTFOLIO OF AIM
RETURNS SINCE SEPTEMBER 19, 2001, THE VARIABLE INSURANCE FUNDS, IS CURRENTLY
INCEPTION DATE OF SERIES II SHARES, OFFERED THROUGH INSURANCE COMPANIES
ARE HISTORICAL. ALL OTHER RETURNS ARE ISSUING
THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO
REFLECT THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE ABOUT INDEXES USED IN THIS REPORT The Fund is not managed to track
FUND the performance of any particular
The unmanaged Lehman Brothers index, including the indexes defined
The Fund invests in securities issued U.S. Aggregate Bond Index (the LEHMAN here, and consequently, the
or backed by the U.S. government, its AGGREGATE INDEX), which represents the performance of the Fund may deviate
agencies or instrumentalities. They U.S. investment-grade fixed-rate bond significantly from the performance of
offer a high degree of safety and, in market (including government and the indexes.
the case of Treasury securities, are corporate securities, mortgage
guaranteed as to timely payment of pass-through securities and A direct investment cannot be
principal and interest if held to asset-backed securities), is compiled made in an index. Unless otherwise
maturity. Many securities purchased by by Lehman Brothers, a global indicated, index results include
the Fund are not guaranteed by the investment bank. reinvested dividends, and they do not
U.S. Government. Fund shares are not reflect sales charges. Performance of
insured, and their value or yield will The unmanaged LEHMAN BROTHERS an index of funds reflects fund
vary with market conditions. INTERMEDIATE U.S. GOVERNMENT AND expenses; performance of a market
MORTGAGE INDEX is a market-weighted index does not.
The Fund may invest a portion of combination of the unmanaged Lehman
its assets in mortgage-backed Brothers Intermediate U.S. Government OTHER INFORMATION
securities, which may lose value if Bond Index and the unmanaged Lehman
mortgages are prepaid in response to Brothers Mortgage Backed Securities The returns shown in management's
falling interest rates. Fixed Rate Index. It includes discussion of Fund performance are
securities in the intermediate based on net asset values calculated
Debt securities are particularly maturity range of the government index for shareholder transactions.
vulnerable to credit risk and interest that must have between one year and 10 Generally accepted accounting
rate fluctuations. Interest rate years to final maturity, regardless of principles require adjustments to be
increases can cause the price of a call features. It also includes made to the net assets of the Fund at
debt security to decrease. The longer fixed-rate mortgage-backed securities period end for financial reporting
a debt security's duration, the more collateralized by 15-year, 30-year and purposes, and as such, the net asset
sensitive it is to this risk. balloon mortgages issued by GNMA, values for shareholder transactions
FHLMC or FNMA. and the returns based on those net
asset values may differ from the net
The LIPPER INTERMEDIATE U.S. asset values and returns reported in
GOVERNMENT BOND FUND INDEX represents the Financial Highlights.
an average of the 30 largest Additionally, the returns and net
intermediate-term U.S. government bond asset values shown throughout this
funds tracked by Lipper, Inc., an report are at the Fund level only and
independent mutual fund performance do not include variable product issuer
monitor. charges. If such charges were
included, the total returns would be
lower.
5
AIM V.I. GOVERNMENT SECURITIES FUND
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 The table below provides information value after expenses for the six
incur ongoing costs, including about actual account values and actual months ended December 31, 2005, appear
management fees; distribution and/or expenses. You may use the information in the table "Cumulative Total
service fees (12b-1); and other Fund in this table, together with the Returns" on Page 5.
expenses. This example is intended to amount you invested, to estimate the
help you understand your ongoing costs expenses that you paid over the The hypothetical account values
(in dollars) of investing in the Fund period. Simply divide your account and expenses may not be used to
and to compare these costs with value by $1,000 (for example, an estimate the actual ending account
ongoing costs of investing in other $8,600 account value divided by $1,000 balance or expenses you paid for the
mutual funds. The example is based on = 8.6), then multiply the result by period. You may use this information
an investment of $1,000 invested at the number in the table under the to compare the ongoing costs of
the beginning of the period and held heading entitled "Actual Expenses Paid investing in the Fund and other funds.
for the entire period July 1, 2005, During Period" to estimate the To do so, compare this 5% hypothetical
through December 31, 2005. expenses you paid on your account example with the 5% hypothetical
during this period. examples that appear in the
The actual and hypothetical shareholder reports of the other
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON funds.
represent the effect of any fees or PURPOSES
other expenses assessed in connection Please note that the expenses
with a variable product; if they did, The table below also provides shown in the table are meant to
the expenses shown would be higher information about hypothetical account highlight your ongoing costs.
while the ending account values shown values and hypothetical expenses based Therefore, the hypothetical
would be lower. on the Fund's actual expense ratio and information is useful in comparing
an assumed rate of return of 5% per ongoing costs, and will not help you
year before expenses, which is not the determine the relative total costs of
Fund's owning different funds.
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,004.90 $4.24 $1,020.97 $4.28 0.84%
Series II 1,000.00 1,004.00 5.51 1,019.71 5.55 1.09
1 The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
2 Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. GOVERNMENT SECURITIES FUND
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 o Overall performance of AIM. The
Insurance Funds (the "Board") oversees provided by AIM. The Board reviewed Board considered the overall
the management of AIM V.I. Government the credentials and experience of the performance of AIM in providing
Securities Fund (the "Fund") and, as officers and employees of AIM who will investment advisory and portfolio
required by law, determines annually provide investment advisory services administrative services to the Fund
whether to approve the continuance of to the Fund. In reviewing the and concluded that such performance
the Fund's advisory agreement with A I M qualifications of AIM to provide was satisfactory.
Advisors, Inc. ("AIM"). Based upon investment advisory services, the
the recommendation of the Investments Board reviewed the qualifications of o Fees relative to those of clients of
Committee of the Board, which is AIM's investment personnel and AIM with comparable investment
comprised solely of independent considered such issues as AIM's strategies. The Board reviewed the
trustees, at a meeting held on June portfolio and product review process, advisory fee rate for the Fund under
30, 2005, the Board, including all of various back office support functions the Advisory Agreement. The Board
the independent trustees, approved the provided by AIM and AIM's equity and noted that this rate was the same as
continuance of the advisory agreement fixed income trading operations. Based the initial advisory fee rate for a
(the "Advisory Agreement") between the on the review of these and other mutual fund advised by AIM with
Fund and AIM for another year, factors, the Board concluded that the investment strategies comparable to
effective July 1, 2005. quality of services to be provided by those of the Fund. The Board noted
AIM was appropriate and that AIM that AIM has agreed to limit the
The Board considered the factors currently is providing satisfactory Fund's total operating expenses, as
discussed below in evaluating the services in accordance with the terms discussed below. Based on this review,
fairness and reasonableness of the of the Advisory Agreement. the Board concluded that the advisory
Advisory Agreement at the meeting on fee rate for the Fund under the
June 30, 2005 and as part of the o The performance of the Fund relative Advisory Agreement was fair and
Board's ongoing oversight of the Fund. to comparable funds. The Board reasonable.
In their deliberations, the Board and reviewed the performance of the Fund
the independent trustees did not during the past one, three and five o Fees relative to those of comparable
identify any particular factor that calendar years against the performance funds with other advisors. The Board
was controlling, and each trustee of funds advised by other advisors reviewed the advisory fee rate for the
attributed different weights to the with investment strategies comparable Fund under the Advisory Agreement. The
various factors. to those of the Fund. The Board noted Board compared effective contractual
that the Fund's performance in such advisory fee rates at a common asset
One of the responsibilities of periods was below the median level and noted that the Fund's rate
the Senior Officer of the Fund, who is performance of such comparable funds. was above the median rate of the funds
independent of AIM and AIM's Based on this review and after taking advised by other advisors with
affiliates, is to manage the process account of all of the other factors investment strategies comparable to
by which the Fund's proposed that the Board considered in those of the Fund that the Board
management fees are negotiated to determining whether to continue the reviewed. The Board noted that AIM has
ensure that they are negotiated in a Advisory Agreement for the Fund, the agreed to limit the Fund's total
manner which is at arm's length and Board concluded that no changes should operating expenses, as discussed
reasonable. To that end, the Senior be made to the Fund and that it was below. Based on this review, the Board
Officer must either supervise a not necessary to change the Fund's concluded that the advisory fee rate
competitive bidding process or prepare portfolio management team at this for the Fund under the Advisory
an independent written evaluation. The time. However, due to the Fund's Agreement was fair and reasonable.
Senior Officer has recommended an under-performance, the Board also
independent written evaluation in lieu concluded that it would be appropriate o Expense limitations and fee waivers.
of a competitive bidding process and, for management and the Board to The Board noted that AIM has
upon the direction of the Board, has continue to closely monitor the contractually agreed to waive fees
prepared such an independent written performance of the Fund. and/or limit expenses of the Fund
evaluation. Such written evaluation through June 30, 2006 so that total
also considered certain of the factors o The performance of the Fund relative annual operating expenses are limited
discussed below. In addition, as to indices. The Board reviewed the to a specified percentage of average
discussed below, the Senior Officer performance of the Fund during the daily net assets for each class of the
made certain recommendations to the past one, three and five calendar Fund. The Board considered the
Board in connection with such written years against the performance of the contractual nature of this fee waiver
evaluation. Lipper General U.S. Government Fund and noted that it remains in effect
Index.* The Board noted that the until June 30, 2006. The Board
The discussion below serves as a Fund's performance in such periods was considered the effect this fee
summary of the Senior Officer's below the performance of such Index. waiver/expense limitation would have
independent written evaluation and Based on this review and after taking on the Fund's estimated expenses and
recommendations to the Board in account of all of the other factors concluded that the levels of fee
connection therewith, as well as a that the Board considered in waivers/expense limitations for the
discussion of the material factors and determining whether to continue the Fund were fair and reasonable.
the conclusions with respect thereto Advisory Agreement for the Fund, the
that formed the basis for the Board's Board concluded that no changes should o Breakpoints and economies of scale.
approval of the Advisory Agreement. be made to the Fund and that it was The Board reviewed the structure of
After consideration of all of the not necessary to change the Fund's the Fund's advisory fee under the
factors below and based on its portfolio management team at this Advisory Agreement, noting that it
informed business judgment, the Board time. However, due to the Fund's includes one breakpoint. The Board
determined that the Advisory Agreement under-performance, the Board also reviewed the level of the Fund's
is in the best interests of the Fund concluded that it would be appropriate advisory fees, and noted that such
and its shareholders and that the for management and the Board to fees, as a percentage of the Fund's
compensation to AIM under the Advisory continue to closely monitor the net assets, have decreased as net
Agreement is fair and reasonable and performance of the Fund. assets increased because the Advisory
would have been obtained through arm's Agreement includes a breakpoint. The
length negotiations. o Meeting with the Fund's portfolio Board concluded that the Fund's fee
managers and investment personnel. levels under the Advisory Agreement
o The nature and extent of the With respect to the Fund, the Board is therefore reflect economies of scale
advisory services to be provided by meeting periodically with such Fund's and that it was not necessary to
AIM. The Board reviewed the services portfolio managers and/or other change the advisory fee breakpoints in
to be provided by AIM under the investment personnel and believes that the Fund's advisory fee schedule.
Advisory Agreement. Based on such such individuals are competent and
review, the Board concluded that the able to continue to carry out their
range of services to be provided by responsibilities under the Advisory
AIM under the Advisory Agreement was Agreement.
appropriate and that AIM currently is
providing services in accordance with
the terms of the Advisory Agreement.
* The Lipper General U.S. Government Fund Index is an unmanaged index of the 30 largest funds, based on total year-end net asset
value, in the Lipper General U.S. Government fund category. These funds invest at least 65% of their assets in U.S. government
and agency issues.
(continued)
7
AIM V.I. GOVERNMENT SECURITIES FUND
o Investments in affiliated money o Benefits of soft dollars to AIM. The
market funds. The Board also took into Board considered the benefits realized
account the fact that uninvested cash by AIM as a result of brokerage
and cash collateral from securities transactions executed through "soft
lending arrangements (collectively, dollar" arrangements. Under these
"cash balances") of the Fund may be arrangements, brokerage commissions
invested in money market funds advised paid by the Fund and/or other funds
by AIM pursuant to the terms of an SEC advised by AIM are used to pay for
exemptive order. The Board found that research and execution services. This
the Fund may realize certain benefits research is used by AIM in making
upon investing cash balances in AIM investment decisions for the Fund. The
advised money market funds, including Board concluded that such arrangements
a higher net return, increased were appropriate.
liquidity, increased diversification
or decreased transaction costs. The o AIM's financial soundness in light
Board also found that the Fund will of the Fund's needs. The Board
not receive reduced services if it considered whether AIM is financially
invests its cash balances in such sound and has the resources necessary
money market funds. The Board noted to perform its obligations under the
that, to the extent the Fund invests Advisory Agreement, and concluded that
in affiliated money market funds, AIM AIM has the financial resources
has voluntarily agreed to waive a necessary to fulfill its obligations
portion of the advisory fees it under the Advisory Agreement.
receives from the Fund attributable to
such investment. The Board further o Historical relationship between the
determined that the proposed Fund and AIM. In determining whether
securities lending program and related to continue the Advisory Agreement for
procedures with respect to the lending the Fund, the Board also considered
Fund is in the best interests of the the prior relationship between AIM and
lending Fund and its respective the Fund, as well as the Board's
shareholders. The Board therefore knowledge of AIM's operations, and
concluded that the investment of cash concluded that it was beneficial to
collateral received in connection with maintain the current relationship, in
the securities lending program in the part, because of such knowledge. The
money market funds according to the Board also reviewed the general nature
procedures is in the best interests of of the non-investment advisory
the lending Fund and its respective services currently performed by AIM
shareholders. and its affiliates, such as
administrative, transfer agency and
o Independent written evaluation and distribution services, and the fees
recommendations of the Fund's Senior received by AIM and its affiliates for
Officer. The Board noted that, upon performing such services. In addition
their direction, the Senior Officer of to reviewing such services, the
the Fund, who is independent of AIM trustees also considered the
and AIM's affiliates, had prepared an organizational structure employed by
independent written evaluation in AIM and its affiliates to provide
order to assist the Board in those services. Based on the review of
determining the reasonableness of the these and other factors, the Board
proposed management fees of the AIM concluded that AIM and its affiliates
Funds, including the Fund. The Board were qualified to continue to provide
noted that the Senior Officer's non-investment advisory services to
written evaluation had been relied the Fund, including administrative,
upon by the Board in this regard in transfer agency and distribution
lieu of a competitive bidding process. services, and that AIM and its
In determining whether to continue the affiliates currently are providing
Advisory Agreement for the Fund, the satisfactory non-investment advisory
Board considered the Senior Officer's services.
written evaluation and the
recommendation made by the Senior o Other factors and current trends. In
Officer to the Board that the Board determining whether to continue the
consider implementing a process to Advisory Agreement for the Fund, the
assist them in more closely monitoring Board considered the fact that AIM,
the performance of the AIM Funds. The along with others in the mutual fund
Board concluded that it would be industry, is subject to regulatory
advisable to implement such a process inquiries and litigation related to a
as soon as reasonably practicable. wide range of issues. The Board also
considered the governance and
o Profitability of AIM and its compliance reforms being undertaken by
affiliates. The Board reviewed AIM and its affiliates, including
information concerning the maintaining an internal controls
profitability of AIM's (and its committee and retaining an independent
affiliates') investment advisory and compliance consultant, and the fact
other activities and its financial that AIM has undertaken to cause the
condition. The Board considered the Fund to operate in accordance with
overall profitability of AIM, as well certain governance policies and
as the profitability of AIM in practices. The Board concluded that
connection with managing the Fund. The these actions indicated a good faith
Board noted that AIM's operations effort on the part of AIM to adhere to
remain profitable, although increased the highest ethical standards, and
expenses in recent years have reduced determined that the current regulatory
AIM's profitability. Based on the and litigation environment to which
review of the profitability of AIM's AIM is subject should not prevent the
and its affiliates' investment Board from continuing the Advisory
advisory and other activities and its Agreement for the Fund.
financial condition, the Board
concluded that the compensation to be
paid by the Fund to AIM under its
Advisory Agreement was not excessive.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-76.91%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-29.52%
Pass Through Ctfs.,
6.00%, 11/01/08 to 11/01/34(a) $29,044,049 $ 29,623,851
- --------------------------------------------------------------------------
6.50%, 12/01/08 to 02/01/35(a) 49,841,506 51,244,398
- --------------------------------------------------------------------------
7.00%, 11/01/10 to 11/01/35(a) 40,612,819 42,407,835
- --------------------------------------------------------------------------
8.00%, 09/01/11 to 05/01/32(a) 12,048,309 12,900,610
- --------------------------------------------------------------------------
5.00%, 05/01/18(a) 8,856,993 8,785,667
- --------------------------------------------------------------------------
4.50%, 05/01/19(a) 14,501,400 14,137,341
- --------------------------------------------------------------------------
10.50%, 08/01/19(a) 17,297 19,019
- --------------------------------------------------------------------------
8.50%, 09/01/20 to 08/01/31(a) 1,816,425 1,967,904
- --------------------------------------------------------------------------
10.00%, 03/01/21(a) 274,965 304,522
- --------------------------------------------------------------------------
9.00%, 06/01/21(a) 1,574,359 1,703,214
- --------------------------------------------------------------------------
7.50%, 08/01/24 to 06/01/35(a) 7,136,645 7,496,361
- --------------------------------------------------------------------------
7.05%, 05/20/27(a) 939,132 972,592
- --------------------------------------------------------------------------
5.50%, 10/01/33 to 01/01/34(a) 5,127,959 5,088,315
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21 to 01/01/36(a)(b) 43,648,000 42,793,358
- --------------------------------------------------------------------------
5.50%, 01/01/36(a)(b) 26,320,283 26,081,756
==========================================================================
245,526,743
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-35.83%
Pass Through Ctfs.,
7.50%, 11/01/09 to 09/01/35(a) 17,320,094 18,214,774
- --------------------------------------------------------------------------
6.50%, 10/01/10 to 10/01/35(a) 61,989,455 63,925,946
- --------------------------------------------------------------------------
7.00%, 12/01/10 to 11/01/35(a) 67,083,872 70,298,031
- --------------------------------------------------------------------------
8.00%, 06/01/12 to 08/01/32(a) 15,493,065 16,544,782
- --------------------------------------------------------------------------
8.50%, 06/01/12 to 10/01/33(a) 7,799,229 8,454,080
- --------------------------------------------------------------------------
10.00%, 09/01/13 to 03/01/16(a) 248,194 267,954
- --------------------------------------------------------------------------
6.00%, 06/01/16 to 02/01/34(a) 43,640,439 44,586,754
- --------------------------------------------------------------------------
5.00%, 11/01/17 to 12/01/33(a) 3,276,062 3,244,900
- --------------------------------------------------------------------------
5.50%, 02/01/18(a) 4,730,939 4,789,978
- --------------------------------------------------------------------------
6.75%, 07/01/24(a) 2,627,687 2,730,867
- --------------------------------------------------------------------------
6.95%, 10/01/25 to 09/01/26(a) 250,968 262,671
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/21(a)(b) 2,873,250 2,842,722
- --------------------------------------------------------------------------
5.50%, 01/01/21 to 01/01/36(a)(b) 25,242,268 25,371,345
- --------------------------------------------------------------------------
6.00%, 01/01/36(a)(b) 36,120,200 36,458,827
==========================================================================
297,993,631
==========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-11.56%
Pass Through Ctfs.,
7.50%, 03/15/08 to 07/15/32(a) $ 1,439,402 $ 1,513,007
- --------------------------------------------------------------------------
9.00%, 09/15/08 to 09/20/17(a) 411,030 444,039
- --------------------------------------------------------------------------
6.50%, 09/20/08 to 09/15/35(a) 55,633,767 58,233,761
- --------------------------------------------------------------------------
8.00%, 07/15/12 to 11/15/31(a) 2,021,428 2,160,750
- --------------------------------------------------------------------------
11.00%, 10/15/15(a) 2,993 3,294
- --------------------------------------------------------------------------
9.50%, 09/15/16(a) 4,338 4,761
- --------------------------------------------------------------------------
7.00%, 04/15/17 to 08/15/35(a) 9,642,339 10,117,213
- --------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19(a) 5,683 6,398
- --------------------------------------------------------------------------
8.50%, 12/15/17 to 04/15/31(a) 3,589,096 3,877,578
- --------------------------------------------------------------------------
10.00%, 06/15/19(a) 100,762 112,607
- --------------------------------------------------------------------------
6.00%, 06/20/20 to 08/15/35(a) 16,636,496 17,095,051
- --------------------------------------------------------------------------
6.95%, 08/20/25 to 08/20/27(a) 2,459,032 2,568,319
==========================================================================
96,136,778
==========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $645,725,890) 639,657,152
==========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-23.41%
FEDERAL FARM CREDIT BANK-3.00%
Bonds,
6.00%, 06/11/08(a) 2,600,000 2,678,494
- --------------------------------------------------------------------------
5.75%, 01/18/11(a) 2,000,000 2,088,440
- --------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28(a) 5,500,000 6,086,960
- --------------------------------------------------------------------------
Unsec. Bonds,
7.25%, 06/12/07(a) 13,625,000 14,110,050
==========================================================================
24,963,944
==========================================================================
FEDERAL HOME LOAN BANK (FHLB)-14.27%
Unsec. Bonds,
7.25%, 02/15/07(a) 895,000 919,926
- --------------------------------------------------------------------------
4.88%, 05/15/07(a) 4,000,000 4,010,920
- --------------------------------------------------------------------------
3.50%, 11/15/07(a) 4,650,000 4,553,512
- --------------------------------------------------------------------------
4.50%, 02/15/08(a) 29,375,000 29,194,494
- --------------------------------------------------------------------------
5.75%, 10/27/10(a) 31,555,000 31,918,597
- --------------------------------------------------------------------------
6.00%, 12/23/11(a) 18,000,000 18,098,820
- --------------------------------------------------------------------------
Unsec. Global Bonds,
5.13%, 11/01/10(a) 30,000,000 29,992,200
==========================================================================
118,688,469
==========================================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-3.20%
Unsec. Global Notes,
5.13%, 10/15/08(a) $ 4,000,000 $ 4,044,360
- --------------------------------------------------------------------------
4.79%, 08/04/10(a) 6,195,000 6,134,661
- --------------------------------------------------------------------------
4.88%, 08/16/10(a) 16,500,000 16,409,910
==========================================================================
26,588,931
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-1.01%
Unsec. Notes,
7.05%, 10/30/15(a) 1,700,000 1,785,306
- --------------------------------------------------------------------------
6.50%, 11/25/25(a) 4,762,000 4,798,620
- --------------------------------------------------------------------------
Unsec. Global Bonds,
6.63%, 11/15/30(a) 700,000 867,909
- --------------------------------------------------------------------------
Unsec. Sub. Disc. Deb.,
7.37%, 10/09/19(a)(c) 1,800,000 905,094
==========================================================================
8,356,929
==========================================================================
PRIVATE EXPORT FUNDING COMPANY-0.53%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09(a) 2,701,000 2,878,888
- --------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06(a) 1,500,000 1,517,070
==========================================================================
4,395,958
==========================================================================
TENNESSEE VALLEY AUTHORITY-1.40%
Series A, Bonds,
6.79%, 05/23/12(a) 5,000,000 5,542,850
- --------------------------------------------------------------------------
Series G, Global Bonds,
5.38%, 11/13/08(a) 6,000,000 6,114,420
==========================================================================
11,657,270
==========================================================================
Total U.S. Government Agency Securities
(Cost $195,689,747) 194,651,501
==========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------
U.S. TREASURY SECURITIES-8.81%
U.S. TREASURY NOTES-5.20%
3.88%, 07/31/07(a) $ 4,100,000 $ 4,067,979
- --------------------------------------------------------------------------
4.25%, 10/31/07 to 08/15/14(a) 28,575,000 28,429,755
- --------------------------------------------------------------------------
3.75%, 05/15/08(a) 9,400,000 9,267,836
- --------------------------------------------------------------------------
4.00%, 11/15/12(a) 1,480,000 1,448,787
==========================================================================
43,214,357
==========================================================================
U.S. TREASURY BONDS-3.32%
4.50%, 11/15/15(a) 13,000,000 13,111,670
- --------------------------------------------------------------------------
9.25%, 02/15/16(a) 550,000 762,437
- --------------------------------------------------------------------------
7.50%, 11/15/16 to 11/15/24(a) 9,350,000 12,345,949
- --------------------------------------------------------------------------
7.63%, 02/15/25(a) 550,000 758,742
- --------------------------------------------------------------------------
6.88%, 08/15/25(a) 500,000 644,765
==========================================================================
27,623,563
==========================================================================
U.S. TREASURY STRIPS-0.29%
6.79%, 11/15/18(a)(c) 4,405,000 2,442,705
==========================================================================
Total U.S. Treasury Securities (Cost $72,188,826) 73,280,625
==========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-6.02%
Government & Agency Portfolio-Institutional
Class (Cost $50,063,086)(d) 50,063,086 50,063,086
- --------------------------------------------------------------------------
TOTAL INVESTMENTS-115.15% (Cost $963,667,549) 957,652,364
==========================================================================
OTHER ASSETS LESS LIABILITIES-(15.15%) (125,964,925)
==========================================================================
NET ASSETS-100.00% $ 831,687,439
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Sec. - Secured
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2005 was $907,589,278, which represented 109.13% of the Fund's Net
Assets. See Note 1A.
(b) Security purchased on a forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1G.
(c) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $913,604,463) $907,589,278
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $50,063,086) 50,063,086
=============================================================
Total investments (cost $963,667,549) 957,652,364
=============================================================
Receivables for:
Investments sold 8,382,488
- -------------------------------------------------------------
Fund shares sold 507,431
- -------------------------------------------------------------
Dividends and interest 5,755,045
- -------------------------------------------------------------
Principal paydowns 38,705
- -------------------------------------------------------------
Fund expenses absorbed 36,577
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 56,586
- -------------------------------------------------------------
Other assets 379
=============================================================
Total assets 972,429,575
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 139,981,905
- -------------------------------------------------------------
Fund shares reacquired 80,139
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 83,961
- -------------------------------------------------------------
Accrued administrative services fees 497,892
- -------------------------------------------------------------
Accrued distribution fees -- Series II 11,805
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,232
- -------------------------------------------------------------
Accrued transfer agent fees 1,495
- -------------------------------------------------------------
Accrued operating expenses 83,707
=============================================================
Total liabilities 140,742,136
=============================================================
Net assets applicable to shares outstanding $831,687,439
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $839,010,015
- -------------------------------------------------------------
Undistributed net investment income 36,404,291
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (37,711,682)
- -------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (6,015,185)
=============================================================
$831,687,439
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $812,824,182
_____________________________________________________________
=============================================================
Series II $ 18,863,257
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 68,449,539
_____________________________________________________________
=============================================================
Series II 1,596,657
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 11.87
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 11.81
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $ 32,123,733
- -------------------------------------------------------------
Dividends from affiliated money market funds 2,394,433
=============================================================
Total investment income 34,518,166
=============================================================
EXPENSES:
Advisory fees 3,556,610
- -------------------------------------------------------------
Administrative services fees 2,024,797
- -------------------------------------------------------------
Custodian fees 78,152
- -------------------------------------------------------------
Distribution fees -- Series II 45,415
- -------------------------------------------------------------
Interest 813,559
- -------------------------------------------------------------
Transfer agent fees 16,592
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 37,985
- -------------------------------------------------------------
Other 153,746
=============================================================
Total expenses 6,726,856
=============================================================
Less: Fees waived and expenses reimbursed (218,537)
=============================================================
Net expenses 6,508,319
=============================================================
Net investment income 28,009,847
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (8,167,558)
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (6,469,700)
=============================================================
Net gain (loss) from investment securities (14,637,258)
=============================================================
Net increase in net assets resulting from
operations $ 13,372,589
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 28,009,847 $ 19,126,783
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (8,167,558) (492,458)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (6,469,700) (3,698,196)
==========================================================================================
Net increase in net assets resulting from operations 13,372,589 14,936,129
==========================================================================================
Distributions to shareholders from net investment income:
Series I (26,201,982) (24,312,926)
- ------------------------------------------------------------------------------------------
Series II (562,380) (614,972)
==========================================================================================
Decrease in net assets resulting from distributions (26,764,362) (24,927,898)
==========================================================================================
Share transactions-net:
Series I 173,693,059 135,529,759
- ------------------------------------------------------------------------------------------
Series II 1,431,974 (4,390,961)
==========================================================================================
Net increase in net assets resulting from share
transactions 175,125,033 131,138,798
==========================================================================================
Net increase in net assets 161,733,260 121,147,029
==========================================================================================
NET ASSETS:
Beginning of year 669,954,179 548,807,150
==========================================================================================
End of year (including undistributed net investment income
of $36,404,291 and $26,688,663, respectively) $831,687,439 $669,954,179
__________________________________________________________________________________________
==========================================================================================
</Table>
STATEMENT OF CASH FLOWS
For the year ended December 31, 2005
<Table>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 13,372,589
- -------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATIONS:
Purchases of investments (1,367,177,649)
- -------------------------------------------------------------------------------
Amortization 2,170,393
- -------------------------------------------------------------------------------
Proceeds from disposition of investments and principal
payments 1,184,342,227
- -------------------------------------------------------------------------------
Realized gain (loss) on investment securities 8,167,558
- -------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on
investment securities 6,469,700
- -------------------------------------------------------------------------------
Increase in receivables (878,005)
- -------------------------------------------------------------------------------
Decrease in payables (299,998)
===============================================================================
Net cash provided by operating activities (153,833,185)
===============================================================================
CASH USED IN FINANCING ACTIVITIES:
Proceeds from shares of beneficial interest sold 261,091,475
- -------------------------------------------------------------------------------
Disbursements from shares of beneficial interest required (111,999,713)
- -------------------------------------------------------------------------------
Net decrease in borrowings for reverse repurchase
agreements (32,400,000)
===============================================================================
Net cash provided by (used in) financing activities 116,691,762
===============================================================================
Net decrease in cash and cash equivalents (37,141,423)
- -------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 87,204,509
===============================================================================
Cash and cash equivalents at end of period $ 50,063,086
_______________________________________________________________________________
===============================================================================
NON-CASH FINANCING ACTIVITIES:
Value of capital shares issued in reinvestment of
dividends paid to shareholders $ 26,764,362
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid during the year for interest was $822,060
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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. Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents in the Statement of
Cash Flows are comprised of cash and investments in affiliated money market
funds for the purpose of investing daily available cash balances.
H. 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. Based on the typical structure of dollar roll
transactions by the Fund, fee income is agreed upon amongst the parties at
the commencement of the dollar roll. This fee income is amortized to income
ratably over the term of the dollar roll. During the period between the
sale and purchase settlement dates, the Fund will not be entitled to
receive interest and principal payments on securities PURCHASED AND NOT YET
SETTLED. 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.
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 replace 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. This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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.
AIM V.I. GOVERNMENT SECURITIES 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 year ended December 31, 2005, AIM waived fees of $218,537.
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 year ended December 31, 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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $185,394 for
accounting and fund administrative services and reimbursed $1,839,403 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 year ended
December 31, 2005, the Fund paid AISI $16,592.
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 year ended December
31, 2005, the Series II shares paid $45,415.
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 our
affiliated money market fund for the year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Government &
Agency
Portfolio-
Institutional
Class $87,204,509 $731,331,617 $(768,473,040) $ -- $50,063,086 $2,394,433 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 and Officer of the Fund who is not an
"interested person" of AIM. 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
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.
During the year ended December 31, 2005, the Fund paid legal fees of $6,685
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. GOVERNMENT SECURITIES FUND
NOTE 5--BORROWINGS
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund, with an agreement
that the Fund will repurchase such securities at an agreed upon price and date.
The Fund will use the proceeds of a reverse repurchase agreement (which are
considered to be borrowings under the 1940 Act) to purchase other permitted
securities either maturing, or under an agreement to resell, at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. The agreements are collateralized by the underlying securities and
are carried at the amount at which the securities subsequently will be
repurchased as specified in the agreements.
During the year ended December 31, 2005, the average reverse repurchase
agreements for the 331 days such agreements were outstanding was $27,453,952
with a weighted interest rate of 2.96% and interest expense of $813,559. There
were no outstanding reverse repurchase agreements as of December 31, 2005.
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $26,764,362 $24,927,898
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed ordinary income $ 36,474,991
- --------------------------------------------------------------------------
Unrealized appreciation (depreciation) -- investments (6,275,711)
- --------------------------------------------------------------------------
Temporary book/tax differences (70,700)
- --------------------------------------------------------------------------
Capital loss carryforward (32,537,625)
- --------------------------------------------------------------------------
Post-October capital loss deferral (4,913,531)
- --------------------------------------------------------------------------
Shares of beneficial interest 839,010,015
==========================================================================
Total net assets $831,687,439
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. GOVERNMENT SECURITIES FUND
The Fund has a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2011 $11,708,442
- ---------------------------------------------------------------------------
December 31, 2012 7,926,972
- ---------------------------------------------------------------------------
December 31, 2013 12,902,211
===========================================================================
Total capital loss carryforward $32,537,625
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $1,424,529,085 and $1,236,195,555, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 3,618,531
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,894,242)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(6,275,711)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $963,928,075.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on
mortgage-backed securities, on December 31, 2005, undistributed net investment
income was increased by $8,470,143 and undistributed net realized gain (loss)
was decreased by $8,470,143. This reclassification had no effect on the net
assets of the Fund.
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005(A) 2004
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 20,898,858 $ 252,971,625 16,435,650 $202,834,635
- -----------------------------------------------------------------------------------------------------------------------
Series II 608,696 7,319,396 359,723 4,410,391
=======================================================================================================================
Issued as reinvestment of dividends:
Series I 2,216,750 26,201,982 2,015,997 24,312,926
- -----------------------------------------------------------------------------------------------------------------------
Series II 47,822 562,380 51,247 614,971
=======================================================================================================================
Reacquired:
Series I (8,720,788) (105,480,548) (7,431,260) (91,617,802)
- -----------------------------------------------------------------------------------------------------------------------
Series II (536,527) (6,449,802) (768,954) (9,416,323)
=======================================================================================================================
14,514,811 $ 175,125,033 10,662,403 $131,138,798
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are two entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 82% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has not
knowledge as to whether all or any portion of the shares owned of record
by these shareholders are also owned beneficially.
AIM V.I. GOVERNMENT SECURITIES 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
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.07 $ 12.23 $ 12.40 $ 11.53 $ 11.16
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45(a) 0.40(a) 0.36(a) 0.49(a) 0.59(a)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.25) (0.09) (0.23) 0.61 0.12
=========================================================================================================================
Total from investment operations 0.20 0.31 0.13 1.10 0.71
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.40) (0.47) (0.30) (0.23) (0.34)
=========================================================================================================================
Distributions from net realized gains -- -- (0.00) -- --
=========================================================================================================================
Total distributions (0.40) (0.47) (0.30) (0.23) (0.34)
=========================================================================================================================
Net asset value, end of period $ 11.87 $ 12.07 $ 12.23 $ 12.40 $ 11.53
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 1.66% 2.56% 1.07% 9.59% 6.41%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $812,824 $652,226 $526,482 $428,322 $150,660
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 0.85%(d)(e) 0.87% 0.76% 0.81% 1.08%
=========================================================================================================================
Ratio of net investment income to average net assets 3.68%(d) 3.20% 2.93% 4.01% 5.09%(b)
=========================================================================================================================
Ratio of interest expense to average net assets 0.11%(d) 0.09% 0.01% 0.01% 0.28%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 174% 95% 265% 170% 199%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purpose and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $744,413,944.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.88% for the year ended December 31, 2005.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------- DECEMBER 31,
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 0.41(a) 0.36(a) 0.33(a) 0.46(a) 0.16(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.24) (0.08) (0.22) 0.60 (0.14)
===============================================================================================================================
Total from investment operations 0.17 0.28 0.11 1.06 0.02
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.37) (0.44) (0.29) (0.23) (0.34)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.00) -- --
===============================================================================================================================
Total distributions (0.37) (0.44) (0.29) (0.23) (0.34)
===============================================================================================================================
Net asset value, end of period $ 11.81 $ 12.01 $ 12.17 $ 12.35 $11.52
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 1.41% 2.27% 0.93% 9.25% 0.22%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,863 $17,728 $22,325 $14,926 $ 946
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.10%(c)(d) 1.12% 1.01% 1.06% 1.41%(e)
===============================================================================================================================
Ratio of net investment income to average net assets 3.43%(c) 2.95% 2.68% 3.76% 4.76%(e)
===============================================================================================================================
Ratio of interest expense to average net assets 0.11% 0.09% 0.01% 0.01% 0.28%(d)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 174% 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 based on average daily net assets of $18,166,058.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.13% for the year ended December 31, 2005.
(e) Annualized.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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,
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
plaintiffs leave to replead facts sufficient to show that such defendants acted
as de facto fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their
prohibited transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of AIM V.I. Government
Securities Fund, (one of the funds constituting AIM Variable Insurance Funds,
hereafter referred to as the "Fund") at December 31, 2005, and the results of
its operations, the changes in its net assets, its cash flows and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion. The statement of changes
in net assets of the Fund for the year ended December 31, 2004 and the financial
highlights for each of the periods ended on or before December 31, 2004 were
audited by another independent registered public accounting firm whose report
dated February 4, 2005 expressed an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. GOVERNMENT SECURITIES FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 5.13% was derived from U.S. Treasury
Obligations.
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and Formerly: Senior Vice President, AIM
Treasurer Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. GROWTH FUND seeks to provide growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
We construct the portfolio by
focusing on individual stocks rather
===================================================================================== than industries or sectors. While there
PERFORMANCE SUMMARY are no formal sector guide-lines or
======================================== constraints, internal controls and
We are pleased to report that for the FUND VS. INDEXES proprietary software help us monitor
year ended December 31, 2005, AIM V.I. risk levels and sector concentration.
Growth Fund outperformed its broad TOTAL RETURNS, 12/31/04-12/31/05,
market and style-specific indexes. The EXCLUDING VARIABLE PRODUCT ISSUER Our sell process is designed to
Fund outperformed the broad market CHARGES. IF VARIABLE PRODUCT ISSUER identify deterioration in the underlying
largely because of its overweight CHARGES WERE INCLUDED, RETURNS WOULD BE reasons a stock was initially purchased
position in health care and information LOWER. and avoid the risk of capital loss.
technology (IT) stocks relative to the Conditions that may cause us to reduce
S&P 500 Index. Additionally, the Fund's Series I Shares 7.48% or sell a position include:
holdings in each of those sectors
significantly outperformed those of the Series II Shares 7.16 o deterioration in business prospects
S&P 500 Index.
Standard & Poor's Composite o worsening competitive position
The Fund's performance relative to Index of 500 Stocks
its style-specific index was fueled (S&P 500 Index) o slowing earnings growth
largely by its energy and IT holdings. (Broad Market Index) 4.91
In each of those sectors, the Fund was o extended valuation
overweight its index and the Fund's Russell 1000 Growth Index
holdings outperformed those of the (Style-specific Index) 5.26 o finding more attractive investment
index. opportunities
Lipper Large-Cap Growth Fund
Index (Peer Group Index) 7.58 MARKET CONDITIONS AND YOUR FUND
SOURCE: LIPPER, INC. Despite widespread concern about the
======================================== potential impact of rising short-term
interest rates and historically high
Your Fund's long-term performance energy prices, the U.S. economy showed
appears on pages 4 and 5. signs of strength for the year. Economic
activity expanded, inflation remained
===================================================================================== contained and corporate profits
generally rose. Late in the year, some
HOW WE INVEST of potential investments. We focus on worried that higher energy prices and
the level, growth rate and rising interest rates might crimp
We believe a growth investment strategy sustainability of earnings, revenue and consumer spending, which accounts for
is an essential component of a cash flow, ranking investment candidates approximately two-thirds of the U.S.
diversified portfolio. on absolute and relative attractiveness. economy. Initial data suggested that
holiday sales were solid.
Our investment process combines Fundamental analysis seeks to define
quantitative and fundamental analysis to a company's key drivers of success and Corporate profits and stock market
uncover companies exhibiting long-term, to assess their durability. We carefully performance varied widely by sector for
sustainable earnings and cash flow review financial statements and earnings the year. Rising oil and natural gas
growth that is not yet reflected in reports, the company's business model prices caused many energy
investor expectations or equity and management team, the competitive
valuations. environment and market opportunities.
Quantitative analysis helps us narrow
our investment universe down to a
manageable list
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Semiconductors 8.3% 1. Aetna Inc. 3.2%
Information Technology 27.3% 2. Pharmaceuticals 8.1 2. Goldman Sachs Group, Inc. (The) 2.7
Health Care 23.0 3. Managed Health Care 5.8 3. Analog Devices, Inc. 2.6
Consumer Discretionary 13.6 4. Investment Banking & Brokerage 5.2 4. QUALCOMM Inc. 2.6
Financials 12.5 5. Internet Software & Services 4.6 5. Yahoo! Inc. 2.6
Industrials 10.7 6. Biotechnology 4.6 6. Johnson & Johnson 2.4
Energy 7.0 7. Communications Equipment 4.3 7. Apple Computer, Inc. 2.2
Two other sectors each with 8. Aerospace & Defense 3.8 8. Amgen Inc. 2.1
less than 3% of total net assets 4.4
9. Oil & Gas Equipment & Services 3.1 9. Google Inc.-Class A 2.1
Money Market Funds
Plus Other Assets Less Liabilities 1.5 10. Computer Hardware 3.0 10. Amdocs Ltd. 1.9
TOTAL NET ASSETS $319.3 MILLION
TOTAL NUMBER OF HOLDINGS* 84
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. GROWTH FUND
and utilities companies to report record specific index, with refiner VALERO were attractively priced relative to
earnings and profits, and led those two ENERGY and integrated oil producer other stocks with less attractive
sectors to outperform the broad market. CONOCOPHILLIPS among the stocks fundamentals. As always, we thank you
The same trend hurt the profits of many benefiting Fund performance. for your continued investment in AIM
consumer discretionary stocks; that V.I. Growth Fund.
sector lagged the broad market for the Our bottom-up research helped us
year. identify attractive investment The views and opinions expressed in
opportunities in the IT sector. IT management's discussion of Fund
Health care, energy and IT stocks stocks helping your Fund's performance performance are those of A I M Advisors,
were the leading contributors to Fund included Internet search engine GOOGLE Inc. These views and opinions are
performance for the year. and APPLE COMPUTER. As more people subject to change at any time based on
world-wide go online, Google offers factors such as market and economic
Within the health care sector, our advertisers a cost-effective way to conditions. These views and opinions may
research led us to managed health care reach consumers. Despite the phenomenal not be relied upon as investment advice
stocks and to rotate some assets from success of Apple's iPod--Registered or recommendations, or as an offer for a
U.S. pharmaceutical stocks into non-U.S. Trademark-- music player, we believe particular security. The information is
pharmaceutical stocks. Many managed earnings estimates for the company are not a complete analysis of every aspect
health care companies reported strong still conservative, and it remains a top of any market, country, industry,
earnings in recent quarters by Fund holding. security or the Fund. Statements of fact
aggressively controlling costs. This was are from sources considered reliable,
a function of lower hospital utilization While positive performance was but A I M Advisors, Inc. makes no
rates and plan participants switching broad-based, one of the Fund's largest representation or warranty as to their
from name-brand to generic drugs. AETNA, detractors was online auctioneer EBAY. completeness or accuracy. Although
UNITEDHEALTH GROUP and WELLPOINT were In September, eBay proposed acquiring an historical performance is no guarantee
among the managed health care companies Internet phone company. Like many other of future results, these insights may
that aided Fund performance. Before the investors, we questioned the strategic help you understand our investment
end of the year, we sold our value of the proposed acquisition, which management philosophy.
UnitedHealth Group stock due to hurt eBay's short-term performance. But
valuation concerns. we held the stock at the close of the LANNY H. SACHNOWITZ,
year because we believed the company's [SACHNOWITZ senior portfolio manager,
We generally avoided stocks of a core business remains strong, it PHOTO] is lead portfolio manager
number of U.S. pharmaceutical companies continues to generate significant cash of AIM V.I. Growth Fund.
due to their weak product pipelines, flow, and it continues to grow faster He joined AIM in 1987 as a
patent expiration and litigation risk. than most companies. money market trader and research
We increased our ownership of non-U.S. analyst. In 1990, Mr. Sachnowitz's
pharmaceutical stocks, including The Fund's consumer staples and trading responsibilities were expanded
Switzerland's ROCHE HOLDING and industrials holdings generally hindered to include head of equity trading. He
NOVARTIS, both of which have developed Fund performance due to rising commodity was named a portfolio manager in 1991.
promising new cancer treatments. In prices. One consumer staples stock that Mr. Sachnowitz received a B.S. in
addition to being the manufacturer of managed to withstand this trend was Fund finance from the University of Southern
Tamiflu--Registered Trademark--, a holding PROCTER & GAMBLE, which acquired California and an M.B.A. from the
potential treatment for "bird flu," Gillette late in the year. Within the University of Houston.
Roche Holding owns 56% of Genentech, industrials sector, TYCO was one of the
maker of Avastin--Registered most significant detractors from Fund JAMES G. BIRDSALL,
Trademark--, which has shown promise in performance. Its stock fell as the pace [BIRDSALL portfolio manager, is a
the treatment of a number of types of of sales growth and operating PHOTO] portfolio manager of AIM
cancers. improvements began to moderate. We V.I. Growth Fund. He has
trimmed our holdings in Tyco but been associated with AIM
Worldwide energy production and continued to hold the stock because we Investments since 1997 and was named a
refining capacity has struggled to keep believed it has some appreciation portfolio manager in 1999. Mr. Birdsall
pace with rising demand. Continued potential. received his B.B.A. with a concentration
explosive economic growth in China and in finance from Stephen F. Austin State
India, and a severe hurricane season IN CLOSING University before earning his M.B.A.
along the U.S. Gulf Coast, pushed the with a concentration in finance and
price of oil to record highs in 2005. We As the year ended, we considered the international business from the
believe that any significant improvement fundamentals of large-cap growth stocks University of St. Thomas.
in supply is likely to be years away. to be good. As a group, large-cap growth
companies boasted healthy cash flows, Assisted by the Large/Multi-Cap Growth
Given these trends, many energy strong balance sheets and positive Team
companies have seen notable growth in earnings growth. Also, managements were
their revenue and earnings, and have generally using capital for the benefit ========================================
used those earnings to improve their of their shareholders. These factors, In November 2005, your Fund's board
balance sheets and to benefit together with our quantitative and approved--subject to shareholder
shareholders through stock buybacks and fundamental research, led us to invest approval--the proposed merger of AIM
increased dividends. For the year, your the bulk of Fund assets in stocks of V.I. Growth Fund into AIM V.I. Capital
Fund was overweight energy stocks large-capitalization companies. At the Appreciation Fund.
relative to its style- close of the year, we believed large-cap ========================================
growth stocks [RIGHT ARROW GRAPHIC]
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. GROWTH LIPPER LARGE-CAP RUSSELL 1000 S&P
FUND-SERIES I GROWTH FUND GROWTH 500
SHARES INDEX INDEX INDEX
12/31/95 $10000 $10000 $10000 $10000
1/96 10180 10294 10335 10340
2/96 10477 10526 10524 10436
3/96 10546 10531 10537 10537
4/96 10803 10781 10814 10692
5/96 11032 11099 11192 10967
6/96 10824 10999 11207 11009
7/96 10235 10410 10551 10523
8/96 10664 10723 10823 10745
9/96 11343 11469 11611 11349
10/96 11439 11612 11681 11662
11/96 12083 12363 12558 12543
12/96 11808 12056 12312 12295
1/97 12446 12820 13176 13062
2/97 12352 12636 13087 13165
3/97 11640 11989 12378 12625
4/97 12127 12646 13200 13378
5/97 13071 13505 14153 14196
6/97 13637 14070 14719 14827
7/97 14873 15415 16021 16006
8/97 14329 14574 15083 15110
9/97 15201 15379 15826 15937
10/97 14584 14845 15241 15406
11/97 14867 15175 15888 16118
12/97 14980 15382 16066 16395
1/98 15154 15655 16547 16576
2/98 16325 16850 17791 17771
3/98 16967 17634 18500 18680
4/98 17269 17930 18756 18871
5/98 16944 17529 18224 18547
6/98 17805 18532 19340 19300
7/98 17714 18523 19212 19096
8/98 14731 15498 16329 16337
9/98 15721 16626 17583 17385
10/98 16575 17698 18997 18797
11/98 17791 18913 20442 19936
12/98 20092 20993 22285 21084
1/99 21283 22356 23593 21965
2/99 20310 21438 22516 21282
3/99 21541 22657 23701 22134
4/99 21477 22734 23732 22991
5/99 21144 21981 23002 22448
6/99 22617 23509 24613 23691
7/99 22050 22771 23831 22954
8/99 21986 22776 24221 22841
9/99 22173 22545 23712 22215
10/99 23137 24273 25502 23621
11/99 24669 25473 26878 24101
12/99 27170 28302 29674 25518
1/00 26092 27166 28283 24236
2/00 29943 28595 29665 23778
3/00 30691 30602 31789 26103
4/00 28847 28234 30276 25318
5/00 26750 26608 28751 24799
6/00 28502 28368 30930 25409
7/00 27769 27793 29641 25012
8/00 30843 30197 32325 26565
9/00 27784 27894 29267 25163
10/00 25297 26419 27882 25056
11/00 20883 22875 23772 23082
12/00 21601 22732 23020 23196
1/01 21227 23394 24610 24018
2/01 17241 19772 20432 21829
3/01 15674 17718 18209 20447
4/01 16849 19620 20512 22035
5/01 16371 19471 20210 22183
6/01 15979 18910 19742 21643
7/01 15631 18232 19248 21430
8/01 14699 16846 17674 20090
9/01 13141 15152 15910 18468
10/01 13394 15781 16744 18820
11/01 14116 17227 18353 20263
12/01 14281 17307 18318 20441
1/02 13897 16915 17995 20143
2/02 12938 16215 17248 19754
3/02 13775 16868 17845 20497
4/02 12693 15745 16388 19255
5/02 12423 15458 15992 19114
6/02 11332 14199 14512 17753
7/02 10250 13130 13715 16369
8/02 10223 13203 13756 16476
9/02 9211 11924 12329 14687
10/02 10101 12841 13460 15979
11/02 10729 13373 14191 16918
12/02 9857 12441 13211 15925
1/03 9674 12154 12890 15509
2/03 9578 12024 12831 15276
3/03 9709 12249 13070 15423
4/03 10425 13146 14036 16693
5/03 11122 13790 14737 17572
6/03 11227 13904 14939 17796
7/03 11567 14308 15311 18110
8/03 11882 14660 15692 18463
9/03 11646 14348 15524 18267
10/03 12396 15218 16396 19300
11/03 12623 15363 16568 19470
12/03 12937 15796 17141 20490
1/04 13243 16099 17491 20866
2/04 13418 16168 17602 21156
3/04 13261 15988 17275 20837
4/04 12754 15629 17074 20510
5/04 13208 15912 17393 20791
6/04 13470 16140 17610 21195
7/04 12562 15185 16614 20494
8/04 12361 15078 16532 20576
9/04 12657 15432 16690 20799
10/04 12911 15618 16950 21117
11/04 13539 16314 17533 21971
12/04 14001 16973 18220 22718
1/05 13722 16389 17613 22165
2/05 13775 16496 17800 22631
3/05 13591 16196 17476 22230
4/05 13068 15844 17143 21809
5/05 13870 16723 17973 22502
6/05 13974 16756 17906 22535
7/05 14542 17599 18781 23372
8/05 14245 17411 18540 23159
9/05 14603 17619 18625 23347
10/05 14471 17505 18444 22957
11/05 15073 18307 19240 23825
12/05 15053 18260 19179 23833
================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. GROWTH FUND
<Table>
========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO THE SERIES COMPANIES ISSUING VARIABLE PRODUCTS.
II SHARES. THE INCEPTION DATE OF SERIES YOU CANNOT PURCHASE SHARES OF THE FUND
As of 12/31/05 II SHARES IS SEPTEMBER 19, 2001. SERIES DIRECTLY. PERFORMANCE FIGURES GIVEN
I AND SERIES II SHARES INVEST IN THE REPRESENT THE FUND AND ARE NOT INTENDED
SERIES I SHARES SAME PORTFOLIO OF SECURITIES AND WILL TO REFLECT ACTUAL VARIABLE PRODUCT
Inception (5/5/93) 6.39% HAVE SUBSTANTIALLY SIMILAR PERFORMANCE, VALUES. THEY DO NOT REFLECT SALES
10 Years 4.17 EXCEPT TO THE EXTENT THAT EXPENSES BORNE CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years -6.97 BY EACH CLASS DIFFER. CONNECTION WITH A VARIABLE PRODUCT.
1 Year 7.48 SALES CHARGES, EXPENSES AND FEES, WHICH
THE PERFORMANCE DATA QUOTED ARE DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES REPRESENT PAST PERFORMANCE AND CANNOT ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 3.92% GUARANTEE COMPARABLE FUTURE RESULTS; TOTAL RETURN.
5 Years -7.20 CURRENT PERFORMANCE MAY BE LOWER OR
1 Year 7.16 HIGHER. PLEASE CONTACT YOUR VARIABLE PER NASD REQUIREMENTS, THE MOST
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR RECENT MONTH-END PERFORMANCE DATA AT
======================================== THE MOST RECENT MONTH-END VARIABLE THE FUND LEVEL, EXCLUDING VARIABLE
PRODUCT PERFORMANCE. PERFORMANCE FIGURES PRODUCT CHARGES, IS AVAILABLE ON AIM'S
CUMULATIVE TOTAL RETURNS REFLECT FUND EXPENSES, REINVESTED AUTOMATED INFORMATION LINE,
DISTRIBUTIONS AND CHANGES IN NET ASSET 866-702-4402. AS MENTIONED ABOVE, FOR
Six months ended 12/31/05 VALUE. THE MOST RECENT MONTH-END PERFORMANCE
Series I Shares 7.68% INCLUDING VARIABLE PRODUCT CHARGES,
Shares II Shares 7.49 INVESTMENT RETURN AND PRINCIPAL VALUE PLEASE CONTACT YOUR VARIABLE PRODUCT
WILL FLUCTUATE SO THAT YOU MAY HAVE A ISSUER OR FINANCIAL ADVISOR.
======================================== GAIN OR LOSS WHEN YOU SELL SHARES.
RETURNS SINCE SEPTEMBER 19, 2001, THE AIM V.I. GROWTH FUND, A SERIES
INCEPTION DATE OF SERIES II SHARES, ARE PORTFOLIO OF AIM VARIABLE INSURANCE
HISTORICAL. ALL OTHER RETURNS ARE THE FUNDS, IS CURRENTLY OFFERED THROUGH
BLENDED RETURNS OF THE HISTORICAL INSURANCE
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND the Growth subset measures the OTHER INFORMATION
performance of Russell 1000 companies
The Fund may invest up to 25% of its with higher price/book ratios and higher The returns shown in the management's
assets in the securities of non-U.S. forecasted growth values. discussion of Fund performance are based
issuers. International investing on net asset values calculated for
presents certain risks not associated The unmanaged Standard & Poor's shareholder transactions. Generally
with investing solely in the United Composite Index of 500 Stocks (the S&P accepted accounting principles require
States. These include risks relating to 500--Registered Trademark-- INDEX) is adjustments to be made to the net assets
fluctuations in the value of the U.S. an index of common stocks frequently of the Fund at period end for financial
dollar relative to the values of other used as a general measure of U.S. stock reporting purposes, and as such, the net
currencies, the custody arrangements market performance. asset values for shareholder
made for the Fund's foreign holdings, transactions and the returns based on
differences in accounting, political The Fund is not managed to track the those net asset values may differ from
risks and the lesser degree of public performance of any particular index, the net asset values and returns
information required to be provided by including the indexes defined here, and reported in the Financial Highlights.
non-U.S. companies. consequently, the performance of the Additionally, the returns and net asset
Fund may deviate significantly from the values shown throughout this report are
ABOUT INDEXES USED IN THIS REPORT performance of the indexes. at the Fund level only and do not
include variable product issuer charges.
The unmanaged LIPPER LARGE-CAP GROWTH A direct investment cannot be made If such charges were included, the total
FUND INDEX represents an average of the in an index. Unless otherwise indicated, returns would be lower.
performance of the 30 largest index results include reinvested
large-capitalization growth funds dividends, and they do not reflect sales Industry classifications used in
tracked by Lipper, Inc., an independent charges. Performance of an index of this report are generally according to
mutual fund performance monitor. funds reflects fund expenses; the Global Industry Classification
performance of a market index does not. Standard, which was developed by and is
The unmanaged RUSSELL the exclusive property and a service
1000--Registered Trademark-- GROWTH mark of Morgan Stanley Capital
INDEX is a subset of the unmanaged International Inc. and Standard &
RUSSELL 1000--Registered Trademark-- Poor's.
INDEX, which represents the performance
of the stocks of large-capitalization
companies;
5
AIM V.I. GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur You may use the information in this The hypothetical account values and
ongoing costs, including management table, together with the amount you expenses may not be used to estimate the
fees; distribution and/or service fees invested, to estimate the expenses that actual ending account balance or expenses
(12b-1); and other Fund expenses. This you paid over the period. Simply divide you paid for the period. You may use this
example is intended to help you your account value by $1,000 (for information to compare the ongoing costs of
understand your ongoing costs (in example, an $8,600 account value divided investing in the Fund and other funds. To
dollars) of investing in the Fund and to by $1,000 = 8.6), then multiply the do so, compare this 5% hypothetical
compare these costs with ongoing costs result by the number in the table under example with the 5% hypothetical
of investing in other mutual funds. The the heading entitled "Actual Expenses examples that appear in the shareholder
example is based on an investment of Paid During Period" to estimate the reports of the other funds.
$1,000 invested at the beginning of the expenses you paid on your account during
period and held for the entire period this period. Please note that the expenses shown
July 1, 2005, through December 31, 2005. in the table are meant to highlight your
HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
The actual and hypothetical expenses PURPOSES hypothetical information is useful in
in the examples below do not represent comparing ongoing costs, and will not
the effect of any fees or other expenses The table below also provides help you determine the relative total
assessed in connection with a variable information about hypothetical account costs of owning different funds.
product; if they did, the expenses shown values and hypothetical expenses based
would be higher while the ending account on the Fund's actual expense ratio and
values shown would be lower. an assumed rate of return of 5% per year
before expenses, which is not the Fund's
ACTUAL EXPENSES actual return. The Fund's actual
cumulative total returns at net asset
The table below provides information value after expenses for the six months
about actual account values and actual ended December 31, 2005, appear in the
expenses. table "Cumulative Total Returns" on Page
5.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,076.80 $4.97 $1,020.42 $4.84 0.95%
Series II 1,000.00 1,074.90 6.28 1,019.16 6.11 1.20
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. GROWTH FUND
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 agreed to waive advisory fees of the
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the Fund and to limit the Fund's total
the management of AIM V.I. Growth Fund credentials and experience of the operating expenses, as discussed below.
(the "Fund") and, as required by law, officers and employees of AIM who will Based on this review, the Board
determines annually whether to approve provide investment advisory services to concluded that the advisory fee rate for
the continuance of the Fund's advisory the Fund. In reviewing the the Fund under the Advisory Agreement
agreement with A I M Advisors, Inc. qualifications of AIM to provide was fair and reasonable.
("AIM"). Based upon the recommendation investment advisory services, the Board
of the Investments Committee of the reviewed the qualifications of AIM's o Fees relative to those of comparable
Board, which is comprised solely of investment personnel and considered such funds with other advisors. The Board
independent trustees, at a meeting held issues as AIM's portfolio and product reviewed the advisory fee rate for the
on June 30, 2005, the Board, including review process, various back office Fund under the Advisory Agreement. The
all of the independent trustees, support functions provided by AIM and Board compared effective contractual
approved the continuance of the advisory AIM's equity and fixed income trading advisory fee rates at a common asset
agreement (the "Advisory Agreement") operations. Based on the review of these level and noted that the Fund's rate was
between the Fund and AIM for another and other factors, the Board concluded above the median rate of the funds
year, effective July 1, 2005. that the quality of services to be advised by other advisors with
provided by AIM was appropriate and that investment strategies comparable to
The Board considered the factors AIM currently is providing satisfactory those of the Fund that the Board
discussed below in evaluating the services in accordance with the terms of reviewed. The Board noted that AIM has
fairness and reasonableness of the the Advisory Agreement. agreed to waive advisory fees of the
Advisory Agreement at the meeting on Fund and to limit the Fund's total
June 30, 2005 and as part of the Board's o The performance of the Fund relative operating expenses, as discussed below.
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed Based on this review, the Board
deliberations, the Board and the the performance of the Fund during the concluded that the advisory fee rate for
independent trustees did not identify past one, three and five calendar years the Fund under the Advisory Agreement
any particular factor that was against the performance of funds advised was fair and reasonable.
controlling, and each trustee attributed by other advisors with investment
different weights to the various strategies comparable to those of the o Expense limitations and fee waivers.
factors. Fund. The Board noted that the Fund's The Board noted that AIM has
performance was at the median contractually agreed to waive advisory
One of the responsibilities of the performance of such comparable funds for fees of the Fund through June 30, 2006
Senior Officer of the Fund, who is the one and three year periods and below to the extent necessary so that the
independent of AIM and AIM's affiliates, such median performance for the five advisory fees payable by the Fund do not
is to manage the process by which the year period. Based on this review, the exceed a specified maximum advisory fee
Fund's proposed management fees are Board concluded that no changes should rate, which maximum rate includes
negotiated to ensure that they are be made to the Fund and that it was not breakpoints and is based on net asset
negotiated in a manner which is at arm's necessary to change the Fund's portfolio levels. The Board considered the
length and reasonable. To that end, the management team at this time. contractual nature of this fee waiver
Senior Officer must either supervise a and noted that it remains in effect
competitive bidding process or prepare o The performance of the Fund relative until June 30, 2006. The Board noted
an independent written evaluation. The to indices. The Board reviewed the that AIM has contractually agreed to
Senior Officer has recommended an performance of the Fund during the past waive fees and/or limit expenses of the
independent written evaluation in lieu one, three and five calendar years Fund through April 30, 2006 in an amount
of a competitive bidding process and, against the performance of the Lipper necessary to limit total annual
upon the direction of the Board, has Large Cap Growth Index. The Board noted operating expenses to a specified
prepared such an independent written that the Fund's performance was above percentage of average daily net assets
evaluation. Such written evaluation also the performance of such Index for the for each class of the Fund. The Board
considered certain of the factors one year period, comparable to such considered the contractual nature of
discussed below. In addition, as Index for the three year period, and this fee waiver/expense limitation and
discussed below, the Senior Officer made below such Index for the five year noted that it remains in effect through
certain recommendations to the Board in period. Based on this review, the Board April 30, 2006. The Board considered the
connection with such written evaluation. concluded that no changes should be made effect these fee waivers/expense
to the Fund and that it was not limitations would have on the Fund's
The discussion below serves as a necessary to change the Fund's portfolio estimated expenses and concluded that
summary of the Senior Officer's management team at this time. the levels of fee waivers/expense
independent written evaluation and limitations for the Fund were fair and
recommendations to the Board in o Meeting with the Fund's portfolio reasonable.
connection therewith, as well as a managers and investment personnel. With
discussion of the material factors and respect to the Fund, the Board is o Breakpoints and economies of scale.
the conclusions with respect thereto meeting periodically with such Fund's The Board reviewed the structure of the
that formed the basis for the Board's portfolio managers and/or other Fund's advisory fee under the Advisory
approval of the Advisory Agreement. investment personnel and believes that Agreement, noting that it includes one
After consideration of all of the such individuals are competent and able breakpoint. The Board reviewed the level
factors below and based on its informed to continue to carry out their of the Fund's advisory fees, and noted
business judgment, the Board determined responsibilities under the Advisory that such fees, as a percentage of the
that the Advisory Agreement is in the Agreement. Fund's net assets, have decreased as net
best interests of the Fund and its assets increased because the Advisory
shareholders and that the compensation o Overall performance of AIM. The Board Agreement includes a breakpoint. The
to AIM under the Advisory Agreement is considered the overall performance of Board noted that AIM has contractually
fair and reasonable and would have been AIM in providing investment advisory and agreed to waive advisory fees of the
obtained through arm's length portfolio administrative services to the Fund through June 30, 2006 to the extent
negotiations. Fund and concluded that such performance necessary so that the advisory fees
was satisfactory. payable by the Fund do not exceed a
o The nature and extent of the advisory specified maximum advisory fee rate,
services to be provided by AIM. The o Fees relative to those of clients of which maximum rate includes breakpoints
Board reviewed the services to be AIM with comparable investment and is based on net asset levels. The
provided by AIM under the Advisory strategies. The Board reviewed the Board concluded that the Fund's fee
Agreement. Based on such review, the advisory fee rate for the Fund under the levels under the Advisory Agreement
Board concluded that the range of Advisory Agreement. The Board noted that therefore reflect economies of scale and
services to be provided by AIM under the this rate was comparable to the advisory that it was not necessary to change the
Advisory Agreement was appropriate and fee rates for a mutual fund advised by advisory fee breakpoints in the Fund's
that AIM currently is providing services AIM with investment strategies advisory fee schedule.
in accordance with the terms of the comparable to those of the Fund. The
Advisory Agreement. Board noted that AIM has
(continued)
7
AIM V.I. GROWTH FUND
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized
the fact that uninvested cash and cash by AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements (collectively, "cash dollar" arrangements. Under these
balances") of the Fund may be invested arrangements, brokerage commissions paid
in money market funds advised by AIM by the Fund and/or other funds advised
pursuant to the terms of an SEC by AIM are used to pay for research and
exemptive order. The Board found that execution services. This research is
the Fund may realize certain benefits used by AIM in making investment
upon investing cash balances in AIM decisions for the Fund. The Board
advised money market funds, including a concluded that such arrangements were
higher net return, increased liquidity, appropriate.
increased diversification or decreased
transaction costs. The Board also found o AIM's financial soundness in light of
that the Fund will not receive reduced the Fund's needs. The Board considered
services if it invests its cash balances whether AIM is financially sound and has
in such money market funds. The Board the resources necessary to perform its
noted that, to the extent the Fund obligations under the Advisory
invests in affiliated money market Agreement, and concluded that AIM has
funds, AIM has voluntarily agreed to the financial resources necessary to
waive a portion of the advisory fees it fulfill its obligations under the
receives from the Fund attributable to Advisory Agreement.
such investment. The Board further
determined that the proposed securities o Historical relationship between the
lending program and related procedures Fund and AIM. In determining whether to
with respect to the lending Fund 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. The prior relationship between AIM and the
Board therefore concluded that the Fund, as well as the Board's knowledge
investment of cash collateral received of AIM's operations, and concluded that
in connection with the securities it was beneficial to maintain the
lending program in the money market current relationship, in part, because
funds according to the procedures is in of such knowledge. The Board also
the best interests of the lending Fund reviewed the general nature of the
and its respective shareholders. non-investment advisory services
currently performed by AIM and its
o Independent written evaluation and affiliates, such as administrative,
recommendations of the Fund's Senior transfer agency and distribution
Officer. The Board noted that, upon services, and the fees received by AIM
their direction, the Senior Officer of and its affiliates for performing such
the Fund, who is independent of AIM and services. In addition to reviewing such
AIM's affiliates, had prepared an services, the trustees also considered
independent written evaluation in order the organizational structure employed by
to assist the Board in determining the AIM and its affiliates to provide those
reasonableness of the proposed services. Based on the review of these
management fees of the AIM Funds, and other factors, the Board concluded
including the Fund. The Board noted that that AIM and its affiliates were
the Senior Officer's written evaluation qualified to continue to provide
had been relied upon by the Board in non-investment advisory services to the
this regard in lieu of a competitive Fund, including administrative, transfer
bidding process. In determining whether agency and distribution services, and
to continue the Advisory Agreement for that AIM and its affiliates currently
the Fund, the Board considered the are providing satisfactory
Senior Officer's written evaluation and non-investment advisory services.
the recommendation made by the Senior
Officer to the Board that the Board o Other factors and current trends. In
consider implementing a process to determining whether to continue the
assist them in more closely monitoring Advisory Agreement for the Fund, the
the performance of the AIM Funds. The Board considered the fact that AIM,
Board concluded that it would be along with others in the mutual fund
advisable to implement such a process as industry, is subject to regulatory
soon as reasonably practicable. inquiries and litigation related to a
wide range of issues. The Board also
o Profitability of AIM and its considered the governance and compliance
affiliates. The Board reviewed reforms being undertaken by AIM and its
information concerning the profitability affiliates, including maintaining an
of AIM's (and its affiliates') internal controls committee and
investment advisory and other activities retaining an independent compliance
and its financial condition. The Board consultant, and the fact that AIM has
considered the overall profitability of undertaken to cause the Fund to operate
AIM, as well as the profitability of AIM in accordance with certain governance
in connection with managing the Fund. policies and practices. The Board
The Board noted that AIM's operations concluded that these actions indicated a
remain profitable, although increased good faith effort on the part of AIM to
expenses in recent years have reduced adhere to the highest ethical standards,
AIM's profitability. Based on the review and determined that the current
of the profitability of AIM's and its regulatory and litigation environment to
affiliates' investment advisory and which AIM is subject should not prevent
other activities and its financial the Board from continuing the Advisory
condition, the Board concluded that the Agreement for the Fund.
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC COMMON STOCKS-86.35%
AEROSPACE & DEFENSE-3.78%
Boeing Co. (The) 77,566 $ 5,448,236
- -----------------------------------------------------------------------
General Dynamics Corp. 28,226 3,219,175
- -----------------------------------------------------------------------
Precision Castparts Corp. 66,000 3,419,460
=======================================================================
12,086,871
=======================================================================
APPAREL RETAIL-1.00%
Chico's FAS, Inc.(a) 72,500 3,184,925
=======================================================================
APPLICATION SOFTWARE-1.94%
Amdocs Ltd.(a) 225,809 6,209,747
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.05%
Legg Mason, Inc. 28,000 3,351,320
=======================================================================
BIOTECHNOLOGY-4.61%
Amgen Inc.(a) 85,000 6,703,100
- -----------------------------------------------------------------------
Genzyme Corp.(a) 42,500 3,008,150
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 95,000 4,999,850
=======================================================================
14,711,100
=======================================================================
COMMUNICATIONS EQUIPMENT-3.55%
Cisco Systems, Inc.(a) 183,470 3,141,006
- -----------------------------------------------------------------------
QUALCOMM Inc. 190,000 8,185,200
=======================================================================
11,326,206
=======================================================================
COMPUTER & ELECTRONICS RETAIL-0.50%
Best Buy Co., Inc. 37,000 1,608,760
=======================================================================
COMPUTER HARDWARE-3.00%
Apple Computer, Inc.(a) 98,582 7,087,060
- -----------------------------------------------------------------------
Dell Inc.(a) 83,000 2,489,170
=======================================================================
9,576,230
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.81%
EMC Corp.(a) 424,412 5,780,491
=======================================================================
CONSUMER FINANCE-0.48%
American Express Co. 30,000 1,543,800
=======================================================================
DEPARTMENT STORES-2.54%
Federated Department Stores, Inc. 25,000 1,658,250
- -----------------------------------------------------------------------
J.C. Penney Co., Inc. 43,000 2,390,800
- -----------------------------------------------------------------------
Nordstrom, Inc. 108,500 4,057,900
=======================================================================
8,106,950
=======================================================================
DIVERSIFIED BANKS-1.03%
Bank of America Corp. 71,452 3,297,510
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
DIVERSIFIED CHEMICALS-0.48%
Dow Chemical Co. (The) 35,000 $ 1,533,700
=======================================================================
DRUG RETAIL-0.06%
CVS Corp. 7,649 202,087
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.01%
Emerson Electric Co. 43,000 3,212,100
=======================================================================
FOOTWEAR-0.54%
NIKE, Inc.-Class B 20,000 1,735,800
=======================================================================
GENERAL MERCHANDISE STORES-1.21%
Target Corp. 70,000 3,847,900
=======================================================================
HEALTH CARE DISTRIBUTORS-0.75%
Cardinal Health, Inc. 35,000 2,406,250
=======================================================================
HEALTH CARE EQUIPMENT-0.52%
Varian Medical Systems, Inc.(a) 32,930 1,657,696
=======================================================================
HEALTH CARE SERVICES-1.35%
Caremark Rx, Inc.(a) 83,100 4,303,749
=======================================================================
HOME ENTERTAINMENT SOFTWARE-0.86%
Electronic Arts Inc.(a) 52,500 2,746,275
=======================================================================
HOME IMPROVEMENT RETAIL-1.91%
Home Depot, Inc. (The) 150,609 6,096,652
=======================================================================
HOUSEHOLD PRODUCTS-1.66%
Procter & Gamble Co. (The) 91,734 5,309,564
=======================================================================
INDUSTRIAL CONGLOMERATES-2.38%
Textron Inc. 46,430 3,574,181
- -----------------------------------------------------------------------
Tyco International Ltd. 140,000 4,040,400
=======================================================================
7,614,581
=======================================================================
INDUSTRIAL MACHINERY-1.72%
ITT Industries, Inc. 31,000 3,187,420
- -----------------------------------------------------------------------
Parker Hannifin Corp. 35,000 2,308,600
=======================================================================
5,496,020
=======================================================================
INTEGRATED OIL & GAS-2.56%
ConocoPhillips 80,000 4,654,400
- -----------------------------------------------------------------------
Occidental Petroleum Corp. 44,000 3,514,720
=======================================================================
8,169,120
=======================================================================
INTERNET RETAIL-1.95%
Amazon.com, Inc.(a) 35,000 1,650,250
- -----------------------------------------------------------------------
eBay Inc.(a) 106,167 4,591,723
=======================================================================
6,241,973
=======================================================================
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-4.63%
Google Inc.-Class A(a) 16,000 $ 6,637,760
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 208,000 8,149,440
=======================================================================
14,787,200
=======================================================================
INVESTMENT BANKING & BROKERAGE-5.18%
Goldman Sachs Group, Inc. (The) 67,500 8,620,425
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 37,635 4,823,678
- -----------------------------------------------------------------------
Schwab (Charles) Corp. (The) 211,000 3,095,370
=======================================================================
16,539,473
=======================================================================
MANAGED HEALTH CARE-5.75%
Aetna Inc. 107,000 10,091,170
- -----------------------------------------------------------------------
CIGNA Corp. 29,000 3,239,300
- -----------------------------------------------------------------------
WellPoint, Inc.(a) 62,952 5,022,940
=======================================================================
18,353,410
=======================================================================
MOVIES & ENTERTAINMENT-0.51%
Pixar(a) 31,000 1,634,320
=======================================================================
MULTI-LINE INSURANCE-1.13%
Hartford Financial Services Group, Inc. (The) 42,000 3,607,380
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-3.13%
BJ Services Co. 159,948 5,865,293
- -----------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 65,861 4,129,485
=======================================================================
9,994,778
=======================================================================
OIL & GAS REFINING & MARKETING-1.29%
Valero Energy Corp. 80,000 4,128,000
=======================================================================
PHARMACEUTICALS-3.30%
Allergan, Inc. 27,000 2,914,920
- -----------------------------------------------------------------------
Johnson & Johnson 127,017 7,633,722
=======================================================================
10,548,642
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.02%
Allstate Corp. (The) 60,000 3,244,200
=======================================================================
RAILROADS-1.27%
Burlington Northern Santa Fe Corp. 57,200 4,050,904
=======================================================================
RESTAURANTS-0.89%
YUM! Brands, Inc. 60,404 2,831,740
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.80%
KLA-Tencor Corp. 51,748 2,552,729
=======================================================================
SEMICONDUCTORS-6.02%
Analog Devices, Inc. 229,000 8,214,230
- -----------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 125,000 3,146,250
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Microchip Technology Inc. 136,426 $ 4,386,096
- -----------------------------------------------------------------------
National Semiconductor Corp. 88,000 2,286,240
- -----------------------------------------------------------------------
NVIDIA Corp.(a) 32,280 1,180,157
=======================================================================
19,212,973
=======================================================================
SOFT DRINKS-0.68%
PepsiCo, Inc. 36,500 2,156,420
=======================================================================
SPECIALIZED FINANCE-0.87%
Chicago Mercantile Exchange Holdings Inc. 7,527 2,766,097
=======================================================================
SPECIALTY CHEMICALS-0.36%
Rohm and Haas Co. 24,000 1,162,080
=======================================================================
SPECIALTY STORES-2.51%
Office Depot, Inc.(a) 156,000 4,898,400
- -----------------------------------------------------------------------
Tiffany & Co. 81,000 3,101,490
=======================================================================
7,999,890
=======================================================================
SYSTEMS SOFTWARE-1.73%
Oracle Corp.(a) 260,000 3,174,600
- -----------------------------------------------------------------------
Symantec Corp.(a) 135,000 2,362,500
=======================================================================
5,537,100
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.03%
MGIC Investment Corp. 50,000 3,291,000
=======================================================================
Total Domestic Common Stocks (Cost
$220,011,437) 275,755,713
=======================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-12.11%
AUSTRALIA-0.42%
BHP Billiton Ltd. (Diversified Metals &
Mining)(b) 81,000 1,353,167
=======================================================================
BRAZIL-0.49%
Companhia Vale do Rio Doce-ADR (Steel) 38,000 1,563,320
=======================================================================
FINLAND-0.75%
Nokia Oyj-ADR (Communications Equipment) 131,000 2,397,300
=======================================================================
ISRAEL-1.00%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 74,000 3,182,740
=======================================================================
SINGAPORE-1.32%
Marvell Technology Group Ltd.
(Semiconductors)(a) 75,270 4,221,895
=======================================================================
SOUTH KOREA-0.67%
Kookmin Bank (Diversified Banks)(a)(b) 28,500 2,131,643
=======================================================================
SWITZERLAND-5.55%
ABB Ltd. (Heavy Electrical Equipment)(a)(b) 180,000 1,748,600
- -----------------------------------------------------------------------
Alcon, Inc. (Health Care Supplies) 47,000 6,091,200
- -----------------------------------------------------------------------
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SWITZERLAND-(CONTINUED)
Novartis A.G.-ADR (Pharmaceuticals) 77,000 $ 4,040,960
- -----------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 39,000 5,855,936
=======================================================================
17,736,696
=======================================================================
TAIWAN-0.93%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 300,000 2,973,000
=======================================================================
UNITED KINGDOM-0.98%
Rio Tinto PLC (Diversified Metals &
Mining)(b) 20,000 913,177
- -----------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 57,000 2,211,030
=======================================================================
3,124,207
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $31,296,878) 38,683,968
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-0.91%
Liquid Assets Portfolio-Institutional
Class(c) 1,448,985 $ 1,448,985
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,448,985 1,448,985
=======================================================================
Total Money Market Funds (Cost
$2,897,970) 2,897,970
=======================================================================
TOTAL INVESTMENTS-99.37% (Cost $254,206,285) 317,337,651
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.63% 2,003,460
=======================================================================
NET ASSETS-100.00% $319,341,111
_______________________________________________________________________
=======================================================================
</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 value of these securities at December 31, 2005 was $6,146,587,
which represented 1.92% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $251,308,315) $ 314,439,681
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $2,897,970) 2,897,970
=============================================================
Total investments (cost $254,206,285) 317,337,651
=============================================================
Receivables for:
Investments sold 2,824,557
- -------------------------------------------------------------
Fund shares sold 103,319
- -------------------------------------------------------------
Dividends 191,675
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 59,070
- -------------------------------------------------------------
Other assets 5,785
=============================================================
Total assets 320,522,057
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 676,294
- -------------------------------------------------------------
Fund shares reacquired 192,111
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 87,131
- -------------------------------------------------------------
Accrued administrative services fees 181,524
- -------------------------------------------------------------
Accrued distribution fees -- Series II 8,195
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 129
- -------------------------------------------------------------
Accrued operating expenses 35,562
=============================================================
Total liabilities 1,180,946
=============================================================
Net assets applicable to shares outstanding $ 319,341,111
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 641,241,754
- -------------------------------------------------------------
Undistributed net investment income (loss) (76,452)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (384,955,557)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 63,131,366
=============================================================
$ 319,341,111
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 304,667,631
_____________________________________________________________
=============================================================
Series II $ 14,673,480
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 17,663,656
_____________________________________________________________
=============================================================
Series II 859,379
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 17.25
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 17.07
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$16,940) $ 2,325,618
- -------------------------------------------------------------
Dividends from affiliated money market funds 85,127
=============================================================
Total investment income 2,410,745
=============================================================
EXPENSES:
Advisory fees 2,169,207
- -------------------------------------------------------------
Administrative services fees 819,421
- -------------------------------------------------------------
Custodian fees 52,572
- -------------------------------------------------------------
Distribution fees -- Series II 32,585
- -------------------------------------------------------------
Interest 404
- -------------------------------------------------------------
Transfer agent fees 33,202
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 25,310
- -------------------------------------------------------------
Other 105,918
=============================================================
Total expenses 3,238,619
=============================================================
Less: Fees waived (527)
=============================================================
Net expenses 3,238,092
=============================================================
Net investment income (loss) (827,347)
=============================================================
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 $(482,797)) 47,923,434
- -------------------------------------------------------------
Foreign currencies 36,374
- -------------------------------------------------------------
Option contracts written 180,673
=============================================================
48,140,481
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (24,738,133)
- -------------------------------------------------------------
Foreign currencies (28)
=============================================================
(24,738,161)
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 23,402,320
=============================================================
Net increase in net assets resulting from
operations $ 22,574,973
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (827,347) $ (179,926)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 48,140,481 34,514,787
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (24,738,161) (5,082,659)
==========================================================================================
Net increase in net assets resulting from operations 22,574,973 29,252,202
==========================================================================================
Share transactions-net:
Series I (82,145,692) (55,702,056)
- ------------------------------------------------------------------------------------------
Series II 640,348 2,385,025
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (81,505,344) (53,317,031)
==========================================================================================
Net increase (decrease) in net assets (58,930,371) (24,064,829)
==========================================================================================
NET ASSETS:
Beginning of year 378,271,482 402,336,311
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(76,452) and $(75,266), respectively) $319,341,111 $378,271,482
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
J. 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
AIM V.I. GROWTH FUND
may be a security or a futures contract. Put options may be used by the Fund to
hedge securities it owns by locking in a minimum price at which the Fund can
sell. If security prices fall, the put option could be exercised to offset all
or a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged. A risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
K. 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 replace 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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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. 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 year ended December 31, 2005, AIM waived fees of $527.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $88,361 for
accounting and fund administrative services and reimbursed $731,060 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 year ended
December 31, 2005, the Fund paid AISI $33,202.
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 year ended December
31, 2005, the Series II shares paid $32,585.
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 year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,220,563 $ 67,729,816 $ (68,501,394) $ -- $1,448,985 $42,470 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,220,563 67,729,816 (68,501,394) -- 1,448,985 42,657 --
==================================================================================================================================
Total $4,441,126 $135,459,632 $(137,002,788) $ -- $2,897,970 $85,127 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $4,067,182 and sales of $1,811,576, which
resulted in net realized gains (losses) of $(482,797).
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $5,235
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. During the year ended
December 31, 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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
AIM V.I. GROWTH FUND
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 915 186,369
- ------------------------------------------------------------------------------------
Closed (735) (141,781)
- ------------------------------------------------------------------------------------
Expired (180) (44,588)
====================================================================================
End of year -- --
____________________________________________________________________________________
====================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 61,620,878
- -----------------------------------------------------------------------------
Temporary book/tax differences (76,452)
- -----------------------------------------------------------------------------
Capital loss carryforward (383,445,069)
- -----------------------------------------------------------------------------
Shares of beneficial interest 641,241,754
=============================================================================
Total net assets $ 319,341,111
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the tax treatment of certain option contracts.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $382,545,842 of capital loss carryforward in the fiscal
year ended December 31, 2006.
The Fund utilized $45,700,335 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------
December 31, 2009 $254,169,218
- ----------------------------------------------------------------------------
December 31, 2010 103,262,179
- ----------------------------------------------------------------------------
December 31, 2011 26,013,672
- ----------------------------------------------------------------------------
Total capital loss carryforward $383,445,069
____________________________________________________________________________
============================================================================
</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.
AIM V.I. GROWTH FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $316,833,444 and $401,888,481, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $65,579,077
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,958,199)
===============================================================================
Net unrealized appreciation of investment securities $61,620,878
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $255,716,773.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2005, undistributed net
investment income (loss) was increased by $826,161, undistributed net realized
gain (loss) was decreased by $36,376 and shares of beneficial interest decreased
by $789,785. This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 (A) 2004
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,320,744 $ 83,814,875 2,624,088 $ 39,797,986
- -------------------------------------------------------------------------------------------------------------------------
Series II 442,078 7,230,882 417,397 6,230,930
=========================================================================================================================
Issued in connection with acquisitions:(b)
Series I -- -- 451,258 6,684,290
=========================================================================================================================
Reacquired:
Series I (10,399,905) (165,960,567) (6,809,056) (102,184,332)
- -------------------------------------------------------------------------------------------------------------------------
Series II (408,896) (6,590,534) (255,813) (3,845,905)
=========================================================================================================================
(5,045,979) $ (81,505,344) (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 74% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities 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 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.05 $ 14.83 $ 11.30 $ 16.37 $ 24.81
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.01)(a) (0.02) (0.03)(b) (0.03)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.24 1.23 3.55 (5.04) (8.37)
=========================================================================================================================
Total from investment operations 1.20 1.22 3.53 (5.07) (8.40)
=========================================================================================================================
Less dividends from net investment income -- -- -- -- (0.04)
=========================================================================================================================
Net asset value, end of period $ 17.25 $ 16.05 $ 14.83 $ 11.30 $ 16.37
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 7.48% 8.23% 31.24% (30.97)% (33.86)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $304,668 $365,108 $392,533 $361,259 $601,648
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 0.94%(d) 0.91% 0.89% 0.91% 0.88%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.23)%(d) (0.04)%(a) (0.13)% (0.21)% (0.17)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 94% 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 $(0.03) and (0.14)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $327,667,163.
AIM V.I. GROWTH FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------------
SEPTEMBER 19, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------ 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) (0.07) (0.04)(a) (0.03) (0.06)(b) (0.02)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.22 3.51 (5.03) 1.75
=================================================================================================================================
Total from investment operations 1.14 1.18 3.48 (5.09) 1.73
=================================================================================================================================
Less dividends from net investment income -- -- -- -- (0.04)
=================================================================================================================================
Net asset value, end of period $ 17.07 $ 15.93 $14.75 $ 11.27 $16.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.16% 8.00% 30.88% (31.11)% 11.79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,673 $13,163 $9,803 $ 2,733 $ 604
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.19%(d) 1.16% 1.14% 1.16% 1.17%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.48)%(d) (0.29)%(a) (0.38)% (0.46)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 94% 88% 101% 195% 239%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
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 based on average daily net assets of $13,033,990.
(e) Annualized.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005, a
Plan of Reorganization pursuant to which the Fund, would transfer all of its
assets to AIM V.I. Capital Appreciation Fund ("Buying Fund"), a series of the
Trust ("the Reorganization"). Upon closing of the Reorganization, shareholders
of the Fund will receive a corresponding class of shares of Buying Fund in
exchange for their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around April 4, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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
AIM V.I. GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on
AIM V.I. GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
the MDL Court's opinion and both parties' proposed orders, however, all claims
asserted against the Funds that have been transferred to the MDL Court will be
dismissed, although certain Funds will remain nominal defendants in the
derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Growth Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2005, and the results of its operations, the changes in
its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
As described in Note 13, the Board of Trustees has approved a plan of
reorganization under which the Fund will merge with AIM V.I. Capital
Appreciation Fund. This merger is expected to take place following approval by
the Fund's shareholders, at which time the Fund will cease to operate.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. GROWTH FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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. GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. GROWTH FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. GROWTH FUND
AIM V.I. HIGH YIELD FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. HIGH YIELD FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
MARKET CONDITIONS AND YOUR FUND
PERFORMANCE SUMMARY In 2005, the broad bond
======================================= market--represented by the Lehman
The high yield market proved resilient FUND VS. INDEXES Brothers U.S. Aggregate Bond
in 2005 despite a changing market Index--produced modestly positive
environment. We are pleased to report TOTAL RETURNS, 12/31/04-12/31/05, returns amid rate hikes by the Federal
that AIM V.I. High Yield Fund Series I EXCLUDING VARIABLE PRODUCT ISSUER Reserve (the Fed), increased
Shares traded inline with its CHARGES. IF VARIABLE PRODUCT ISSUER inflationary concerns and higher energy
style-specific and broad market CHARGES WERE INCLUDED, RETURNS WOULD BE prices. During the fiscal year, high
benchmarks. We attribute our performance LOWER. yield bonds produced modestly positive
to sound credit selection and a returns. Although returns for the high
well-diversified portfolio which helped Series I Shares 2.72% yield market slightly outpaced those in
us weather sometimes difficult market the investment grade bond market, high
conditions. For long-term Fund Series II Shares 2.43 yield bond performance was subdued
performance, please turn to Pages 4 compared to strong rallies in 2004 and
and 5. Lehman Brothers U.S. 2003.
Aggregate Bond Index
(Broad Market Index) 2.43 In the early part of 2005, high yield
market volatility increased due in large
Lehman Brothers High Yield part to the prospect and eventual debt
Index (Style-specific Index) 2.74 downgrade of GENERAL MOTORS (GM) and
FORD--two of the world's largest issuers
Lipper High Yield Bond Fund of corporate debt. Speculation that
Index (Peer Group Index) 3.00 these large issuers would enter the high
yield universe caused investors to sell
SOURCE: LIPPER, INC. the debt, sharply reducing prices on the
======================================= bonds.
========================================= ======================================= As market uncertainty increased, so
did yield spreads--the difference
HOW WE INVEST within their respective industries. We between yields on high-yield bonds and
also consider general economic and comparable maturity Treasuries. By
Your Fund invests primarily in market trends in selecting securities late-May however, the high yield market
lower-rated credit quality corporate for the portfolio. Changes in a began to rally as it became apparent the
bonds. Our investment discipline focuses security's risk profile or value and automaker downgrades did not overwhelm
on providing attractive current income overall market conditions generally the market with new supply; and yield
for shareholders and consistent determine buy and sell decisions. spreads tightened back to earlier-year
performance within a framework designed levels.
to control volatility. Additionally, we Measures we use to control risk
seek growth of shareholders' principal include: In the second half of the year, high
without exposure to undue risk. yield bonds produced modestly positive
o limiting the portfolio's assets that returns despite a flight-to-quality
We use a bottom-up approach to are invested in any one security driven by the after effects of Hurricane
investing, focusing on individual Katrina, inflation concerns and negative
companies. Our analysts evaluate balance o diversifying Fund holdings over profit warnings from some consumer
sheets and income statements to assess a different industries companies.
company's condition. We also seek to own
securities that are attractively valued We will consider selling a security
relative to other high yield bonds and if its risk profile deteriorates or we
determine that there are other
securities that are more attractive.
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 ISSUERS*
By credit rating quality 1. Wireless Telecommunication 1. Targeted Return Index
Services 7.5% Securities Trust 3.9%
BBB 3.3%
2. Broadcasting & Cable TV 6.2 2. General Motors Acceptance
BB 29.6 Corp. 2.0
3. Electric Utilities 4.8
B 50.6 3. Grupo Transportacion
4. Independent Power Ferroviaria Mexicana,
CCC 5.4 Producers & Energy Traders 4.5 S.A. de C.V. (Mexico) 1.5
C 0.1 5. Casino & Gaming 3.9 4. AES Corp. (The) 1.4
NR 2.3 5. Ford Motor Credit Co. 1.3
TOTAL NET ASSETS $56.3 MILLION
Equity 1.4 TOTAL NUMBER OF HOLDINGS* 252 6. Midwest Generation, LLC. 1.2
Money Market Funds 7. Mission Energy Holding Co. 1.2
Plus Other Assets Less Liabilities 7.3
8. Tenet Healthcare Corp. 1.0
SOURCE FOR CREDIT QUALITY RATING:
MOODY'S AND STANDARD & POOR'S 9. American Tower Corp. 1.0
10. HealthSouth Corp. 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.
======================================= ======================================= =========================================
2
AIM V.I. HIGH YIELD FUND
Credit quality was a performance biggest detractors during the fiscal PETER EHRET, Chartered
factor in 2005. B-rated bonds proved the year. Similar to our investment strategy [EHRET Financial Analyst, senior
best performing high yield quality with Telewest, we originally purchased PHOTO] portfolio manager, is
category during the fiscal year. This our investment in Adelphia while it was co-lead manager of AIM
proved beneficial for your Fund as the in bankruptcy. Despite declines in our V.I. High Yield Fund. Mr.
B-rated area of the high yield market Adelphia investment this year, we have Ehret joined AIM in 2001.
remains our focus. In 2004, we began to maintained our position as two leading He graduated cum laude with a B.S. in
gradually reduce the portfolio's communication companies have agreed to economics from the University of
risk--decreasing our exposure to lower acquire the company's assets. Minnesota. He also has an M.S. in real
quality credits such as CCC-rated bonds. estate appraisal and investment analysis
Our limited exposure to from the University of Wisconsin-Madison.
We also strive to reduce risk through longer-maturity high yield securities
a rigorous credit evaluation process. By compared with our benchmark also hurt CAROLYN GIBBS, Chartered
employing this strategy, we were able to comparative results. Longer-maturity [GIBBS Financial Analyst, senior
avoid most of the losses suffered by the high yield bonds outperformed PHOTO] portfolio manager, is
automaker downgrades as we had limited intermediate high yield bonds during the co-lead manager of AIM
exposure there. fiscal year. We generally do not take V.I. High Yield Fund. Ms.
20-year credit risk, especially given Gibbs has been in the
======================================= the relatively low spread environment. investment business since 1983. She
graduated magna cum laude from Texas
OTHER CONTRIBUTORS TO IN CLOSING Christian University, where she received
PERFORMANCE INCLUDED a B.A. in English. She also received an
OUR EXPOSURE TO THE We are encouraged by the resilience of M.B.A. in finance from The Wharton
WIRELESS TELECOMMUNICATION the high yield market, which is coping School at the University of
SERVICES INDUSTRY well with the automakers' transition Pennsylvania.
WHICH HAS BENEFITED into the high yield universe during the
FROM NET SUBSCRIBER year. In 2005, economic growth remained DARREN HUGHES, Chartered
ADDITIONS, INCREASED strong and M&A activity for the asset [HUGHES Financial Analyst, senior
DATA TRANSMISSION, AND class continued at a brisk pace. PHOTO] portfolio manager, is
CARRIER CONSOLIDATION. manager of AIM V.I. High
We are pleased to report these trends Yield Fund. He joined AIM
======================================= and to provide our shareholders with in 1992. Mr. Hughes earned
positive Fund returns for the reporting a B.B.A. in finance and economics from
Increased merger and acquisition period. We appreciate your continued Baylor University.
(M&A) activity in the high yield market participation in AIM V.I. High Yield
also proved beneficial as some of our Fund. Assisted by Taxable High Yield Team
holdings have been merger targets. For
instance, TELEWEST GLOBAL--a cable The views and opinions expressed in
television operator--proved a top management's discussion of Fund
contributor. Telewest is actually an performance are those of A I M Advisors,
equity position we received for bonds as Inc. These views and opinions are
resolution of its bankruptcy case. We subject to change at any time based on
purchased the bonds near the end of the factors such as market and economic
company's bankruptcy and retained the conditions. These views and opinions may
equity to maximize recovery. The company not be relied upon as investment advice
was acquired by another cable company or recommendations, or as an offer for a
and has made a substantial recovery. particular security. The information is
not a complete analysis of every aspect
Other contributors to performance of any market, country, industry,
included our exposure to the wireless security or the Fund. Statements of fact
telecommunication services industry are from sources considered reliable,
which has benefited from net subscriber but A I M Advisors, Inc. makes no
additions, increased data transmission, representation or warranty as to their [RIGHT ARROW GRAPHIC]
and carrier consolidation. completeness or accuracy. Although
historical performance is no guarantee FOR A DISCUSSION OF THE RISKS OF
A few holdings, however, detracted of future results, these insights may INVESTING IN YOUR FUND, INDEXES USED IN
from Fund performance. ADELPHIA help you understand our investment THIS REPORT AND YOUR FUND'S LONG-TERM
COMMUNICATIONS--a U.S. cable television management philosophy. PERFORMANCE, PLEASE TURN TO PAGES 4 AND
provider--was one of our 5.
3
AIM V.I. HIGH YIELD FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 5/1/98, INDEX DATA FROM 4/30/98
=====================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. HIGH LIPPER HIGH LEHMAN BROTHERS LEHMAN BROTHERS
YIELD FUND- YIELD BOND U.S. AGGREGATE HIGH YIELD
SERIES I SHARES FUND INDEX BOND INDEX INDEX
4/30/98 $10000 $10000 $10000
5/98 $10080 9989 10095 10035
6/98 10050 10006 10180 10071
7/98 10090 10075 10202 10128
8/98 9410 9307 10368 9569
9/98 9129 9251 10611 9613
10/98 8790 9041 10555 9416
11/98 9279 9572 10615 9806
12/98 9239 9542 10647 9817
1/99 9374 9715 10723 9963
2/99 9479 9676 10535 9904
3/99 9584 9847 10594 9999
4/99 9929 10101 10627 10192
5/99 9772 9909 10534 10054
6/99 9803 9911 10501 10033
7/99 9939 9914 10456 10073
8/99 9835 9813 10451 9962
9/99 9720 9737 10572 9890
10/99 9667 9709 10611 9825
11/99 9918 9880 10610 9939
12/99 10211 9999 10559 10052
1/00 10336 9950 10525 10008
2/00 10506 10020 10652 10028
3/00 10211 9847 10792 9817
4/00 9928 9804 10761 9833
5/00 9646 9629 10756 9732
6/00 9883 9807 10980 9930
7/00 9826 9825 11080 10006
8/00 9769 9876 11240 10074
9/00 9622 9731 11311 9986
10/00 8750 9398 11386 9666
11/00 8139 8874 11572 9284
12/00 8270 9028 11787 9463
1/01 8998 9627 11979 10172
2/01 8986 9657 12084 10307
3/01 8479 9337 12145 10065
4/01 8232 9214 12094 9939
5/01 8310 9314 12167 10118
6/01 7933 9040 12213 9834
7/01 7907 9093 12486 9979
8/01 7919 9133 12629 10097
9/01 7334 8488 12776 9418
10/01 7581 8682 13044 9651
11/01 7919 8958 12864 10003
12/01 7858 8934 12782 9962
1/02 7858 8955 12886 10032
2/02 7621 8797 13010 9892
3/02 7784 8971 12794 10130
4/02 7829 9065 13042 10292
5/02 7740 8974 13153 10235
6/02 7311 8469 13267 9480
7/02 7045 8191 13427 9066
8/02 7119 8332 13653 9325
9/02 7045 8216 13874 9202
10/02 6956 8164 13811 9122
11/02 7297 8635 13808 9687
12/02 7400 8719 14093 9822
1/03 7548 8912 14105 10149
2/03 7622 9031 14300 10274
3/03 7829 9256 14289 10570
4/03 8229 9711 14407 11197
5/03 8347 9826 14676 11313
6/03 8584 10091 14646 11638
7/03 8525 10013 14154 11510
8/03 8629 10148 14248 11643
9/03 8851 10394 14625 11961
10/03 9073 10627 14489 12202
11/03 9221 10751 14523 12387
12/03 9475 11017 14671 12668
1/04 9682 11194 14789 12910
2/04 9635 11172 14949 12877
3/04 9650 11214 15061 12965
4/04 9682 11189 14669 12876
5/04 9476 11016 14611 12658
6/04 9634 11170 14693 12840
7/04 9713 11259 14839 13014
8/04 9903 11443 15122 13270
9/04 10062 11602 15163 13462
10/04 10252 11808 15290 13706
11/04 10394 11976 15168 13871
12/04 10540 12156 15308 14078
1/05 10557 12126 15404 14059
2/05 10786 12312 15313 14266
3/05 10475 11985 15234 13851
4/05 10312 11845 15440 13716
5/05 10508 12035 15608 13960
6/05 10687 12228 15693 14234
7/05 10867 12418 15550 14483
8/05 10900 12477 15749 14510
9/05 10785 12396 15587 14365
10/05 10671 12294 15464 14265
11/05 10736 12406 15532 14340
12/05 10825 12521 15680 14463
=====================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000.
4
AIM V.I. HIGH YIELD FUND
=======================================
AVERAGE ANNUAL TOTAL RETURNS SHARES. SERIES I AND SERIES II SHARES GIVEN REPRESENT THE FUND AND ARE NOT
INVEST IN THE SAME PORTFOLIO OF INTENDED TO REFLECT ACTUAL VARIABLE
As of 12/31/05 SECURITIES AND WILL HAVE SUBSTANTIALLY PRODUCT VALUES. THEY DO NOT REFLECT
SIMILAR PERFORMANCE, EXCEPT TO THE SALES CHARGES, EXPENSES AND FEES
SERIES I SHARES EXTENT THAT EXPENSES BORNE BY EACH CLASS ASSESSED IN CONNECTION WITH A VARIABLE
Inception (5/1/98) 1.04% DIFFER. PRODUCT. SALES CHARGES, EXPENSES AND
5 Years 5.53 FEES, WHICH ARE DETERMINED BY THE
1 Year 2.72 THE PERFORMANCE DATA QUOTED REPRESENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
PAST PERFORMANCE AND CANNOT GUARANTEE WILL LOWER THE TOTAL RETURN.
SERIES II SHARES COMPARABLE FUTURE RESULTS; CURRENT
Inception 0.82% PERFORMANCE MAY BE LOWER OR HIGHER. PER NASD REQUIREMENTS, THE MOST RECENT
5 Years 5.32 PLEASE CONTACT YOUR VARIABLE PRODUCT MONTH-END PERFORMANCE DATA AT THE FUND
1 Year 2.43 ISSUER OR FINANCIAL ADVISOR FOR THE MOST LEVEL, EXCLUDING VARIABLE PRODUCT
RECENT MONTH-END VARIABLE PRODUCT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
======================================= PERFORMANCE. PERFORMANCE FIGURES REFLECT INFORMATION LINE, 866-702-4402. AS
FUND EXPENSES, REINVESTED DISTRIBUTIONS MENTIONED ABOVE, FOR THE MOST RECENT
CUMULATIVE TOTAL RETURNS AND CHANGES IN NET ASSET VALUE. MONTH-END PERFORMANCE INCLUDING VARIABLE
INVESTMENT RETURN AND PRINCIPAL VALUE PRODUCT CHARGES, PLEASE CONTACT YOUR
Six months ended 12/31/05 WILL FLUCTUATE SO THAT YOU MAY HAVE A VARIABLE PRODUCT ISSUER OR FINANCIAL
Series I Shares 1.30% GAIN OR LOSS WHEN YOU SELL SHARES. ADVISOR.
Series II Shares 1.18
AIM V.I. HIGH YIELD FUND, A SERIES
======================================= PORTFOLIO OF AIM VARIABLE INSURANCE
FUNDS, IS CURRENTLY OFFERED THROUGH
RETURNS SINCE MARCH 26, 2002, THE INSURANCE COMPANIES ISSUING VARIABLE
INCEPTION DATE OF SERIES II SHARES, ARE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
HISTORICAL. ALL OTHER RETURNS ARE THE THE FUND DIRECTLY. PERFORMANCE FIGURES
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF 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
PRINCIPAL RISKS OF INVESTING IN THE FUND securities), is compiled by Lehman Nationally Recognized Statistical Rating
Brothers, a global investment bank. Organizations based on assessment of the
The Fund may invest up to 25% of its credit quality of the individual
assets in the securities of non-U.S. The unmanaged LIPPER HIGH YIELD BOND securities.
issuers. International investing FUND INDEX represents an average of the
presents certain risks not associated 30 largest high-yield bond funds tracked The returns shown in management's
with investing solely in the United by Lipper, Inc., an independent mutual discussion of Fund performance are based
States. These include risks relating to fund performance monitor. on net asset values calculated for
fluctuations in the value of the U.S. shareholder transactions. Generally
dollar relative to the values of other The unmanaged LEHMAN BROTHERS HIGH accepted accounting principles require
currencies, the custody arrangements YIELD INDEX, which represents the adjustments to be made to the net assets
made for the Fund's foreign holdings, performance of high-yield debt of the Fund at period end for financial
differences in accounting, political securities, is compiled by Lehman reporting purposes, and as such, the net
risks and the lesser degree of public Brothers, a global investment bank. asset values for shareholder
information required to be provided by transactions and the returns based on
non-U.S. companies. The Fund is not managed to track the those net asset values may differ from
performance of any particular index, the net asset values and returns
The Fund invests in higher-yielding, including the indexes defined here, and reported in the Financial Highlights.
lower-rated corporate bonds, commonly consequently, the performance of the
known as junk bonds, which have a Fund may deviate significantly from the Additionally, the returns and net asset
greater risk of price fluctuation and performance of the indexes. values shown throughout this report are
loss of principal and income than do at the Fund level only and do not
U.S. government securities such as U.S. A direct investment cannot be made in include variable product issuer charges.
Treasury bills, notes and bonds, for an index. Unless otherwise indicated, If such charges were included, the total
which principal and any applicable index results include reinvested returns would be lower.
interest are guaranteed by the dividends, and they do not reflect sales
government if held to maturity. charges. Performance of an index of Industry classifications used in this
funds reflects fund expenses; report are generally according to the
ABOUT INDEXES USED IN THIS REPORT performance of a market index does not. Global Industry Classification Standard,
which was developed by and is the
The unmanaged LEHMAN BROTHERS U.S. OTHER INFORMATION exclusive property and a service mark of
AGGREGATE BOND INDEX (the Lehman Morgan Stanley Capital International
Aggregate), which represents the U.S. The average credit quality of the Fund's Inc. and Standard & Poor's.
investment-grade fixed-rate bond market holdings as of the close of the
(including government and corporate reporting period represents the weighted
securities, mortgage pass-through average quality rating of the securities
securities and asset-backed in the portfolio as assigned by
5
AIM V.I. HIGH YIELD FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
ongoing costs, including management account value by $1,000 (for example, an expenses you paid for the period. You
fees; distribution and/or service fees $8,600 account value divided by $1,000 = may use this information to compare the
(12b-1); and other Fund expenses. This 8.6), then multiply the result by the ongoing costs of investing in the Fund
example is intended to help you number in the table under the heading and other funds. To do so, compare this
understand your ongoing costs (in entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
dollars) of investing in the Fund and to Period" to estimate the expenses you hypothetical examples that appear in the
compare these costs with ongoing costs paid on your account during this period. shareholder reports of the other funds.
of investing in other mutual funds. The
example is based on an investment of HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown in
$1,000 invested at the beginning of the PURPOSES the table are meant to highlight your
period and held for the entire period ongoing costs. Therefore, the
July 1, 2005, through December 31, 2005. The table below also provides hypothetical information is useful in
information about hypothetical account comparing ongoing costs, and will not
The actual and hypothetical expenses values and hypothetical expenses based help you determine the relative total
in the examples below do not represent on the Fund's actual expense ratio and costs of owning different funds.
the effect of any fees or other expenses an assumed rate of return of 5% per year
assessed in connection with a variable before expenses, which is not the Fund's
product; if they did, the expenses shown actual return. The Fund's actual
would be higher while the ending account cumulative total returns at net asset
values shown would be lower. value after expenses for the six months
ended December 31, 2005, appear in the
ACTUAL EXPENSES table "Cumulative Total Returns" on
Page 5.
The table below provides information
about actual account values and actual
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,013.00 $4.82 $1,020.42 $4.84 0.95%
Series II 1,000.00 1,011.80 6.09 1,019.16 6.11 1.20
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. HIGH YIELD FUND
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 to those of the Fund; and (ii) was lower
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the than the advisory fee rate for an
the management of AIM V.I. High Yield credentials and experience of the offshore fund for which an AIM affiliate
Fund (the "Fund") and, as required by officers and employees of AIM who will serves as advisor with investment
law, determines annually whether to provide investment advisory services to strategies comparable to those of the
approve the continuance of the Fund's the Fund. In reviewing the Fund. The Board noted that AIM has
advisory agreement with A I M Advisors, qualifications of AIM to provide agreed to limit the Fund's total
Inc. ("AIM"). Based upon the investment advisory services, the Board operating expenses, as discussed below.
recommendation of the Investments reviewed the qualifications of AIM's Based on this review, the Board
Committee of the Board, which is investment personnel and considered such concluded that the advisory fee rate for
comprised solely of independent issues as AIM's portfolio and product the Fund under the Advisory Agreement
trustees, at a meeting held on June 30, review process, various back office was fair and reasonable.
2005, the Board, including all of the support functions provided by AIM and
independent trustees, approved the AIM's equity and fixed income trading o Fees relative to those of comparable
continuance of the advisory agreement operations. Based on the review of these funds with other advisors. The Board
(the "Advisory Agreement") between the and other factors, the Board concluded reviewed the advisory fee rate for the
Fund and AIM for another year, effective that the quality of services to be Fund under the Advisory Agreement. The
July 1, 2005. provided by AIM was appropriate and that Board compared effective contractual
AIM currently is providing satisfactory advisory fee rates at a common asset
The Board considered the factors services in accordance with the terms of level and noted that the Fund's rate was
discussed below in evaluating the the Advisory Agreement. above the median rate of the funds
fairness and reasonableness of the advised by other advisors with
Advisory Agreement at the meeting on o The performance of the Fund relative investment strategies comparable to
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed those of the Fund that the Board
ongoing oversight of the Fund. In their the performance of the Fund during the reviewed. The Board noted that AIM has
deliberations, the Board and the past one, three and five calendar years agreed to limit the Fund's total
independent trustees did not identify against the performance of funds advised operating expenses, as discussed below.
any particular factor that was by other advisors with investment Based on this review, the Board
controlling, and each trustee attributed strategies comparable to those of the concluded that the advisory fee rate for
different weights to the various Fund. The Board noted that the Fund's the Fund under the Advisory Agreement
factors. performance for the three and five year was fair and reasonable.
periods was below the median performance
One of the responsibilities of the of such comparable funds and above the o Expense limitations and fee waivers.
Senior Officer of the Fund, who is median performance for the one year The Board noted that AIM has
independent of AIM and AIM's affiliates, period. Based on this review, the Board contractually agreed to waive fees
is to manage the process by which the concluded that no changes should be made and/or limit expenses of the Fund
Fund's proposed management fees are to the Fund and that it was not through June 30, 2006 in an amount
negotiated to ensure that they are necessary to change the Fund's portfolio necessary to limit total annual
negotiated in a manner which is at arm's management team at this time. operating expenses to a specified
length and reasonable. To that end, the percentage of average daily net assets
Senior Officer must either supervise a o The performance of the Fund relative for each class of the Fund. The Board
competitive bidding process or prepare to indices. The Board reviewed the considered the contractual nature of
an independent written evaluation. The performance of the Fund during the past this fee waiver/expense limitation and
Senior Officer has recommended an one, three and five calendar years noted that it remains in effect until
independent written evaluation in lieu against the performance of the Lipper June 30, 2006. The Board considered the
of a competitive bidding process and, High Current Yield Bond Index. The Board effect this fee waiver/expense
upon the direction of the Board, has noted that the Fund's performance for limitation would have on the Fund's
prepared such an independent written the one and three year periods was estimated expenses and concluded that
evaluation. Such written evaluation also comparable to the performance of such the levels of fee waivers/expense
considered certain of the factors Index and below such Index for the five limitations for the Fund were fair and
discussed below. In addition, as year period. Based on this review, the reasonable.
discussed below, the Senior Officer made Board concluded that no changes should
certain recommendations to the Board in be made to the Fund and that it was not o Breakpoints and economies of scale.
connection with such written evaluation. necessary to change the Fund's portfolio The Board reviewed the structure of the
management team at this time. Fund's advisory fee under the Advisory
The discussion below serves as a Agreement, noting that it includes three
summary of the Senior Officer's o Meeting with the Fund's portfolio breakpoints. The Board reviewed the
independent written evaluation and managers and investment personnel. With level of the Fund's advisory fees, and
recommendations to the Board in respect to the Fund, the Board is noted that such fees, as a percentage of
connection therewith, as well as a meeting periodically with such Fund's the Fund's net assets, would decrease as
discussion of the material factors and portfolio managers and/or other net assets increase because the Advisory
the conclusions with respect thereto investment personnel and believes that Agreement includes breakpoints. The
that formed the basis for the Board's such individuals are competent and able Board noted that, due to the Fund's
approval of the Advisory Agreement. to continue to carry out their current asset levels and the way in
After consideration of all of the responsibilities under the Advisory which the advisory fee breakpoints have
factors below and based on its informed Agreement. been structured, the Fund has yet to
business judgment, the Board determined benefit from the breakpoints. The Board
that the Advisory Agreement is in the o Overall performance of AIM. The Board concluded that the Fund's fee levels
best interests of the Fund and its considered the overall performance of under the Advisory Agreement therefore
shareholders and that the compensation AIM in providing investment advisory and would reflect economies of scale at
to AIM under the Advisory Agreement is portfolio administrative services to the higher asset levels and that it was not
fair and reasonable and would have been Fund and concluded that such performance necessary to change the advisory fee
obtained through arm's length was satisfactory. breakpoints in the Fund's advisory fee
negotiations. schedule.
o Fees relative to those of clients of
o The nature and extent of the advisory AIM with comparable investment o Investments in affiliated money market
services to be provided by AIM. The strategies. The Board reviewed the funds. The Board also took into account
Board reviewed the services to be advisory fee rate for the Fund under the the fact that uninvested cash and cash
provided by AIM under the Advisory Advisory Agreement. The Board noted that collateral from securities lending
Agreement. Based on such review, the this rate (i) was the same as the arrangements (collectively, "cash
Board concluded that the range of advisory fee rates for a mutual fund balances") of the Fund may be invested
services to be provided by AIM under the advised by AIM with investment in money market funds advised by AIM
Advisory Agreement was appropriate and strategies comparable pursuant to the terms of an SEC
that AIM currently is providing services exemptive order. The Board found that
in accordance with the terms of the the Fund may realize certain benefits
Advisory Agreement. upon investing cash balances in AIM
(continued)
7
AIM V.I. HIGH YIELD FUND
advised money market funds, including a o AIM's financial soundness in light of
higher net return, increased liquidity, the Fund's needs. The Board considered
increased diversification or decreased whether AIM is financially sound and has
transaction costs. The Board also found the resources necessary to perform its
that the Fund will not receive reduced obligations under the Advisory
services if it invests its cash balances Agreement, and concluded that AIM has
in such money market funds. The Board the financial resources necessary to
noted that, to the extent the Fund fulfill its obligations under the
invests in affiliated money market Advisory Agreement.
funds, AIM has voluntarily agreed to
waive a portion of the advisory fees it o Historical relationship between the
receives from the Fund attributable to Fund and AIM. In determining whether to
such investment. The Board further continue the Advisory Agreement for the
determined that the proposed securities Fund, the Board also considered the
lending program and related procedures prior relationship between AIM and the
with respect to the lending Fund is in Fund, as well as the Board's knowledge
the best interests of the lending Fund of AIM's operations, and concluded that
and its respective shareholders. The it was beneficial to maintain the
Board therefore concluded that the current relationship, in part, because
investment of cash collateral received of such knowledge. The Board also
in connection with the securities reviewed the general nature of the
lending program in the money market non-investment advisory services
funds according to the procedures is in currently performed by AIM and its
the best interests of the lending Fund affiliates, such as administrative,
and its respective shareholders. transfer agency and distribution
services, and the fees received by AIM
and its affiliates for performing such
o Independent written evaluation and services. In addition to reviewing such
recommendations of the Fund's Senior services, the trustees also considered
Officer. The Board noted that, upon the organizational structure employed by
their direction, the Senior Officer of AIM and its affiliates to provide those
the Fund, who is independent of AIM and services. Based on the review of these
AIM's affiliates, had prepared an and other factors, the Board concluded
independent written evaluation in order that AIM and its affiliates were
to assist the Board in determining the qualified to continue to provide
reasonableness of the proposed non-investment advisory services to the
management fees of the AIM Funds, Fund, including administrative, transfer
including the Fund. The Board noted that agency and distribution services, and
the Senior Officer's written evaluation that AIM and its affiliates currently
had been relied upon by the Board in are providing satisfactory
this regard in lieu of a competitive non-investment advisory services.
bidding process. In determining whether
to continue the Advisory Agreement for o Other factors and current trends. In
the Fund, the Board considered the determining whether to continue the
Senior Officer's written evaluation and Advisory Agreement for the Fund, the
the recommendation made by the Senior Board considered the fact that AIM,
Officer to the Board that the Board along with others in the mutual fund
consider implementing a process to industry, is subject to regulatory
assist them in more closely monitoring inquiries and litigation related to a
the performance of the AIM Funds. The wide range of issues. The Board also
Board concluded that it would be considered the governance and compliance
advisable to implement such a process as reforms being undertaken by AIM and its
soon as reasonably practicable. affiliates, including maintaining an
internal controls committee and
o Profitability of AIM and its retaining an independent compliance
affiliates. The Board reviewed consultant, and the fact that AIM has
information concerning the profitability undertaken to cause the Fund to operate
of AIM's (and its affiliates') in accordance with certain governance
investment advisory and other activities policies and practices. The Board
and its financial condition. The Board concluded that these actions indicated a
considered the overall profitability of good faith effort on the part of AIM to
AIM, as well as the profitability of AIM adhere to the highest ethical standards,
in connection with managing the Fund. and determined that the current
The Board noted that AIM's operations regulatory and litigation environment to
remain profitable, although increased which AIM is subject should not prevent
expenses in recent years have reduced the Board from continuing the Advisory
AIM's profitability. Based on the review Agreement for the Fund.
of the profitability of AIM's and its
affiliates' investment advisory and
other activities and its financial
condition, the Board concluded that the
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
o Benefits of soft dollars to AIM. The
Board considered the benefits realized
by AIM as a result of brokerage
transactions executed through "soft
dollar" arrangements. Under these
arrangements, brokerage commissions paid
by the Fund and/or other funds advised
by AIM are used to pay for research and
execution services. This research is
used by AIM in making investment
decisions for the Fund. The Board
concluded that such arrangements were
appropriate.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BONDS & NOTES-85.96%
AEROSPACE & DEFENSE-1.85%
Argo Tech Corp., Sr. Unsec. Gtd. Global
Notes, 9.25%, 06/01/11(a) $ 151,000 $ 157,040
- -----------------------------------------------------------------------
Armor Holdings, Inc., Sr. Sub. Global Notes,
8.25%, 08/15/13(a) 159,000 172,515
- -----------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Global Notes,
6.75%, 02/01/15(a) 147,000 142,222
- -----------------------------------------------------------------------
L-3 Communications Corp.,
Sr. Sub. Notes, 6.38%, 10/15/15 (Acquired
07/27/05; Cost $102,063)(a)(b) 103,000 103,772
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 6.13%,
01/15/14(a) 329,000 328,177
- -----------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11(a) 64,000 68,480
- -----------------------------------------------------------------------
Standard Aero Holdings, Inc., Sr. Sub. Notes,
8.25%, 09/01/14 (Acquired 08/17/04; Cost
$80,000)(a)(b) 80,000 66,600
=======================================================================
1,038,806
=======================================================================
AIR FREIGHT & LOGISTICS-0.26%
Park-Ohio Industries Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 8.38%, 11/15/14(a) 167,000 146,125
=======================================================================
ALUMINUM-0.53%
Century Aluminum Co., Sr. Unsec. Gtd. Global
Notes, 7.50%, 08/15/14(a) 103,000 101,970
- -----------------------------------------------------------------------
Novelis, Inc. (Canada), Sr. Notes, 7.50%,
02/15/15 (Acquired 11/23/05-12/29/05; Cost
$194,825)(a)(b) 210,000 197,400
=======================================================================
299,370
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.78%
Broder Bros. Co.-Series B, Sr. Unsec. Gtd.
Global Notes, 11.25%, 10/15/10(a) 351,000 336,082
- -----------------------------------------------------------------------
Levi Strauss & Co., Sr. Unsec. Unsub.
Floating Rate Global Notes, 8.80%,
04/01/12(a)(c) 325,000 329,062
- -----------------------------------------------------------------------
Perry Ellis International, Inc.-Series B, Sr.
Sub. Global Notes, 8.88%, 09/15/13(a) 212,000 209,880
- -----------------------------------------------------------------------
Quiksilver, Inc., Sr. Unsec. Gtd. Notes,
6.88%, 04/15/15 (Acquired
07/14/05-10/04/05; Cost $331,015)(a)(b) 332,000 321,210
- -----------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes,
9.25%, 05/01/10(a) 265,000 270,962
- -----------------------------------------------------------------------
Warnaco Inc., Sr. Unsec. Global Notes, 8.88%,
06/15/13(a) 92,000 99,590
=======================================================================
1,566,786
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
AUTO PARTS & EQUIPMENT-1.07%
Accuride Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 02/01/15(a) 147,000 145,530
- -----------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-(CONTINUED)
Autocam Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 10.88%, 06/15/14(a) $ 91,000 $ 62,790
- -----------------------------------------------------------------------
Delphi Corp., Global Notes, 6.50%,
05/01/09(a)(d) 105,000 53,419
- -----------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13(a) 198,000 215,325
- -----------------------------------------------------------------------
Visteon Corp., Sr. Unsec. Global Notes,
8.25%, 08/01/10(a) 150,000 127,500
=======================================================================
604,564
=======================================================================
AUTOMOBILE MANUFACTURERS-1.98%
General Motors Acceptance Corp.,
Global Bonds, 8.00%, 11/01/31(a) 605,000 590,686
- -----------------------------------------------------------------------
Global Notes, 5.63%, 05/15/09(a) 155,000 138,294
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 5.85%,
01/14/09(a) 225,000 203,557
- -----------------------------------------------------------------------
Series GM, Sr. Medium Term Notes, 6.31%,
11/30/07(a) 198,000 183,562
=======================================================================
1,116,099
=======================================================================
BROADCASTING & CABLE TV-5.61%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(a)(d) 688,000 395,600
- -----------------------------------------------------------------------
Block Communications, Inc., Sr. Notes, 8.25%,
12/15/15 (Acquired 12/13/05; Cost
$54,543)(a)(b) 55,000 54,656
- -----------------------------------------------------------------------
Cablevision Systems Corp.-Series B, Sr.
Floating Rate Global Notes, 8.72%,
04/01/09(a)(e) 95,000 96,900
- -----------------------------------------------------------------------
CCHI LLC, Sr. Sec. Gtd. Notes, 11.00%,
10/01/15 (Acquired 09/28/05; Cost
$127,070)(a)(b) 131,000 110,695
- -----------------------------------------------------------------------
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
$215,825)(a)(b) 223,000 224,672
- -----------------------------------------------------------------------
CSC Holdings, Inc.-Series B, Sr. Unsec.
Unsub. Notes, 7.63%, 04/01/11(a) 382,000 382,000
- -----------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sec. Global
Notes, 9.75%, 12/01/10(a) 316,000 293,485
- -----------------------------------------------------------------------
Intelsat Ltd. (Bermuda), Sr. Notes, 8.25%,
01/15/13 (Acquired 06/14/05-08/29/05; Cost
$270,423)(a)(b) 262,000 263,310
- -----------------------------------------------------------------------
Mediacom Broadband LLC/Mediacom Broadband
Corp., Sr. Notes, 8.50%, 10/15/15 (Acquired
08/16/05; Cost $152,458)(a)(b) 155,000 144,150
- -----------------------------------------------------------------------
Paxson Communications Corp., Sr. Sec.
Floating Rate Notes, 7.78%, 01/15/12
(Acquired 12/19/05; Cost $110,000)(a)(b)(c) 110,000 110,275
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Rainbow National Services LLC, Sr. Notes,
8.75%, 09/01/12 (Acquired
08/13/04-10/04/05; Cost $368,996)(a)(b) $ 363,000 $ 387,502
- -----------------------------------------------------------------------
Sinclair Broadcast Group, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 03/15/12(a) 185,000 191,937
- -----------------------------------------------------------------------
Videotron Ltee (Canada), Sr. Unsec. Gtd.
Global Notes, 6.88%, 01/15/14(a) 167,000 169,505
- -----------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Global
Notes, 12.00%, 06/15/10(a) 297,000 335,239
=======================================================================
3,159,926
=======================================================================
BUILDING PRODUCTS-0.44%
Nortek, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 09/01/14(a) 155,000 150,350
- -----------------------------------------------------------------------
Ply Gem Industries, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.00%, 02/15/12(a) 110,000 98,175
=======================================================================
248,525
=======================================================================
CASINOS & GAMING-3.87%
Aztar Corp., Sr. Sub. Global Notes, 7.88%,
06/15/14(a) 190,000 200,450
- -----------------------------------------------------------------------
Boyd Gaming Corp., Sr. Sub. Global Notes,
6.75%, 04/15/14(a) 317,000 317,000
- -----------------------------------------------------------------------
Galaxy Entertainment Finance Co. Ltd.
(China),
Gtd. Notes, 9.88%, 12/15/12 (Acquired
12/07/05; Cost $100,000)(a)(b) 100,000 102,000
- -----------------------------------------------------------------------
Sr. Gtd. Floating Rate Notes, 9.66%,
12/15/10 (Acquired 12/07/05; Cost
$100,000)(a)(b)(e) 100,000 102,000
- -----------------------------------------------------------------------
Isle of Capri Casinos, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 7.00%, 03/01/14(a) 294,000 288,120
- -----------------------------------------------------------------------
Las Vegas Sands Corp., Sr. Unsec. Gtd. Global
Notes, 6.38%, 02/15/15(a) 131,000 127,070
- -----------------------------------------------------------------------
MGM Mirage, Sr. Unsec. Gtd. Global Notes,
6.63%, 07/15/15(a) 273,000 273,341
- -----------------------------------------------------------------------
Penn National Gaming, Inc., Sr. Unsec. Sub.
Global Notes, 6.75%, 03/01/15(a) 199,000 196,264
- -----------------------------------------------------------------------
Pinnacle Entertainment, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 03/15/12(a) 298,000 309,920
- -----------------------------------------------------------------------
Poster Financial Group, Inc., Sr. Sec. Global
Notes, 8.75%, 12/01/11(a) 129,000 133,837
- -----------------------------------------------------------------------
Seneca Gaming Corp., Sr. Global Notes, 7.25%,
05/01/12(a) 124,000 125,395
=======================================================================
2,175,397
=======================================================================
COAL & CONSUMABLE FUELS-0.48%
James River Coal Co., Sr. Notes, 9.38%,
06/01/12(a) 205,000 214,737
- -----------------------------------------------------------------------
Massey Energy Co., Sr. Notes, 6.88%, 12/15/13
(Acquired 12/09/05; Cost $54,584)(a)(b) 55,000 55,550
=======================================================================
270,287
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
COMMODITY CHEMICALS-1.42%
BCP Crystal US Holdings Corp., Sr. Sub.
Global Notes, 9.63%, 06/15/14(a) $ 111,000 $ 124,042
- -----------------------------------------------------------------------
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08(a) 362,000 394,580
- -----------------------------------------------------------------------
Montell Finance Co. B.V. (Netherlands),
Unsec. Gtd. Yankee Deb., 8.10%, 03/15/27
(Acquired 01/06/05-05/04/05; Cost
$281,370)(a)(b) 297,000 277,695
=======================================================================
796,317
=======================================================================
CONSTRUCTION & ENGINEERING-0.25%
Great Lakes Dredge & Dock Corp., Sr. Unsec.
Gtd. Sub. Global Notes, 7.75%, 12/15/13(a) 156,000 141,180
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.81%
Case New Holland Inc., Sr. Gtd. Global Notes,
9.25%, 08/01/11(a) 155,000 165,850
- -----------------------------------------------------------------------
Manitowoc Co., Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12(a) 115,000 128,512
- -----------------------------------------------------------------------
Navistar International Corp., Sr. Unsec. Gtd.
Global Notes, 6.25%, 03/01/12(a) 536,000 479,720
- -----------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes,
7.38%, 01/15/14(a) 112,839 112,557
- -----------------------------------------------------------------------
9.25%, 07/15/11(a) 370,000 396,825
- -----------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13(a) 290,000 295,800
=======================================================================
1,579,264
=======================================================================
CONSTRUCTION MATERIALS-1.18%
Goodman Global Holdings, Inc., Sr. Sub.
Notes, 7.88%, 12/15/12 (Acquired
12/15/04-07/08/05; Cost $294,005)(a)(b) 314,000 293,590
- -----------------------------------------------------------------------
RMCC Acquisition Co., Sr. Sub. Notes, 9.50%,
11/01/12 (Acquired 10/28/04; Cost
$163,000)(a)(b) 163,000 164,630
- -----------------------------------------------------------------------
Texas Industries, Inc., Sr. Notes, 7.25%,
07/15/13 (Acquired 06/29/05; Cost
$24,000)(a)(b) 24,000 25,020
- -----------------------------------------------------------------------
U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 8.38%, 04/01/14(a) 180,000 180,900
=======================================================================
664,140
=======================================================================
CONSUMER FINANCE-2.09%
Dollar Financial Group, Inc., Sr. Gtd. Global
Notes, 9.75%, 11/15/11(a) 441,000 457,537
- -----------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 6.63%, 06/16/08(a) 179,000 162,557
- -----------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 02/01/06(a) 560,000 558,656
=======================================================================
1,178,750
=======================================================================
DISTILLERS & VINTNERS-0.31%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(a) 163,000 171,557
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
DISTRIBUTORS-0.20%
SGS International Inc., Sr. Sub. Notes,
12.00%, 12/15/13 (Acquired 12/15/05; Cost
$110,000)(a)(b) $ 110,000 $ 110,825
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.15%
Ahern Rentals, Inc., Sr. Sec. Gtd. Notes,
9.25%, 08/15/13 (Acquired 08/11/05; Cost
$52,000)(a)(b) 52,000 54,275
- -----------------------------------------------------------------------
Corrections Corp. of America, Sr. Unsec. Gtd.
Sub. Global Notes, 6.25%, 03/15/13(a) 171,000 170,145
- -----------------------------------------------------------------------
GEO Group, Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13(a) 143,000 141,034
- -----------------------------------------------------------------------
United Rentals (North America), Inc.,
Sr. Unsec. Gtd. Global Notes, 6.50%,
02/15/12(a) 290,000 283,837
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 7.75%,
11/15/13(a) 146 143
=======================================================================
649,434
=======================================================================
DIVERSIFIED METALS & MINING-0.48%
Aleris International Inc., Sr. Sec. Gtd.
Global Notes, 10.38%, 10/15/10(a) 155,000 170,112
- -----------------------------------------------------------------------
Southern Peru Copper Corp., Notes, 7.50%,
07/27/35 (Acquired 07/20/05; Cost
$102,089)(a)(b) 103,000 102,227
=======================================================================
272,339
=======================================================================
DRUG RETAIL-1.08%
Jean Coutu Group (PJC) Inc. (The) (Canada),
Sr. Unsec. Global Notes, 7.63%, 08/01/12(a) 238,000 235,025
- -----------------------------------------------------------------------
Rite Aid Corp.,
Sr. Sec. Gtd. Second Lien Global Notes,
8.13%, 05/01/10(a) 103,000 105,575
- -----------------------------------------------------------------------
Unsec. Notes, 6.13%, 12/15/08 (Acquired
09/15/05; Cost $100,179)(a)(b) 107,000 101,115
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 7.13%, 01/15/07(a) 167,000 167,626
=======================================================================
609,341
=======================================================================
ELECTRIC UTILITIES-4.83%
Allegheny Energy Supply Co., LLC, Unsec.
Global Notes, 7.80%, 03/15/11(a) 284,000 310,980
- -----------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%,
01/15/14(a) 199,120 207,085
- -----------------------------------------------------------------------
Midwest Generation, LLC,
Sr. Sec. Second Priority Putable Global
Notes, 8.75%, 05/01/14(a) 250,000 276,250
- -----------------------------------------------------------------------
Series B, Global Asset-Backed Pass Through
Ctfs., 8.56%, 01/02/16(a) 381,297 414,899
- -----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(a) 561,000 653,565
- -----------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LLC- Series B, Sr. Unsec. Asset-Backed Pass
Through Ctfs., 9.24%, 07/02/17(a) 151,785 162,505
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-(CONTINUED)
Reliant Energy, Inc., Sr. Sec. Global Notes,
9.25%, 07/15/10(a) $ 218,000 $ 219,635
- -----------------------------------------------------------------------
9.50%, 07/15/13(a) 98,000 98,612
- -----------------------------------------------------------------------
South Point Energy Center LLC/Broad River
Energy LLC/Rockgen Energy LLC, Sec. Gtd.
Notes, 8.40%, 05/30/12 (Acquired
06/29/05-11/29/05; Cost $298,693)(a)(b) 324,545 300,204
- -----------------------------------------------------------------------
VeraSun Energy Corp., Sr. Sec. Notes, 9.88%,
12/15/12 (Acquired 12/14/05; Cost
$74,540)(a)(b) 75,000 76,500
=======================================================================
2,720,235
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.39%
Sanmina-SCI Corp., Unsec. Gtd. Sub. Global
Notes, 6.75%, 03/01/13(a)(f) 227,000 217,352
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.55%
Allied Waste North America, Inc.-Series B,
Sr. Sec. Gtd. Global Notes, 8.50%,
12/01/08(a) 294,000 309,802
=======================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.42%
IMC Global Inc., Sr. Unsec. Global Notes,
10.88%, 08/01/13(a) 205,000 236,775
=======================================================================
FOOD RETAIL-0.19%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10(a) 100,000 108,125
=======================================================================
FOREST PRODUCTS-1.11%
Ainsworth Lumber Co. Ltd. (Canada),
Sr. Unsec. Global Notes, 6.75%, 03/15/14(a) 239,000 206,137
- -----------------------------------------------------------------------
Sr. Unsec. Yankee Notes, 6.75%, 03/15/14(a) 198,000 169,290
- -----------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Global Notes, 7.75%, 11/15/13(a) 332,000 249,000
- -----------------------------------------------------------------------
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Global Notes, 8.50%, 02/01/11(a) 609 341
=======================================================================
624,768
=======================================================================
GAS UTILITIES-0.24%
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13(a) 68,000 71,485
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08(a) 60,000 61,050
=======================================================================
132,535
=======================================================================
HEALTH CARE FACILITIES-2.53%
Concentra Operating Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 9.13%, 06/01/12(a) 91,000 94,413
- -----------------------------------------------------------------------
HealthSouth Corp., Sr. Unsec. Putable Global
Notes, 8.38%, 01/02/09(a) 527,000 538,858
- -----------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Gtd. Sub.
Global Notes, 7.63%, 02/01/15(a) 218,000 212,005
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
Tenet Healthcare Corp.,
Sr. Global Notes, 9.88%, 07/01/14(a) $ 72,000 $ 73,440
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 6.38%, 12/01/11(a) 549,000 505,080
=======================================================================
1,423,796
=======================================================================
HEALTH CARE SERVICES-1.88%
AmeriPath, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.50%, 04/01/13(a) 245,000 260,925
- -----------------------------------------------------------------------
Omnicare, Inc., Sr. Sub. Notes,
6.75%, 12/15/13(a) 110,000 112,338
- -----------------------------------------------------------------------
6.88%, 12/15/15(a) 110,000 112,888
- -----------------------------------------------------------------------
Quintiles Transnational Corp., Sr. Unsec.
Sub. Global Notes, 10.00%, 10/01/13(a) 204,000 228,480
- -----------------------------------------------------------------------
Rural/Metro Corp., Sr. Sub. Notes, 9.88%,
03/15/15 (Acquired 02/28/05; Cost
$56,000)(a)(b) 56,000 57,960
- -----------------------------------------------------------------------
US Oncology, Inc., Sr. Unsec. Gtd. Global
Notes, 9.00%, 08/15/12(a) 265,000 284,875
=======================================================================
1,057,466
=======================================================================
HEALTH CARE SUPPLIES-0.28%
Inverness Medical Innovations, Inc., Sr. Sub.
Global Notes, 8.75%, 02/15/12(a) 155,000 158,100
=======================================================================
HOME FURNISHINGS-0.18%
Sealy Mattress Co., Sr. Sub. Global Notes,
8.25%, 06/15/14(a) 100,000 103,500
=======================================================================
HOMEBUILDING-0.29%
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10(a) 163,000 165,038
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.56%
Grupo Posadas S.A. de C.V. (Mexico), Sr.
Notes, 8.75%, 10/04/11 (Acquired 09/27/04;
Cost $198,000)(a)(b) 198,000 202,950
- -----------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(a) 260,000 264,550
- -----------------------------------------------------------------------
NCL Corp., Sr. Unsub. Global Notes, 10.63%,
07/15/14(a) 286,000 298,870
- -----------------------------------------------------------------------
Royal Caribbean Cruises Ltd.,
Sr. Unsec. Global Notes, 8.00%, 05/15/10(a) 96,000 104,640
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11(a) 358,000 406,330
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Gtd. Global Notes, 7.88%, 05/01/12(a) 147,000 162,803
=======================================================================
1,440,143
=======================================================================
HOUSEHOLD APPLIANCES-0.17%
Gregg Appliances, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 02/01/13(a) 103,000 93,730
=======================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-3.68%
AES Corp. (The), Sr. Unsec. Unsub. Notes,
7.75%, 03/01/14(a) 766,000 807,173
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-(CONTINUED)
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) $ 351,535 $ 388,446
- -----------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08(a) 223,000 239,725
- -----------------------------------------------------------------------
Mirant North America, LLC, Sr. Notes, 7.38%,
12/31/13 (Acquired 12/20/05; Cost
$220,000)(a)(b) 220,000 223,850
- -----------------------------------------------------------------------
NRG Energy, Inc., Sr. Sec. Gtd. Global Notes,
8.00%, 12/15/13(a) 367,000 411,499
=======================================================================
2,070,693
=======================================================================
INDUSTRIAL MACHINERY-0.72%
Aearo Co. I, Sr. Sub. Global Notes, 8.25%,
04/15/12(a) 112,000 114,240
- -----------------------------------------------------------------------
Columbus McKinnon Corp., Sr. Sub. Notes,
8.88%, 11/01/13 (Acquired
08/16/05-10/06/05; Cost $152,875)(a)(b) 153,000 160,268
- -----------------------------------------------------------------------
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 10/20/03-09/16/05; Cost
$147,801)(a)(b) 171,000 128,250
=======================================================================
402,758
=======================================================================
INTEGRATED OIL & GAS-0.89%
Petrobras International Finance Co. (Brazil),
Sr. Unsec. Unsub. Global Notes, 9.13%,
07/02/13(a) 432,000 502,913
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.00%
Empresa Brasileira de Telecommunicacoes S.A.-
Series B (Brazil), Gtd. Global Notes,
11.00%, 12/15/08(a) 216,000 246,780
- -----------------------------------------------------------------------
Madison River Capital, LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10(a) 168,000 177,556
- -----------------------------------------------------------------------
Qwest Capital Funding, Inc.,
Unsec. Gtd. Global Notes, 7.00%,
08/03/09(a) 128,000 129,280
- -----------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes, 7.25%,
02/15/11(a) 80,000 81,200
- -----------------------------------------------------------------------
Qwest Communications International Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 7.25%,
02/15/11(a) 262,000 268,550
- -----------------------------------------------------------------------
Sr. Unsec. Putable Bonds, 3.50%,
11/15/10(a) 55,000 63,951
- -----------------------------------------------------------------------
Qwest Corp., Sr. Unsec. Global Notes, 7.88%,
09/01/11(a) 146,000 158,045
=======================================================================
1,125,362
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.45%
E*TRADE Financial Corp., Sr. Notes, 7.38%,
09/15/13 (Acquired 09/14/05-12/23/05; Cost
$251,025)(a)(b) 249,000 253,358
=======================================================================
IT CONSULTING & OTHER SERVICES-0.26%
Telcordia Technologies, Inc., Sr. Sub. Notes,
10.00%, 03/15/13 (Acquired
03/11/05-11/01/05; Cost $155,050)(a)(b) 160,000 147,200
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
METAL & GLASS CONTAINERS-1.82%
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12(a) $ 112,000 $ 82,320
- -----------------------------------------------------------------------
Greif, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12(a) 413,000 442,426
- -----------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Sec. Gtd. Global Notes,
7.75%, 05/15/11(a) 171,000 178,695
- -----------------------------------------------------------------------
8.75%, 11/15/12(a) 203,000 219,240
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.25%,
05/15/13(a) 96,000 99,600
=======================================================================
1,022,281
=======================================================================
MOVIES & ENTERTAINMENT-1.62%
AMC Entertainment Inc.-
Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.63%, 08/15/12(a) 110,000 115,500
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes,
9.88%, 02/01/12(a) 133,000 132,335
- -----------------------------------------------------------------------
8.00%, 03/01/14(a) 190,000 173,375
- -----------------------------------------------------------------------
Loews Cineplex Entertainment Corp., Sr.
Unsec. Gtd. Sub. Global Notes, 9.00%,
08/01/14(a) 110,000 111,375
- -----------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11(a) 104,000 112,840
- -----------------------------------------------------------------------
Warner Music Group, Sr. Sub. Global Notes,
7.38%, 04/15/14(a) 268,000 268,670
=======================================================================
914,095
=======================================================================
OIL & GAS DRILLING-0.24%
Parker Drilling Co., Sr. Unsec. Gtd. Floating
Rate Global Notes, 9.16%, 09/01/10(a)(c) 131,000 136,240
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.78%
CHC Helicopter Corp. (Canada), Sr. Sub.
Global Notes, 7.38%, 05/01/14(a) 210,000 213,675
- -----------------------------------------------------------------------
Hanover Compressor Co., Sr. Notes, 9.00%,
06/01/14(a) 91,000 99,645
- -----------------------------------------------------------------------
Hornbeck Offshore Services, Inc., Sr. Notes,
6.13%, 12/01/14 (Acquired 09/29/05; Cost
$129,025)(a)(b) 130,000 127,400
=======================================================================
440,720
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.49%
Clayton Williams Energy, Inc., Gtd. Global
Notes, 7.75%, 08/01/13(a) 262,000 252,830
- -----------------------------------------------------------------------
Denbury Resources Inc., Sr. Sub. Notes,
7.50%, 12/15/15(a) 85,000 86,700
- -----------------------------------------------------------------------
Paramount Resources Ltd. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.50%, 01/31/13(a) 149,000 153,470
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Stone Energy Corp., Sr. Unsec. Sub. Global
Notes, 6.75%, 12/15/14(a) $ 276,000 $ 262,200
- -----------------------------------------------------------------------
Whiting Petroleum Corp., Sr. Sub. Notes,
7.00%, 02/01/14 (Acquired 09/28/05; Cost
$80,000)(a)(b) 80,000 80,600
=======================================================================
835,800
=======================================================================
OIL & GAS REFINING & MARKETING-0.78%
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes, 7.50%, 06/15/15(a) 92,000 98,394
- -----------------------------------------------------------------------
United Refining Co., Sr. Unsec. Gtd. Global
Notes, 10.50%, 08/15/12(a) 315,000 338,625
=======================================================================
437,019
=======================================================================
OIL & GAS STORAGE & TRANSPORTATION-3.41%
El Paso CGP Co., Unsec. Notes, 7.75%,
06/15/10(a) 437,000 447,925
- -----------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Global Notes, 7.75%, 06/01/13(a) 180,000 188,550
- -----------------------------------------------------------------------
Inergy L.P./Inergy Finance Corp., Sr. Unsec.
Global Notes, 6.88%, 12/15/14(a) 80,000 73,600
- -----------------------------------------------------------------------
MarkWest Energy Partners, L.P./MarkWest
Energy Finance Corp., Sr. Notes, 6.88%,
11/01/14 (Acquired 10/19/04-10/20/04; Cost
$295,903)(a)(b) 294,000 271,950
- -----------------------------------------------------------------------
Pacific Energy Partners, L.P./Pacific Energy
Finance Corp., Sr. Unsec. Global Notes,
7.13%, 06/15/14(a) 127,000 131,445
- -----------------------------------------------------------------------
Sonat Inc., Sr. Unsec. Notes, 7.63%,
07/15/11(a) 492,000 503,685
- -----------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsub. Global
Notes, 8.88%, 03/15/10(a) 28,000 30,135
- -----------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.50%, 04/01/17(a) 105,000 113,269
- -----------------------------------------------------------------------
Williams Cos., Inc. (The), Notes, 7.13%,
09/01/11(a) 151,000 157,795
=======================================================================
1,918,354
=======================================================================
PACKAGED FOODS & MEATS-0.59%
Del Monte Foods Co., Sr. Unsec. Sub. Global
Notes, 8.63%, 12/15/12(a) 212,000 226,310
- -----------------------------------------------------------------------
Pinnacle Foods Holding Corp., Sr. Sub. Global
Notes, 8.25%, 12/01/13(a) 110,000 105,600
=======================================================================
331,910
=======================================================================
PAPER PACKAGING-1.40%
Caraustar Industries, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 9.88%,
04/01/11(a) 295,000 302,375
- -----------------------------------------------------------------------
Unsec. Unsub. Notes, 7.38%, 06/01/09(a) 115,000 111,263
- -----------------------------------------------------------------------
Jefferson Smurfit Corp. (U.S.), Sr. Unsec.
Gtd. Unsub. Global Notes, 7.50%,
06/01/13(a) 274,000 253,450
- -----------------------------------------------------------------------
Norampac Inc. (Canada), Sr. Global Notes,
6.75%, 06/01/13(a) 125,000 121,250
=======================================================================
788,338
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
PAPER PRODUCTS-2.26%
Boise Cascade LLC, Sr. Unsec. Gtd. Sub.
Global Notes, 7.13%, 10/15/14(a) $ 187,000 $ 175,780
- -----------------------------------------------------------------------
Bowater Inc., Global Notes, 6.50%,
06/15/13(a) 315,000 284,288
- -----------------------------------------------------------------------
Cellu Tissue Holdings, Inc., Sec. Gtd. Global
Notes, 9.75%, 03/15/10(a) 282,000 280,590
- -----------------------------------------------------------------------
Domtar Inc. (Canada), Yankee Notes, 7.13%,
08/15/15(a) 153,000 131,198
- -----------------------------------------------------------------------
Fraser Papers Inc. (Canada), Sr. Unsec. Gtd.
Notes, 8.75%, 03/15/15 (Acquired 03/10/05;
Cost $171,000)(a)(b) 171,000 147,915
- -----------------------------------------------------------------------
Mercer International Inc., Sr. Global Notes,
9.25%, 02/15/13(a) 167,000 141,115
- -----------------------------------------------------------------------
Neenah Paper Inc., Sr. Unsec. Gtd. Global
Notes, 7.38%, 11/15/14(a) 124,000 110,360
=======================================================================
1,271,246
=======================================================================
PERSONAL PRODUCTS-1.19%
NBTY, Inc., Sr. Sub. Notes, 7.13%, 10/01/15
(Acquired 09/16/05; Cost $103,082)(a)(b) 104,000 99,580
- -----------------------------------------------------------------------
Playtex Products, Inc., Sr. Sec. Global
Notes, 8.00%, 03/01/11(a) 322,000 346,955
- -----------------------------------------------------------------------
Revlon Consumer Products Corp., Sr. Unsec.
Sub. Notes, 8.63%, 02/01/08(a) 233,000 224,845
=======================================================================
671,380
=======================================================================
PHARMACEUTICALS-0.98%
Athena Neurosciences Finance, LLC, Sr. Unsec.
Gtd. Unsub. Notes, 7.25%, 02/21/08(a) 76,000 74,385
- -----------------------------------------------------------------------
Elan Finance PLC/Elan Finance Corp.
(Ireland), Sr. Unsec. Gtd. Global Notes,
7.75%, 11/15/11(a) 56,000 52,640
- -----------------------------------------------------------------------
Leiner Health Products Inc., Sr. Sub. Global
Notes, 11.00%, 06/01/12(a) 75,000 71,063
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Unsec. Global Notes, 7.00%, 12/15/11(a) 355,000 351,450
=======================================================================
549,538
=======================================================================
PUBLISHING-0.71%
Dex Media Inc., Unsec. Disc. Global Notes,
9.00%, 11/15/13(a)(g) 159,000 127,399
- -----------------------------------------------------------------------
PRIMEDIA Inc., Sr. Global Notes, 8.00%,
05/15/13(a) 318,000 272,685
=======================================================================
400,084
=======================================================================
RAILROADS-1.82%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico),
Sr. Gtd. Notes, 9.38%, 05/01/12 (Acquired
04/13/05-06/28/05; Cost $304,730)(a)(b) 302,000 331,823
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Yankee Notes,
10.25%, 06/15/07(a) 482,000 512,125
- -----------------------------------------------------------------------
Kansas City Southern Railway Co. (The), Sr.
Unsec. Gtd. Global Notes, 9.50%,
10/01/08(a) 167,000 181,613
=======================================================================
1,025,561
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
REAL ESTATE-0.80%
Host Marriott L.P.-Series G, Sr. Gtd. Global
Notes, 9.25%, 10/01/07(a) $ 139,000 $ 147,166
- -----------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
6.50%, 12/15/13(a) 211,000 217,790
- -----------------------------------------------------------------------
Ventas Realty L.P./Ventas Capital Corp., Sr.
Unsec. Gtd. Global Notes, 8.75%,
05/01/09(a) 80,000 86,800
=======================================================================
451,756
=======================================================================
REGIONAL BANKS-0.27%
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(a) $ 136,000 152,660
=======================================================================
RESTAURANTS-0.25%
Landry's Restaurants, Inc.-Series B, Sr.
Unsec. Gtd. Unsub. Global Notes, 7.50%,
12/15/14(a) 151,000 141,940
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.26%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13(a) 165,146 145,328
=======================================================================
SEMICONDUCTORS-0.84%
Advanced Micro Devices, Inc., Sr. Unsec.
Global Notes, 7.75%, 11/01/12(a) 215,000 218,225
- -----------------------------------------------------------------------
MagnaChip Semiconductor S.A./MagnaChip
Semiconductor Finance Co., Sr. Unsec. Sub.
Global Notes, 8.00%, 12/15/14(a) 56,000 53,620
- -----------------------------------------------------------------------
STATS ChipPAC Ltd. (Singapore), Sr. Unsec.
Gtd. Global Notes, 6.75%, 11/15/11(a) 207,000 203,119
=======================================================================
474,964
=======================================================================
SPECIALIZED CONSUMER SERVICES-0.10%
Coinmach Corp., Sr. Unsec. Gtd. Global Notes,
9.00%, 02/01/10(a) 56,000 58,660
=======================================================================
SPECIALTY CHEMICALS-2.37%
Huntsman International LLC, Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/09(a) 409,000 431,495
- -----------------------------------------------------------------------
Nalco Co., Sr. Unsec. Sub. Global Notes,
8.88%, 11/15/13(a) 239,000 251,249
- -----------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11(a) 378,000 369,495
- -----------------------------------------------------------------------
PolyOne Corp., Sr. Unsec. Gtd. Global Notes,
10.63%, 05/15/10(a) 171,000 184,253
- -----------------------------------------------------------------------
Rhodia S.A. (France), Sr. Unsec. Global
Notes, 7.63%, 06/01/10(a) 96,000 97,440
=======================================================================
1,333,932
=======================================================================
SPECIALTY STORES-0.78%
Couche-Tard U.S. L.P./Couche-Tard Finance
Corp., Sr. Sub. Global Notes, 7.50%,
12/15/13(a) 136,000 140,080
- -----------------------------------------------------------------------
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 295,000 296,475
=======================================================================
436,555
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
STEEL-0.86%
Chaparral Steel Co., Sr. Unsec. Gtd. Global
Notes, 10.00%, 07/15/13(a) $ 103,000 $ 112,013
- -----------------------------------------------------------------------
IPSCO Inc. (Canada), Sr. Global Notes, 8.75%,
06/01/13(a) 188,000 209,620
- -----------------------------------------------------------------------
Metals USA, Inc., Sr. Sec. Notes, 11.13%,
12/01/15 (Acquired 11/21/05; Cost
$155,000)(a)(b) 155,000 161,200
=======================================================================
482,833
=======================================================================
TEXTILES-0.34%
INVISTA, Sr. Notes, 9.25%, 05/01/12 (Acquired
06/17/04-07/20/04; Cost $177,069)(a)(b) 175,000 188,125
=======================================================================
TIRES & RUBBER-0.49%
Cooper-Standard Automotive Inc.,
Sr. Unsec. Gtd. Global Notes, 7.00%,
12/15/12(a)(f) 210,000 194,775
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 8.38%,
12/15/14(a) 103,000 79,568
=======================================================================
274,343
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-6.05%
AirGate PCS, Inc., Sr. Sec. Gtd. Floating
Rate Global Notes, 7.90%, 10/15/11(a)(c) 84,000 87,570
- -----------------------------------------------------------------------
Alamosa (Delaware), Inc., Sr. Unsec. Gtd.
Notes, 12.00%, 07/31/09(a) 122,000 133,895
- -----------------------------------------------------------------------
American Tower Corp., Sr. Unsec. Global
Notes, 7.13%, 10/15/12(a) 324,000 336,150
- -----------------------------------------------------------------------
Centennial Cellular Operating Co. LLC/
Centennial Communications Corp., Sr. Unsec.
Gtd. Global Notes, 10.13%, 06/15/13(a) 343,000 374,728
- -----------------------------------------------------------------------
Dobson Communications Corp.,
Sr. Floating Rate Notes, 8.40%, 10/15/12
(Acquired 09/07/05; Cost $103,000)(a)(c)(b) 103,000 101,455
- -----------------------------------------------------------------------
Sr. Global Notes, 8.88%, 10/01/13(a) 228,000 228,570
- -----------------------------------------------------------------------
Innova, S. de R.L. (Mexico), Unsec. Global
Notes, 9.38%, 09/19/13(a) 447,000 498,964
- -----------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Global Notes, 11.50%,
05/01/12(a) 116,000 133,690
- -----------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11(a) 214,000 229,515
- -----------------------------------------------------------------------
Rogers Wireless Communications Inc. (Canada),
Sr. Sec. Global Notes, 7.25%, 12/15/12(a) 139,000 147,514
- -----------------------------------------------------------------------
Rural Cellular Corp.,
Sr. Sub. Floating Rate Notes, 10.04%,
11/01/12 (Acquired 11/01/05; Cost
$79,002)(a)(b)(c) 80,000 81,000
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 9.88%, 02/01/10(a) 222,000 235,320
- -----------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 8.50%, 12/01/12(a) 72,000 80,460
- -----------------------------------------------------------------------
SBA Telecommunications, Inc./SBA
Communications Corp., Sr. Unsec. Disc.
Global Notes, 9.75%, 12/15/11(a)(g) 475,000 444,125
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
UbiquiTel Operating Co., Sr. Global Notes,
9.88%, 03/01/11(a) $ 56,000 $ 62,300
- -----------------------------------------------------------------------
US Unwired Inc.-
Series B, Sr. Sec. First Priority Floating
Rate Global Notes, 8.74%, 06/15/10(a)(c) 167,000 172,636
- -----------------------------------------------------------------------
Series B, Sr. Sec. Second Priority Global
Notes, 10.00%, 06/15/12(a) 52,000 59,150
=======================================================================
3,407,042
=======================================================================
Total Bonds & Notes (Cost $47,531,422) 48,383,385
=======================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-2.87%
BROADCASTING & CABLE TV-0.62%
ONO Finance PLC (United Kingdom)-Wts.,
expiring 05/31/09 (Acquired 10/08/99; Cost
$0)(b)(h)(i) 436 0
- -----------------------------------------------------------------------
Telewest Global, Inc.(j) 14,364 342,151
- -----------------------------------------------------------------------
XM Satellite Radio Inc.-Wts., expiring
03/15/10(i) 182 8,190
=======================================================================
350,341
=======================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(b)(j)(k) 175 0
=======================================================================
GENERAL MERCHANDISE STORES-0.00%
Travelcenters of America, Inc.-
Wts., expiring 05/01/09 (Acquired 01/29/01;
Cost $0)(a)(b)(h)(i) 238 298
- -----------------------------------------------------------------------
Wts., expiring 05/01/09 (Acquired 1/29/01;
Cost $0)(a)(b)(h)(i) 80 100
=======================================================================
398
=======================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.82%
AES Trust VII, $3.00 Conv. Pfd 9,645 461,513
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
McLeodUSA Inc.-Wts., expiring 04/16/07(i) 6,646 39
- -----------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
7/21/00-11/15/00; Cost $7,710)(b)(h)(k) 832 0
=======================================================================
39
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.43%
Alamosa Holdings, Inc.-Series B, $18.75 Conv.
Pfd.(a) 277 378,124
- -----------------------------------------------------------------------
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03-04/29/03; Cost
$36,839)(a)(b)(i) 584 223,214
- -----------------------------------------------------------------------
iPCS, Inc.(j) 4,209 203,084
=======================================================================
804,422
=======================================================================
Total Stocks & Other Equity Interests
(Cost $951,644) 1,616,713
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT
- -----------------------------------------------------------------------
BUNDLED SECURITIES-3.92%
Targeted Return Index Securities Index Trust-
Series HY 2005-1, Sec. Bonds, 7.65%,
06/15/15 (Acquired 07/20/05-11/30/05; Cost
$2,204,051) (Cost $2,202,852)(a)(b)(f) $2,141,561 2,204,069
=======================================================================
<Caption>
SHARES VALUE
MONEY MARKET FUNDS-7.34%
Liquid Assets Portfolio-Institutional
Class(l) 2,064,801 $ 2,064,801
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(l) 2,064,801 2,064,801
=======================================================================
Total Money Market Funds (Cost
$4,129,602) 4,129,602
=======================================================================
TOTAL INVESTMENTS-100.09% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $54,815,520) 56,333,769
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.02%
Liquid Assets Portfolio-Institutional
Class(l)(m) $ 850,448 $ 850,448
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(l)(m) 850,448 850,448
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,700,896) 1,700,896
=======================================================================
TOTAL INVESTMENTS-103.11% (Cost $56,516,416) 58,034,665
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.11%) (1,748,400)
=======================================================================
NET ASSETS-100.00% $56,286,265
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
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 value of these securities at December 31,
2005 was $51,189,190, which represented 90.94% of the Fund's Net Assets. 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 value of these securities at December 31, 2005 was $8,942,438,
which represented 15.89% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2005.
(d) Defaulted security. Adelphia Communications Corp and Delphi Corp. have filed
for protection under Chapter 11 of the U.S. Bankruptcy Code. The aggregate
value of these securities at December 31, 2005 was $449,019, which
represented 0.80% of the Fund's Net Assets.
(e) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2005.
(f) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(g) Step coupon bond issued at discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(h) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2005 was $398,
which represented 0.00% of the Fund's Net Assets.
(i) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j) Non-income producing security.
(k) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2005 was $0, which represented 0.00% of the
Fund's Net Assets. See Note 1A.
(l) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(m) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $50,685,918)* $ 52,204,167
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $5,830,498) 5,830,498
=============================================================
Total investments (cost $56,516,416) 58,034,665
=============================================================
Receivables for:
Investments sold 28,161
- -------------------------------------------------------------
Fund shares sold 5,046
- -------------------------------------------------------------
Dividends and interest 1,041,081
- -------------------------------------------------------------
Investments matured (Note 10) 547,400
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 37,601
=============================================================
Total assets 59,693,954
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 748,655
- -------------------------------------------------------------
Investments purchased from affiliates 172,898
- -------------------------------------------------------------
Amount due to custodian 13,274
- -------------------------------------------------------------
Fund shares reacquired 682,925
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 40,870
- -------------------------------------------------------------
Collateral upon return of securities loaned 1,700,896
- -------------------------------------------------------------
Accrued administrative services fees 32,863
- -------------------------------------------------------------
Accrued distribution fees -- Series II 659
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 104
- -------------------------------------------------------------
Accrued transfer agent fees 1,045
- -------------------------------------------------------------
Accrued operating expenses 13,500
=============================================================
Total liabilities 3,407,689
=============================================================
Net assets applicable to shares outstanding $ 56,286,265
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 62,786,116
- -------------------------------------------------------------
Undistributed net investment income 4,816,796
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (12,628,119)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 1,311,472
=============================================================
$ 56,286,265
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 54,730,602
_____________________________________________________________
=============================================================
Series II $ 1,555,663
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,076,955
_____________________________________________________________
=============================================================
Series II 259,265
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.03
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.00
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $1,674,552 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $ 5,413,930
- -------------------------------------------------------------
Dividends 52,407
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$16,750) 124,891
=============================================================
Total investment income 5,591,228
=============================================================
EXPENSES:
Advisory fees 460,257
- -------------------------------------------------------------
Administrative services fees 223,050
- -------------------------------------------------------------
Custodian fees 24,955
- -------------------------------------------------------------
Distribution fees -- Series II 3,521
- -------------------------------------------------------------
Transfer agent fees 15,820
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 17,299
- -------------------------------------------------------------
Professional services fees 60,988
- -------------------------------------------------------------
Other 55,846
=============================================================
Total expenses 861,736
=============================================================
Less: Fees waived and expense offset arrangement (113,234)
=============================================================
Net expenses 748,502
=============================================================
Net investment income 4,842,726
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities
(includes gains from securities sold to
affiliates of $131,412) 2,184,161
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (4,907,554)
=============================================================
Net gain (loss) from investment securities (2,723,393)
=============================================================
Net increase in net assets resulting from
operations $ 2,119,333
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,842,726 $ 5,091,281
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 2,184,161 2,133,221
- -----------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 181,288
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,907,554) 1,307,985
=========================================================================================
Net increase in net assets resulting from operations 2,119,333 8,713,775
=========================================================================================
Distributions to shareholders from net investment income:
Series I (5,020,673) (2,776,287)
- -----------------------------------------------------------------------------------------
Series II (138,745) (29,451)
=========================================================================================
Decrease in net assets resulting from distributions (5,159,418) (2,805,738)
=========================================================================================
Share transactions-net:
Series I (38,922,743) 53,510,274
- -----------------------------------------------------------------------------------------
Series II 575,779 (263,138)
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (38,346,964) 53,247,136
=========================================================================================
Net increase (decrease) in net assets (41,387,049) 59,155,173
=========================================================================================
NET ASSETS:
Beginning of year 97,673,314 38,518,141
=========================================================================================
End of year (including undistributed net investment income
of $4,816,796 and $5,100,995, respectively) $ 56,286,265 $97,673,314
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. HIGH YIELD FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
AIM V.I. HIGH YIELD 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 $200 million 0.625%
- --------------------------------------------------------------------
Next $300 million 0.55%
- --------------------------------------------------------------------
Next $500 million 0.50%
- --------------------------------------------------------------------
Over $1 billion 0.45%
___________________________________________________________________
====================================================================
</Table>
AIM has 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 0.95%
and Series II shares to 1.20% of average daily net assets, through June 30,
2006. This agreement has been renewed through April 30, 2007. 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 1.05% 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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.
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 year ended December 31, 2005, AIM waived fees of $112,430.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $173,050 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 year ended
December 31, 2005, the Fund paid AISI $15,820.
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 year ended December 31, 2005, the Series
II shares paid $2,928 after ADI waived Plan fees of $593.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
AIM V.I. HIGH YIELD FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $3,812,208 $23,061,961 $(24,809,368) $ -- $2,064,801 $ 53,794 $ --
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 3,812,208 23,061,961 (24,809,368) -- 2,064,801 54,347 --
============================================================================================================================
Subtotal $7,624,416 $46,123,922 $(49,618,736) $ -- $4,129,602 $108,141 $ --
============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 906,551 $ (56,103) $ -- $ 850,448 $ 8,399 $ --
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class -- 5,216,866 (4,366,418) -- 850,448 8,351 --
=============================================================================================================================
Subtotal $ -- $ 6,123,417 $ (4,422,521) $ -- $1,700,896 $ 16,750 $ --
=============================================================================================================================
Total $7,624,416 $52,247,339 $(54,041,257) $ -- $5,830,498 $124,891 $ --
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $823,536 and sales of $2,813,026, which
resulted in net realized gains of $131,412.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $211.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,202
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
AIM V.I. HIGH YIELD 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.
During the year ended December 31, 2005, the average borrowings for the 21 days
the borrowings were outstanding was $2,966,921 with a weighted 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.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2005, securities with an aggregate value of $1,674,552 were
on loan to brokers. The loans were secured by cash collateral of $1,700,896
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $16,750 for securities lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $5,159,418 $2,805,738
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed ordinary income $ 4,851,373
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 1,145,045
- --------------------------------------------------------------------------
Temporary book/tax differences (34,577)
- --------------------------------------------------------------------------
Capital loss carryforward (12,056,718)
- --------------------------------------------------------------------------
Post-October capital loss deferral (404,974)
- --------------------------------------------------------------------------
Shares of beneficial interest 62,786,116
==========================================================================
Total net assets $ 56,286,265
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales and
deferred losses on defaulted securities.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
AIM V.I. HIGH YIELD FUND
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $2,449,314 of capital loss carryforward in the fiscal year
ended December 31, 2006.
The Fund utilized $2,226,863 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 13,915
- -----------------------------------------------------------------------------
December 31, 2010 12,042,803
=============================================================================
Total capital loss carryforward $12,056,718
_____________________________________________________________________________
=============================================================================
</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.
On September 23, 2005, 2,265,673 Series I shares valued at $14,953,441 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $365,548 to the Fund for book
purposes. From a federal income tax perspective, the realized gains are not
recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $47,235,596 and $82,044,329, respectively
Receivable for investments matured represents the estimated proceeds to the
Fund by the following issuers: Adelphia Communications Corp., which is in
default with respect to the principal payments on $107,000 par value, Series B
Senior Unsecured Notes, 9.25%, which was due October 1, 2002 and $476,000 par
value, Senior Unsecured Notes, 9.50%, which was due March 1, 2005; and Pegasus
Communications Corp., which is in default with respect to the principal payments
on $310,000 par value, Series B, Senior Notes, 9.63%, which was due October 15,
2005. These estimates were determined in accordance with the fair valuation
procedures authorized by the Board of Trustees. Unrealized appreciation
(depreciation) in the aggregate at December 31, 2005 was (206,777).
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,251,763
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,106,397)
===============================================================================
Net unrealized appreciation of investment securities $ 1,145,366
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $56,889,299.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bonds,
capital loss limitation adjustments, redemption in kind transaction and other
differences, on December 31, 2005, undistributed net investment income (loss)
was increased by $32,493, undistributed net realized gain (loss) was increased
by $23,766,878 and shares of beneficial interest decreased by $23,799,371. This
reclassification had no effect on the net assets of the Fund.
AIM V.I. HIGH YIELD FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005(A) 2004
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 7,537,516 $ 48,935,734 5,704,960 $ 34,991,504
- -----------------------------------------------------------------------------------------------------------------------
Series II 220,053 1,408,205 124,654 756,371
=======================================================================================================================
Issued as reinvestment of dividends:
Series I 836,779 5,020,673 431,771 2,776,287
- -----------------------------------------------------------------------------------------------------------------------
Series II 23,240 138,745 4,595 29,451
=======================================================================================================================
Issued in connection with acquisitions:(b)
Series I -- -- 8,775,266 53,609,175
=======================================================================================================================
Reacquired:
Series I (14,270,486) (92,879,150) (6,180,602) (37,866,692)
- -----------------------------------------------------------------------------------------------------------------------
Series II (150,740) (971,171) (172,631) (1,048,960)
=======================================================================================================================
(5,803,638) $(38,346,964) 8,688,013 $ 53,247,136
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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 73% 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 entities 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 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.45 $ 5.97 $ 5.00 $ 5.31 $ 6.35
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43(a) 0.42(a) 0.49(a) 0.51(a) 0.70(b)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.26) 0.23 0.91 (0.82) (1.01)
- ----------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.02 -- -- --
======================================================================================================================
Total from investment operations 0.17 0.67 1.40 (0.31) (0.31)
======================================================================================================================
Less dividends from net investment income (0.59) (0.19) (0.43) -- (0.73)
======================================================================================================================
Net asset value, end of period $ 6.03 $ 6.45 $ 5.97 $ 5.00 $ 5.31
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) 2.72% 11.25%(d) 28.04% (5.84)% (4.85)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,731 $ 96,602 $37,267 $24,984 $28,799
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.01%(e) 1.04% 1.20% 1.30% 1.21%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.16%(e) 1.04% 1.20% 1.30% 1.29%
======================================================================================================================
Ratio of net investment income to average net assets 6.58%(e) 6.79% 8.54% 10.20% 11.39%(b)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 69% 131% 101% 74% 64%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.71 and the ratio of net investment income to average net
assets would have been 11.44%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Total return is after reimbursement by the advisor for the economic loss
on security rights that expired with value in error. Total return before
reimbursement by the advisor was 10.90%.
(e) Ratios are based on average daily net assets of $72,232,611.
AIM V.I. HIGH YIELD FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
MARCH 26, 2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------- 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 0.41(a) 0.41(a) 0.49(a) 0.38(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.26) 0.24 0.90 (0.66)
- -------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- 0.01 -- --
=============================================================================================================
Total from investment operations 0.15 0.66 1.39 (0.28)
=============================================================================================================
Less dividends from net investment income (0.58) (0.18) (0.43) --
=============================================================================================================
Net asset value, end of period $6.00 $ 6.43 $ 5.95 $ 4.99
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 2.43% 11.14%(c) 27.89% (5.31)%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,556 $1,072 $1,251 $ 142
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(d) 1.24% 1.45% 1.45%(e)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.41%(d) 1.29% 1.45% 1.55%(e)
=============================================================================================================
Ratio of net investment income to average net assets 6.37%(d) 6.59% 8.29% 10.05%(e)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate 69% 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 10.96%.
(d) Ratios are based on average daily net assets of $1,408,565.
(e) Annualized.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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,
AIM V.I. HIGH YIELD FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave
AIM V.I. HIGH YIELD FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
plaintiffs leave to replead facts sufficient to show that such defendants acted
as de facto fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their
prohibited transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. High Yield Fund, (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended , in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. HIGH YIELD FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0.99% is eligible for the dividends received deduction for
corporations.
AIM V.I. HIGH YIELD FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. HIGH YIELD FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL GROWTH FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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 202-942-8090 or 800-732-0330, or by electronic request at the following
E-mail address: publicinfo@sec.gov. The SEC file numbers for the Fund are
811-07452 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. INTERNATIONAL GROWTH FUND
MANAGEMENT'S DISCUSSION OF We believe disciplined sell decisions
FUND PERFORMANCE are a key determinant of successful
======================================================================================= investing. We consider selling a stock
PERFORMANCE SUMMARY for any one of the following reasons:
=========================================
It was another banner year for o company's fundamentals deteriorate or
international equities as foreign stocks FUND VS. INDEXES it posts disappointing earnings
outperformed U.S. equities for the fourth
consecutive year. As the table to the TOTAL RETURNS, 12/31/04--12/31/05, o a stock's price seems overvalued
right illustrates, your Fund modestly EXCLUDING VARIABLE PRODUCT ISSUER
outperformed both its broad market and CHARGES. IF VARIABLE PRODUCT ISSUER o a more attractive opportunity is
style-specific benchmarks. We attribute CHARGES WERE INCLUDED, RETURNS WOULD BE presented
our comparative success to strong stock LOWER.
selection and investments in MARKET CONDITIONS AND YOUR FUND
outperforming markets/countries, such as Series I Shares 17.93%
Canada and Mexico, which are not included Despite higher oil prices and rising
in MSCI EAFE Index benchmarks. Long-term Series II Shares 17.70 interest rates in some countries, most
Fund performance can be found on Pages 4 world equity markets posted gains for the
and 5. MSCI Europe, year, with foreign equities once again
Australasia and the the performance leaders. Even though U.S.
Far East Index stocks had a currency headwind from a
(the MSCI EAFE Index) strengthening U.S. dollar, international
(Broad Market Index) 13.54 stocks outperformed U.S. equities by more
than a two-to-one margin when calculated
MSCI EAFE Growth Index in U.S. dollars. In local currency terms,
(Style-specific Index) 13.28 the differential was even greater.
Lipper International In Europe, markets rallied amid a low
Multi-Cap Growth Fund Index interest rate environment, attractive
(Peer Group Index) 19.70 valuations compared to U.S. stocks and
corporate profits buoyed by restructuring
Lipper International Fund and cost cutting measures. In Japan,
Index stocks climbed to levels not witnessed in
(Former Peer Group Index) 15.67 several years as Japan's economy finally
regained momentum. Japanese corporate
SOURCE: LIPPER,INC. earnings also continued to improve, while
Prime Minister Junichiro Koizumi's
========================================= dramatic election victory resonated well
======================================================================================= with investors.
HOW WE INVEST We use a systematic, stock-by-stock
approach, focusing on strengths of Fund performance was broad-based, with
We believe that earnings drive stock individual companies, rather than sector all regions registering positive returns
prices and that companies generating or country trends. Our goal is a for the fiscal year. Our largest regional
substantial, repeatable, above average well-diversified, reasonably priced, allocation was in European stocks. Strong
earnings growth should provide long-term quality portfolio. We adhere to our stock selection helped
growth of capital. investment process regardless of the
macroeconomic environment.
Therefore, when selecting stocks for your
Fund we look for large- and mid-cap We do not typically hedge currencies
foreign companies with the following because we believe currency exposure
attributes: increases the diversification benefit of
international investing.
o accelerating earnings and revenues
o strong cash flow generation
o high return on invested capital
o reasonable prices with low valuations
========================================== ========================================= ========================================
PORTFOLIO COMPOSITION TOP 5 COUNTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Japan 14.3% 1.Infosys Technologies
Financials 21.7% 2. France 12.3 Ltd. (India) 1.8%
Consumer Discretionary 13.9 3. United Kingdom 8.5 2. TOTAL S.A. (France) 1.8
Consumer Staples 10.8 4. Switzerland 8.0 3. Anglo Irish Bank Corp. PLC
Industrials 10.7 5. Canada 6.4 (Ireland) 1.8
Energy 9.1 4. Eni S.p.A. (Italy) 1.8
Information Technology 8.6 5. BNP Paribas S.A. (France) 1.7
Health Care 6.8 6. Syngenta A.G. (Switzerland) 1.7
Materials 6.5 7. Vinci S.A. (France) 1.7
Telecommunication Services 2.6 8. Imperial Tobacco Group PLC
Utilities 1.4 (United Kingdom) 1.6
Money Market Funds 9. UBS A.G. (Switzerland) 1.5
Plus Other Assets Less Liabilities 7.9 TOTAL NET ASSETS $499.3 MILLION 10. Compagnie Financiere
TOTAL NUMBER OF HOLDINGS* 110 Richemont A.G.-Class A
(Switzerland) 1.5
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
2
AIM V.I. INTERNATIONAL GROWTH FUND
us outperform our style-specific Given strong Fund performance during CLAS G. OLSSON,
benchmark in Europe, although we the fiscal year, we had few detractors to [OLSSON senior portfolio
continued to underweight our exposure to report. NEXT PLC, a British retailer that PHOTO] manager, is lead
the region. This allocation strategy sells moderately priced clothing, manager of AIM V.I.
should not be construed as a bias against housewares and furniture, declined due to International Growth
European stocks--indeed, we continue to slower retail growth in the U.K. as Fund with respect to the Fund's
find very compelling investment consumers responded to rate hikes by the investments in Europe and Canada. Mr.
opportunities there--but rather an Bank of England. The downdraft in Olsson joined AIM in 1994. Mr. Olsson
indication of our flexibility in seeking consumer spending finally caught up to became a commissioned naval officer at
investment opportunities elsewhere in the the stock, and although we still believe the Royal Swedish Naval Academy in 1988.
world. this is a high quality European company, He also received a B.B.A. from The
we sold our position during the year. University of Texas at Austin.
For instance, our holdings in Mexico,
Brazil and Canada, countries not part of Foreign exchange also proved a drag on BARRETT K. SIDES,
our MSCI EAFE benchmarks, gave the Fund a Fund returns. Although some foreign [SIDES senior portfolio
competitive edge. Latin American and currencies, including the Canadian PHOTO] manager, is lead man-
Canadian markets were supported by strong dollar, Mexican peso and Brazilian real ager of AIM V.I.
domestic demand and higher commodity appreciated against the dollar during the International
prices. Canadian holdings in particular year, the majority of foreign currencies Growth Fund with respect to the Fund's
benefited the portfolio as two of our top did not. The euro, British pound and investments in Asia Pacific and Latin
five performers were Canadian energy Japanese yen, for example, depreciated America. He joined AIM in 1990. Mr. Sides
companies. against the dollar during the reporting graduated with a B.S. in economics from
period. As we do not hedge currencies, Bucknell University. He also received a
However, our having been underweight Fund returns were dampened by this master's in international business from
the benchmark exposure to a buoyant negative currency effect. the University of St. Thomas.
Japanese market hurt comparative results.
Our more limited exposure to Japanese IN CLOSING SHUXIN CAO, Chartered
investments (compared with our [CAO Financial Analyst,
style-specific benchmark) is not due to a The performance of international stocks PHOTO] portfolio manager, is
lack of conviction in the Japanese market over the last several years underscores manager of AIM V.I.
or economy. Indeed, we own a balance of the investment opportunities beyond U.S. International Growth Fund. He joined AIM
Japanese export and domestic companies borders. We believe our bottom-up in 1997. Mr. Cao graduated from Tianjin
which we feel have strong earnings investment process allows us to build a Foreign Language Institute with a B.A. in
growth. However, the Japanese market rose strong portfolio based on world class English. He also received an M.B.A. from
very rapidly in the second half of 2005, companies from around the world. We are Texas A&M University and is a Certified
and we prefer to purchase stock during a pleased to once again provide Public Accountant.
market pull-back not a rising stock price shareholders with positive Fund returns
environment. for the year and thank you for your MATTHEW W. DENNIS,
continued participation in AIM V.I. Chartered Financial
Beyond regional diversity, sector International Growth Fund. [DENNIS Analyst, portfolio
performance was also broad-based, with PHOTO] manager, is manager
every sector registering double-digit The views and opinions expressed in of AIM V.I.
returns for the year. With oil prices management's discussion of Fund International Growth
approaching $70 per barrel during the performance are those of A I M Advisors, Fund. He has been in
year, the energy sector benefited from a Inc. These views and opinions are subject the investment
dramatic rise in commodity prices. Many to change at any time based on factors business since 1994. Mr. Dennis received
of our top performing stocks were oil such as market and economic conditions. a B.A. in economics from The University
companies including SUNCOR ENERGY INC. These views and opinions may not be of Texas at Austin. He also earned an
(Canada), CANADIAN NATURAL RESOURCES relied upon as investment advice or M.S. in finance from Texas A&M University
(Canada), ENI S.p.A. (Italy) and TOTAL recommendations, or as an offer for a
S.A. (France). We find these companies particular security. The information is JASON T. HOLZER,
attractive as they have strong earnings not a complete analysis of every aspect [HOLZER Chartered Financial
growth and underlying return on capital of any market, country, industry, PHOTO] Analyst, senior
coupled with attractive security or the Fund. Statements of fact portfolio manager,
valuations--characteristics we believe are from sources considered reliable, but is manager of AIM
can lead to strong long-term performance. A I M Advisors, Inc. makes no V.I. International Growth Fund. Mr.
representation or warranty as to their Holzer joined AIM in 1996. He received a
Although our financial holdings completeness or accuracy. Although B.A. in quantitative economics and an
contributed strongly to performance, our historical performance is no guarantee of M.S. in engineering-economic systems from
lack of exposure to select banks in future results, these insights may help Stanford University.
Japan--many of which were restructuring you understand our investment management
candidates that did not fit our philosophy. Assisted by Asia/Latin America Team and
investment criteria--held back Europe/Canada Team
comparative sector returns.
[RIGHT ARROW GRAPHIC]
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. INTERNATIONAL GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/95
[MOUNTAIN CHART]
===================================================================================================
[MOUNTAIN CHART]
AIM V.I. LIPPER
INTERNATIONAL LIPPER INTERNATIONAL MSCI EAFE MSCI EAFE
GROWTH FUND- INTERNATIONAL MULTI-CAP GROWTH GROWTH INDEX INDEX
DATE SERIES I SHARES FUND INDEX FUND INDEX
12/31/95 $10000 $10000 $10000 $10000 $10000
01/96 10256 10236 10256 10007 10041
02/96 10468 10280 10324 10041 10075
03/96 10666 10441 10576 10282 10289
04/96 11011 10781 10916 10531 10588
05/96 11069 10769 10998 10312 10393
06/96 11304 10867 11111 10348 10452
07/96 10748 10500 10662 10012 10146
08/96 11011 10637 10902 10022 10168
09/96 11326 10875 11173 10297 10439
10/96 11290 10832 11187 10212 10332
11/96 11831 11342 11697 10538 10743
12/96 12007 11443 11835 10346 10605
01/97 11985 11458 11898 9915 10234
02/97 12124 11664 12087 10068 10401
03/97 12035 11726 12137 10128 10439
04/97 12014 11777 12063 10230 10494
05/97 12741 12441 12735 10831 11177
06/97 13408 13039 13360 11460 11793
07/97 13951 13457 13814 11734 11984
08/97 12747 12487 12802 10829 11089
09/97 13878 13289 13765 11545 11710
10/97 12682 12280 12743 10453 10810
11/97 12718 12177 12670 10430 10700
12/97 12839 12272 12843 10564 10793
01/98 12966 12569 13147 11042 11287
02/98 13829 13367 14037 11774 12011
03/98 14683 14093 14884 11933 12381
04/98 14908 14309 15203 12053 12479
05/98 15200 14338 15470 11968 12418
06/98 15253 14213 15431 12134 12512
07/98 15516 14431 15764 12189 12639
08/98 13440 12355 13371 10879 11073
09/98 13147 11970 12811 10573 10734
10/98 13732 12850 13751 11645 11853
11/98 14317 13494 14518 12209 12460
12/98 14829 13826 15051 12910 12952
01/99 15056 13910 15494 12977 12913
02/99 14391 13552 15033 12556 12606
03/99 14618 14003 15497 12726 13132
04/99 15116 14656 15974 12856 13664
05/99 14595 14111 15369 12298 12960
06/99 15487 14780 16123 12774 13465
07/99 15841 15111 16473 13019 13866
08/99 15857 15230 16612 13093 13916
09/99 16204 15279 16914 13300 14056
10/99 17384 15812 17866 14013 14583
11/99 19606 16972 19981 15039 15090
12/99 22992 19057 23326 16713 16444
01/00 21389 17941 22274 15773 15399
02/00 23579 19125 25163 16647 15814
03/00 22801 19175 24573 16960 16427
04/00 20948 17958 22407 15839 15562
05/00 19659 17465 21200 14858 15182
06/00 20491 18274 22202 15388 15776
07/00 19997 17681 21527 14424 15114
08/00 20765 17980 22278 14577 15246
09/00 19062 16933 20654 13612 14503
10/00 17736 16358 19598 12983 14161
11/00 16205 15667 18089 12384 13630
12/00 16916 16252 18785 12616 14114
01/01 17143 16348 19128 12580 14107
02/01 15218 15201 17299 11303 13049
03/01 14108 14132 15841 10520 12179
04/01 14924 14992 17032 11241 13026
05/01 14655 14628 16567 10788 12566
06/01 14478 14215 15884 10264 12052
07/01 14142 13846 15267 10015 11833
08/01 13629 13568 14613 9559 11533
09/01 12350 12090 12831 8654 10365
10/01 12586 12417 13380 8998 10630
11/01 12712 12881 14035 9460 11022
12/01 12936 13111 14258 9515 11088
01/02 12424 12581 13627 9002 10499
02/02 12589 12758 13669 9123 10572
03/02 13118 13433 14319 9512 11195
04/02 13135 13527 14279 9520 11218
05/02 13274 13720 14259 9539 11360
06/02 13014 13179 13611 9293 10908
07/02 11695 11863 12125 8303 9831
08/02 11670 11872 12100 8238 9809
09/02 10437 10594 10717 7521 8755
10/02 10836 11144 11212 7946 9226
11/02 11009 11671 11698 8180 9645
12/02 10908 11298 11295 7990 9320
01/03 10507 10884 10774 7595 8931
02/03 10385 10562 10375 7431 8726
03/03 10219 10303 10158 7353 8555
04/03 10864 11323 11095 7990 9393
05/03 11520 12050 11862 8402 9962
06/03 11764 12335 12212 8549 10203
07/03 11817 12681 12562 8661 10450
08/03 12044 13047 13019 8819 10702
09/03 12323 13309 13300 9117 11032
10/03 13109 14102 14262 9642 11720
11/03 13371 14385 14442 9867 11981
12/03 14079 15364 15396 10546 12917
01/04 14527 15694 15743 10752 13099
02/04 14930 16053 16091 10956 13402
03/04 14895 16132 16337 10965 13477
04/04 14597 15651 15682 10692 13172
05/04 14728 15642 15603 10665 13200
06/04 14956 15957 15805 10807 13506
07/04 14491 15434 15183 10368 13068
08/04 14614 15517 15217 10380 13125
09/04 15167 15930 15732 10636 13468
10/04 15772 16435 16182 10992 13928
11/04 16737 17489 17380 11749 14879
12/04 17457 18221 18196 12247 15532
01/05 17174 17927 17842 11964 15247
02/05 17933 18708 18603 12444 15906
03/05 17553 18212 18068 12138 15506
04/05 17058 17751 17636 11904 15142
05/05 17200 17863 17846 11939 15149
06/05 17605 18103 18207 12035 15350
07/05 18338 18781 18947 12402 15820
08/05 18947 19322 19558 12758 16220
09/05 19405 20122 20396 13295 16943
10/05 18823 19543 19766 12932 16448
11/05 19519 20074 20553 13175 16850
12/05 20590 21077 21780 13873 17634
===================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee elected to use the Lipper International
comparable future results. Multi-Cap Growth Fund Index as its peer
group index rather than the Lipper
This chart, which is a logarithmic chart, International Fund Index because Lipper
presents the fluctuations in the value of recently modified its global and
the Fund and its indexes. We believe that international classifications to include
a logarithmic chart is more effective narrower categories.
than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates the
dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000 and is the same as that between
$20,000 and $40,000. The Fund has
4
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
=========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO SERIES II SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 12/31/05 SHARES. SERIES I AND SERIES II SHARES FIGURES GIVEN REPRESENT THE FUND AND ARE
SERIES I SHARES INVEST IN THE SAME PORTFOLIO OF NOT INTENDED TO REFLECT ACTUAL VARIABLE
Inception (5/5/93) 8.55% SECURITIES AND WILL HAVE SUBSTANTIALLY PRODUCT VALUES. THEY DO NOT REFLECT SALES
10 Years 7.49 SIMILAR PERFORMANCE, EXCEPT TO THE EXTENT CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 4.01 THAT EXPENSES BORNE BY EACH CLASS DIFFER. CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 17.93 CHARGES, EXPENSES AND FEES, WHICH ARE
THE PERFORMANCE DATA QUOTED REPRESENT DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 7.22 COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
5 Years 3.74 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 17.70 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST RECENT
========================================= ISSUER OR FINANCIAL ADVISOR FOR THE MOST MONTH-END PERFORMANCE DATA AT THE FUND
CUMULATIVE TOTAL RETURNS RECENT MONTH-END VARIABLE PRODUCT LEVEL, EXCLUDING VARIABLE PRODUCT
Six months ended 12/31/05 PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Series I 16.92% FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
Series II 16.75 AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
========================================= MONTH-END PERFORMANCE INCLUDING VARIABLE
INVESTMENT RETURN AND PRINCIPAL VALUE PRODUCT CHARGES, PLEASE CONTACT YOUR
RETURNS SINCE SEPTEMBER 19, 2001, THE WILL FLUCTUATE SO THAT YOU MAY HAVE A VARIABLE PRODUCT ISSUER OR FINANCIAL
INCEPTION DATE OF SERIES II SHARES, ARE GAIN OR LOSS WHEN YOU SELL SHARES. ADVISOR.
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL AIM V.I. INTERNATIONAL GROWTH FUND, A
PERFORMANCE OF SERIES II SHARES SINCE SERIES PORTFOLIO OF AIM VARIABLE
THEIR INCEPTION AND THE RESTATED INSURANCE FUNDS, IS CURRENTLY OFFERED
HISTORICAL PERFORMANCE OF SERIES I SHARES THROUGH INSURANCE COMPANIES ISSUING
(FOR PERIODS PRIOR TO INCEPTION OF SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
II SHARES) ADJUSTED TO REFLECT THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND casted growth values. OTHER INFORMATION
International investing presents certain The unmanaged LIPPER INTERNATIONAL The returns shown in management's
risks not associated with investing MULTI-CAP GROWTH FUND INDEX represents an discussion of Fund performance are based
solely in the United States. These average of the 10 largest international on net asset values calculated for
include risks relating to fluctuations in multi-capitalization growth funds tracked shareholder transactions. Generally
the value of the U.S. dollar relative to by Lipper, Inc., an independent mutual accepted accounting principles require
the values of other currencies, the fund performance monitor. adjustments to be made to the net assets
custody arrangements made for the Fund's of the Fund at period end for financial
foreign holdings, differences in The unmanaged LIPPER INTERNATIONAL reporting purposes, and as such, the net
accounting, political risks and the FUND INDEX represents an average of the asset values for shareholder transactions
lesser degree of public information performance of the 30 largest and the returns based on those net asset
required to be provided by non-U.S. international funds tracked by Lipper, values may differ from the net asset
companies. Inc., an independent mutual fund values and returns reported in the
performance monitor. Financial Highlights. Additionally, the
Investing in emerging markets returns and net asset values shown
involves greater risk and potential The Fund is not managed to track the throughout this report are at the Fund
reward than investing in more established performance of any particular index, level only and do not include variable
markets. including the indexes defined here, and product issuer charges. If such charges
consequently, the performance of the Fund were included, the total returns would be
ABOUT INDEXES USED IN THIS REPORT may deviate significantly from the lower.
performance of the indexes.
The unmanaged MSCI Europe, Australasia Industry classifications used in this
and the Far East Index (the MSCI EAFE A direct investment cannot be made in report are generally according to the
- --REGISTERED TRADEMARK-- Index) is a an index. Unless otherwise indicated, Global Industry Classification Standard,
group of foreign securities tracked by index results include reinvested which was developed by and is the
Morgan Stanley Capital International. dividends, and they do not reflect sales exclusive property and a service mark of
charges. Performance of an index of funds Morgan Stanley Capital International Inc.
The unmanaged MSCI EUROPE, AUSTRALASIA reflects fund expenses; performance of a and Standard & Poor's.
AND THE FAR EAST GROWTH INDEX (MSCI EAFE market index does not.
GROWTH INDEX) is a subset of the
unmanaged MSCI EAFE INDEX, which
represents the performance of foreign
stocks tracked by Morgan Stanley Capital
International. The Growth portion
measures performance of companies with
higher price/earnings ratios and higher
fore-
5
AIM V.I. INTERNATIONAL GROWTH FUND
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 December 31, 2005, appear in the
distribution and/or service fees (12b-1); expenses. You may use the information in table "Cumulative Total Returns" on Page
and other Fund expenses. This example is this table, together with the amount you 5.
intended to help you understand your invested, to estimate the expenses that
ongoing costs (in dollars) of investing you paid over the period. Simply divide The hypothetical account values and
in the Fund and to compare these costs your account value by $1,000 (for expenses may not be used to estimate the
with ongoing costs of investing in other example, an $8,600 account value divided actual ending account balance or expenses
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the you paid for the period. You may use this
investment of $1,000 invested at the result by the number in the table under information to compare the ongoing costs
beginning of the period and held for the the heading entitled "Actual Expenses of investing in the Fund and other funds.
entire period July 1, 2005, through Paid During Period" to estimate the To do so, compare this 5% hypothetical
December 31, 2005. expenses you paid on your account during example with the 5% hypothetical examples
this period. that appear in the shareholder reports of
The actual and hypothetical expenses the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR
the effect of any fees or other expenses COMPARISON PURPOSES Please note that the expenses shown in
assessed in connection with a variable the table are meant to highlight your
product; if they did, the expenses shown The table below also provides information ongoing costs. Therefore, the
would be higher while the ending account about hypothetical account values and hypothetical information is useful in
values shown would be lower. 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 ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,169.20 $6.12 $1,019.56 $5.70 1.12%
Series II 1,000.00 1,167.50 7.48 1,018.30 6.97 1.37
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. INTERNATIONAL GROWTH FUND
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 noted that AIM has agreed to waive
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the advisory fees of the Fund and to limit
the management of AIM V.I. International credentials and experience of the the Fund's total operating expenses, as
Growth Fund (the "Fund") and, as required officers and employees of AIM who will discussed below. Based on this review,
by law, determines annually whether to provide investment advisory services to the Board concluded that the advisory fee
approve the continuance of the Fund's the Fund. In reviewing the qualifications rate for the Fund under the Advisory
advisory agreement with A I M Advisors, of AIM to provide investment advisory Agreement was fair and reasonable.
Inc. ("AIM"). Based upon the services, the Board reviewed the
recommendation of the Investments qualifications of AIM's investment o Fees relative to those of comparable
Committee of the Board, which is personnel and considered such issues as funds with other advisors. The Board
comprised solely of independent trustees, AIM's portfolio and product review reviewed the advisory fee rate for the
at a meeting held on June 30, 2005, the process, various back office support Fund under the Advisory Agreement. The
Board, including all of the independent functions provided by AIM and AIM's Board compared effective contractual
trustees, approved the continuance of the equity and fixed income trading advisory fee rates at a common asset
advisory agreement (the "Advisory operation. Based on the review of these level and noted that the Fund's rate was
Agreement") between the Fund and AIM for and other factors, the Board concluded above the median rate of the funds
another year, effective July 1, 2005. that the quality of services to be advised by other advisors with investment
provided by AIM was appropriate and that strategies comparable to those of the
The Board considered the factors AIM currently is providing satisfactory Fund that the Board reviewed. The Board
discussed below in evaluating the services in accordance with the terms of noted that AIM has agreed to waive
fairness and reasonableness of the the Advisory Agreement. advisory fees of the Fund and to limit
Advisory Agreement at the meeting on June the Fund's total operating expenses, as
30, 2005 and as part of the Board's o The performance of the Fund relative to discussed below. Based on this review,
ongoing oversight of the Fund. In their comparable funds. The Board reviewed the the Board concluded that the advisory fee
deliberations, the Board and the performance of the Fund during the past rate for the Fund under the Advisory
independent trustees did not identify any one, three and five calendar years Agreement was fair and reasonable.
particular factor that was controlling, against the performance of funds advised
and each trustee attributed different by other advisors with investment o Expense limitations and fee waivers.
weights to the various factors. strategies comparable to those of the The Board noted that AIM has
Fund. The Board noted that the Fund's contractually agreed to waive advisory
One of the responsibilities of the performance for the one, three and five fees of the Fund through June 30, 2006 to
Senior Officer of the Fund, who is year periods was above the median the extent necessary so that the advisory
independent of AIM and AIM's affiliates, performance of such comparable funds. fees payable by the Fund do not exceed a
is to manage the process by which the Based on this review, the Board concluded specified maximum advisory fee rate,
Fund's proposed management fees are that no changes should be made to the which maximum rate includes breakpoints
negotiated to ensure that they are Fund and that it was not necessary to and is based on net asset levels. The
negotiated in a manner which is at arm's change the Fund's portfolio management Board considered the contractual nature
length and reasonable. To that end, the team at this time. of this fee waiver and noted that it
Senior Officer must either supervise a remains in effect until June 30, 2006.
competitive bidding process or prepare an o The performance of the Fund relative to The Board noted that AIM has
independent written evaluation. The indices. The Board reviewed the contractually agreed to waive fees and/or
Senior Officer has recommended an performance of the Fund during the past limit expenses of the Fund through April
independent written evaluation in lieu of one, three and five calendar years 30, 2006 in an amount necessary to limit
a competitive bidding process and, upon against the performance of the Lipper total annual operating expenses to a
the direction of the Board, has prepared International Multi-Cap Growth Fund specified percentage of average daily net
such an independent written evaluation. Index. The Board noted that the Fund's assets for each class of the Fund. The
Such written evaluation also considered performance was above the performance of Board considered the contractual nature
certain of the factors discussed below. such Index for the one and three year of this fee waiver/expense limitation and
In addition, as discussed below, the periods and below the Index performance noted that it remains in effect until
Senior Officer made certain for the five year period. Based on this April 30, 2006. The Board considered the
recommendations to the Board in review, the Board concluded that no effect these fee waivers/expense
connection with such written evaluation. changes should be made to the Fund and limitations would have on the Fund's
that it was not necessary to change the estimated expenses and concluded that the
The discussion below serves as a Fund's portfolio management team at this levels of fee waivers/expense limitations
summary of the Senior Officer's time. for the Fund were fair and reasonable.
independent written evaluation and
recommendations to the Board in o Meeting with the Fund's portfolio o Breakpoints and economies of scale. The
connection therewith, as well as a managers and investment personnel. With Board reviewed the structure of the
discussion of the material factors and respect to the Fund, the Board is meeting Fund's advisory fee under the Advisory
the conclusions with respect thereto that periodically with such Fund's portfolio Agreement, noting that it includes one
formed the basis for the Board's approval managers and/or other investment breakpoint. The Board reviewed the level
of the Advisory Agreement. After personnel and believes that such of the Fund's advisory fees, and noted
consideration of all of the factors below individuals are competent and able to that such fees, as a percentage of the
and based on its informed business continue to carry out their Fund's net assets, have decreased as net
judgment, the Board determined that the responsibilities under the Advisory assets increased because the Advisory
Advisory Agreement is in the best Agreement. Agreement includes a breakpoint. The
interests of the Fund and its Board noted that AIM has contractually
shareholders and that the compensation to o Overall performance of AIM. The Board agreed to waive advisory fees of the Fund
AIM under the Advisory Agreement is fair considered the overall performance of AIM through June 30, 2006 to the extent
and reasonable and would have been in providing investment advisory and necessary so that the advisory fees
obtained through arm's length portfolio administrative services to the payable by the Fund do not exceed a
negotiations. Fund and concluded that such performance specified maximum advisory fee rate,
was satisfactory. which maximum rate includes breakpoints
o The nature and extent of the advisory and is based on net asset levels. The
services to be provided by AIM. The Board o Fees relative to those of clients of Board concluded that the Fund's fee
reviewed the services to be provided by AIM with comparable investment levels under the Advisory Agreement
AIM under the Advisory Agreement. Based strategies. The Board reviewed the therefore reflect economies of scale and
on such review, the Board concluded that advisory fee rate for the Fund under the that it was not necessary to change the
the range of services to be provided by Advisory Agreement. The Board noted that advisory fee breakpoints in the Fund's
AIM under the Advisory Agreement was this rate (i) was lower than the advisory advisory fee schedule.
appropriate and that AIM currently is fee rates for a mutual fund advised by
providing services in accordance with the AIM with investment strategies comparable
terms of the Advisory Agreement. to those of the Fund; and (ii) was higher (continued)
than the advisory fee rates for nine
separately managed wrap accounts managed
by an AIM affiliate with investment
strategies comparable to those of the
Fund. The Board
7
AIM V.I. INTERNATIONAL GROWTH FUND
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage transactions
collateral from securities lending executed through "soft dollar"
arrangements (collectively, "cash arrangements. Under these arrangements,
balances") of the Fund may be invested in brokerage commissions paid by the Fund
money market funds advised by AIM and/or other funds advised by AIM are
pursuant to the terms of an SEC exemptive used to pay for research and execution
order. The Board found that the Fund may services. This research is used by AIM in
realize certain benefits upon investing making investment decisions for the Fund.
cash balances in AIM advised money market The Board concluded that such
funds, including a higher net return, arrangements were appropriate.
increased liquidity, increased
diversification or decreased transaction o AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to obligations under the Advisory Agreement,
the extent the Fund invests in affiliated and concluded that AIM has the financial
money market funds, AIM has voluntarily resources necessary to fulfill its
agreed to waive a portion of the advisory obligations under the Advisory Agreement.
fees it receives from the Fund
attributable to such investment. The o Historical relationship between the
Board further determined that the Fund and AIM. In determining whether to
proposed securities lending program and continue the Advisory Agreement for the
related procedures with respect to the Fund, the Board also considered the prior
lending Fund is in the best interests of relationship between AIM and the Fund, as
the lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with relationship, in part, because of such
the securities lending program in the knowledge. The Board also reviewed the
money market funds according to the general nature of the non-investment
procedures is in the best interests of advisory services currently performed by
the lending Fund and its respective AIM and its affiliates, such as
shareholders. administrative, transfer agency and
distribution services, and the fees
o Independent written evaluation and received by AIM and its affiliates for
recommendations of the Fund's Senior performing such services. In addition to
Officer. The Board noted that, upon their reviewing such services, the trustees
direction, the Senior Officer of the also considered the organizational
Fund, who is independent of AIM and AIM's structure employed by AIM and its
affiliates, had prepared an independent affiliates to provide those services.
written evaluation in order to assist the Based on the review of these and other
Board in determining the reasonableness factors, the Board concluded that AIM and
of the proposed management fees of the its affiliates were qualified to continue
AIM Funds, including the Fund. The Board to provide non-investment advisory
noted that the Senior Officer's written services to the Fund, including
evaluation had been relied upon by the administrative, transfer agency and
Board in this regard in lieu of a distribution services, and that AIM and
competitive bidding process. In its affiliates currently are providing
determining whether to continue the satisfactory non-investment advisory
Advisory Agreement for the Fund, the services.
Board considered the Senior Officer's
written evaluation and the recommendation o Other factors and current trends. In
made by the Senior Officer to the Board determining whether to continue the
that the Board consider implementing a Advisory Agreement for the Fund, the
process to assist them in more closely Board considered the fact that AIM, along
monitoring the performance of the AIM with others in the mutual fund industry,
Funds. The Board concluded that it would is subject to regulatory inquiries and
be advisable to implement such a process litigation related to a wide range of
as soon as reasonably practicable. issues. The Board also considered the
governance and compliance reforms being
o Profitability of AIM and its undertaken by AIM and its affiliates,
affiliates. The Board reviewed including maintaining an internal
information concerning the profitability controls committee and retaining an
of AIM's (and its affiliates') investment independent compliance consultant, and
advisory and other activities and its the fact that AIM has undertaken to cause
financial condition. The Board considered the Fund to operate in accordance with
the overall profitability of AIM, as well certain governance policies and
as the profitability of AIM in connection practices. The Board concluded that these
with managing the Fund. The Board noted actions indicated a good faith effort on
that AIM's operations remain profitable, the part of AIM to adhere to the highest
although increased expenses in recent ethical standards, and determined that
years have reduced AIM's profitability. the current regulatory and litigation
Based on the review of the profitability environment to which AIM is subject
of AIM's and its affiliates' investment should not prevent the Board from
advisory and other activities and its continuing the Advisory Agreement for the
financial condition, the Board concluded Fund.
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-92.16%
AUSTRALIA-2.59%
BHP Billiton Ltd. (Diversified Metals &
Mining)(a) 433,700 $ 7,245,291
- ------------------------------------------------------------------------
Brambles Industries Ltd. (Diversified
Commercial & Professional Services)(a)(b) 364,100 2,707,594
- ------------------------------------------------------------------------
QBE Insurance Group Ltd. (Property & Casualty
Insurance)(a)(b) 207,100 2,962,790
========================================================================
12,915,675
========================================================================
AUSTRIA-0.76%
OMV A.G. (Integrated Oil & Gas)(a) 65,200 3,800,595
========================================================================
BELGIUM-2.53%
InBev N.V. (Brewers)(a) 152,600 6,638,624
- ------------------------------------------------------------------------
KBC Group N.V. (Diversified Banks)(a) 64,329 5,988,013
========================================================================
12,626,637
========================================================================
BRAZIL-1.14%
Companhia de Bebidas das Americas-Pfd.-ADR
(Brewers)(b) 85,300 3,245,665
- ------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Pfd.-ADR (Integrated
Oil & Gas) 37,900 2,439,623
========================================================================
5,685,288
========================================================================
CANADA-6.39%
Canadian National Railway Co. (Railroads) 58,650 4,698,659
- ------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 89,000 4,411,724
- ------------------------------------------------------------------------
EnCana Corp. (Oil & Gas Exploration &
Production) 79,100 3,576,033
- ------------------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 111,400 6,541,612
- ------------------------------------------------------------------------
Power Corp. of Canada (Other Diversified
Financial Services) 112,000 3,049,991
- ------------------------------------------------------------------------
Shoppers Drug Mart Corp. (Drug Retail) 77,400 2,923,966
- ------------------------------------------------------------------------
Shoppers Drug Mart Corp. (Drug Retail)
(Acquired 11/18/03; Cost $290,178)(c)(d) 13,600 513,777
- ------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 97,900 6,174,117
========================================================================
31,889,879
========================================================================
CHINA-1.43%
China Construction Bank-Class H (Diversified
Banks) (Acquired 10/20/05; Cost
$2,877,435)(d)(e) 9,405,000 3,275,038
- ------------------------------------------------------------------------
Ping An Insurance (Group) Co. of China,
Ltd.-Class H (Life & Health Insurance)(a) 727,000 1,343,854
- ------------------------------------------------------------------------
Shanghai Electric Group Co. Ltd.-Class H
(Heavy Electrical Equipment)(a)(e) 7,298,000 2,499,533
========================================================================
7,118,425
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FRANCE-12.33%
AXA (Multi-Line Insurance)(a) 129,900 $ 4,197,944
- ------------------------------------------------------------------------
BNP Paribas S.A. (Diversified Banks) 106,938 8,653,011
- ------------------------------------------------------------------------
Bouygues S.A. (Wireless Telecommunication
Services)(b) 77,600 3,794,097
- ------------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners) 29,200 5,095,385
- ------------------------------------------------------------------------
Sanofi-Aventis (Pharmaceuticals)(a) 52,200 4,573,415
- ------------------------------------------------------------------------
Societe Generale (Diversified Banks)(b) 48,300 5,940,997
- ------------------------------------------------------------------------
Technip S.A. (Oil & Gas Equipment &
Services)(a) 7,120 431,876
- ------------------------------------------------------------------------
Technip S.A. (Oil & Gas Equipment & Services)
(Acquired 12/16/04; Cost $1,733,372)(a)(d) 38,900 2,359,549
- ------------------------------------------------------------------------
TOTAL S.A. (Integrated Oil & Gas)(a) 35,655 8,973,228
- ------------------------------------------------------------------------
Veolia Environnement (Multi-Utilities)(a) 77,671 3,519,332
- ------------------------------------------------------------------------
Vinci S.A. (Construction & Engineering) 97,720 8,404,575
- ------------------------------------------------------------------------
Vivendi Universal S.A. (Movies &
Entertainment)(a) 179,400 5,636,393
========================================================================
61,579,802
========================================================================
GERMANY-5.49%
Adidas-Salomon A.G. (Apparel, Accessories &
Luxury Goods) 25,550 4,839,579
- ------------------------------------------------------------------------
Continental A.G. (Tires & Rubber) 29,900 2,654,076
- ------------------------------------------------------------------------
Henkel KGaA-Pfd. (Household Products)(a)(b) 47,800 4,807,376
- ------------------------------------------------------------------------
MAN A.G. (Industrial Machinery) 71,200 3,799,799
- ------------------------------------------------------------------------
Merck KGaA (Pharmaceuticals)(a) 38,700 3,206,800
- ------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobile Manufacturers) 4,780 3,434,724
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)(a) 15,979 4,662,874
========================================================================
27,405,228
========================================================================
GREECE-1.21%
OPAP S.A. (Casinos & Gaming)(a) 176,050 6,061,278
========================================================================
HONG KONG-2.23%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(a) 294,000 3,008,975
- ------------------------------------------------------------------------
Esprit Holdings Ltd. (Apparel Retail)(a) 391,500 2,788,316
- ------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Industrial
Conglomerates)(a) 335,000 3,182,456
- ------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Real Estate
Management & Development) 222,000 2,161,692
========================================================================
11,141,439
========================================================================
HUNGARY-0.99%
OTP Bank Rt. (Diversified Banks)(a) 150,804 4,931,070
========================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INDIA-2.48%
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance)(a) 126,364 $ 3,390,482
- ------------------------------------------------------------------------
Infosys Technologies Ltd. (IT Consulting &
Other Services)(a) 135,180 9,014,518
========================================================================
12,405,000
========================================================================
INDONESIA-0.43%
P.T. Telekomunikasi Indonesia Tbk-Series B
(Integrated Telecommunication Services)(a) 3,600,000 2,154,235
========================================================================
IRELAND-2.87%
Allied Irish Banks PLC (Diversified Banks)(a) 67,300 1,440,966
- ------------------------------------------------------------------------
Anglo Irish Bank Corp. PLC (Diversified
Banks)(a) 585,761 8,951,575
- ------------------------------------------------------------------------
CRH PLC (Construction Materials)(a) 134,630 3,960,283
========================================================================
14,352,824
========================================================================
ISRAEL-0.76%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 88,200 3,793,482
========================================================================
ITALY-1.77%
Eni S.p.A. (Integrated Oil & Gas)(a) 316,300 8,820,781
========================================================================
JAPAN-14.30%
Astellas Pharma Inc. (Pharmaceuticals)(a) 132,500 5,140,923
- ------------------------------------------------------------------------
Canon Inc. (Office Electronics)(a)(b) 56,300 3,310,734
- ------------------------------------------------------------------------
FANUC Ltd. (Industrial Machinery)(a) 57,500 4,924,858
- ------------------------------------------------------------------------
Hoya Corp. (Electronic Equipment
Manufacturers)(a)(b) 171,300 6,194,247
- ------------------------------------------------------------------------
JSR Corp. (Specialty Chemicals)(a)(b) 169,300 4,435,741
- ------------------------------------------------------------------------
Keyence Corp. (Electronic Equipment
Manufacturers)(a)(b) 20,300 5,828,347
- ------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(a) 118,000 2,284,270
- ------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks) (Acquired 10/24/05; Cost
$2,127,848)(a)(d) 354 2,796,178
- ------------------------------------------------------------------------
Nidec Corp. (Electronic Equipment
Manufacturers)(a) 55,000 4,732,435
- ------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automobile
Manufacturers)(a)(b) 187,100 1,909,229
- ------------------------------------------------------------------------
Nitto Denko Corp. (Specialty Chemicals) 52,800 4,114,576
- ------------------------------------------------------------------------
Orix Corp. (Consumer Finance)(a) 16,100 4,156,083
- ------------------------------------------------------------------------
SMC Corp. (Industrial Machinery)(a) 18,100 2,606,845
- ------------------------------------------------------------------------
Suzuki Motor Corp. (Automobile
Manufacturers)(a) 151,900 2,834,852
- ------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(a) 96,300 5,198,384
- ------------------------------------------------------------------------
Toyota Motor Corp. (Automobile
Manufacturers)(a) 135,200 7,073,756
- ------------------------------------------------------------------------
Yamaha Motor Co., Ltd. (Motorcycle
Manufacturers)(a) 147,400 3,878,696
========================================================================
71,420,154
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
MEXICO-2.39%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services)(b) 170,308 $ 4,983,212
- ------------------------------------------------------------------------
Grupo Televisa, S.A.-ADR (Broadcasting &
Cable TV) 27,500 2,213,750
- ------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series V
(Hypermarkets & Super Centers)(b) 852,900 4,732,763
========================================================================
11,929,725
========================================================================
NETHERLANDS-1.36%
ING Groep N.V.-Dutch Ctfs. (Other Diversified
Financial Services)(a) 72,000 2,497,270
- ------------------------------------------------------------------------
Royal DSM N.V. (Specialty Chemicals)(a) 105,000 4,288,325
========================================================================
6,785,595
========================================================================
RUSSIA-0.50%
OAO LUKOIL-ADR (Integrated Oil & Gas)(a) 42,000 2,485,226
========================================================================
SINGAPORE-1.25%
DBS Group Holdings Ltd. (Diversified
Banks)(a) 322,000 3,193,525
- ------------------------------------------------------------------------
Keppel Corp. Ltd. (Industrial
Conglomerates)(a) 461,000 3,054,679
========================================================================
6,248,204
========================================================================
SOUTH AFRICA-0.52%
Standard Bank Group Ltd. (Diversified
Banks)(a) 216,281 2,587,756
========================================================================
SOUTH KOREA-2.65%
Daewoo Shipbuilding & Marine Engineering Co.,
Ltd. (Construction & Farm Machinery & Heavy
Trucks)(a)(e) 63,000 1,703,001
- ------------------------------------------------------------------------
Hyundai Motor Co. (Automobile
Manufacturers)(a)(e) 38,090 3,639,055
- ------------------------------------------------------------------------
Kookmin Bank (Diversified Banks)(a)(e) 45,440 3,398,662
- ------------------------------------------------------------------------
Samsung Electronics Co., Ltd. (Electronic
Equipment Manufacturers)(a) 6,960 4,483,337
========================================================================
13,224,055
========================================================================
SPAIN-3.06%
ACS, Actividades de Construccion y Servicios,
S.A. (Construction & Engineering)(a) 112,000 3,607,936
- ------------------------------------------------------------------------
Banco Santander Central Hispano S.A.
(Diversified Banks)(a) 309,100 4,080,399
- ------------------------------------------------------------------------
Grupo Ferrovial, S.A. (Construction &
Engineering)(a) 45,100 3,127,518
- ------------------------------------------------------------------------
Industria de Diseno Textil, S.A. (Apparel
Retail)(a) 136,725 4,459,010
========================================================================
15,274,863
========================================================================
SWEDEN-1.66%
Atlas Copco A.B.-Class A (Industrial
Machinery)(a) 118,300 2,635,915
- ------------------------------------------------------------------------
Swedish Match A.B. (Tobacco)(a) 170,900 2,011,442
- ------------------------------------------------------------------------
Volvo A.B.-Class B (Construction & Farm
Machinery & Heavy Trucks)(a) 77,080 3,633,867
========================================================================
8,281,224
========================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SWITZERLAND-8.00%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)(a)(f) 173,014 $ 7,532,133
- ------------------------------------------------------------------------
Credit Suisse Group (Diversified Capital
Markets)(a) 89,400 4,557,422
- ------------------------------------------------------------------------
Nestle S.A. (Packaged Foods & Meats)(a) 14,860 4,437,394
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 47,810 7,178,777
- ------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(a)(e) 68,685 8,546,900
- ------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets) 80,900 7,702,123
========================================================================
39,954,749
========================================================================
TAIWAN-1.86%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services) 717,043 3,931,815
- ------------------------------------------------------------------------
MediaTek Inc. (Semiconductors)(a) 240,000 2,791,581
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors)(b) 260,339 2,579,959
========================================================================
9,303,355
========================================================================
THAILAND-0.01%
Siam Commercial Bank PCL (Diversified
Banks)(a) 32,800 41,575
========================================================================
TURKEY-0.70%
Akbank T.A.S. (Diversified Banks)(a) 427,500 3,484,258
========================================================================
UNITED KINGDOM-8.50%
Aviva PLC (Multi-Line Insurance) 342,783 4,157,795
- ------------------------------------------------------------------------
BP PLC (Integrated Oil & Gas)(a) 181,800 1,946,486
- ------------------------------------------------------------------------
Capita Group PLC (Human Resource & Employment
Services) 404,592 2,900,999
- ------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 225,900 3,641,072
- ------------------------------------------------------------------------
Imperial Tobacco Group PLC (Tobacco)(a) 275,805 8,236,340
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
International Power PLC (Independent Power
Producers & Energy Traders)(a) 861,656 $ 3,550,786
- ------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(a) 161,781 5,338,544
- ------------------------------------------------------------------------
Shire PLC (Pharmaceuticals) 367,374 4,702,578
- ------------------------------------------------------------------------
Tesco PLC (Food Retail)(a) 1,006,921 5,739,129
- ------------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services)(a) 1,018,498 2,199,369
========================================================================
42,413,098
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $303,633,911) 460,115,475
========================================================================
MONEY MARKET FUNDS-4.37%
Liquid Assets Portfolio-Institutional
Class(g) 10,902,709 10,902,709
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(g) 10,902,709 10,902,709
========================================================================
Total Money Market Funds (Cost
$21,805,418) 21,805,418
========================================================================
TOTAL INVESTMENTS-96.53% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $325,439,329) 481,920,893
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-5.18%
Liquid Assets Portfolio-Institutional
Class(g)(h) 12,938,532 12,938,532
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 12,938,532 12,938,532
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $25,877,064) 25,877,064
========================================================================
TOTAL INVESTMENTS-101.71% (Cost $351,316,393) 507,797,957
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.71%) (8,531,851)
========================================================================
NET ASSETS-100.00% $499,266,106
________________________________________________________________________
========================================================================
</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 value of these securities at December 31, 2005 was $317,495,506,
which represented 63.59% of the Fund's Net Assets. See Note 1A.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2005 represented 0.10% of the Fund's Net Assets. 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 aggregate value of these securities at December 31, 2005 was $8,944,542,
which represented 1.79% of the Fund's Net Assets. Unless otherwise
indicated, these securities are 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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $303,633,911)* $460,115,475
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $47,682,482) 47,682,482
=============================================================
Total investments (cost $351,316,393) 507,797,957
=============================================================
Foreign currencies, at value (cost $3,850,645) 3,865,398
- -------------------------------------------------------------
Receivables for:
Investments sold 434,878
- -------------------------------------------------------------
Fund shares sold 25,946,471
- -------------------------------------------------------------
Dividends 465,808
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 53,806
- -------------------------------------------------------------
Other assets 2,771
=============================================================
Total assets 538,567,089
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 464,469
- -------------------------------------------------------------
Fund shares reacquired 12,533,017
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 76,190
- -------------------------------------------------------------
Collateral upon return of securities loaned 25,877,064
- -------------------------------------------------------------
Accrued administrative services fees 265,418
- -------------------------------------------------------------
Accrued distribution fees -- Series II 33,363
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 737
- -------------------------------------------------------------
Accrued transfer agent fees 1,789
- -------------------------------------------------------------
Accrued operating expenses 48,936
=============================================================
Total liabilities 39,300,983
=============================================================
Net assets applicable to shares outstanding $499,266,106
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $397,555,292
- -------------------------------------------------------------
Undistributed net investment income 3,973,621
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (58,755,766)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 156,492,959
=============================================================
$499,266,106
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $444,608,011
_____________________________________________________________
=============================================================
Series II $ 54,658,095
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 19,185,353
_____________________________________________________________
=============================================================
Series II 2,376,562
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 23.17
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 23.00
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $24,828,638 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$820,231) $ 8,107,409
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$158,012 after compensation to
counterparties of $673,794) 937,296
- ------------------------------------------------------------
Interest 5,998
============================================================
Total investment income 9,050,703
============================================================
EXPENSES:
Advisory fees 2,975,590
- ------------------------------------------------------------
Administrative services fees 996,048
- ------------------------------------------------------------
Custodian fees 389,800
- ------------------------------------------------------------
Distribution fees -- Series II 87,003
- ------------------------------------------------------------
Transfer agent fees 35,907
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 27,162
- ------------------------------------------------------------
Other 97,565
============================================================
Total expenses 4,609,075
============================================================
Less: Fees waived (5,724)
============================================================
Net expenses 4,603,351
============================================================
Net investment income 4,447,352
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (Net of tax on sale
of foreign investments of
$146,495) -- Note 1G 27,719,692
- ------------------------------------------------------------
Foreign currencies (127,048)
============================================================
27,592,644
============================================================
Change in net unrealized appreciation
(depreciation) on:
Investment securities (Net of change in
estimated tax of foreign investment held
of $1,833) -- Note 1G 39,598,177
- ------------------------------------------------------------
Foreign currencies (75,597)
============================================================
39,522,580
============================================================
Net gain from investment securities and
foreign currencies 67,115,224
============================================================
Net increase in net assets resulting from
operations $71,562,576
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,447,352 $ 2,817,044
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 27,592,644 21,621,475
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 39,522,580 46,235,227
==========================================================================================
Net increase in net assets resulting from operations 71,562,576 70,673,746
==========================================================================================
Distributions to shareholders from net investment income:
Series I (2,648,284) (2,025,065)
- ------------------------------------------------------------------------------------------
Series II (290,407) (98,282)
==========================================================================================
Decrease in net assets resulting from distributions (2,938,691) (2,123,347)
==========================================================================================
Share transactions-net:
Series I 35,930,996 (9,205,473)
- ------------------------------------------------------------------------------------------
Series II 26,609,350 7,105,347
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 62,540,346 (2,100,126)
==========================================================================================
Net increase in net assets 131,164,231 66,450,273
==========================================================================================
NET ASSETS:
Beginning of year 368,101,875 301,651,602
==========================================================================================
End of year (including undistributed net investment income
of $3,973,621 and $2,592,008, respectively) $499,266,106 $368,101,875
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. INTERNATIONAL GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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 $250 million 0.75%
- -------------------------------------------------------------------
Over $250 million 0.70%
__________________________________________________________________
===================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through April 30, 2006. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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. 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 year ended December 31, 2005, AIM waived fees of $5,724.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $103,662 for
accounting and fund administrative services and reimbursed $892,386 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 year ended
December 31, 2005, the Fund paid AISI $35,907.
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 year ended December
31, 2005, the Series II shares paid $87,003.
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 year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $13,314,230 $ 59,393,617 $ (61,805,138) $ -- $10,902,709 $388,535 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 13,314,230 59,393,617 (61,805,138) -- 10,902,709 390,749 --
==================================================================================================================================
Subtotal $26,628,460 $118,787,234 $(123,610,276) $ -- $21,805,418 $779,284 $ --
==================================================================================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $18,094,922 $135,172,877 $(140,329,267) $ -- $12,938,532 $ 78,709 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 18,094,922 134,216,798 (139,373,188) -- 12,938,532 79,303 --
===================================================================================================================================
Subtotal $36,189,844 $269,389,675 $(279,702,455) $ -- $25,877,064 $ 158,012 $ --
===================================================================================================================================
Total $62,818,304 $388,176,909 $(403,312,731) $ -- $47,682,482 $ 937,296 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $5,373
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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.
AIM V.I. INTERNATIONAL GROWTH FUND
At December 31, 2005, securities with an aggregate value of $24,828,638 were
on loan to brokers. The loans were secured by cash collateral of $25,877,064
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $158,012 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $2,938,691 $2,123,347
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 6,376,609
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 153,116,383
- ----------------------------------------------------------------------------
Temporary book/tax differences (67,259)
- ----------------------------------------------------------------------------
Capital loss carryforward (57,585,497)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (129,422)
- ----------------------------------------------------------------------------
Shares of beneficial interest 397,555,292
============================================================================
Total net assets $499,266,106
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition of unrealized gain for tax purposes on passive
foreign investment companies. The tax-basis unrealized appreciation on
investments amount includes appreciation on foreign currencies of $11,395.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $57,154,087 of capital loss carryforward in the fiscal
year ended December 31, 2006.
The Fund utilized $27,621,125 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2006 $ 531,811
- -----------------------------------------------------------------------------
December 31, 2007 431,410
- -----------------------------------------------------------------------------
December 31, 2009 10,733,015
- -----------------------------------------------------------------------------
December 31, 2010 45,889,261
=============================================================================
Total capital loss carryforward $57,585,497
_____________________________________________________________________________
=============================================================================
</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. INTERNATIONAL GROWTH FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $189,939,447 and $137,410,630, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $153,778,758
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (673,770)
==============================================================================
Net unrealized appreciation of investment securities $153,104,988
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $354,692,969.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income (loss)
was decreased by $127,048 and undistributed net realized gain (loss) was
increased by $127,048. This reclassification had no effect on the net assets of
the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2005(a) 2004
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 8,088,898 $167,053,477 3,454,168 $59,721,271
- ---------------------------------------------------------------------------------------------------------------------
Series II 1,749,163 36,041,813 794,058 13,743,254
=====================================================================================================================
Issued as reinvestment of dividends:
Series I 109,906 2,525,639 99,666 1,901,625
- ---------------------------------------------------------------------------------------------------------------------
Series II 12,732 290,407 5,179 98,282
=====================================================================================================================
Reacquired:
Series I (6,547,697) (133,648,120) (4,143,506) (70,828,369)
- ---------------------------------------------------------------------------------------------------------------------
Series II (479,060) (9,722,870) (392,698) (6,736,189)
=====================================================================================================================
2,933,942 $ 62,540,346 (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 owns 40% 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. INTERNATIONAL 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
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.77 $ 16.04 $ 12.49 $ 14.91 $ 20.12
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23(a) 0.15(a) 0.09(a) 0.06(a) 0.08(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.31 3.70 3.54 (2.40) (4.83)
=================================================================================================================================
Total from investment operations 3.54 3.85 3.63 (2.34) (4.75)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.14) (0.12) (0.08) (0.08) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.41)
=================================================================================================================================
Total distributions (0.14) (0.12) (0.08) (0.08) (0.46)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 23.17 $ 19.77 $ 16.04 $ 12.49 $ 14.91
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 17.93% 24.00% 29.06% (15.67)% (23.53)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $444,608 $346,605 $290,680 $247,580 $347,528
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.11%(c) 1.14% 1.10% 1.09% 1.05%
=================================================================================================================================
Ratio of net investment income to average net assets 1.11%(c) 0.90% 0.69% 0.41% 0.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $372,425,669.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 19, 2001
--------------------------------------------------- (DATE SALES COMMENCED) TO
2005 2004 2003 2002 DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.65 $ 15.97 $ 12.45 $14.90 $14.42
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.11(a) 0.06(a) 0.03(a) 0.01(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.30 3.66 3.51 (2.40) 0.93
=================================================================================================================================
Total from investment operations 3.48 3.77 3.57 (2.37) 0.94
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.09) (0.05) (0.08) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.41)
=================================================================================================================================
Total distributions (0.13) (0.09) (0.05) (0.08) (0.46)
=================================================================================================================================
Net asset value, end of period $ 23.00 $ 19.65 $ 15.97 $12.45 $14.90
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 17.70% 23.63% 28.68% (15.89)% 6.63%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,658 $21,497 $10,972 $4,751 $ 374
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.39% 1.35% 1.31%(d) 1.30%(e)
=================================================================================================================================
Ratio of net investment income to average net
assets 0.86%(c) 0.65% 0.44% 0.19% 0.22%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 48% 79% 71% 109%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $34,801,437.
(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%.
(e) Annualized.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds and Shareholders of
AIM V.I. International Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. International Growth Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. INTERNATIONAL GROWTH FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0.00% is eligible for the dividends received deduction for
corporations.
For the fiscal year ended December 31, 2005, the amount of income received by
the Fund from sources within foreign countries was $0.279 (representing a total
of $5,795,274). The amount of taxes paid by the Fund to such countries for the
fiscal year ended December 31, 2005 was $0.015 per share (representing a total
of $319,551). The following table provides a breakdown by country of ordinary
income received and foreign taxes paid by the Fund during the fiscal year ended
December 31, 2005. The per share amount is based on shareholders of record on
December 12, 2005.
<Table>
<Caption>
FOREIGN
COUNTRY GROSS INCOME % TAX PAID %
- ----------------------------------------------------------------------------------
Australia 3.14% 0.00%
- ----------------------------------------------------------------------------------
Austria 0.69% 3.20%
- ----------------------------------------------------------------------------------
Belgium 0.34% 1.58%
- ----------------------------------------------------------------------------------
Brazil 1.33% 2.09%
- ----------------------------------------------------------------------------------
Canada 2.99% 13.86%
- ----------------------------------------------------------------------------------
France 5.16% 24.25%
- ----------------------------------------------------------------------------------
Germany 0.51% 2.69%
- ----------------------------------------------------------------------------------
Greece 3.70% 0.00%
- ----------------------------------------------------------------------------------
Hong Kong 2.82% 0.00%
- ----------------------------------------------------------------------------------
Hungary 1.09% 5.03%
- ----------------------------------------------------------------------------------
India 0.96% 0.00%
- ----------------------------------------------------------------------------------
Ireland 1.91% 0.00%
- ----------------------------------------------------------------------------------
Israel 0.24% 1.36%
- ----------------------------------------------------------------------------------
Italy 2.05% 9.10%
- ----------------------------------------------------------------------------------
Japan 4.12% 8.82%
- ----------------------------------------------------------------------------------
Mexico 2.26% 0.00%
- ----------------------------------------------------------------------------------
Netherlands 0.66% 3.07%
- ----------------------------------------------------------------------------------
Norway 0.07% 0.32%
- ----------------------------------------------------------------------------------
Singapore 3.05% 0.00%
- ----------------------------------------------------------------------------------
South Africa 1.01% 0.00%
- ----------------------------------------------------------------------------------
South Korea 1.11% 5.56%
- ----------------------------------------------------------------------------------
Spain 1.83% 8.47%
- ----------------------------------------------------------------------------------
Sweden 0.80% 3.69%
- ----------------------------------------------------------------------------------
Switzerland 2.43% 2.82%
- ----------------------------------------------------------------------------------
Taiwan 0.70% 4.04%
- ----------------------------------------------------------------------------------
Thailand 0.02% 0.05%
- ----------------------------------------------------------------------------------
United Kingdom 13.72% 0.00%
- ----------------------------------------------------------------------------------
Various 0.00% 0.00%
==================================================================================
Subtotal 58.71% 100.00%
==================================================================================
United States 41.29% 0.00%
==================================================================================
Total 100.00% 100.00%
__________________________________________________________________________________
==================================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2001 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William P. Kethler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
AIM V.I. LARGE CAP GROWTH FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. LARGE CAP GROWTH FUND
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
Our fundamental analysis seeks to
determine the company's drivers of
earnings. We challenge Wall Street
===================================================================================== assumptions to determine where earnings
PERFORMANCE SUMMARY estimates are conservative. Our team
meets with company management to
For the year ended December 31, 2005, ======================================== evaluate proprietary products and the
AIM V.I. Large Cap Growth Fund FUND VS. INDEXES quality of management. We also analyze
outperformed its broad market and trends and the competitive landscape. We
style-specific indexes. The Fund TOTAL RETURNS, 12/31/04--12/31/05, believe stocks that pass our
outperformed its broad market index EXCLUDING VARIABLE PRODUCT ISSUER quantitative and fundamental screens are
largely on the strength of strong stock CHARGES. IF VARIABLE PRODUCT ISSUER less likely to underperform.
selection in the health care sector. On CHARGES WERE INCLUDED, RETURNS WOULD BE
average, returns for our health care LOWER. We construct the portfolio using a
holdings were more than three times bottom-up strategy, focusing on
greater than the returns of those of the Series I Shares 7.30% individual stocks. While there are no
index, and the Fund had twice as much formal sector guidelines or constraints,
exposure to the sector as did the index. Series II Shares 7.15 internal controls and proprietary
software help us monitor risk levels and
Your Fund outperformed its Standard & Poor's Composite sector concentration.
style-specific index largely on the Index of 500 Stocks
basis of its energy and health care (S&P 500 Index) Our sell process is designed to avoid
holdings. The Fund benefited, relative (Broad Market Index) 4.91 "high risk" situations we believe lead
to its index, because we were overweight to underperformance. Examples of "high
the energy sector. Strong returns and an Russell 1000 Growth Index risk" situations include:
overweight position in health care (Style-specific Index) 5.26
o deteriorating business prospects
Lipper Large-Cap Growth Fund
Index (Peer Group Index) 7.58 o extended valuations
SOURCE: LIPPER, INC. o unsustainable earnings growth
========================================
o stretched balance sheets
stocks also helped the Fund's
performance relative to its MARKET CONDITIONS AND YOUR FUND
style-specific index.
Despite widespread concern about the
Your Fund's long-term performance potential impact of rising short-term
appears on Pages 4 and 5. interest rates and historically high
===================================================================================== energy prices, the U.S. economy showed
signs of strength for the year. Economic
HOW WE INVEST correlated with outperformance in the activity expanded, inflation remained
large-cap growth universe, including: contained and corporate profits
We believe a growth investment strategy generally rose. Late in the year, some
is an essential component of a o earnings revision--breadth and worried that higher energy prices and
diversified portfolio. magnitude of positive earnings. rising interest rates
Our investment process combines o earnings sustainability and use of
quantitative and fundamental analysis to capital--review financial statements to
uncover companies exhibiting long-term, determine sustainability of growth and
sustainable earnings and cash flow long-term profit potential
growth that is not yet reflected in
investor expectations or equity o valuation--compare a stock's price to
valuations. its cash flow and earnings measures
Our quantitative model ranks
companies based on factors we have found
to be highly
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES TOP 10 EQUITY HOLDINGS
By sector 1. Managed Health Care 9.9% 1. UnitedHealth Group Inc. 4.0%
Health Care 29.8% 2. Semiconductors 8.3 2. Apple Computer, Inc. 3.4
Information Technology 26.2 3. Aerospace & Defense 6.6 3. Motorola, Inc. 3.0
Financials 14.3 4. Pharmaceuticals 6.3 4. Aetna Inc. 2.8
Industrials 11.5 5. Communications Equipment 5.9 5. Alcon, Inc. (Switzerland) 2.7
Consumer Discretionary 7.7 6. Biotechnology 5.8 6. Amgen Inc. 2.6
Energy 6.1 7. Investment Banking & Brokerage 5.7 7. Burlington Northern Santa
Fe Corp. 2.4
Three other sectors each less 8. Computer Hardware 5.6
than 3% of total net assets 5.3 8. Lehman Brothers Holdings Inc. 2.3
9. Life & Health Insurance 2.9
Money Market Funds 9. Valero Energy Corp. 2.2
Plus Other Assets Less Liabilities -0.9 10. Department Stores 2.8
10. Google Inc.-Class A 2.2
TOTAL NET ASSETS $5.0 MILLION
TOTAL NUMBER OF HOLDINGS 75
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
======================================== ======================================== ========================================
2
AIM V.I. LARGE CAP GROWTH FUND
might crimp consumer spending, which spending. Consumer discretionary stocks THE VIEWS AND OPINIONS EXPRESSED IN
accounts for approximately two-thirds of detracting from Fund performance MANAGEMENT'S DISCUSSION OF FUND
the U.S. economy. included online auctioneer eBAY, PERFORMANCE ARE THOSE OF A I M ADVISORS,
high-end audio and visual products INC. THESE VIEWS AND OPINIONS ARE
Health care and energy stocks were manufacturer HARMAN INTERNATIONAL and SUBJECT TO CHANGE AT ANY TIME BASED ON
the leading contributors to your Fund's retailer COSTCO. We eliminated all three FACTORS SUCH AS MARKET AND ECONOMIC
performance for the year. stocks from the portfolio before CONDITIONS. THESE VIEWS AND OPINIONS MAY
year-end. NOT BE RELIED UPON AS INVESTMENT ADVICE
Within the health care sector, our OR RECOMMENDATIONS, OR AS AN OFFER FOR A
research led us to managed health care Performance of the Fund's information PARTICULAR SECURITY. THE INFORMATION IS
stocks. Many managed health care technology holdings varied widely. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
companies reported strong earnings in Computer manufacturer DELL and computer OF ANY MARKET, COUNTRY, INDUSTRY,
recent quarters by aggressively software manufacturer SYMANTEC hurt Fund SECURITY OR THE FUND. STATEMENTS OF FACT
controlling costs. This was a function performance for the year. Dell, the ARE FROM SOURCES CONSIDERED RELIABLE,
of lower hospital utilization rates and Fund's biggest holding six months ago, BUT A I M ADVISORS, INC. MAKES NO
plan participants switching from uncharacteristically stumbled by REPRESENTATION OR WARRANTY AS TO THEIR
name-brand to generic drugs. AETNA, mispricing its products relative to its COMPLETENESS OR ACCURACY. ALTHOUGH
UNITEDHEALTH GROUP, WELLPOINT and CIGNA competitors, resulting in HISTORICAL PERFORMANCE IS NO GUARANTEE
were among the managed health care lower-than-expected revenues. As a OF FUTURE RESULTS, THESE INSIGHTS MAY
companies that aided Fund performance. result, the stock fell more than 7% the HELP YOU UNDERSTAND OUR INVESTMENT
Our research also led us to pharmacy day after the company announced its MANAGEMENT PHILOSOPHY.
benefit manager EXPRESS SCRIPTS, which second quarter results. We sold more
contributed to performance. than half of our Dell holdings following
the announcement and are now underweight GEOFFREY V. KEELING,
We generally avoided stocks of a the stock relative to our style-specific [KEELING Chartered Financial
number of U.S. pharmaceutical companies index. PHOTO] Analyst, senior
due to their weak product pipelines, portfolio manager, is
patent expiration and litigation risk. Symantec, best known for its Norton co-manager of AIM V.I. Large Cap Growth
During the year, we purchased several anti-virus software, made a Fund. He joined AIM in 1995 and assumed
non-U.S. pharmaceutical stocks, controversial acquisition, and many on his present responsibilities in 1999.
including Switzerland's ROCHE HOLDING Wall Street feared the merger might Mr. Keeling received a B.B.A. in finance
and NOVARTIS, both of which have distract management. We shared those from The University of Texas at Austin.
encouraging new cancer treatments. Each concerns and eliminated the stock from
company boasts a promising product the Fund, but not before it declined ROBERT L. SHOSS,
pipeline. significantly. [SHOSS senior portfolio
PHOTO] manager, is co-manager
Worldwide energy production and One especially bright spot for the of AIM V.I. Large Cap
refining capacity has struggled to keep Fund was APPLE COMPUTER. We saw Growth Fund. He joined AIM in 1995 and
pace with rising demand. Continued increased evidence that the company is assumed his present responsibilities in
explosive economic growth in China and benefiting from the phenomenal success 1999. Mr. Shoss received a B.A. from The
India, and a severe hurricane season of its iPod--Registered Trademark-- University of Texas at Austin and an
along the U.S. Gulf Coast, pushed the music player. In recent quarters, data M.B.A. and a J.D. from the University of
price of oil to record highs in 2005. We have shown that consumers are buying Houston.
believe that any significant improvement more Macintosh--Registered Trademark--
in supply is likely to be years away. computers to go with their new iPods. Assisted by the Large/Multi-Cap Growth
Apple was one of the Fund's Team
Given these trends, many energy best-performing stocks for the year.
companies have seen notable growth in
their revenue and earnings, and have IN CLOSING
used those earnings to improve their
balance sheets and to benefit As the year ended, we noted that many
shareholders through stock buybacks and large-cap growth companies boasted
increased dividends. For the year, your healthy cash flows, strong balance
Fund was overweight energy stocks sheets, positive earnings growth and
relative to its style-specific index, managements that were using capital for
with refiner VALERO ENERGY and the benefit of shareholders. And yet,
integrated oil producer CONOCOPHILLIPS large-cap growth stocks appear to be
among the stocks benefiting Fund attractively valued relative to other
performance. stocks with less attractive
fundamentals. As always, we thank you
As a group, consumer discretionary for your continued investment in AIM
stocks were the biggest drag on Fund V.I. Large Cap Growth Fund. [RIGHT ARROW GRAPHIC]
performance for the year. Rising
short-term interest rates, higher FOR A DISCUSSION OF THE RISKS OF
minimum monthly credit card payments and INVESTING IN YOUR FUND, INDEXES USED IN
historically high gasoline prices likely THIS REPORT AND YOUR FUND'S LONG-TERM
caused some consumers to moderate their PERFORMANCE, PLEASE TURN TO PAGES 4 AND
discretionary 5.
3
AIM V.I. LARGE CAP GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 8/29/03, INDEX DATA FROM 8/31/03
================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. LIPPER RUSSELL 1000 S&P 500
LARGE CAP LARGE-CAP GROWTH INDEX INDEX
GROWTH GROWTH FUND
FUND - SERIES INDEX
I SHARES
8/29/03 $10000
8/03 10000 $10000 $10000 $10000
9/03 9840 9787 9893 9894
10/03 10610 10381 10449 10454
11/03 10830 10480 10558 10545
12/03 10917 10775 10923 11098
1/04 11107 10982 11146 11302
2/04 11117 11029 11217 11459
3/04 11177 10906 11009 11286
4/04 10916 10661 10881 11109
5/04 11257 10854 11084 11261
6/04 11457 11010 11222 11480
7/04 10777 10359 10588 11100
8/04 10676 10286 10536 11145
9/04 10987 10527 10636 11265
10/04 10958 10654 10802 11437
11/04 11569 11129 11173 11900
12/04 11909 11578 11611 12305
1/05 11617 11180 11224 12005
2/05 11738 11253 11344 12257
3/05 11547 11048 11137 12041
4/05 11075 10808 10925 11812
5/05 11617 11408 11453 12188
6/05 11777 11430 11411 12205
7/05 12148 12005 11969 12659
8/05 11998 11877 11815 12544
9/05 12329 12019 11869 12645
10/05 12169 11941 11754 12434
11/05 12691 12488 12261 12904
12/05 12793 12456 12222 12909
================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
4
======================================== FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR PER NASD REQUIREMENTS, THE MOST
AVERAGE ANNUAL TOTAL RETURNS LOSS WHEN YOU SELL SHARES. SERIES I AND RECENT MONTH-END PERFORMANCE DATA AT THE
As of 12/31/05 SERIES II SHARES INVEST IN THE SAME FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PORTFOLIO OF SECURITIES AND WILL HAVE CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
SERIES I SHARES SUBSTANTIALLY SIMILAR PERFORMANCE, INFORMATION LINE, 866-702-4402. AS
Inception (8/29/03) 11.04% EXCEPT TO THE EXTENT THAT EXPENSES BORNE MENTIONED ABOVE, FOR THE MOST RECENT
1 Year 7.30 BY EACH CLASS DIFFER. MONTH-END PERFORMANCE INCLUDING VARIABLE
PRODUCT CHARGES, PLEASE CONTACT YOUR
SERIES II SHARES AIM V.I. LARGE CAP GROWTH FUND, A VARIABLE PRODUCT ISSUER OR FINANCIAL
Inception (8/29/03) 10.87% SERIES PORTFOLIO OF AIM VARIABLE ADVISOR.
1 Year 7.15 INSURANCE FUNDS, IS CURRENTLY OFFERED
THROUGH INSURANCE COMPANIES ISSUING HAD THE ADVISOR NOT WAIVED FEES
======================================== VARIABLE PRODUCTS. YOU CANNOT PURCHASE AND/OR REIMBURSED EXPENSES, PERFORMANCE
CUMULATIVE TOTAL RETURNS SHARES OF THE FUND DIRECTLY. PERFORMANCE WOULD HAVE BEEN LOWER.
FIGURES GIVEN REPRESENT THE FUND AND ARE
Six months ended 12/31/05 NOT INTENDED TO REFLECT ACTUAL VARIABLE
Series I Shares 8.49% PRODUCT VALUES. THEY DO NOT REFLECT
Series II Shares 8.34 SALES CHARGES, EXPENSES AND FEES
======================================== ASSESSED IN CONNECTION WITH A VARIABLE
PRODUCT. SALES CHARGES, EXPENSES AND
THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
PERFORMANCE MAY BE LOWER OR HIGHER.
PLEASE CONTACT YOUR VARIABLE PRODUCT
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
RECENT MONTH-END VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT
FUND EXPENSES, REINVESTED DISTRIBUTIONS
AND CHANGES IN NET ASSET VALUE.
INVESTMENT RETURN AND PRINCIPAL VALUE
WILL
PRINCIPAL RISKS OF INVESTING IN THE FUND growth funds tracked by Lipper, Inc., an OTHER INFORMATION
independent mutual fund performance
The Fund may invest a portion of its monitor. The returns shown in the management's
assets in synthetic instruments, such as discussion of Fund performance are based
warrants, futures, options, exchange The unmanaged Russell 1000--Registered on net asset values calculated for
traded funds and American Depositary Trademark-- Growth Index is a subset of shareholder transactions. Generally
Receipts, the value of which may not the unmanaged Russell 1000--Registered accepted accounting principles require
correlate perfectly with the overall Trademark-- Index, which represents the adjustments to be made to the net assets
securities market. Risks associated with performance of the stocks of of the Fund at period end for financial
synthetic instruments may include large-capitalization companies; the reporting purposes, and as such, the net
counter party risk and sensitivity to Growth subset measures the performance asset values for shareholder
interest rate changes and market price of Russell 1000 companies with higher transactions and the returns based on
fluctuations. See the prospectus for price/book ratios and higher forecasted those net asset values may differ from
more details. growth values. the net asset values and returns
reported in the Financial Highlights.
The Fund may invest up to 25% of its The unmanaged Standard & Poor's Additionally, the returns and net asset
assets in the securities of non-U.S. Composite Index of 500 Stocks (the S&P values shown throughout this report are
issuers. International investing 500--Registered Trademark-- Index) is at the Fund level only and do not
presents certain risks not associated an index of common stocks frequently include variable product issuer charges.
with investing solely in the United used as a general measure of U.S. stock If such charges were included, the total
States. These include risks relating to market performance. returns would be lower.
fluctuations in the value of the U.S.
dollar relative to the values of other The Fund is not managed to track the Industry classifications used in this
currencies, the custody arrangements performance of any particular index, report are generally according to the
made for the Fund's foreign holdings, including the indexes defined here, and Global Industry Classification Standard,
differences in accounting, political consequently, the performance of the which was developed by and is the
risks and the lesser degree of public Fund may deviate significantly from the exclusive property and a service mark of
information required to be provided by performance of the indexes. Morgan Stanley Capital International
non-U.S. companies. Inc. and Standard & Poor's.
A direct investment cannot be made in
ABOUT INDEXES USED IN THIS REPORT an index. Unless otherwise indicated,
index results include reinvested
The unmanaged Lipper Large-Cap Growth dividends, and they do not reflect sales
Fund Index represents an average of the charges. Performance of an index of
performance of the 30 largest funds reflects fund expenses;
large-capitalization performance of a market index does not.
5
AIM V.I. LARGE CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
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
July 1, 2005, through December 31, 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 December 31, 2005, appear in the
The table below provides information table "Cumulative Total Returns" on Page
about actual account values and actual 5.
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,084.90 $5.31 $1,020.11 $5.14 1.01%
Series II 1,000.00 1,083.40 6.62 1,018.85 6.41 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. LARGE CAP GROWTH FUND
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 rate for the Fund (data on the total
Insurance Funds (the "Board") oversees by AIM. The Board reviewed the management fees paid by the other
the management of AIM V.I. Large Cap credentials and experience of the unaffiliated mutual fund was
Growth Fund (the "Fund") and, as officers and employees of AIM who will unavailable); (iii) was lower than the
required by law, determines annually provide investment advisory services to advisory fee rates for an offshore fund
whether to approve the continuance of the Fund. In reviewing the for which an AIM affiliate serves as
the Fund's advisory agreement with A I M qualifications of AIM to provide advisor with investment strategies
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board comparable to those of the Fund; and
recommendation of the Investments reviewed the qualifications of AIM's (iv) was higher than the advisory fee
Committee of the Board, which is investment personnel and considered such rates for six separately managed wrap
comprised solely of independent issues as AIM's portfolio and product accounts managed by an AIM affiliate
trustees, at a meeting held on June 30, review process, various back office with investment strategies comparable to
2005, the Board, including all of the support functions provided by AIM and those of the Fund. The Board noted that
independent trustees, approved the AIM's equity and fixed income trading AIM has agreed to waive advisory fees of
continuance of the advisory agreement operations. Based on the review of these the Fund and to limit the Fund's total
(the "Advisory Agreement") between the and other factors, the Board concluded operating expenses, as discussed below.
Fund and AIM for another year, effective that the quality of services to be Based on this review, the Board
July 1, 2005. provided by AIM was appropriate and that concluded that the advisory fee rate for
AIM currently is providing satisfactory the Fund under the Advisory Agreement
The Board considered the factors services in accordance with the terms of 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 calendar year against the Board compared effective contractual
independent trustees did not identify performance of funds advised by other advisory fee rates at a common asset
any particular factor that was advisors with investment strategies level and noted that the Fund's rate was
controlling, and each trustee attributed comparable to those of the Fund. The above the median rate of the funds
different weights to the various Board noted that the Fund's performance advised by other advisors with
factors. was above the median performance of such investment strategies comparable to
comparable funds for the one year those of the Fund that the Board
One of the responsibilities of the period. Based on this review, the Board reviewed. The Board noted that AIM has
Senior Officer of the Fund, who is concluded that no changes should be made agreed to waive advisory fees of the
independent of AIM and AIM's affiliates, to the Fund and that it was not Fund and to limit the Fund's total
is to manage the process by which the necessary to change the Fund's portfolio operating expenses, as discussed below.
Fund's proposed management fees are management team at this time. Based on this review, the Board
negotiated to ensure that they are concluded that the advisory fee rate for
negotiated in a manner which is at arm's o The performance of the Fund relative the Fund under the Advisory Agreement
length and reasonable. To that end, the to indices. The Board reviewed the was fair and reasonable.
Senior Officer must either supervise a performance of the Fund during the past
competitive bidding process or prepare calendar year against the performance of o Expense limitations and fee waivers.
an independent written evaluation. The the Lipper Large-Cap Growth Index. The The Board noted that AIM has
Senior Officer has recommended an Board noted that the Fund's performance contractually agreed to waive advisory
independent written evaluation in lieu was above the performance of such Index fees of the Fund through June 30, 2006
of a competitive bidding process and, for the one year period. Based on this to the extent necessary so that the
upon the direction of the Board, has review, the Board concluded that no advisory fees payable by the Fund do not
prepared such an independent written changes should be made to the Fund and exceed a specified maximum advisory fee
evaluation. Such written evaluation also that it was not necessary to change the rate, which maximum rate includes
considered certain of the factors Fund's portfolio management team at this breakpoints and is based on net asset
discussed below. In addition, as time. levels. The Board considered the
discussed below, the Senior Officer made contractual nature of this fee waiver
certain recommendations to the Board in o Meeting with the Fund's portfolio and noted that it remains in effect
connection with such written evaluation. managers and investment personnel. With until June 30, 2006. The Board noted
respect to the Fund, the Board is that AIM has contractually agreed to
The discussion below serves as a meeting periodically with such Fund's waive fees and/or limit expenses of the
summary of the Senior Officer's portfolio managers and/or other Fund through June 30, 2006 in an amount
independent written evaluation and investment personnel and believes that necessary to limit total annual
recommendations to the Board in such individuals are competent and able operating expenses to a specified
connection therewith, as well as a to continue to carry out their percentage of average daily net assets
discussion of the material factors and responsibilities under the Advisory for each class of the Fund. The Board
the conclusions with respect thereto Agreement. considered the contractual nature of
that formed the basis for the Board's this fee waiver/expense limitation and
approval of the Advisory Agreement. o Overall performance of AIM. The Board noted that it remains in effect until
After consideration of all of the considered the overall performance of June 30, 2006. The Board considered the
factors below and based on its informed AIM in providing investment advisory and effect these fee waivers/expense
business judgment, the Board determined portfolio administrative services to the limitations would have on the Fund's
that the Advisory Agreement is in the Fund and concluded that such performance estimated expenses and concluded that
best interests of the Fund and its was satisfactory. the levels of fee waivers/expense
shareholders and that the compensation limitations for the Fund were fair and
to AIM under the Advisory Agreement is o Fees relative to those of clients of reasonable.
fair and reasonable and would have been AIM with comparable investment
obtained through arm's length strategies. The Board reviewed the o Breakpoints and economies of scale.
negotiations. advisory fee rate for the Fund under the The Board reviewed the structure of the
Advisory Agreement. The Board noted that Fund's advisory fee under the Advisory
o The nature and extent of the advisory this rate (i) was the same as the Agreement, noting that it includes two
services to be provided by AIM. The advisory fee rates for a mutual fund breakpoints. The Board reviewed the
Board reviewed the services to be advised by AIM with investment level of the Fund's advisory fees, and
provided by AIM under the Advisory strategies comparable to those of the noted that such fees, as a percentage of
Agreement. Based on such review, the Fund; (ii) was higher than the the Fund's net assets, would decrease as
Board concluded that the range of sub-advisory fee rates for two net assets increase because the Advisory
services to be provided by AIM under the unaffiliated mutual funds for which an Agreement includes breakpoints. The
Advisory Agreement was appropriate and AIM affiliate serves as sub-advisor, Board noted that, due to the Fund's
that AIM currently is providing services although the total management fees paid current asset levels and the way in
in accordance with the terms of the by one of these unaffiliated mutual which the advisory fee breakpoints have
Advisory Agreement. funds were higher than the advisory fee been structured, the
(continued)
7
AIM V.I. LARGE CAP GROWTH FUND
Fund has yet to benefit from the o Profitability of AIM and its o Other factors and current trends. In
breakpoints. The Board noted that AIM affiliates. The Board reviewed determining whether to continue the
has contractually agreed to waive information concerning the profitability Advisory Agreement for the Fund, the
advisory fees of the Fund through June of AIM's (and its affiliates') Board considered the fact that AIM,
30, 2006 to the extent necessary so that investment advisory and other activities along with others in the mutual fund
the advisory fees payable by the Fund do and its financial condition. The Board industry, is subject to regulatory
not exceed a specified maximum advisory considered the overall profitability of inquiries and litigation related to a
fee rate, which maximum rate includes AIM, as well as the profitability of AIM wide range of issues. The Board also
breakpoints and is based on net asset in connection with managing the Fund. considered the governance and compliance
levels. The Board concluded that the The Board noted that AIM's operations reforms being undertaken by AIM and its
Fund's fee levels under the Advisory remain profitable, although increased affiliates, including maintaining an
Agreement therefore would reflect expenses in recent years have reduced internal controls committee and
economies of scale at higher asset AIM's profitability. Based on the review retaining an independent compliance
levels and that it was not necessary to of the profitability of AIM's and its consultant, and the fact that AIM has
change the advisory fee breakpoints in affiliates' investment advisory and undertaken to cause the Fund to operate
the Fund's advisory fee schedule. other activities and its financial in accordance with certain governance
condition, the Board concluded that the policies and practices. The Board
o Investments in affiliated money market compensation to be paid by the Fund to concluded that these actions indicated a
funds. The Board also took into account AIM under its Advisory Agreement was not good faith effort on the part of AIM to
the fact that uninvested cash and cash excessive. adhere to the highest ethical standards,
collateral from securities lending and determined that the current
arrangements (collectively, "cash o Benefits of soft dollars to AIM. The regulatory and litigation environment to
balances") of the Fund may be invested Board considered the benefits realized which AIM is subject should not prevent
in money market funds advised by AIM by AIM as a result of brokerage the Board from continuing the Advisory
pursuant to the terms of an SEC transactions executed through "soft Agreement for the Fund.
exemptive order. The Board found that dollar" arrangements. Under these
the Fund may realize certain benefits arrangements, brokerage commissions paid
upon investing cash balances in AIM by the Fund and/or other funds advised
advised money market funds, including a by AIM are used to pay for research and
higher net return, increased liquidity, execution services. This research is
increased diversification or decreased used by AIM in making investment
transaction costs. The Board also found decisions for the Fund. The Board
that the Fund will not receive reduced concluded that such arrangements were
services if it invests its cash balances appropriate.
in such money market funds. The Board
noted that, to the extent the Fund o AIM's financial soundness in light of
invests in affiliated money market the Fund's needs. The Board considered
funds, AIM has voluntarily agreed to whether AIM is financially sound and has
waive a portion of the advisory fees it the resources necessary to perform its
receives from the Fund attributable to obligations under the Advisory
such investment. The Board further Agreement, and concluded that AIM has
determined that the proposed securities the financial resources necessary to
lending program and related procedures fulfill its obligations under the
with respect to the lending Fund is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders. The o Historical relationship between the
Board therefore concluded that the Fund and AIM. In determining whether to
investment of cash collateral received continue the Advisory Agreement for the
in connection with the securities Fund, the Board also considered the
lending program in the money market prior relationship between AIM and the
funds according to the procedures is in Fund, as well as the Board's knowledge
the best interests of the lending Fund of AIM's operations, and concluded that
and its respective shareholders. it was beneficial to maintain the
current relationship, in part, because
o Independent written evaluation and of such knowledge. The Board also
recommendations of the Fund's Senior reviewed the general nature of the
Officer. The Board noted that, upon non-investment advisory services
their direction, the Senior Officer of currently performed by AIM and its
the Fund, who is independent of AIM and affiliates, such as administrative,
AIM's affiliates, had prepared an transfer agency and distribution
independent written evaluation in order services, and the fees received by AIM
to assist the Board in determining the and its affiliates for performing such
reasonableness of the proposed services. In addition to reviewing such
management fees of the AIM Funds, services, the trustees also considered
including the Fund. The Board noted that the organizational structure employed by
the Senior Officer's written evaluation AIM and its affiliates to provide those
had been relied upon by the Board in services. Based on the review of these
this regard in lieu of a competitive and other factors, the Board concluded
bidding process. In determining whether that AIM and its affiliates were
to continue the Advisory Agreement for qualified to continue to provide
the Fund, the Board considered the non-investment advisory services to the
Senior Officer's written evaluation and Fund, including administrative, transfer
the recommendation made by the Senior agency and distribution services, and
Officer to the Board that the Board that AIM and its affiliates currently
consider implementing a process to are providing satisfactory
assist them in more closely monitoring non-investment advisory services.
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------
DOMESTIC COMMON STOCKS-86.06%
AEROSPACE & DEFENSE-6.58%
Boeing Co. (The) 1,090 $ 76,562
- ------------------------------------------------------------------
General Dynamics Corp. 460 52,463
- ------------------------------------------------------------------
Lockheed Martin Corp. 1,520 96,718
- ------------------------------------------------------------------
Precision Castparts Corp. 1,230 63,726
- ------------------------------------------------------------------
Rockwell Collins, Inc. 830 38,570
==================================================================
328,039
==================================================================
APPLICATION SOFTWARE-2.11%
Autodesk, Inc. 1,570 67,431
- ------------------------------------------------------------------
Intuit Inc.(a) 710 37,843
==================================================================
105,274
==================================================================
BIOTECHNOLOGY-5.79%
Amgen Inc.(a) 1,650 130,119
- ------------------------------------------------------------------
Genentech, Inc.(a) 600 55,500
- ------------------------------------------------------------------
Genzyme Corp.(a) 510 36,098
- ------------------------------------------------------------------
Gilead Sciences, Inc.(a) 1,280 67,366
==================================================================
289,083
==================================================================
COMMUNICATIONS EQUIPMENT-5.08%
Cisco Systems, Inc.(a) 2,900 49,648
- ------------------------------------------------------------------
Harris Corp. 1,200 51,612
- ------------------------------------------------------------------
Motorola, Inc. 6,730 152,031
==================================================================
253,291
==================================================================
COMPUTER HARDWARE-5.64%
Apple Computer, Inc.(a) 2,350 168,941
- ------------------------------------------------------------------
Dell Inc.(a) 1,270 38,087
- ------------------------------------------------------------------
Hewlett-Packard Co. 2,600 74,438
==================================================================
281,466
==================================================================
CONSUMER FINANCE-1.05%
SLM Corp. 950 52,335
==================================================================
DEPARTMENT STORES-2.81%
J.C. Penney Co., Inc. 730 40,588
- ------------------------------------------------------------------
Nordstrom, Inc. 2,660 99,484
==================================================================
140,072
==================================================================
DIVERSIFIED METALS & MINING-1.73%
Phelps Dodge Corp. 600 86,322
==================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.78%
Agilent Technologies, Inc.(a) 1,170 38,949
==================================================================
HEALTH CARE DISTRIBUTORS-1.59%
AmerisourceBergen Corp. 960 39,744
- ------------------------------------------------------------------
McKesson Corp. 770 39,724
==================================================================
79,468
==================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------
<Caption>
HEALTH CARE EQUIPMENT-0.96%
Baxter International Inc. 1,270 $ 47,816
==================================================================
HEALTH CARE SERVICES-2.57%
Caremark Rx, Inc.(a) 1,290 66,809
- ------------------------------------------------------------------
Express Scripts, Inc.(a) 730 61,174
==================================================================
127,983
==================================================================
HOME IMPROVEMENT RETAIL-0.75%
Home Depot, Inc. (The) 920 37,242
==================================================================
HOUSEHOLD PRODUCTS-1.43%
Procter & Gamble Co. (The) 1,235 71,482
==================================================================
INTEGRATED OIL & GAS-1.50%
ConocoPhillips 1,290 75,052
==================================================================
INTERNET SOFTWARE & SERVICES-2.20%
Google Inc.-Class A(a) 264 109,523
==================================================================
INVESTMENT BANKING & BROKERAGE-5.65%
Bear Stearns Cos. Inc. (The) 360 41,591
- ------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 715 91,313
- ------------------------------------------------------------------
Lehman Brothers Holdings Inc. 890 114,071
- ------------------------------------------------------------------
Schwab (Charles) Corp. (The) 2,370 34,768
==================================================================
281,743
==================================================================
LIFE & HEALTH INSURANCE-2.88%
MetLife, Inc. 1,120 54,880
- ------------------------------------------------------------------
Prudential Financial, Inc. 1,210 88,560
==================================================================
143,440
==================================================================
MANAGED HEALTH CARE-9.88%
Aetna Inc. 1,482 139,767
- ------------------------------------------------------------------
CIGNA Corp. 650 72,605
- ------------------------------------------------------------------
Health Net, Inc.(a) 800 41,240
- ------------------------------------------------------------------
UnitedHealth Group Inc. 3,180 197,605
- ------------------------------------------------------------------
WellPoint, Inc.(a) 520 41,491
==================================================================
492,708
==================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.38%
Apache Corp. 600 41,112
- ------------------------------------------------------------------
Devon Energy Corp. 1,240 77,550
==================================================================
118,662
==================================================================
OIL & GAS REFINING & MARKETING-2.20%
Valero Energy Corp. 2,130 109,908
==================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------
PHARMACEUTICALS-3.78%
Allergan, Inc. 540 $ 58,298
- ------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 690 42,980
- ------------------------------------------------------------------
Johnson & Johnson 1,450 87,145
==================================================================
188,423
==================================================================
PROPERTY & CASUALTY INSURANCE-1.86%
Allstate Corp. (The) 960 51,907
- ------------------------------------------------------------------
Chubb Corp. (The) 420 41,013
==================================================================
92,920
==================================================================
RAILROADS-2.44%
Burlington Northern Santa Fe Corp. 1,720 121,810
==================================================================
RESTAURANTS-2.21%
Darden Restaurants, Inc. 1,210 47,045
- ------------------------------------------------------------------
YUM! Brands, Inc. 1,350 63,288
==================================================================
110,333
==================================================================
SEMICONDUCTORS-6.96%
Broadcom Corp.-Class A(a) 1,130 53,280
- ------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a) 1,540 38,793
- ------------------------------------------------------------------
Intel Corp. 1,540 38,438
- ------------------------------------------------------------------
National Semiconductor Corp. 3,290 85,474
- ------------------------------------------------------------------
NVIDIA Corp.(a) 1,000 36,560
- ------------------------------------------------------------------
Texas Instruments Inc. 2,950 94,607
==================================================================
347,152
==================================================================
SOFT DRINKS-1.11%
PepsiCo, Inc. 940 55,535
==================================================================
SPECIALIZED FINANCE-0.80%
CIT Group Inc. 770 39,871
==================================================================
SYSTEMS SOFTWARE-1.34%
Microsoft Corp. 2,560 66,944
==================================================================
Total Domestic Common Stocks (Cost
$3,869,346) 4,292,846
==================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-14.85%
BRAZIL-1.12%
Unibanco-Uniao de Bancos Brasileiros S.A.-ADR
(Diversified Banks) 880 55,941
==================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------
<Caption>
FINLAND-0.77%
Nokia Oyj-ADR (Communications Equipment) 2,100 $ 38,430
==================================================================
JAPAN-2.51%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(b) 4,000 66,968
- ------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(b) 3,000 58,075
==================================================================
125,043
==================================================================
MEXICO-1.85%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 1,830 53,546
- ------------------------------------------------------------------
Grupo Televisa, S.A.-ADR (Broadcasting &
Cable TV) 480 38,640
==================================================================
92,186
==================================================================
SINGAPORE-1.36%
Marvell Technology Group Ltd.
(Semiconductors)(a) 1,210 67,869
==================================================================
SOUTH KOREA-0.93%
Kookmin Bank (Diversified Banks)(a)(b) 620 46,372
==================================================================
SWITZERLAND-5.55%
ABB Ltd. (Heavy Electrical Equipment)(a)(b) 5,800 56,344
- ------------------------------------------------------------------
Alcon, Inc. (Health Care Supplies) 1,040 134,784
- ------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 920 48,282
- ------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 250 37,538
==================================================================
276,948
==================================================================
UNITED KINGDOM-0.76%
AstraZeneca PLC-ADR (Pharmaceuticals) 780 37,908
==================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $661,970) 740,697
==================================================================
TOTAL INVESTMENTS-100.91% (Cost $4,531,316) 5,033,543
==================================================================
OTHER ASSETS LESS LIABILITIES-(0.91%) (45,496)
==================================================================
NET ASSETS-100.00% $4,988,047
__________________________________________________________________
==================================================================
</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 value of these securities at December 31, 2005 was $227,759, which
represented 4.57% of the Fund's Net Assets. See Note 1A.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $4,531,316) $5,033,543
- ------------------------------------------------------------
Cash 66,390
- ------------------------------------------------------------
Receivables for:
Investments sold 125,840
- ------------------------------------------------------------
Dividends 3,542
- ------------------------------------------------------------
Fund expenses absorbed 7,723
- ------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 4,966
============================================================
Total assets 5,242,004
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 167,378
- ------------------------------------------------------------
Fund shares reacquired 55,601
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 4,965
- ------------------------------------------------------------
Accrued administrative services fees 1,496
- ------------------------------------------------------------
Accrued distribution fees -- Series II 505
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 99
- ------------------------------------------------------------
Accrued transfer agent fees 95
- ------------------------------------------------------------
Accrued operating expenses 23,818
============================================================
Total liabilities 253,957
============================================================
Net assets applicable to shares outstanding $4,988,047
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $4,533,529
- ------------------------------------------------------------
Undistributed net investment income (loss) (4,582)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (43,250)
- ------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 502,350
============================================================
$4,988,047
____________________________________________________________
============================================================
NET ASSETS:
Series I $4,351,610
____________________________________________________________
============================================================
Series II $ 636,437
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 342,285
____________________________________________________________
============================================================
Series II 50,238
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 12.71
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 12.67
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$135) $ 22,203
- ------------------------------------------------------------
Interest 2,187
============================================================
Total investment income 24,390
============================================================
EXPENSES:
Advisory fees 17,816
- ------------------------------------------------------------
Administrative services fees 51,916
- ------------------------------------------------------------
Custodian fees 26,618
- ------------------------------------------------------------
Distribution fees -- Series II 1,486
- ------------------------------------------------------------
Transfer agent fees 635
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 14,997
- ------------------------------------------------------------
Reports to shareholders 21,344
- ------------------------------------------------------------
Professional services fees 36,595
- ------------------------------------------------------------
Other 3,544
============================================================
Total expenses 174,951
============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (147,803)
============================================================
Net expenses 27,148
============================================================
Net investment income (loss) (2,758)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (43,327)
- ------------------------------------------------------------
Foreign currencies 46
============================================================
(43,281)
============================================================
Change in net unrealized appreciation of:
Investment securities 316,046
- ------------------------------------------------------------
Foreign currencies 123
============================================================
316,169
============================================================
Net gain from investment securities and foreign
currencies 272,888
============================================================
Net increase in net assets resulting from
operations $ 270,130
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,758) $ (4,699)
- --------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (43,281) 23,921
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 316,169 79,217
======================================================================================
Net increase in net assets resulting from operations 270,130 98,439
======================================================================================
Distributions to shareholders from net realized gains:
Series I (5,480) (1,457)
- --------------------------------------------------------------------------------------
Series II (828) (1,457)
======================================================================================
Decrease in net assets resulting from distributions (6,308) (2,914)
======================================================================================
Share transactions-net:
Series I 3,533,583 1,457
- --------------------------------------------------------------------------------------
Series II 828 1,457
======================================================================================
Net increase in net assets resulting from share
transactions 3,534,411 2,914
======================================================================================
Net increase in net assets 3,798,233 98,439
======================================================================================
NET ASSETS:
Beginning of year 1,189,814 1,091,375
======================================================================================
End of year (including undistributed net investment income
(loss) of $(4,582) and $(3,700), respectively) $4,988,047 $1,189,814
______________________________________________________________________________________
======================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. LARGE CAP GROWTH FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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 $1 billion 0.75%
- --------------------------------------------------------------------
Next $1 billion 0.70%
- --------------------------------------------------------------------
Over $2 billion 0.625%
___________________________________________________________________
====================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
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 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 1.01% and Series II shares to 1.26% of average daily net assets, through June
30, 2006. This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $17,816 and
reimbursed expenses of $128,814.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $1,916 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 year ended
December 31, 2005, the Fund paid AISI $635.
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. Pursuant to the Plan, for the year ended December 31, 2005, the Series
II shares paid $1,200 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 year
ended December 31, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $887.
AIM V.I. LARGE CAP GROWTH FUND
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $3,918
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 459 $1,312
- ------------------------------------------------------------------------------
Long-term capital gain 5,849 1,602
==============================================================================
Total distributions $6,308 $2,914
______________________________________________________________________________
==============================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 482,274
- --------------------------------------------------------------------------
Temporary book/tax differences (4,582)
- --------------------------------------------------------------------------
Capital loss carryforward (10,284)
- --------------------------------------------------------------------------
Post-October capital loss deferral (12,890)
- --------------------------------------------------------------------------
Shares of beneficial interest 4,533,529
==========================================================================
Total net assets $4,988,047
__________________________________________________________________________
==========================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $123.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2013 $10,284
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $5,964,348 and $2,376,653, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $512,322
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (30,171)
==============================================================================
Net unrealized appreciation of investment securities $482,151
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $4,551,392.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2005, undistributed net
investment income (loss) was increased by $1,876, undistributed net realized
gain (loss) was increased by $204 and shares of beneficial interest decreased by
$2,080. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
2005(a) 2004
--------------------- ----------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
Sold:
Series I 330,217 $3,990,691 -- $ --
=======================================================================================================
Issued as reinvestment of dividends:
Series I 423 5,480 124 1,457
- -------------------------------------------------------------------------------------------------------
Series II 64 828 124 1,457
=======================================================================================================
Reacquired:
Series I (38,554) (462,588) -- --
=======================================================================================================
292,150 $3,534,411 248 $2,914
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Purchased for the purpose of initial capitalization of the Fund, AIM owns
25% of the outstanding shares of the Fund. In addition, there are two
entities that are record owners of more than 5% of the outstanding shares of
the Fund and in the aggregate they own 75% of the outstanding shares of the
Fund. The Fund and the Fund's principal underwriter or advisor, are parties
to participation agreements with these entities, whereby these entities sell
units of interest in separate accounts funding variable products that are
invested in the fund. The fund, AIM and/or AIM affiliates may make payments
to these entities, which are considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but not
limited to services such as securities brokerage, third party record keeping
and account servicing and administrative services. The Trust has no
knowledge as to whether all of any portion of the shares owned of record by
these shareholders are also owned beneficially.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------
AUGUST 29, 2003
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
------------------- 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 on securities (both realized and unrealized) 0.88 1.03 0.95
========================================================================================================
Total from investment operations 0.87 0.99 0.92
========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.02)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) (0.03) --
========================================================================================================
Total distributions (0.02) (0.03) (0.02)
========================================================================================================
Net asset value, end of period $12.71 $11.86 $10.90
________________________________________________________________________________________________________
========================================================================================================
Total return(c) 7.30% 9.08% 9.16%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,352 $ 596 $ 546
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.13%(d) 1.33% 1.33%(e)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 7.30%(d) 9.88% 14.54%(e)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.06)%(d) (0.35)%(b) (0.73)%(e)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(f) 99% 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 (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 based on average daily net assets of $1,781,203.
(e) Annualized.
(f) Not annualized for periods less than one year.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------
AUGUST 29, 2003
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
------------------- 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) (0.03)(a) (0.06)(b) (0.03)
- --------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.88 1.03 0.94
========================================================================================================
Total from investment operations 0.85 0.97 0.91
========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.01)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) (0.03) --
========================================================================================================
Total distributions (0.02) (0.03) (0.01)
========================================================================================================
Net asset value, end of period $12.67 $11.84 $10.90
________________________________________________________________________________________________________
========================================================================================================
Total return(c) 7.15% 8.89% 9.11%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 636 $ 594 $ 546
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.33%(d) 1.48% 1.48%(e)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 7.55%(d) 10.13% 14.79%(e)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.26)%(d) (0.50)%(b) (0.88)%(e)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(f) 99% 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 (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 based on average daily net assets of $594,229.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 11--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005 a
Plan of Reorganization pursuant to which the Fund would acquire all of the
assets of AIM V.I. Blue Chip Fund ("Selling Fund"), a series of the Trust ("the
Reorganization"). Upon closing of the Reorganization, shareholders of Selling
Fund will receive a corresponding class of shares of the Fund in exchange for
their shares of Selling Fund and Selling Fund will cease operations.
The Plan of Reorganization requires approval of Selling Fund shareholders. The
Selling Fund currently intends to submit the Plan of Reorganization to the
shareholders for their consideration at a meeting to be held on or around April
4, 2006. Additional information regarding the Plan of Reorganization will be
included in proxy materials to be mailed to shareholders for consideration. If
the Plan of Reorganization is approved by the shareholders of Selling Fund and
certain conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
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. LARGE CAP GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under
AIM V.I. LARGE CAP GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
Section 10(b) of the Securities Exchange Act of 1934, (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the MDL Court deferred ruling on the "control person
liability" claim under Section 48 of the 1940 Act. The question whether the
duplicative Section 36(b) claim properly belongs in the derivative complaint or
in the class action complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Large Cap Growth Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. LARGE CAP GROWTH FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
The fund distributed long-term capital gains of $5,849 for the Fund's tax year
ended December 31, 2005.
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. LARGE CAP GROWTH FUND
AIM V.I. LEISURE FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. LEISURE FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. LEISURE FUND
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ment horizon, resulting in relatively
low portfolio turnover. We manage risk
======================================================================================= by diversifying the Fund's holdings
across leisure-related industries that
PERFORMANCE SUMMARY include cable TV, satellite programming,
========================================== publishing, cruise lines, advertising
The year ended December 31, 2005, was a FUND VS. INDEXES agencies, hotels, casinos, electronic
difficult one for consumer discretionary games and toys, and entertainment
stocks--the type of stocks in which AIM TOTAL RETURNS, 12/31/04-12/31/05, companies.
V.I. Leisure Fund invests the bulk of EXCLUDING - VARIABLE PRODUCT ISSUER
its assets. For the year, your Fund CHARGES. IF VARIABLE PRODUCT ISSUER We consider selling or trimming a
lagged its broad market and CHARGES WERE INCLUDED, RETURNS WOULD BE stock when:
style-specific index. While producing LOWER.
negative returns, the Fund held up o there is a change in the company's
better than the consumer discretionary Series I Shares -1.19% fundamental business prospects
sector of the S&P 500 Index, which
returned -6.36%. The Fund underperformed Series II Shares -1.37 o a stock reaches our target price
the S&P 500 Index for the year because
the consumer discretionary sector was Standard & Poor's Composite Index MARKET CONDITIONS AND YOUR FUND
the weakest performing sector of the of 500 Stocks (S&P 500 Index)
market. Also, your Fund had no exposure (Broad Market Index / Despite widespread concern about the
to the energy and utilities Style-specific Index) 4.91 potential impact of rising short-term
interest rates and historically high
SOURCE: LIPPER, INC. energy prices, the U.S. economy showed
signs of strength for the year. Economic
======================================== activity expanded, inflation remained
sectors, both of which produced contained and corporate profits
double-digit returns and led the market. generally long-term rose. Late in the
year, some worried that higher energy
Your Fund's long-term performance prices and rising interest rates might
appears on Pages 4 and 5. crimp consumer spending, which accounts
for approximately two-thirds of the U.S.
====================================================================================== economy. Initial data suggested that
HOW WE INVEST management teams to detail their three- retail sales during the holiday season
to five-year strategic plan and their were solid.
We focus on companies that profit from corresponding financial goals. We then
consumer spending on leisure activities evaluate whether the company has the Rising oil and natural gas prices
(products and/or services purchased with right management in place, appropriate hurt the profits of many consumer
consumers' discretionary dollars) that competitive position and adequate discretionary companies. Though some
are growing their market share, cash resources to realize their vision. companies' revenues and earnings were
flow and earnings at rates greater than hurt as consumers cut back spending, the
the broad market. o Valuation analysis involves building sector's performance was affected as
financial models for each company in an much by investors' fear of the
We perform both fundamental and effort to estimate its fair valuation possibility of faltering consumer
valuation analysis: over the next two to three years based spending as by the reality of such a
primarily on our expectations for free downturn.
o Fundamental research includes cash flow growth.
interviews with company managements,
buyers, customers and competitors. We Just as we look for managements with
ask company long-term visions, we maintain a
long-term invest-
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Hotels,Resorts & Cruise Lines 16.9% 1. Harrah's Entertainment, Inc. 6.6%
Consumer Discretionary 77.5% 2. Broadcasting & Cable TV 14.7 2. Omnicom Group Inc. 6.2
Consumer Staples 7.8 3. Casinos & Gaming 10.1 3. News Corp.-Class A 3.7
Financials 4.8 4. Movies & Entertainment 9.1 4. Carnival Corp. 3.4
Information Technology 2.4 5. Advertising 9.1 5. Groupe Bruxelles Lambert S.A.
(Belgium) 3.4
Industrials 1.8 6. Multi-Sector Holdings 4.7
6. Starwood Hotels & Resorts
Exchange-Traded Funds 3.7 7. Apparel,Accessories & Luxury 4.6 Worldwide,Inc. 3.2
Goods
Money Market Funds 7. Polo Ralph Lauren Corp. 3.0
Plus Other Assets Less Liabilities 2.0 8. Brewers 3.7
8. Liberty Media Corp.-Class A 2.6
9. Publishing 3.6
9. Time Warner Inc. 2.3
10. Restaurants 2.4
10. Hilton Hotels Corp. 2.3
TOTAL NET ASSETS $54.2 MILLION
TOTAL NUMBER OF HOLDINGS* 81
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. LEISURE FUND
Although consumer discretionary In addition to adding News Corp. to MARK D. GREENBERG,
stocks struggled during the year, there the Fund, we also: Chartered Financial
were a number of bright spots for the [GREENBERG Analyst, senior
Fund. POLO RALPH LAUREN was a standout o Purchased shares of PETSMART. We PHOTO] portfolio manager,
performer due to a product line that was considered the stock to be attractively is portfolio manager
extremely well received by consumers. valued, and we noted that consumers of AIM V.I. Leisure
The company's higher-end consumers can spent an estimated $34 billion on their Fund. Mr. Greenberg
better withstand higher energy prices pets in 2004. began his career in 1980, and media and
than their less affluent counterparts, entertainment stocks became his focus
and the company raised its earnings o Initiated a relatively small in 1983. He joined the Fund's advisor in
guidance. position in MCDONALD'S as we saw 1996. Mr. Greenberg attended City
evidence that that the company's new University in London, England, and
British wine and spirits company advertising was boosting sales. received his B.S.B.A. in economics with
ALLIED DOMECQ agreed in April to be a specialization in finance from
taken over by French rival PERNOD RICARD o Added to our existing holdings in Marquette University.
at a substantial premium. After the INTERCONTINENTAL HOTELS, the world's
acquisition was announced, but before it largest hotel group that includes the
was completed in July, we sold the Holiday Inn--REGISTERED TRADEMARK--, Assisted by Leisure Team
Fund's Allied Domecq holdings and Intercontinental--REGISTERED
subsequently bought shares in Pernod TRADEMARK--, Crowne Plaza--REGISTERED
Ricard. TRADEMARK-- and Candlewood Suites
--REGISTERED TRADEMARK-- brand names.
Internet fine jewelry and diamond The company has been selling some
retailer BLUE NILE was another holding underperforming assets and aggressively
that did well for the Fund. The company returning the proceeds to shareholders.
dominates its market by offering quality
products at attractive prices and is IN CLOSING
noted for its superior customer service.
Blue Nile benefits from lower overhead In good years and bad, we've reminded
than traditional jewelry chains. For investors that sectors go in and out of
example, it doesn't order diamonds from favor--and we've explained that there
its suppliers until it makes a sale. will be years in which the Fund will
outperform the broad market, and years
Stocks that hindered Fund performance in which it will lag the broad market.
included WYNN RESORTS and broadcasting Regrettably, 2005 was a year in which
giant NEWS CORP. the Fund underperformed the broad market
due to pervasive weakness in the
We reduced, and eventually consumer discretionary sector. While no
eliminated, our holdings in Wynn during one can predict the future, we take
2005, but the stock still affected your comfort in the fact that over four
Fund's performance negatively. Following decades, spending on leisure-related
the opening of the company's $2.7 activities grew faster than the overall
billion Las Vegas hotel and casino, market. That is why we maintain a
investors began to worry that Macau, long-term investment perspective, and
where Wynn has been granted a concession why we urge you to do the same. As
to build a hotel and casino, might always, we thank you for your continuing
become overdeveloped. Those concerns investment in AIM V.I. Leisure Fund.
caused the stock to decline for much of
the year. THE VIEWS AND OPINIONS EXPRESSED IN
MANAGEMENT'S DISCUSSION OF FUND
As a group, broadcasting stocks PERFORMANCE ARE THOSE OF A I M ADVISORS,
struggled for much of the year as INC. THESE VIEWS AND OPINIONS ARE
investors worried that broadcast SUBJECT TO CHANGE AT ANY TIME BASED ON
advertising revenues might weaken, given FACTORS SUCH AS MARKET AND ECONOMIC
economic uncertainty and a shift from CONDITIONS. THESE VIEWS AND OPINIONS MAY
traditional advertising to online NOT BE RELIED UPON AS INVESTMENT ADVICE
advertising. We added to our existing OR RECOMMENDATIONS, OR AS AN OFFER FOR A
News Corp. holdings during the year PARTICULAR SECURITY. THE INFORMATION IS
because we considered it attractively NOT A COMPLETE ANALYSIS OF EVERY ASPECT
valued. While its stock price was hurt OF ANY MARKET, COUNTRY, INDUSTRY,
by these concerns, we considered the SECURITY OR THE FUND. STATEMENTS OF FACT
company poised to do well going forward. ARE FROM SOURCES CONSIDERED RELIABLE,
BUT A I M ADVISORS, INC. MAKES NO [RIGHT ARROW GRAPHIC]
REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH FOR A DISCUSSION OF THE RISKS OF
HISTORICAL PERFORMANCE IS NO GUARANTEE INVESTING IN YOUR FUND, INDEXES USED IN
OF FUTURE RESULTS, THESE INSIGHTS MAY THIS REPORT AND YOUR FUND'S LONG-TERM
HELP YOU UNDERSTAND OUR INVESTMENT PERFORMANCE, PLEASE TURN TO PAGES 4 AND
MANAGEMENT PHILOSOPHY. 5.
3
AIM V.I. LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 4/30/02
===================================================================
[MOUNTAIN CHART]
AIM V.I. LEISURE FUND- S&P 500
DATE SERIES I SHARES INDEX
4/30/02 $10000 $10000
5/02 10030 9927
6/02 9010 9220
7/02 8400 8501
8/02 8610 8557
9/02 8110 7628
10/02 8320 8299
11/02 8950 8786
12/02 8520 8271
1/03 8320 8054
2/03 8039 7933
3/03 8260 8010
4/03 8959 8670
5/03 9479 9126
6/03 9509 9242
7/03 9649 9406
8/03 9969 9589
9/03 9699 9487
10/03 10229 10023
11/03 10478 10112
12/03 10958 10641
1/04 11068 10837
2/04 11278 10987
3/04 11258 10822
4/04 11088 10652
5/04 11098 10798
6/04 11118 11008
7/04 10477 10643
8/04 10418 10686
9/04 10888 10802
10/04 11268 10967
11/04 11838 11411
12/04 12426 11799
1/05 12054 11511
2/05 12245 11753
3/05 12104 11545
4/05 11662 11326
5/05 11983 11686
6/05 12164 11703
7/05 12424 12138
8/05 12203 12028
9/05 12053 12125
10/05 11582 11923
11/05 12053 12373
12/05 $12281 $12378
===================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
4
AIM V.I. LEISURE FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES IS APRIL 30, 2002. SERIES I AND DIRECTLY. PERFORMANCE FIGURES GIVEN
SERIES II SHARES INVEST IN THE SAME REPRESENT THE FUND AND ARE NOT INTENDED
As of 12/31/05 PORTFOLIO OF SECURITIES AND WILL HAVE TO REFLECT ACTUAL VARIABLE PRODUCT
SUBSTANTIALLY SIMILAR PERFORMANCE, VALUES. THEY DO NOT REFLECT SALES
SERIES I SHARES EXCEPT TO THE EXTENT THAT EXPENSES BORNE CHARGES, EXPENSES AND FEES ASSESSED IN
Inception (4/30/02) 5.76% BY EACH CLASS DIFFER. CONNECTION WITH A VARIABLE PRODUCT.
1 Year -1.19 SALES CHARGES, EXPENSES AND FEES, WHICH
THE PERFORMANCE DATA QUOTED REPRESENT ARE DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
Inception 5.54% COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
1 Year -1.37 PERFORMANCE MAY BE LOWER OR HIGHER.
PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
========================================== ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
CUMULATIVE TOTAL RETURNS PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
Six months ended 12/31/05 AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Series I Shares 0.93% INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series II Shares 0.83 WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
========================================== ADVISOR.
AIM V.I. LEISURE FUND, A SERIES
RETURNS SINCE APRIL 30, 2004, THE PORTFOLIO OF AIM VARIABLE INSURANCE HAD THE ADVISOR NOT WAIVED FEES
INCEPTION DATE OF SERIES II SHARES, ARE FUNDS, IS CURRENTLY OFFERED THROUGH AND/OR REIMBURSED EXPENSES, PERFORMANCE
HISTORICAL. ALL OTHER RETURNS ARE THE INSURANCE COMPANIES ISSUING VARIABLE WOULD HAVE BEEN LOWER.
BLENDED RETURNS OF THE HISTORICAL PRODUCTS. YOU CANNOT PURCHASE SHARES OF
PERFORMANCE OF SERIES II SHARES SINCE THE FUND
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO
THE SERIES II SHARES. THE INCEPTION DATE
OF SERIES I
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
Investing in a single-sector or The unmanaged Standard & Poor's The returns shown in the management's
single-region mutual fund involves Composite Index of 500 stocks (the S&P discussion of Fund performance are based
greater risk and potential reward than 500--Registered Trademark-- INDEX) is on net asset values calculated for
investing in a more diversified fund. an index of common stocks frequently shareholder transactions. Generally
used as a general measure of U.S. stock accepted accounting principles require
Investing in smaller companies market performance. adjustments to be made to the net assets
involves greater risk than investing in of the Fund at period end for financial
more established companies, such as The Fund is not managed to track the reporting purposes, and as such, the net
business risk, significant stock price performance of any particular index, asset values for shareholder
fluctuations and illiquidity. including the index defined here, and transactions and the returns based on
consequently, the performance of the those net asset values may differ from
The Fund may invest up to 25% of its Fund may deviate significantly from the the net asset values and returns
assets in the securities of non-U.S. performance of the index. reported in the Financial Highlights.
issuers. Securities of Canadian issuers Additionally, the returns and net asset
and American Depositary Receipts are not A direct investment cannot be made in values shown throughout this report are
subject to this 25% limitation. an index. Unless otherwise indicated, at the Fund level only and do not
International investing presents certain index results include reinvested include variable product issuer charges.
risks not associated with investing dividends, and they do not reflect sales If such charges were included, the total
solely in the United States. These charges. Performance of an index of returns would be lower.
include risks relating to fluctuations funds reflects fund expenses;
in the value of the U.S. dollar relative performance of a market index does not. Industry classifications used in this
to the values of other currencies, the report are generally according to the
custody arrangements made for the Fund's Global Industry Classification Standard,
foreign holdings, differences in which was developed by and is the
accounting, political risks and the exclusive property and a service mark of
lesser degree of public information Morgan Stanley Capital International
required to be provided by non-U.S. Inc. and Standard & Poor's.
companies.
</Table>
5
AIM V.I. LEISURE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES year before expenses, which is not the
Fund's actual return. The Fund's actual
As a shareholder of the Fund, you incur The table below provides information cumulative total returns at net asset
ongoing costs, including management about actual account values and actual value after expenses for the six months
fees; distribution and/or service fees expenses. You may use the information in ended December 31, 2005, appear in the
(12b-1); and other Fund expenses. This this table, together with the amount you table "Cumulative Total Returns" on Page
example is intended to help you invested, to estimate the expenses that 5.
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
July 1, 2005, through December 31, 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 help you determine the relative total
costs of owning different funds.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,009.30 $5.12 $1,020.11 $5.14 1.01%
Series II 1,000.00 1,008.30 6.38 1,018.85 6.41 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. LEISURE FUND
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. Leisure 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 (i) the same as the
agreement with A I M Advisors, Inc. qualifications of AIM to provide initial advisory fee rate for a mutual
("AIM"). Based upon the recommendation investment advisory services, the Board fund advised by AIM with investment
of the Investments Committee of the reviewed the qualifications of AIM's strategies comparable to those of the
Board, which is comprised solely of investment personnel and considered such Fund, although the advisory fee schedule
independent trustees, at a meeting held issues as AIM's portfolio and product for the mutual fund included
on June 30, 2005, the Board, including review process, various back office breakpoints; and (ii) was lower than the
all of the independent trustees, support functions provided by AIM and advisory fee rates for two offshore
approved the continuance of the advisory AIM's equity and fixed income trading funds for which an AIM affiliate serves
agreement (the "Advisory Agreement") operations. Based on the review of these as advisor with investment strategies
between the Fund and AIM for another and other factors, the Board concluded comparable to those of the Fund. The
year, effective July 1, 2005. that the quality of services to be Board noted that AIM has agreed to waive
provided by AIM was appropriate and that advisory fees of the Fund and to limit
The Board considered the factors AIM currently is providing satisfactory the Fund's total operating expenses, as
discussed below in evaluating the services in accordance with the terms of discussed below. Based on this review,
fairness and reasonableness of the the Advisory Agreement. the Board concluded that the advisory
Advisory Agreement at the meeting on fee rate for the Fund under the Advisory
June 30, 2005 and as part of the Board's o The performance of the Fund relative Agreement was fair and reasonable.
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed
deliberations, the Board and the the performance of the Fund during the
independent trustees did not identify past one and two calendar years against o Fees relative to those of comparable
any particular factor that was the performance of funds advised by funds with other advisors. The Board
controlling, and each trustee attributed other advisors with investment reviewed the advisory fee rate for the
different weights to the various strategies comparable to those of the Fund under the Advisory Agreement. The
factors. Fund. The Board noted that the Fund's Board compared effective contractual
performance for the one year period was advisory fee rates at a common asset
One of the responsibilities of the above the median performance of such level and noted that the Fund's rate was
Senior Officer of the Fund, who is comparable funds and below the median above the median rate of the funds
independent of AIM and AIM's affiliates, performance for the two year period. The advised by other advisors with
is to manage the process by which the Board also noted that AIM began serving investment strategies comparable to
Fund's proposed management fees are as investment advisor to the Fund in those of the Fund that the Board
negotiated to ensure that they are April 2004. Based on this review, the reviewed. The Board noted that AIM has
negotiated in a manner which is at arm's Board concluded that no changes should agreed to waive advisory fees of the
length and reasonable. To that end, the be made to the Fund and that it was not Fund and to limit the Fund's total
Senior Officer must either supervise a necessary to change the Fund's portfolio operating expenses, as discussed below.
competitive bidding process or prepare management team at this time. Based on this review, the Board
an independent written evaluation. The concluded that the advisory fee rate for
Senior Officer has recommended an o The performance of the Fund relative the Fund under the Advisory Agreement
independent written evaluation in lieu to indices. The Board reviewed the was fair and reasonable.
of a competitive bidding process and, performance of the Fund during the past
upon the direction of the Board, has one calendar year against the
prepared such an independent written performance of the S&P 500 Index. The o Expense limitations and fee waivers.
evaluation. Such written evaluation also Board noted that the Fund's performance The Board noted that AIM has
considered certain of the factors in such period was above the performance contractually agreed to waive advisory
discussed below. In addition, as of such Index. The Board also noted that fees of the Fund through June 30, 2006
discussed below, the Senior Officer made the performance of such Index does not to the extent necessary so that the
certain recommendations to the Board in reflect fees, while the performance of advisory fees payable by the Fund do not
connection with such written evaluation. the Fund does reflect fees. The Board exceed a specified maximum advisory fee
also noted that AIM began serving as rate, which maximum rate includes
The discussion below serves as a investment advisor to the Fund in April breakpoints and is based on net asset
summary of the Senior Officer's 2004. Based on this review, the Board levels. The Board considered the
independent written evaluation and concluded that no changes should be made contractual nature of this fee waiver
recommendations to the Board in to the Fund and that it was not and noted that it remains in effect
connection therewith, as well as a necessary to change the Fund's portfolio until June 30, 2006. The Board noted
discussion of the material factors and management team at this time. that AIM has contractually agreed to
the conclusions with respect thereto waive fees and/or limit expenses of the
that formed the basis for the Board's o Meeting with the Fund's portfolio Fund through June 30, 2006 in an amount
approval of the Advisory Agreement. managers and investment personnel. With necessary to limit total annual
After consideration of all of the respect to the Fund, the Board is operating expenses to a specified
factors below and based on its informed meeting periodically with such Fund's percentage of average daily net assets
business judgment, the Board determined portfolio managers and/or other for each class of the Fund. The Board
that the Advisory Agreement is in the investment personnel and believes that considered the contractual nature of
best interests of the Fund and its such individuals are competent and able this fee waiver/expense limitation and
shareholders and that the compensation to continue to carry out their noted that it remains in effect until
to AIM under the Advisory Agreement is responsibilities under the Advisory June 30, 2006. The Board considered the
fair and reasonable and would have been Agreement. effect these fee waivers/expense
obtained through arm's length limitations would have on the Fund's
negotiations. o Overall performance of AIM. The Board estimated expenses and concluded that
considered the overall performance of the levels of fee waivers/expense
AIM in providing investment advisory and limitations for the Fund were fair and
o The nature and extent of the advisory portfolio administrative services to the reasonable.
services to be provided by AIM. The Fund and concluded that such performance
Board reviewed the services to be was satisfactory.
provided by AIM under the Advisory o Breakpoints and economies of scale.
Agreement. Based on such review, the The Board reviewed the structure of the
Board concluded that the range of Fund's advisory fee under the Advisory
services to be provided by AIM under the Agreement, noting that it does not
Advisory Agreement was appropriate and include any breakpoints. The Board
that AIM currently is providing services considered whether it would be
in accordance with the terms of the appropriate to add advisory fee
Advisory Agreement. breakpoints for the Fund or whether, due
to the nature
(continued)
7
AIM V.I. LEISURE FUND
of the Fund and the advisory fee considered the Senior Officer's written o Other factors and current trends. In
structures of comparable funds, it was evaluation and the recommendation made determining whether to continue the
reasonable to structure the advisory fee by the Senior Officer to the Board that Advisory Agreement for the Fund, the
without breakpoints. Based on this the Board consider implementing a Board considered the fact that AIM,
review, the Board concluded that it was process to assist them in more closely along with others in the mutual fund
not necessary to add advisory fee monitoring the performance of the AIM industry, is subject to regulatory
breakpoints to the Fund's advisory fee Funds. The Board concluded that it would inquiries and litigation related to a
schedule. The Board reviewed the level be advisable to implement such a process wide range of issues. The Board also
of the Fund's advisory fees, and noted as soon as reasonably practicable. considered the governance and compliance
that such fees, as a percentage of the reforms being undertaken by AIM and its
Fund's net assets, would remain constant o Profitability of AIM and its affiliates, including maintaining an
under the Advisory Agreement because the affiliates. The Board reviewed internal controls committee and
Advisory Agreement does not include any information concerning the profitability retaining an independent compliance
breakpoints. The Board noted that AIM of AIM's (and its affiliates') consultant, and the fact that AIM has
has contractually agreed to waive investment advisory and other activities undertaken to cause the Fund to operate
advisory fees of the Fund through June and its financial condition. The Board in accordance with certain governance
30, 2006 to the extent necessary so that considered the overall profitability of policies and practices. The Board
the advisory fees payable by the Fund do AIM, as well as the profitability of AIM concluded that these actions indicated a
not exceed a specified maximum advisory in connection with managing the Fund. good faith effort on the part of AIM to
fee rate, which maximum rate includes The Board noted that AIM's operations adhere to the highest ethical standards,
breakpoints and is based on net asset remain profitable, although increased and determined that the current
levels. The Board concluded that the expenses in recent years have reduced regulatory and litigation environment to
Fund's fee levels under the Advisory AIM's profitability. Based on the review which AIM is subject should not prevent
Agreement therefore would not reflect of the profitability of AIM's and its the Board from continuing the Advisory
economies of scale, although the affiliates' investment advisory and Agreement for the Fund.
advisory fee waiver reflects economies other activities and its financial
of scale. condition, the Board concluded that the
compensation to be paid by the Fund to
o Investments in affiliated money market AIM under its Advisory Agreement was not
funds. The Board also took into account excessive.
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
and its respective shareholders. current relationship, in part, because
of such knowledge. The Board also
o Independent written evaluation and reviewed the general nature of the
recommendations of the Fund's Senior non-investment advisory services
Officer. The Board noted that, upon currently performed by AIM and its
their direction, the Senior Officer of affiliates, such as administrative,
the Fund, who is independent of AIM and transfer agency and distribution
AIM's affiliates, had prepared an services, and the fees received by AIM
independent written evaluation in order and its affiliates for performing such
to assist the Board in determining the services. In addition to reviewing such
reasonableness of the proposed services, the trustees also considered
management fees of the AIM Funds, the organizational structure employed by
including the Fund. The Board noted that AIM and its affiliates to provide those
the Senior Officer's written evaluation services. Based on the review of these
had been relied upon by the Board in and other factors, the Board concluded
this regard in lieu of a competitive that AIM and its affiliates were
bidding process. In determining whether qualified to continue to provide
to continue the Advisory Agreement for non-investment advisory services to the
the Fund, the Board Fund, including administrative, transfer
agency and distribution services, and
that AIM and its affiliates currently
are providing satisfactory
non-investment advisory services.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
-------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-78.96%
ADVERTISING-7.01%
Harte-Hanks, Inc. 16,477 $ 434,828
-------------------------------------------------------------------
Omnicom Group Inc. 39,524 3,364,678
-------------------------------------------------------------------
3,799,506
-------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-3.55%
Carter's, Inc./(a)/ 5,240 308,374
-------------------------------------------------------------------
Polo Ralph Lauren Corp. 28,819 1,617,899
-------------------------------------------------------------------
1,926,273
-------------------------------------------------------------------
BREWERS-1.00%
Anheuser-Busch Cos., Inc. 12,633 542,714
-------------------------------------------------------------------
BROADCASTING & CABLE TV-13.34%
Cablevision Systems Corp.-Class A/(a)/ 51,270 1,203,307
-------------------------------------------------------------------
Clear Channel Communications, Inc. 19,915 626,327
-------------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 28,334 735,551
-------------------------------------------------------------------
Discovery Holding Co.-Class A/(a)/ 16,079 243,597
-------------------------------------------------------------------
EchoStar Communications Corp.-Class A/(a)/ 21,940 596,110
-------------------------------------------------------------------
Gray Television, Inc. 35,585 349,445
-------------------------------------------------------------------
Liberty Global, Inc.-Class A/(a)/ 13,899 312,727
-------------------------------------------------------------------
Liberty Global, Inc.-Series C/(a)/ 13,899 294,659
-------------------------------------------------------------------
Liberty Media Corp.-Class A/(a)/ 175,893 1,384,278
-------------------------------------------------------------------
Liberty Media Corp.-Class B/(a)/ 12,700 102,362
-------------------------------------------------------------------
NTL Inc./(a)/ 3,630 247,130
-------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 8,650 415,373
-------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 36,238 333,389
-------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A/(a)/ 16,433 83,973
-------------------------------------------------------------------
Univision Communications Inc.-Class A/(a)/ 10,214 300,189
-------------------------------------------------------------------
7,228,417
-------------------------------------------------------------------
CASINOS & GAMING-10.05%
Aztar Corp./(a)/ 7,700 234,003
-------------------------------------------------------------------
Harrah's Entertainment, Inc. 50,270 3,583,748
-------------------------------------------------------------------
International Game Technology 35,270 1,085,611
-------------------------------------------------------------------
MGM MIRAGE/(a)/ 14,778 541,909
-------------------------------------------------------------------
5,445,271
-------------------------------------------------------------------
CONSUMER ELECTRONICS-0.15%
Directed Electronics, Inc./(a)/ 5,688 81,623
-------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.86%
Cendant Corp. 58,599 1,010,833
-------------------------------------------------------------------
FOOTWEAR-0.75%
NIKE, Inc.-Class B 4,677 405,917
-------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.77%
Target Corp. 7,620 418,871
-------------------------------------------------------------------
SHARES VALUE
-------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.36%
Electronic Arts Inc./(a)/ 3,722 $ 194,698
-------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.47%
Home Depot, Inc. (The) 19,625 794,420
-------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-12.14%
Carnival Corp./(b)/ 34,913 1,866,798
-------------------------------------------------------------------
Hilton Hotels Corp. 50,691 1,222,160
-------------------------------------------------------------------
Marriott International, Inc.-Class A 15,851 1,061,541
-------------------------------------------------------------------
Royal Carribbean Cruises Ltd. 15,442 695,816
-------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(c)/ 27,167 1,734,885
-------------------------------------------------------------------
6,581,200
-------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.17%
Wal-Mart Stores, Inc. 13,517 632,596
-------------------------------------------------------------------
INTERNET RETAIL-1.58%
Blue Nile, Inc./(a)/ 10,362 417,692
-------------------------------------------------------------------
Expedia, Inc./(a)/ 10,755 257,690
-------------------------------------------------------------------
IAC/InterActiveCorp/(a)/ 6,355 179,910
-------------------------------------------------------------------
855,292
-------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-2.02%
Yahoo! Inc./(a)/ 28,000 1,097,040
-------------------------------------------------------------------
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-3.76%
iShares Russell 3000 Index Fund 8,800 633,776
-------------------------------------------------------------------
iShares S&P 500 Index Fund 5,659 705,338
-------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 5,620 699,746
-------------------------------------------------------------------
2,038,860
-------------------------------------------------------------------
LEISURE FACILITIES-0.29%
Cedar Fair, L.P. 5,577 159,167
-------------------------------------------------------------------
LEISURE PRODUCTS-0.71%
Marvel Entertainment, Inc./(a)/ 6,920 113,350
-------------------------------------------------------------------
Polaris Industries Inc. 5,400 271,080
-------------------------------------------------------------------
384,430
-------------------------------------------------------------------
MOVIES & ENTERTAINMENT-9.11%
Live Nation, Inc./(a)/ 2,489 32,606
-------------------------------------------------------------------
News Corp.-Class A 127,779 1,986,963
-------------------------------------------------------------------
Pixar/(a)/ 4,264 224,798
-------------------------------------------------------------------
Regal Entertainment Group-Class A 10,037 190,904
-------------------------------------------------------------------
Time Warner Inc. 70,960 1,237,542
-------------------------------------------------------------------
Viacom Inc.-Class A/(a)/ 8,363 273,972
-------------------------------------------------------------------
Viacom Inc.-Class B/(a)/ 8,362 272,601
-------------------------------------------------------------------
Walt Disney Co. (The) 29,970 718,381
-------------------------------------------------------------------
4,937,767
-------------------------------------------------------------------
AIM V.I. LEISURE FUND
SHARES VALUE
------------------------------------------------------------------------------
PUBLISHING-3.58%
Belo Corp.-Class A 22,316 $ 477,785
------------------------------------------------------------------------------
Gannett Co., Inc. 6,421 388,920
------------------------------------------------------------------------------
McClatchy Co. (The)-Class A 8,696 513,934
------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 10,798 557,501
------------------------------------------------------------------------------
1,938,140
------------------------------------------------------------------------------
RESTAURANTS-2.35%
CBRL Group, Inc. 18,598 653,720
------------------------------------------------------------------------------
McDonald's Corp. 7,900 266,388
------------------------------------------------------------------------------
Ruth's Chris Steak House, Inc./(a)/ 5,200 94,120
------------------------------------------------------------------------------
YUM! Brands, Inc. 5,589 262,012
------------------------------------------------------------------------------
1,276,240
------------------------------------------------------------------------------
SOFT DRINKS-0.85%
PepsiCo, Inc. 7,800 460,824
------------------------------------------------------------------------------
SPECIALTY STORES-1.09%
PETsMART, Inc. 22,952 588,948
------------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests (Cost $39,071,243) 42,799,047
------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-19.09%
BELGIUM-4.55%
Compagnie Nationale a Portefeuille (Multi-Sector
Holdings)/(d)/ 692 198,495
------------------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector Holdings)/(d)/ 18,984 1,862,111
------------------------------------------------------------------------------
InBev N.V. (Brewers)/(d)/ 9,369 407,584
------------------------------------------------------------------------------
2,468,190
------------------------------------------------------------------------------
BRAZIL-1.14%
Companhia de Bebidas das Americas-ADR (Brewers) 18,866 616,918
------------------------------------------------------------------------------
CANADA-1.06%
Intrawest Corp. (Hotels, Resorts & Cruise Lines) 19,822 573,847
------------------------------------------------------------------------------
DENMARK-0.80%
Carlsberg A.S.-Class B (Brewers)/(d)/ 8,060 432,576
------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
FRANCE-2.75%
Accor S.A. (Hotels, Resorts & Cruise Lines)/(d)/ 13,948 $ 766,873
- --------------------------------------------------------------------------------
JC Decaux S.A. (Advertising)/(a)(d)/ 13,923 324,791
- --------------------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners) 2,300 401,349
- --------------------------------------------------------------------------------
1,493,013
- --------------------------------------------------------------------------------
HONG KONG-0.13%
Television Broadcasts Ltd.-ADR (Broadcasting &
Cable TV)/(e)/ 6,976 74,137
- --------------------------------------------------------------------------------
JAPAN-0.31%
Sony Corp.-ADR (Consumer Electronics) 4,141 168,953
- --------------------------------------------------------------------------------
NETHERLANDS-1.27%
Jetix Europe N.V. (Broadcasting & Cable TV)/(a)(d)/ 36,733 686,900
- --------------------------------------------------------------------------------
SWITZERLAND-2.01%
Compagnie Financiere Richemont A.G.-Class A (Apparel,
Accessories & Luxury Goods)/(d)/ 13,214 575,269
- --------------------------------------------------------------------------------
Pargesa Holding S.A.-Class B (Multi-Sector Holdings)/(d)/ 6,000 512,724
- --------------------------------------------------------------------------------
1,087,993
- --------------------------------------------------------------------------------
UNITED KINGDOM-5.07%
Diageo PLC (Distillers & Vintners) 49,573 718,571
- --------------------------------------------------------------------------------
InterContinental Hotels Group PLC (Hotels, Resorts &
Cruise Lines)/(d)/ 84,239 1,217,598
- --------------------------------------------------------------------------------
WPP Group PLC (Advertising) 74,907 810,639
- --------------------------------------------------------------------------------
2,746,808
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $7,679,669) 10,349,335
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS-1.93%
Premier Portfolio-Institutional Class
(Cost $1,045,340)/(f)/ 1,045,340 1,045,340
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.98% (Cost $47,796,252) 54,193,722
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.02% 8,872
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $ 54,202,594
- --------------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Each unit represents one common share and one trust share.
/(c)/Each unit represents one common share and one Class B share.
/(d)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at December 31, 2005 was
$6,984,921, which represented 12.89% of the Fund's Net Assets. See Note 1A.
/(e)/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 value of this security at December 31,
2005 represented 0.13% of the Fund's Net Assets. See Note 1A.
/(f)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $46,750,912) $53,148,382
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,045,340) 1,045,340
- ------------------------------------------------------------------------------------
Total investments (cost $47,796,252) 54,193,722
- ------------------------------------------------------------------------------------
Foreign currencies, at value (cost $1,677) 1,685
- ------------------------------------------------------------------------------------
Dividends receivable 83,432
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 5,686
- ------------------------------------------------------------------------------------
Total assets 54,284,525
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 8,195
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 6,631
- ------------------------------------------------------------------------------------
Accrued administrative services fees 33,594
- ------------------------------------------------------------------------------------
Accrued distribution fees-Series II 11
- ------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 104
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 86
- ------------------------------------------------------------------------------------
Accrued operating expenses 33,310
- ------------------------------------------------------------------------------------
Total liabilities 81,931
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $54,202,594
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $45,776,790
- ------------------------------------------------------------------------------------
Undistributed net investment income (475,257)
- ------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign
currencies 2,503,919
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign currencies 6,397,142
- ------------------------------------------------------------------------------------
$54,202,594
- ------------------------------------------------------------------------------------
NET ASSETS:
Series I $54,191,553
- ------------------------------------------------------------------------------------
Series II $ 11,041
- ------------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,569,708
- ------------------------------------------------------------------------------------
Series II 932.8
- ------------------------------------------------------------------------------------
Series I:
Net asset value per share $ 11.86
- ------------------------------------------------------------------------------------
Series II:
Net asset value per share $ 11.84
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $18,583) $ 731,567
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds 50,126
- ----------------------------------------------------------------------------------------
Total investment income 781,693
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 391,455
- ----------------------------------------------------------------------------------------
Administrative services fees 180,452
- ----------------------------------------------------------------------------------------
Custodian fees 22,750
- ----------------------------------------------------------------------------------------
Distribution fees-Series II 27
- ----------------------------------------------------------------------------------------
Interest 1,719
- ----------------------------------------------------------------------------------------
Professional services fees 46,370
- ----------------------------------------------------------------------------------------
Transfer agent fees 1,038
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 16,386
- ----------------------------------------------------------------------------------------
Other 25,231
- ----------------------------------------------------------------------------------------
Total expenses 685,428
- ----------------------------------------------------------------------------------------
Less: Fees waived (82,454)
- ----------------------------------------------------------------------------------------
Net expenses 602,974
- ----------------------------------------------------------------------------------------
Net investment income 178,719
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates
of $4,649) 2,679,134
- ----------------------------------------------------------------------------------------
Foreign currencies (40,447)
- ----------------------------------------------------------------------------------------
2,638,687
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (3,486,922)
- ----------------------------------------------------------------------------------------
Foreign currencies (908)
- ----------------------------------------------------------------------------------------
(3,487,830)
- ----------------------------------------------------------------------------------------
Net gain (loss) from investment securities and foreign currencies (849,143)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (670,424)
- ----------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 178,719
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 2,638,687
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (3,487,830)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (670,424)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (615,299)
- -----------------------------------------------------------------------------------------------------------------------------
Series II (115)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (615,414)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Series I (1,042,369)
- -----------------------------------------------------------------------------------------------------------------------------
Series II (213)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (1,042,582)
- -----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,657,996)
- -----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 552,129
- -----------------------------------------------------------------------------------------------------------------------------
Series II 328
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 552,457
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,775,963)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 55,978,557
- -----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(475,257) and $(80,174), respectively) $54,202,594
- -----------------------------------------------------------------------------------------------------------------------------
2004
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 490
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 1,181,600
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 5,083,955
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 6,266,045
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (165,844)
- ----------------------------------------------------------------------------------------------------------------------------
Series II (34)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (165,878)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Series I (44,667)
- ----------------------------------------------------------------------------------------------------------------------------
Series II (9)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (44,676)
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (210,554)
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 15,488,580
- ----------------------------------------------------------------------------------------------------------------------------
Series II 10,043
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 15,498,623
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 21,554,114
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 34,424,443
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(475,257) and $(80,174), respectively) $55,978,557
- ----------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Leisure Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 capital growth.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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.
AIM V.I. LEISURE FUND
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are 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 recorded at amortized cost which approximates 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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.
AIM V.I. LEISURE FUND
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the Fund's
average daily net assets.
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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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 only 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.
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 year ended December 31, 2005, AIM waived fees of $82,448.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $130,452 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 year ended
December 31, 2005, the Fund paid AISI $1,038.
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. Pursuant to the Plan, for the year ended December 31, 2005, the
Series II shares paid $21 after ADI waived Plan fees of $6.
Certain officers and trustees of the Trust are also 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 an
affiliated money market fund for the year ended December 31, 2005.
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $1,397,060 $17,695,146 $(18,046,866) $ -- $1,045,340 $50,126 $ --
- -------------------------------------------------------------------------------------------------------------------------
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended December 31,
2005, the Fund engaged in securities purchases of $157,017 and sales of
$117,690, which resulted in net realized gains of $4,649.
AIM V.I. LEISURE FUND
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,079
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
During the year ended December 31, 2005, the average interfund borrowings for
the 5 days the borrowings were outstanding was $4,737,380 with a weighted
interest rate of 2.65% and interest expense of $1,719.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan. During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2005 and 2004 was as follows:
2005 2004
--------------------------------------------
Distributions paid from:
Ordinary income $ 946,660 $165,878
--------------------------------------------
Long-term capital gain 711,336 44,676
--------------------------------------------
Total distributions $1,657,996 $210,554
--------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-------------------------------------------------
Undistributed ordinary income $ 806,373
-------------------------------------------------
Undistributed long-term gain 2,585,218
-------------------------------------------------
Unrealized appreciation--investments 5,301,319
-------------------------------------------------
Temporary book/tax differences (5,191)
-------------------------------------------------
Post-October capital loss deferral (261,915)
-------------------------------------------------
Shares of beneficial interest 45,776,790
-------------------------------------------------
Total net assets $54,202,594
-------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the treatment of passive foreign investment companies and
partnerships. The tax-basis unrealized appreciation (depreciation) on
investments amount includes appreciation (depreciation) on foreign currencies
of $(328).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund had no capital loss carryforward as of December 31, 2005.
AIM V.I. LEISURE FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $16,061,522 and $16,786,553, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended December 31, 2005, in the amount of $1,632. These
research credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 6,896,845
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,595,198)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 5,301,647
-------------------------------------------------------------------------
Cost of investments for tax purposes is $48,892,075.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies and partnership investments,
on December 31, 2005, undistributed net investment income was increased by
$41,612, undistributed net realized gain was decreased by $40,957 and shares of
beneficial interest decreased by $655. This reclassification had no effect on
the net assets of the Fund.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
2005/(A)/ 2004
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Series I 1,039,602 $ 12,511,490 1,824,898 $20,387,248
- --------------------------------------------------------------------------------------
Series II/(b)/ -- -- 902 10,000
- --------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 139,417 1,657,668 17,426 210,511
- --------------------------------------------------------------------------------------
Series II/(b)/ 28 328 3 43
- --------------------------------------------------------------------------------------
Reacquired:
Series I/(b)/ (1,128,588) (13,617,029) (463,174) (5,109,179)
- --------------------------------------------------------------------------------------
50,459 $ 552,457 1,380,055 $15,498,623
- --------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 99% 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 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 this entity is also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. LEISURE FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
--------------------------------------------
APRIL 30, 2002
(DATE OPERATIONS
COMMENCED) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------ 2002
2005 2004 2003 ----------------
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.38 $ 10.96 $ 8.52 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04 0.00 (0.00) (0.00)/(a)/
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.19) 1.47 2.44 (1.48)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.15) 1.47 2.44 (1.48)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.14) (0.04) -- --
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.23) (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.37) (0.05) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.86 $ 12.38 $ 10.96 $ 8.52
- ----------------------------------------------------------------------------------------------------------------------
Total return/(b)/ (1.19)% 13.40% 28.64% (14.80)%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,192 $55,967 $34,424 $ 6,097
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%/(c)/ 1.29% 1.26% 1.29%/(d)/
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.31%/(c)/ 1.34% 1.64% 3.96%/(d)/
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.34%/(c)/ 0.00% (0.14)% (0.30)%/(d)/
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 32% 15% 22% 15%
- ----------------------------------------------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.01) for
the period April 30, 2002 (date operations commenced) to December 31, 2002.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $52,183,055.
/(d)/Annualized.
/(e)/Not annualized for periods less than one year.
AIM V.I. LEISURE FUND
NOTE 11--FINANCIAL HIGHLIGHTS-(CONTINUED)
SERIES II
--------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.37 $11.09
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 (0.02)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.19) 1.35
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.17) 1.33
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13) (0.04)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.23) (0.01)
- ----------------------------------------------------------------------------------------------------
Total distributions (0.36) (0.05)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $11.84 $12.37
- ----------------------------------------------------------------------------------------------------
Total return/(a)/ (1.37)% 11.98%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 11
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.36%/(b)/ 1.45%/(c)/
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.56%/(b)/ 1.60%/(c)/
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.14%/(b)/ (0.16)%/(c)/
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 32% 15%
- ----------------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(b)/Ratios are based on average daily net assets of $10,906.
/(c)/Annualized.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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
AIM V.I. LEISURE FUND
NOTE 12--LEGAL PROCEEDINGS-(CONTINUED)
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
AIM V.I. LEISURE FUND
NOTE 12--LEGAL PROCEEDINGS-(CONTINUED)
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. LEISURE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Leisure Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Leisure Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2005, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian,
provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. LEISURE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. LEISURE FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 36.38% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $711,336 for the
Fund's tax year ended December 31, 2005.
AIM V.I. LEISURE FUND
AIM V.I. MID CAP CORE EQUITY FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31,2005,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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. MID CAP CORE EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE maintain a significant cash position to
====================================================================================== limit volatility in certain market
PERFORMANCE SUMMARY environments.
=========================================
For the year ended December 31, 2005, the FUND VS. INDEXES We consider selling a stock when:
Fund outperformed the S&P 500 Index due
to its holdings in the energy and health Total returns, 12/31/04--12/31/05, o it exceeds our target price
care sectors and as a result of mid-cap excluding variable product issuer
stocks having outperformed large-cap charges. If variable product issuer o we have not seen a demonstrable
stocks in general. The Fund's return was charges were included, returns would be improvement in fundamentals during an 18-
lower than that of the Russell Midcap lower. to 24-month time horizon
Index due in part to its holdings in the
financials sector. Series I Shares 7.62% o the company's fundamentals deteriorate
Series II Shares 7.27
Your Fund's long-term performance Standard & Poor's Composite Index o more compelling investment
appears on Pages 4 and 5. of 500 Stocks (S&P 500 Index) opportunities exist
(Broad Market Index) 4.91
Russell Midcap Index
(Style-specific Index) 12.65 MARKET CONDITIONS AND YOUR FUND
Lipper Mid-Cap Core Fund Index
(Peer Group Index) 9.46 During the year, economic indicators were
generally positive, pointing to the
Source: Lipper,inc. health of the U.S. economy. Throughout
========================================= the year, the nation's gross domestic
product reflected continuing growth.
====================================================================================== Corporate earnings growth was generally
healthy, while manufacturing growth
HOW WE INVEST We conduct quantitative research to continued and core inflation remained
identify growing companies whose stock low. However, many investors focused on
We manage this Fund as a core fund, prices may be experiencing some near-term the impact that record-breaking energy
seeking to provide upside potential and a distress. By applying fundamental prices and rising interest rates would
measure of protection in difficult research, including analysis of company have on consumer spending, which accounts
markets to complement more aggressive financial statements with a special focus for approximately two-thirds of the U.S.
value and growth investments. on cash flow, we assess the prospects for economy.
each business and its appreciation
We believe a portfolio of attractively potential. While most domestic equity indexes
valued companies with consistent free produced single-digit returns for the
cash flow and management teams that We target a well-diversified mid-cap year, mid-cap stocks outperformed both
allocate excess cash to the benefit of core portfolio and attempt to protect small-cap and large-cap issues. In the
shareholders can outperform the market against volatility through the size of Russell Midcap Index, all sectors
over the long term. We believe these individual holdings and sector produced positive returns, with energy
companies are best positioned to weather weightings. Sector exposure is consistent as the strongest performer, followed by
temporary setbacks and therefore provide with a core investment to complement telecommunication services and health
the potential for both long-term capital value and growth investments. We may also care.
appreciation and lower downside risk.
The greatest contributor to Fund
performance this year was our overweight
position in the energy sector relative
to the Russell Midcap
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By Sector
Consumer Discretionary 15.2% 1. Oil & Gas Equipment & Services 6.0% 1. Williams Cos., Inc. (The) 2.4%
Energy 14.7 2. Industrial Machinery 5.7 2. Xerox Corp. 2.1
Information Technology 14.7 3. Property & Casualty Insurance 4.2 3. BJ Services Co. 2.1
Financials 11.4 4. Specialty Chemicals 4.2 4. Sigma-Aldrich Corp. 1.9
Industrials 10.1 5. Health Care Equipment 3.9 5. Smith International, Inc. 1.9
Materials 8.1 6. Specialized Consumer Services 3.2 6. Sabre Holdings Corp.-Class A 1.8
Consumer Staples 6.6 7. Application Software 3.0 7. Briggs & Stratton Corp. 1.8
Health Care 6.3 8. Semiconductors 2.9 8. H&R Block, Inc. 1.7
Utilities 1.0 9. Publishing 2.8 9. Heineken N.V. (Netherlands) 1.7
Money Market Funds 10. Regional Banks 2.7 10. PerkinElmer, Inc. 1.6
Plus Other Assets Less Liabilities 11.9
TOTAL NET ASSETS $635.2 MILLION
TOTAL NUMBER OF HOLDINGS* 88
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
2
AIM V.I. MID CAP CORE EQUITY FUND
Index. The top five contributors to Fund and supplies segment of the business, RONALD S. SLOAN,
performance were all energy sector which has seen increased competition and [SLOAN Chartered Financial
stocks. All but one, SOUTHWESTERN ENERGY steadily declining margins over the past PHOTO] Analyst,senior
COMPANY, were long-term holdings owned several years. The company has been late portfolio manager,
by the Fund at the end of 2004. Two of in shifting its operations to the more is lead portfolio
the stocks have been sold as a result of profitable laser-jet printer and manager of AIM V.I. Mid Cap Core Equity
having reached our price targets. Within supplies segment of the industry. As a Fund. Mr. Sloan has 35 years of
the sector, we have chosen to decrease result, the company's margins have experience in the investment industry.
exposure to the oil and gas exploration decreased, and the stock price declined. He joined AIM in 1998. Mr. Sloan
and production industry and to increase We sold this stock based on loss of attended the University of Missouri,
exposure to the oil and gas equipment confidence in management's ability to where he received both a B.S. in
and services industry. take corrective action which would business administration and an M.B.A.
improve the business.
Strong stock selection in the health Assisted by the Mid/Large Cap Core Team
care sector augmented Fund performance o Mattel is the world's largest
for the year. A health care stock that toymaker, whose best-known brand is
is new to the Fund's top-10 holdings Barbie--Registered Trademark--. The
list, PERKINELMER, was a strong company had been a good generator of
contributor to Fund performance. The cash flow, and had been involved in a
company makes a wide range of analytical stock buyback program. However, Mattel's
instruments used for chemical and market share has declined, and its costs
thermal analysis. Its management team associated with outsourced manufacturing
has focused company efforts on the life have increased. We lost confidence in
sciences division, which makes products management's ability to address these
that are used for drug discovery and issues, and, at period-end, the Fund no
genetic disease screening. The longer owned this stock.
management team is committed to
generating consistent free cash flow,
and creating value for shareholders. IN CLOSING
Compared to the Russell Midcap Index, A core fund is designed to benefit from
the Fund was significantly underweight favorable markets and to give up less
in the financials sector. This resulted during difficult times. As such, we
from our decision to avoid stocks that provided competitive returns,
might be adversely affected by rising outperforming the S&P 500 Index for the
interest rates. year. At the same time, we maintained
our long-term investment horizon, owning
Though we have avoided certain companies with management teams that
interest-rate sensitive industries in have track records of generating cash
the financials sector, we have increased and appropriating it to benefit their
exposure to the property and casualty shareholders. Thank you for your
insurance industry. As a result of the continued investment in AIM V.I. Mid Cap
hurricane devastation in 2005, many Core Equity Fund.
insurers sustained heavy losses.
Investors acted on the belief that such THE VIEWS AND OPINIONS EXPRESSED IN
losses would put an end to the MANAGEMENT'S DISCUSSION OF FUND
discounting of premium prices and that a PERFORMANCE ARE THOSE OF A I M ADVISORS,
stronger pricing cycle would result in INC. THESE VIEWS AND OPINIONS ARE
increased profitability and SUBJECT TO CHANGE AT ANY TIME BASED ON
corresponding share price increases. As FACTORS SUCH AS MARKET AND ECONOMIC
of December 31, 2005, our holdings in CONDITIONS. THESE VIEWS AND OPINIONS MAY
this industry included long-term holding NOT BE RELIED UPON AS INVESTMENT ADVICE
ACE LTD. and two of this year's new OR RECOMMENDATIONS, OR AS AN OFFER FOR A
holdings, AXIS CAPITAL and XL CAPITAL. PARTICULAR SECURITY. THE INFORMATION IS
NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Individual stocks that detracted from OF ANY MARKET, COUNTRY, INDUSTRY,
performance included LEXMARK and MATTEL. SECURITY OR THE FUND. STATEMENTS OF FACT
ARE FROM SOURCES CONSIDERED RELIABLE,
o Lexmark, an information technology BUT A I M ADVISORS, INC. MAKES NO
sector holding, is a leading REPRESENTATION OR WARRANTY AS TO THEIR
manufacturer of printers and printer COMPLETENESS OR ACCURACY. ALTHOUGH
supplies in the U.S. The company has HISTORICAL PERFORMANCE IS NO GUARANTEE
been heavily involved in the ink-jet OF FUTURE RESULTS, THESE INSIGHTS MAY [RIGHT ARROW GRAPHIC]
printer HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. MID CAP CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 9/10/01, INDEX DATA FROM 8/31/01
================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. MID CAP AIM V.I. MID CAP S&P 500 RUSSELL LIPPER
CORE EQUITY FUND- CORE EQUITY FUND- INDEX MIDCAP MID-CAP CORE
SERIES I SHARES SERIES II SHARES INDEX FUND INDEX
8/31/01 $10000 $10000 $10000
09/01 $9560 9560 9193 8794 $8722
10/01 9920 9920 9368 9142 9158
11/01 10361 10361 10086 9908 9850
12/01 10738 10722 10175 10306 10295
01/02 10728 10722 10026 10245 10177
02/02 10849 10833 9833 10136 10001
03/02 11300 11284 10203 10744 10675
04/02 11150 11133 9585 10536 10499
05/02 11220 11204 9514 10417 10286
06/02 10529 10512 8837 9718 9542
07/02 9577 9561 8148 8770 8575
08/02 9797 9771 8201 8818 8673
09/02 9015 8991 7311 8004 7980
10/02 9356 9341 7954 8409 8355
11/02 9957 9932 8421 8993 8923
12/02 9547 9521 7927 8638 8506
01/03 9316 9291 7720 8464 8338
02/03 9166 9141 7604 8351 8162
03/03 9136 9100 7677 8434 8183
04/03 9687 9661 8309 9046 8800
05/03 10509 10471 8747 9874 9539
06/03 10639 10592 8858 9974 9707
07/03 10950 10902 9015 10303 10007
08/03 11350 11302 9190 10750 10450
09/03 11080 11032 9093 10616 10275
10/03 11561 11513 9607 11426 11029
11/03 11761 11703 9691 11747 11330
12/03 12155 12096 10199 12099 11618
01/04 12397 12329 10387 12450 11932
02/04 12619 12551 10531 12718 12159
03/04 12578 12510 10372 12721 12130
04/04 12649 12580 10209 12254 11748
05/04 12799 12731 10349 12558 11933
06/04 13142 13064 10550 12905 12258
07/04 12609 12529 10201 12341 11634
08/04 12558 12469 10242 12394 11590
09/04 12791 12701 10353 12797 11997
10/04 12993 12903 10511 13150 12194
11/04 13527 13427 10936 13951 12920
12/04 13835 13738 11308 14545 13411
01/05 13561 13465 11033 14185 13060
02/05 14036 13928 11265 14623 13385
03/05 13931 13822 11066 14508 13249
04/05 13488 13369 10856 14046 12743
05/05 13868 13749 11201 14719 13348
06/05 14090 13970 11217 15114 13663
07/05 14744 14613 11634 15911 14296
08/05 14764 14633 11528 15800 14212
09/05 14627 14496 11621 16009 14329
10/05 14184 14053 11427 15528 13958
11/05 14743 14590 11859 16217 14538
12/05 14884 14736 11863 16385 14680
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
================================================================================
4
AIM V.I. MID CAP CORE EQUITY FUND
========================================
AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; ACTUAL VARIABLE PRODUCT VALUES. THEY DO
As of 12/31/05 CURRENT PERFORMANCE MAY BE LOWER OR NOT REFLECT SALES CHARGES, EXPENSES AND
SERIES I SHARES HIGHER. PLEASE CONTACT YOUR VARIABLE FEES ASSESSED IN CONNECTION WITH A
Inception (9/10/01) 9.67% PRODUCT ISSUER OR FINANCIAL ADVISOR FOR VARIABLE PRODUCT. SALES CHARGES,
1 Year 7.62 THE MOST RECENT MONTH-END VARIABLE EXPENSES AND FEES, WHICH ARE DETERMINED
PRODUCT PERFORMANCE. PERFORMANCE FIGURES BY THE VARIABLE PRODUCT ISSUERS, WILL
SERIES II SHARES REFLECT FUND EXPENSES, REINVESTED VARY AND WILL LOWER THE TOTAL RETURN.
Inception (9/10/01) 9.42% DISTRIBUTIONS AND CHANGES IN NET ASSET
1 Year 7.27 VALUE. INVESTMENT RETURN AND PRINCIPAL PER NASD REQUIREMENTS, THE MOST
======================================== VALUE WILL FLUCTUATE SO THAT YOU MAY RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS HAVE A GAIN OR LOSS WHEN YOU SELL FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Six months ended 12/31/05 SHARES. CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Series I Shares 5.68% INFORMATION LINE, 866-702-4402. AS
Series II Shares 5.49 AIM V.I. MID CAP CORE EQUITY FUND, A MENTIONED ABOVE, FOR THE MOST RECENT
======================================== SERIES PORTFOLIO OF AIM VARIABLE MONTH-END PERFORMANCE INCLUDING VARIABLE
INSURANCE FUNDS, IS CURRENTLY OFFERED PRODUCT CHARGES, PLEASE CONTACT YOUR
SERIES I AND SERIES II SHARES INVEST IN THROUGH INSURANCE COMPANIES ISSUING VARIABLE PRODUCT ISSUER OR FINANCIAL
THE SAME PORTFOLIO OF SECURITIES AND VARIABLE PRODUCTS. YOU CANNOT PURCHASE ADVISOR.
WILL HAVE SUBSTANTIALLY SIMILAR SHARES OF THE FUND DIRECTLY.
PERFORMANCE, EXCEPT TO THE EXTENT THAT
EXPENSES BORNE BY EACH CLASS DIFFER. PERFORMANCE FIGURES GIVEN REPRESENT
THE FUND AND ARE NOT INTENDED TO REFLECT
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT
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 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 on net asset values calculated for
presents certain risks not associated an index of common stocks frequently shareholder transactions. Generally
with investing solely in the United used 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 RUSSELL MIDCAP reporting purposes, and as such, the net
currencies, the custody arrangements --Registered Trademark-- INDEX asset values for shareholder
made for the Fund's foreign holdings, represents the performance of the stocks transactions and the returns based on
differences in accounting, political of domestic mid-capitalization those net asset values may differ from
risks and the lesser degree of public companies. the net asset values and returns
information required to be provided by reported in the Financial Highlights.
non-U.S. companies. The unmanaged LIPPER MID-CAP CORE Additionally, the returns and net asset
FUND INDEX represents an average of the values shown throughout this report are
To the extent the Fund holds cash or performance of the 30 largest at the Fund level only and do not
cash equivalents rather than equity mid-capitalization core funds tracked by include variable product issuer charges.
securities, the Fund may not achieve its Lipper, Inc., an independent mutual fund If such charges were included, the total
investment objective, and it may performance monitor. returns would be lower.
underperform its peer group and
benchmark indexes, particularly during The Fund is not managed to track the Industry classifications used in this
periods of strong market performance. performance of any particular index, report are generally according to the
including the indexes defined here, and Global Industry Classification Standard,
Investing in smaller companies consequently, the performance of the which was developed by and is the
involves greater risk than investing in Fund may deviate significantly from the exclusive property and a service mark of
more established companies, such as performance of the indexes. Morgan Stanley Capital International
business risk, significant stock price Inc. and Standard & Poor's.
fluctuations and illiquidity. 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.
5
AIM V.I. MID CAP CORE EQUITY FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON
the effect of any fees or other expenses PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,056.80 $5.34 $1,020.01 $5.24 1.03%
Series II 1,000.00 1,054.90 6.63 1,018.75 6.51 1.28
(1)The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December 31,
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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2)Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. MID CAP CORE EQUITY FUND
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
the management of AIM V.I. Mid Cap Core 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 the same as 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; (ii) was higher than the
July 1, 2005. provided by AIM was appropriate and that sub-advisory fee rates for three
AIM currently is providing satisfactory unaffiliated mutual funds for which an
The Board considered the factors services in accordance with the terms of AIM affiliate serves as sub-advisor,
discussed below in evaluating the the Advisory Agreement. although the total management fees paid
fairness and reasonableness of the by such unaffiliated mutual funds were
Advisory Agreement at the meeting on o The performance of the Fund relative comparable to or higher than the
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed advisory fee rate for the Fund; and
ongoing oversight of the Fund. In their the performance of the Fund during the (iii) was higher than the advisory fee
deliberations, the Board and the past one and three calendar years rates for 24 separately managed wrap
independent trustees did not identify against the performance of funds advised accounts managed by an AIM affiliate
any particular factor that was by other advisors with investment with investment strategies comparable to
controlling, and each trustee attributed strategies comparable to those of the those of the Fund, comparable to the
different weights to the various Fund. The Board noted that the Fund's advisory fee rates for one such wrap
factors. performance in such periods was below account, and lower than the advisory fee
the median performance of such rates for two such wrap accounts. The
One of the responsibilities of the comparable funds. Based on this review Board noted that AIM has agreed to waive
Senior Officer of the Fund, who is and after taking account of all of the advisory fees of the Fund and to limit
independent of AIM and AIM's affiliates, other factors that the Board considered the Fund's total operating expenses, as
is to manage the process by which the in determining whether to continue the discussed below. Based on this review,
Fund's proposed management fees are Advisory Agreement for the Fund, the the Board concluded that the advisory
negotiated to ensure that they are Board concluded that no changes should fee rate for the Fund under the Advisory
negotiated in a manner which is at arm's be made to the Fund and that it was not Agreement was fair and reasonable.
length and reasonable. To that end, the necessary to change the Fund's portfolio
Senior Officer must either supervise a management team at this time. However, o Fees relative to those of comparable
competitive bidding process or prepare due to the Fund's under-performance, the funds with other advisors. The Board
an independent written evaluation. The Board also concluded that it would be reviewed the advisory fee rate for the
Senior Officer has recommended an appropriate for management and the Board Fund under the Advisory Agreement. The
independent written evaluation in lieu to continue to closely monitor the Board compared effective contractual
of a competitive bidding process and, performance of the Fund. advisory fee rates at a common asset
upon the direction of the Board, has level and noted that the Fund's rate was
prepared such an independent written o The performance of the Fund relative above the median rate of the funds
evaluation. Such written evaluation also to indices. The Board reviewed the advised by other advisors with
considered certain of the factors performance of the Fund during the past investment strategies comparable to
discussed below. In addition, as one and three calendar years against the those of the Fund that the Board
discussed below, the Senior Officer made performance of the Lipper Mid Cap Core reviewed. The Board noted that AIM has
certain recommendations to the Board in Index. The Board noted that the Fund's agreed to waive advisory fees of the
connection with such written evaluation. performance was below the performance of Fund and to limit the Fund's total
such Index for the one year period and operating expenses, as discussed below.
The discussion below serves as a comparable to such Index for the three Based on this review, the Board
summary of the Senior Officer's year period. Based on this review and concluded that the advisory fee rate for
independent written evaluation and after taking account of all of the other the Fund under the Advisory Agreement
recommendations to the Board in factors that the Board considered in was fair and reasonable.
connection therewith, as well as a determining whether to continue the
discussion of the material factors and Advisory Agreement for the Fund, the o Expense limitations and fee waivers.
the conclusions with respect thereto Board concluded that no changes should The Board noted that AIM has
that formed the basis for the Board's be made to the Fund and that it was not contractually agreed to waive advisory
approval of the Advisory Agreement. necessary to change the Fund's portfolio fees of the Fund through June 30, 2006
After consideration of all of the management team at this time. However, to the extent necessary so that the
factors below and based on its informed due to the Fund's under-performance, the advisory fees payable by the Fund do not
business judgment, the Board determined Board also concluded that it would be exceed a specified maximum advisory fee
that the Advisory Agreement is in the appropriate for management and the Board rate, which maximum rate includes
best interests of the Fund and its to continue to closely monitor the breakpoints and is based on net asset
shareholders and that the compensation performance of the Fund. levels. The Board considered the
to AIM under the Advisory Agreement is contractual nature of this fee waiver
fair and reasonable and would have been o Meeting with the Fund's portfolio and noted that it remains in effect
obtained through arm's length managers and investment personnel. With until June 30, 2006. The Board noted
negotiations. respect to the Fund, the Board is that AIM has contractually agreed to
meeting periodically with such Fund's waive fees and/or limit expenses of the
o The nature and extent of the advisory portfolio managers and/or other Fund through April 30, 2006 in an amount
services to be provided by AIM. The investment personnel and believes that necessary to limit total annual
Board reviewed the services to be such individuals are competent and able operating expenses to a specified
provided by AIM under the Advisory to continue to carry out their percentage of average daily net assets
Agreement. Based on such review, the responsibilities under the Advisory for each class of the Fund. The Board
Board concluded that the range of Agreement. considered the contractual nature of
services to be provided by AIM under the this fee waiver/expense limitation and
Advisory Agreement was appropriate and noted that it remains in effect until
that AIM currently is providing services April 30, 2006. The Board con-
in accordance with the terms of the
Advisory Agreement.
(continued)
7
AIM V.I. MID CAP CORE EQUITY FUND
sidered the effect these fee Funds, including the Fund. The Board concluded that it was beneficial to
waivers/expense limitations would have noted that the Senior Officer's written maintain the current relationship, in
on the Fund's estimated expenses and evaluation had been relied upon by the part, because of such knowledge. The
concluded that the levels of fee Board in this regard in lieu of a Board also reviewed the general nature
waivers/expense limitations for the Fund competitive bidding process. In of the non-investment advisory services
were fair and reasonable. determining whether to continue the currently performed by AIM and its
Advisory Agreement for the Fund, the affiliates, such as administrative,
o Breakpoints and economies of scale. Board considered the Senior Officer's transfer agency and distribution
The Board reviewed the structure of the written evaluation and the services, and the fees received by AIM
Fund's advisory fee under the Advisory recommendation made by the Senior and its affiliates for performing such
Agreement, noting that it includes three Officer to the Board that the Board services. In addition to reviewing such
breakpoints. The Board reviewed the consider implementing a process to services, the trustees also considered
level of the Fund's advisory fees, and assist them in more closely monitoring the organizational structure employed by
noted that such fees, as a percentage of the performance of the AIM Funds. The AIM and its affiliates to provide those
the Fund's net assets, have decreased as Board concluded that it would be services. Based on the review of these
net assets increased because the advisable to implement such a process as and other factors, the Board concluded
Advisory Agreement includes breakpoints. soon as reasonably practicable. The that AIM and its affiliates were
The Board noted that, due to the Fund's Board also considered the Senior qualified to continue to provide
current asset levels and the way in Officer's recommendation that the Board non-investment advisory services to the
which the advisory fee breakpoints have consider an additional fee waiver for Fund, including administrative, transfer
been structured, the Fund has yet to the Fund due to the Fund's agency and distribution services, and
fully benefit from the breakpoints. The under-performance and relatively high that AIM and its affiliates currently
Board noted that AIM has contractually historic cash position. The Board are providing satisfactory
agreed to waive advisory fees of the concluded that such a fee waiver was not non-investment advisory services.
Fund through June 30, 2006 to the extent appropriate for the Fund at this time
necessary so that the advisory fees and that, rather than requesting such a o Other factors and current trends. In
payable by the Fund do not exceed a fee waiver from AIM, the Board should determining whether to continue the
specified maximum advisory fee rate, receive from AIM (i) additional Advisory Agreement for the Fund, the
which maximum rate includes breakpoints information regarding the use of cash in Board considered the fact that AIM,
and is based on net asset levels. The the Fund's overall investment strategy along with others in the mutual fund
Board concluded that the Fund's fee and (ii) an analysis of how the use of industry, is subject to regulatory
levels under the Advisory Agreement cash by the Fund's portfolio manager has inquiries and litigation related to a
therefore reflect economies of scale and contributed to the Fund's performance. wide range of issues. The Board also
that it was not necessary to change the considered the governance and compliance
advisory fee breakpoints in the Fund's o Profitability of AIM and its reforms being undertaken by AIM and its
advisory fee schedule. affiliates. The Board reviewed affiliates, including maintaining an
information concerning the profitability internal controls committee and
o Investments in affiliated money market of AIM's (and its affiliates') retaining an independent compliance
funds. The Board also took into account investment advisory and other activities consultant, and the fact that AIM has
the fact that uninvested cash and cash and its financial condition. The Board undertaken to cause the Fund to operate
collateral from securities lending considered the overall profitability of in accordance with certain governance
arrangements (collectively, "cash AIM, as well as the profitability of AIM policies and practices. The Board
balances") of the Fund may be invested in connection with managing the Fund. concluded that these actions indicated a
in money market funds advised by AIM The Board noted that AIM's operations good faith effort on the part of AIM to
pursuant to the terms of an SEC remain profitable, although increased adhere to the highest ethical standards,
exemptive order. The Board found that expenses in recent years have reduced and determined that the current
the Fund may realize certain benefits AIM's profitability. Based on the review regulatory and litigation environment to
upon investing cash balances in AIM of the profitability of AIM's and its which AIM is subject should not prevent
advised money market funds, including a affiliates' investment advisory and the Board from continuing the Advisory
higher net return, increased liquidity, other activities and its financial Agreement for the Fund.
increased diversification or decreased condition, the Board concluded that the
transaction costs. The Board also found compensation to be paid by the Fund to
that the Fund will not receive reduced AIM under its Advisory Agreement was not
services if it invests its cash balances excessive.
in such money market funds. The Board
noted that, to the extent the Fund o Benefits of soft dollars to AIM. The
invests in affiliated money market Board considered the benefits realized
funds, AIM has voluntarily agreed to by AIM as a result of brokerage
waive a portion of the advisory fees it transactions executed through "soft
receives from the Fund attributable to dollar" arrangements. Under these
such investment. The Board further arrangements, brokerage commissions paid
determined that the proposed securities by the Fund and/or other funds advised
lending program and related procedures by AIM are used to pay for research and
with respect to the lending Fund is in execution services. This research is
the best interests of the lending Fund used by AIM in making investment
and its respective shareholders. The decisions for the Fund. The Board
Board therefore concluded that the concluded that such arrangements were
investment of cash collateral received appropriate.
in connection with the securities
lending program in the money market o AIM's financial soundness in light of
funds according to the procedures is in the Fund's needs. The Board considered
the best interests of the lending Fund whether AIM is financially sound and has
and its respective shareholders. the resources necessary to perform its
obligations under the Advisory
o Independent written evaluation and Agreement, and concluded that AIM has
recommendations of the Fund's Senior the financial resources necessary to
Officer. The Board noted that, upon fulfill its obligations under the
their direction, the Senior Officer of Advisory Agreement.
the Fund, who is independent of AIM and
AIM's affiliates, had prepared an o Historical relationship between the
independent written evaluation in order Fund and AIM. In determining whether to
to assist the Board in determining the continue the Advisory Agreement for the
reasonableness of the proposed Fund, the Board also considered the
management fees of the AIM prior relationship between AIM and the
Fund, as well as the Board's knowledge
of AIM's operations, and
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-88.11%
APPAREL RETAIL-0.52%
TJX Cos., Inc. (The) 141,410 $ 3,284,954
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.13%
Fossil, Inc.(a) 38,428 826,586
=======================================================================
APPLICATION SOFTWARE-3.01%
Cadence Design Systems, Inc.(a) 185,404 3,137,036
- -----------------------------------------------------------------------
Fair Isaac Corp. 131,600 5,812,772
- -----------------------------------------------------------------------
Reynolds and Reynolds Co. (The)-Class A 249,200 6,995,044
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 157,313 3,155,699
=======================================================================
19,100,551
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.14%
Investors Financial Services Corp. 196,600 7,240,778
=======================================================================
BIOTECHNOLOGY-1.12%
Techne Corp.(a) 127,065 7,134,700
=======================================================================
BREWERS-1.69%
Heineken N.V. (Netherlands)(b) 338,749 10,736,072
=======================================================================
BUILDING PRODUCTS-1.06%
Masco Corp. 222,371 6,713,380
=======================================================================
CASINOS & GAMING-1.21%
GTECH Holdings Corp. 243,100 7,715,994
=======================================================================
COAL & CONSUMABLE FUELS-0.45%
Massey Energy Co. 76,060 2,880,392
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.80%
Sabre Holdings Corp.-Class A 474,600 11,442,606
=======================================================================
DISTRIBUTORS-1.01%
Genuine Parts Co. 146,400 6,429,888
=======================================================================
DIVERSIFIED CHEMICALS-1.03%
Engelhard Corp. 216,900 6,539,535
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.39%
Agilent Technologies, Inc.(a) 11,500 382,835
- -----------------------------------------------------------------------
Amphenol Corp.-Class A 158,000 6,993,080
- -----------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 142,000 7,838,400
=======================================================================
15,214,315
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
ENVIRONMENTAL & FACILITIES SERVICES-2.34%
Rentokil Initial PLC (United Kingdom)(b) 3,122,289 $ 8,779,286
- -----------------------------------------------------------------------
Republic Services, Inc. 161,500 6,064,325
=======================================================================
14,843,611
=======================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.99%
Scotts Miracle-Gro Co. (The)-Class A 139,060 6,291,074
=======================================================================
FOOD RETAIL-1.25%
Kroger Co. (The)(a) 421,770 7,963,018
=======================================================================
GENERAL MERCHANDISE STORES-0.49%
99 Cents Only Stores(a) 295,000 3,085,700
=======================================================================
HEALTH CARE EQUIPMENT-3.92%
Biomet, Inc. 168,977 6,179,489
- -----------------------------------------------------------------------
PerkinElmer, Inc. 428,000 10,083,680
- -----------------------------------------------------------------------
Waters Corp.(a) 228,850 8,650,530
=======================================================================
24,913,699
=======================================================================
HOME ENTERTAINMENT SOFTWARE-0.51%
Nintendo Co., Ltd (Japan)(b) 26,400 3,209,162
=======================================================================
HOME FURNISHINGS-2.07%
Ethan Allen Interiors Inc. 207,716 7,587,865
- -----------------------------------------------------------------------
Mohawk Industries, Inc.(a) 63,750 5,544,975
=======================================================================
13,132,840
=======================================================================
HOME IMPROVEMENT RETAIL-1.05%
Sherwin-Williams Co. (The) 147,100 6,681,282
=======================================================================
HOMEFURNISHING RETAIL-1.00%
Bed Bath & Beyond Inc.(a) 175,000 6,326,250
=======================================================================
INDUSTRIAL MACHINERY-5.71%
Briggs & Stratton Corp. 287,904 11,167,796
- -----------------------------------------------------------------------
Dover Corp. 161,640 6,544,804
- -----------------------------------------------------------------------
ITT Industries, Inc. 70,200 7,217,964
- -----------------------------------------------------------------------
Pall Corp. 310,000 8,326,600
- -----------------------------------------------------------------------
Parker Hannifin Corp. 46,056 3,037,854
=======================================================================
36,295,018
=======================================================================
INSURANCE BROKERS-1.00%
Marsh & McLennan Cos., Inc. 200,946 6,382,045
=======================================================================
INTEGRATED OIL & GAS-1.13%
Murphy Oil Corp. 133,173 7,190,010
=======================================================================
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-0.47%
aQuantive, Inc.(a) 117,851 $ 2,974,559
=======================================================================
METAL & GLASS CONTAINERS-1.97%
Ball Corp. 152,200 6,045,384
- -----------------------------------------------------------------------
Pactiv Corp.(a) 293,700 6,461,400
=======================================================================
12,506,784
=======================================================================
MULTI-LINE INSURANCE-1.02%
Genworth Financial Inc.-Class A 186,617 6,453,216
=======================================================================
MULTI-SECTOR HOLDINGS-0.53%
Groupe Bruxelles Lambert S.A. (Belgium)(b) 34,116 3,346,385
=======================================================================
MULTI-UTILITIES-0.98%
Wisconsin Energy Corp. 159,700 6,237,882
=======================================================================
OFFICE ELECTRONICS-2.11%
Xerox Corp.(a) 913,300 13,379,845
=======================================================================
OFFICE SERVICES & SUPPLIES-0.94%
Pitney Bowes Inc. 141,800 5,991,050
=======================================================================
OIL & GAS DRILLING-2.12%
Nabors Industries Ltd.(a)(c) 92,700 7,022,025
- -----------------------------------------------------------------------
Noble Corp. 91,300 6,440,302
=======================================================================
13,462,327
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-5.99%
BJ Services Co.(c) 359,500 13,182,865
- -----------------------------------------------------------------------
FMC Technologies, Inc.(a) 226,852 9,736,488
- -----------------------------------------------------------------------
Smith International, Inc. 324,390 12,038,113
- -----------------------------------------------------------------------
Tenaris S.A.-ADR (Argentina) 27,069 3,099,401
=======================================================================
38,056,867
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.09%
Newfield Exploration Co.(a) 139,700 6,994,779
- -----------------------------------------------------------------------
Southwestern Energy Co.(a) 175,188 6,296,257
=======================================================================
13,291,036
=======================================================================
OIL & GAS REFINING & MARKETING-0.50%
Sunoco, Inc. 40,787 3,196,885
=======================================================================
OIL & GAS STORAGE & TRANSPORTATION-2.41%
Williams Cos., Inc. (The)(c) 659,400 15,278,298
=======================================================================
PACKAGED FOODS & MEATS-2.01%
Cadbury Schweppes PLC (United Kingdom) 638,000 6,031,746
- -----------------------------------------------------------------------
Campbell Soup Co. 130,886 3,896,476
- -----------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PACKAGED FOODS & MEATS-(CONTINUED)
ConAgra Foods, Inc. 139,000 $ 2,818,920
=======================================================================
12,747,142
=======================================================================
PERSONAL PRODUCTS-1.63%
Avon Products, Inc. 47,823 1,365,347
- -----------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 267,894 8,969,091
=======================================================================
10,334,438
=======================================================================
PHARMACEUTICALS-1.26%
Forest Laboratories, Inc.(a) 197,300 8,026,164
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.24%
ACE Ltd. 176,538 9,434,191
- -----------------------------------------------------------------------
Axis Capital Holdings Ltd. 283,545 8,869,288
- -----------------------------------------------------------------------
XL Capital Ltd.-Class A 127,827 8,612,983
=======================================================================
26,916,462
=======================================================================
PUBLISHING-2.76%
Belo Corp.-Class A 352,600 7,549,166
- -----------------------------------------------------------------------
Getty Images, Inc.(a) 34,187 3,051,873
- -----------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 134,600 6,949,398
=======================================================================
17,550,437
=======================================================================
REGIONAL BANKS-2.69%
Marshall & Ilsley Corp. 123,500 5,315,440
- -----------------------------------------------------------------------
North Fork Bancorp., Inc. 224,855 6,152,033
- -----------------------------------------------------------------------
TCF Financial Corp. 207,800 5,639,692
=======================================================================
17,107,165
=======================================================================
REINSURANCE-0.43%
Montpelier Re Holdings Ltd. 146,148 2,762,197
=======================================================================
RESTAURANTS-1.33%
Outback Steakhouse, Inc. 203,340 8,460,977
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.53%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 166,923 3,351,814
=======================================================================
SEMICONDUCTORS-2.88%
Analog Devices, Inc. 232,439 8,337,587
- -----------------------------------------------------------------------
Microchip Technology Inc. 96,613 3,106,108
- -----------------------------------------------------------------------
Xilinx, Inc. 271,300 6,839,473
=======================================================================
18,283,168
=======================================================================
SPECIALIZED CONSUMER SERVICES-3.22%
H&R Block, Inc. 442,117 10,853,972
- -----------------------------------------------------------------------
Service Corp. International 1,169,900 9,569,782
=======================================================================
20,423,754
=======================================================================
SPECIALIZED FINANCE-0.41%
Archipelago Holdings, Inc.(a) 52,722 2,623,974
=======================================================================
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SPECIALTY CHEMICALS-4.17%
International Flavors & Fragrances Inc. 211,700 $ 7,091,950
- -----------------------------------------------------------------------
Rohm and Haas Co. 150,000 7,263,000
- -----------------------------------------------------------------------
Sigma-Aldrich Corp. 191,500 12,120,035
=======================================================================
26,474,985
=======================================================================
SPECIALTY STORES-0.41%
PETsMART, Inc. 102,685 2,634,897
=======================================================================
SYSTEMS SOFTWARE-0.99%
Computer Associates International, Inc. 223,220 6,292,572
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $482,832,410) 559,738,740
=======================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS PURCHASED-0.00%
OIL & GAS DRILLING-0.00%
Nabors Industries, Ltd. 550 $ 60 Jan-06 $ 605
===============================================================================================
OIL & GAS EQUIPMENT & SERVICES-0.00%
BJ Services Co. 2,180 27.5 Jan-06 0
===============================================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------------------------
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
OIL & GAS STORAGE & TRANSPORTATION-0.00%
Williams Cos., Inc. (The) 3,550 $ 20 Jan-06 $ 11,360
===============================================================================================
Total Put Options Purchased (Cost
$980,590) 11,965
===============================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-12.05%
Liquid Assets Portfolio-Institutional
Class(d) 38,264,645 38,264,645
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 38,264,645 38,264,645
=========================================================================
Total Money Market Funds (Cost
$76,529,290) 76,529,290
=========================================================================
TOTAL INVESTMENTS-100.16% (Cost $560,342,290) 636,279,995
=========================================================================
OTHER ASSETS LESS LIABILITIES-(0.16%) (1,040,073)
=========================================================================
NET ASSETS-100.00% $635,239,922
_________________________________________________________________________
=========================================================================
</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 value of these securities at December 31, 2005 was $26,070,905,
which represented 4.10% of the Fund's Net Assets. See Note 1A.
(c) A portion of this security is subject to call options written. See Note 1J
and Note 8.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $483,813,000) $559,750,705
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $76,529,290) 76,529,290
=============================================================
Total investments (cost $560,342,290) 636,279,995
=============================================================
Receivables for:
Fund shares sold 376,428
- -------------------------------------------------------------
Dividends 717,437
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 19,491
=============================================================
Total assets 637,393,351
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 741,019
- -------------------------------------------------------------
Fund shares reacquired 62,925
- -------------------------------------------------------------
Options written, at value (premiums received
$444,230) 869,879
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 34,727
- -------------------------------------------------------------
Accrued administrative services fees 402,406
- -------------------------------------------------------------
Accrued distribution fees -- Series II 36,177
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 157
- -------------------------------------------------------------
Accrued operating expenses 6,139
=============================================================
Total liabilities 2,153,429
=============================================================
Net assets applicable to shares outstanding $635,239,922
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $541,468,420
- -------------------------------------------------------------
Undistributed net investment income (33,549)
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 18,293,312
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 75,511,739
=============================================================
$635,239,922
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $584,860,136
_____________________________________________________________
=============================================================
Series II $ 50,379,786
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 42,973,090
_____________________________________________________________
=============================================================
Series II 3,725,271
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.61
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.52
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$30,397) $ 6,057,280
- ------------------------------------------------------------
Dividends from affiliated money market funds 2,813,185
- ------------------------------------------------------------
Interest 33,697
============================================================
Total investment income 8,904,162
============================================================
EXPENSES:
Advisory fees 4,227,362
- ------------------------------------------------------------
Administrative services fees 1,586,512
- ------------------------------------------------------------
Custodian fees 56,463
- ------------------------------------------------------------
Distribution fees -- Series II 111,000
- ------------------------------------------------------------
Transfer agent fees 21,719
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 31,753
- ------------------------------------------------------------
Other 88,774
============================================================
Total expenses 6,123,583
============================================================
Less: Fees waived and expense offset
arrangement (21,071)
============================================================
Net expenses 6,102,512
============================================================
Net investment income 2,801,650
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from
securities sold to affiliates of
$1,154,963) 28,860,505
- ------------------------------------------------------------
Foreign currencies (13,591)
============================================================
28,846,914
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 12,384,179
- ------------------------------------------------------------
Foreign currencies (681)
- ------------------------------------------------------------
Option contracts written (425,649)
============================================================
11,957,849
============================================================
Net gain from investment securities, foreign
currencies and option contracts 40,804,763
============================================================
Net increase in net assets resulting from
operations $43,606,413
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,801,650 $ 955,702
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 28,846,914 31,859,203
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities foreign currencies and option contracts 11,957,849 22,026,997
==========================================================================================
Net increase in net assets resulting from operations 43,606,413 54,841,902
==========================================================================================
Distributions to shareholders from net investment income:
Series I (2,944,117) (718,225)
- ------------------------------------------------------------------------------------------
Series II (141,476) (6,789)
==========================================================================================
Total distributions from net investment income (3,085,593) (725,014)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (17,996,436) (21,198,394)
- ------------------------------------------------------------------------------------------
Series II (1,538,860) (1,381,970)
==========================================================================================
Total distributions from net realized gains (19,535,296) (22,580,364)
==========================================================================================
Decrease in net assets resulting from distributions (22,620,889) (23,305,378)
==========================================================================================
Share transactions-net:
Series I 68,779,573 173,142,571
- ------------------------------------------------------------------------------------------
Series II 15,373,802 27,385,946
==========================================================================================
Net increase in net assets resulting from share
transactions 84,153,375 200,528,517
==========================================================================================
Net increase in net assets 105,138,899 232,065,041
==========================================================================================
NET ASSETS:
Beginning of year 530,101,023 298,035,982
==========================================================================================
End of year (including undistributed net investment income
of $(33,549) and $263,985, respectively) $635,239,922 $530,101,023
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. MID CAP CORE EQUITY FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. 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.
I. 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. MID CAP CORE EQUITY FUND
J. 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.
K. 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.
L. 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 replace 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 $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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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. 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 year ended December 31, 2005, AIM waived fees of $20,795.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $144,792 for
accounting and fund administrative services and reimbursed $1,441,720 for
services provided by insurance companies.
AIM V.I. MID CAP CORE EQUITY FUND
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2005, the Fund paid AISI $21,719.
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 year ended December
31, 2005, the Series II shares paid $111,000.
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 year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $29,925,367 $125,037,712 $(116,698,434) $ -- $38,264,645 $1,405,086 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 29,925,367 125,037,712 (116,698,434) -- 38,264,645 1,408,099 --
===================================================================================================================================
Total $59,850,734 $250,075,424 $(233,396,868) $ -- $76,529,290 $2,813,185 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $9,700,354 and sales of $7,509,012, which
resulted in net realized gains of $1,154,963.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $276.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $6,024
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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 6,280 444,230
===================================================================================
End of year 6,280 $444,230
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/05 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
Nabors Industries Ltd. Jan-06 $70.0 550 $137,130 $348,590 $(211,460)
- -------------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 35.0 2,180 155,140 458,454 (303,314)
- -------------------------------------------------------------------------------------------------------------------------------
Williams Co., Inc. (The) Jan-06 25.0 3,550 151,960 62,835 89,125
===============================================================================================================================
6,280 $444,230 $869,879 $(425,649)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 7,276,229 $12,675,049
- ----------------------------------------------------------------------------------------
Long-term capital gain 15,344,660 10,630,329
========================================================================================
Total distributions $22,620,889 $23,305,378
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 4,327,482
- ----------------------------------------------------------------------------
Undistributed long-term gain 14,320,973
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 75,149,751
- ----------------------------------------------------------------------------
Temporary book/tax differences (26,704)
- ----------------------------------------------------------------------------
Shares of beneficial interest 541,468,420
============================================================================
Total net assets $635,239,922
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the realization of unrealized gains on passive foreign investment
companies. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(318) and on option
contracts written of $(425,649).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have capital loss carryforward as of December 31, 2005.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $397,582,842 and $350,604,531, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $81,535,073
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,959,355)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $75,575,718
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $560,704,277.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of Foreign currency
transactions, on December 31, 2005, undistributed net investment income was
decreased by $13,591 and undistributed net realized gain was increased by
$13,591. This reclassification had no effect on the net assets of the Fund.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(a) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 9,458,916 $125,305,035 12,423,728 $157,026,231
- ----------------------------------------------------------------------------------------------------------------------
Series II 2,245,440 29,655,326 2,804,689 35,484,099
======================================================================================================================
Issued as reinvestment of dividends:
Series I 1,516,110 20,907,159 1,688,491 21,916,619
- ----------------------------------------------------------------------------------------------------------------------
Series II 122,653 1,680,336 107,656 1,388,760
======================================================================================================================
Issued in connection with acquisitions:(b)
Series I -- -- 1,345,483 18,110,202
======================================================================================================================
Reacquired:
Series I (5,875,151) (77,432,621) (1,883,158) (23,910,481)
- ----------------------------------------------------------------------------------------------------------------------
Series II (1,212,147) (15,961,860) (748,758) (9,486,913)
======================================================================================================================
6,255,821 $ 84,153,375 15,738,131 $200,528,517
______________________________________________________________________________________________________________________
======================================================================================================================
</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 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
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to this 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, 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 December 6, 2004, the Fund acquired all
of the net assets of Phoenix-AIM Mid Cap Equity Fund pursuant to a plan
of reorganization approved by the Trustees of the Fund on September 14,
2004 and Phoenix-AIM Mid Cap Equity Fund shareholders on May 11, 2004.
The acquisition was accomplished by a tax-free exchange of 1,345,483
shares of the Fund for 1,441,644 shares of Phoenix-AIM Mid Cap Equity
Fund outstanding as of the close of business on December 3, 2004.
Phoenix-AIM Mid Cap Equity Fund's net assets at that date of
$18,110,202, including $2,490,250 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $490,802,188.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------------------- 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) 0.06 0.03(a) 0.00(a) (0.02)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.94 1.63 2.60 (1.17) 0.74
=================================================================================================================================
Total from investment operations 1.00 1.66 2.60 (1.19) 0.74
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.02) -- -- (0.02)
=================================================================================================================================
Distributions from net realized gains (0.43) (0.59) (0.07) -- --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total distributions (0.50) (0.61) (0.07) -- (0.02)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 13.61 $ 13.11 $ 12.06 $ 9.53 $10.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.62% 13.82% 27.31% (11.10)% 7.37%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $584,860 $496,606 $293,162 $68,271 $9,500
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.03%(c) 1.04% 1.07% 1.30% 1.27%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.50%(c) 0.25% 0.01% (0.22)% (0.08)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 70% 55% 37% 36% 20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $541,651,915.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or reimbursements was 5.16%
(annualized).
(f) Not annualized for periods less than one year.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
SEPTEMBER 10, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------------ 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) 0.03 (0.00)(a) (0.03)(a) (0.04)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.92 1.62 2.60 (1.16) 0.73
=================================================================================================================================
Total from investment operations 0.95 1.62 2.57 (1.20) 0.72
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.04) (0.00) -- -- (0.01)
=================================================================================================================================
Distributions from net realized gains (0.43) (0.59) (0.07) -- --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total distributions (0.47) (0.59) (0.07) -- (0.01)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 13.52 $ 13.04 $12.01 $ 9.51 $10.71
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.27% 13.57% 27.05% (11.20)% 7.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $50,380 $33,495 $4,874 $ 1,214 $ 536
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.28%(c) 1.29% 1.32% 1.45%(d) 1.44%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.25%(c) (0.00)% (0.24)% (0.37)% (0.25)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 70% 55% 37% 36% 20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $44,399,790.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55% and 5.44% (annualized), for the year ended December 31, 2002
and the period ended September 10, 2001 (Date operations commenced) to
December 31, 2001, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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. MID CAP CORE EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
Court: (i) denied the motion to dismiss on the grounds that the plaintiffs lack
standing or that the defendants' investments in company stock are entitled to a
presumption of prudence; (ii) granted the motion to dismiss as to defendants not
named in the employee benefit plan documents as fiduciaries but gave plaintiffs
leave to replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Mid Cap Core Equity Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 2005 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion. The statement of changes in net assets of the Fund for
the year ended December 31, 2004 and the financial highlights for each of the
periods ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. MID CAP CORE EQUITY FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
period. The change in the Fund's independent registered public accounting firm
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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 41.33% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $15,344,660 for
the Fund's tax year ended December, 31 2005.
For its tax year ended December 31, 2004, the fund designates 48.13% or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
AIM V.I. MONEY MARKET FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330,or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. MONEY MARKET FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE We believe this suggests an intention
to continue raising the federal funds
==================================================================================== target rate in modest increments as
judged necessary, but to avoid excessive
PERFORMANCE SUMMARY tightening that might hamper healthy
growth. As mentioned above, we
Yields on shares of AIM V.I. Money the Federal Reserve (the Fed) during the anticipate that your Fund's yield would
Market Fund increased throughout the year. Responding to evidence of an quickly reflect any further interest
year ended December 31, 2005. The expanding economy and concerned about rate increases.
seven-day SEC yield on Series I shares potential inflation, the Fed gradually
rose from 1.52% at the close of 2004 to raised the federal funds target rate YOUR FUND
3.49% at the end of 2005. For Series II from 2.25% to 4.25% over the year.
shares, the seven-day SEC yield as of Increases in this influential interest Regardless of Fed policy or economic
December 31, 2005, was 3.24%, up from rate are reflected fairly rapidly in the conditions, your Fund continues to focus
1.27% a year earlier. yields on short-term securities such as on three objectives: safety of
money market funds. principal, liquidity and the highest
Much of the increase in yield was possible yield consistent with safety of
attributable to the interest rate policy principal. It invests only in
pursued by high-quality U.S. dollar-denominated
short-term fixed-income obligations.
==================================================================================== Although a money market fund seeks to
maintain the value of your investment at
MARKET CONDITIONS inflation from developing, appear to $1.00 per share, it is possible to lose
have been relatively successful. money investing in the Fund.
The stock and bond markets achieved
gains for the year 2005. There were concerns that the year's Thank you for your continued
record-high oil prices and the rising participation in AIM V.I. Money Market
o The investment-grade Lehman Brothers short-term interest rates might choke Fund.
U.S. Aggregate Bond Index posted a total off growth by crimping consumer
return of 2.43%. spending, which accounts for roughly The views and opinions expressed here
two-thirds of U.S. economic activity. are those of A I M Advisors, Inc. These
o Standard & Poor's Composite Index of views and opinions are subject to change
500 Stocks (the S&P 500 Index) returned However, the U.S. economy proved at any time based on factors such as
4.91%--a relatively modest performance resilient. In the statement announcing market and economic conditions. These
compared to this index's return of its last rate increase of the year, the views and opinions may not be relied
10.87% for 2004. Fed commented: "Despite elevated energy upon as investment advice or
prices and hurricane-related recommendations, or as an offer for a
These market increases were supported disruptions, the expansion in economic particular security. Statements of fact
by an expanding U.S. economy. Gross activity appears solid. Core inflation are from sources considered reliable,
domestic product grew at an annualized has stayed relatively low in recent but A I M Advisors, Inc. makes no
rate of 3.8% in the first quarter, 3.3% months and longer-term inflation representation or warranty as to their
in the second and 4.1% in the third expectations remain contained. completeness or accuracy. Although
quarter--levels that can be considered Nevertheless,... some further measured historical performance is no guarantee
healthy without presenting a high risk policy firming is likely to be needed to of future results, these insights may
of inflation--slackening to an advance keep the risks to the attainment of both help you understand our investment
estimate of 1.1% in the fourth quarter. sustainable economic growth and price management philosophy.
The Fed's rate increases, which are stability roughly in balance."
designed to prevent Team Managed by A I M Advisors, Inc.
========================================
PORTFOLIO COMPOSITION BY MATURITY The performance data quoted represent products. You cannot purchase shares of
past performance and cannot guarantee the Fund directly. Performance figures
Maturity Distribution of Fund Holdings comparable future results; current given represent the Fund and are not
In days,as of 12/31/05 performance may be lower or higher. intended to reflect actual variable
Please see your variable product issuer product values. They do not reflect
1-7 63.23% or financial advisor for the most recent sales charges, expenses and fees
8-30 15.74 month-end variable product performance. assessed in connection with a variable
31-90 13.84 Performance figures reflect Fund product. Sales charges, expenses and
91-120 1.03 expenses, reinvested distributions and fees, which are determined by the
121-180 6.16 changes in net asset value. Investment variable product issuers, will vary and
181+ 0.00 return and principal value will will lower the total return. Per NASD
fluctuate so that you may have a gain or requirements, the most recent month-end
======================================== loss when you sell shares. performance data at the Fund level,
excluding variable product charges, is
The number of days to maturity of each AIM V.I. Money Market Fund, a series available on AIM's automated information
holding is determined in accordance with portfolio of AIM Variable Insurance line, 866-702-4402. As mentioned above,
the provisions of Rule 2a-7 under the Funds, is currently offered through for the most recent month-end
Investment Company Act of 1940 as insurance companies issuing variable
amended.
(continued)
2
AIM V.I. MONEY MARKET FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES ratio and an assumed rate of return of
5% per year before expenses, which is
As a shareholder of the Fund, you incur The table below provides information not the Fund's actual return.
ongoing costs, including management about actual account values and actual
fees; distribution and/or service fees expenses. You may use the information in The hypothetical account values and
(12b-1); and other Fund expenses. This this table, together with the amount you expenses may not be used to estimate the
example is intended to help you invested, to estimate the expenses that actual ending account balance or
understand your ongoing costs (in you paid over the period. Simply divide expenses you paid for the period. You
dollars) of investing in the Fund and to your account value by $1,000 (for may use this information to compare the
compare these costs with ongoing costs example, an $8,600 account value divided ongoing costs of investing in the Fund
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the and other funds. To do so, compare this
example is based on an investment of result by the number in the table under 5% hypothetical example with the 5%
$1,000 invested at the beginning of the the heading entitled "Actual Expenses hypothetical examples that appear in the
period and held for the entire period Paid During Period" to estimate the shareholder reports of the other funds.
July 1, 2005, through December 31, 2005. expenses you paid on your account during
this period. Please note that the expenses shown
The actual and hypothetical expenses in the table are meant to highlight your
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
the effect of any fees or other expenses PURPOSES hypothetical information is useful in
assessed in connection with a variable comparing ongoing costs, and will not
product; if they did, the expenses shown The table below also provides help you determine the relative total
would be higher while the ending account information about hypothetical account costs of owning different funds.
values shown would be lower. values and hypothetical expenses based
on the Fund's actual expense
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,015.10 $4.27 $1,020.97 $4.28 0.84%
Series II 1,000.00 1,013.80 5.53 1,019.71 5.55 1.09
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
performance including variable product ties and asset-backed securities), is
charges, please contact your variable compiled by Lehman Brothers, a global
product issuer or financial advisor. investment bank.
The returns and net asset values The unmanaged Standard & Poor's
shown in this report are at the Fund Composite Index of 500 Stocks (the S&P
level only and do not include variable 500--Registered Trademark-- INDEX) is
product issuer charges. If such charges an index of common stocks frequently
were included, the total returns would used as a general measure of U.S. stock
be lower. market performance.
The unmanaged Lehman Brothers U.S. The Fund is not managed to track the
Aggregate Bond Index (the LEHMAN performance of any particular index,
AGGREGATE INDEX), which represents the including the indexes defined here, and
U.S. investment-grade fixed-rate bond consequently, the performance of the
market (including government and Fund may deviate significantly from the
corporate securities, mortgage performance of the indexes.
pass-through securi-
3
AIM V.I. MONEY MARKET FUND
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 o Overall performance of AIM. The Board
Insurance Funds (the "Board") oversees provided by AIM. The Board reviewed the considered the overall performance of
the management of AIM V.I. Money Market credentials and experience of the AIM in providing investment advisory and
Fund (the "Fund") and, as required by officers and employees of AIM who will portfolio administrative services to the
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 was satisfactory.
advisory agreement with A I M Advisors, qualifications of AIM to provide
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, AIM's legal and Advisory Agreement. The Board noted that
2005, the Board, including all of the compliance function, AIM's use of this rate (i) was comparable to the
independent trustees, approved the technology, AIM's portfolio advisory fee rate for a retail money
continuance of the advisory agreement administration function and the quality market fund, and higher than the
(the "Advisory Agreement") between the of AIM's investment research. Based on advisory fee rates for four
Fund) and AIM for another year, the review of these and other factors, institutional money market funds (one of
effective July 1, 2005. the Board concluded that the quality of which has an "all-in" fee structure
services to be provided by AIM was whereby AIM pays all of the fund's
The Board considered the factors appropriate and that AIM currently is ordinary operating expenses), advised by
discussed below in evaluating the providing satisfactory services in AIM with investment strategies
fairness and reasonableness of the accordance with the terms of the comparable to those of the Fund; (ii)
Advisory Agreement at the meeting on Advisory Agreement. was lower than the advisory fee rate for
June 30, 2005 and as part of the Board's an offshore fund for which an AIM
ongoing oversight of the Fund. In their o The performance of the Fund relative affiliate serves as advisor with
deliberations, the Board and the to comparable funds. The Board reviewed investment strategies comparable to
independent trustees did not identify the performance of the Fund during the those of the Fund; and (iii) was higher
any particular factor that was past one, three and five calendar years than the advisory fee rates for three
controlling, and each trustee attributed against the performance of funds advised unregistered pooled investment vehicles
different weights to the various by other advisors with investment for which an AIM affiliate serves as
factors. strategies comparable to those of the advisor with investment strategies
Fund. The Board noted that the Fund's comparable to those of the Fund. The
One of the responsibilities of the performance in such periods was below Board noted that AIM has agreed to limit
Senior Officer of the Fund, who is the median performance of such the Fund's total operating expenses, as
independent of AIM and AIM's affiliates, comparable funds. Based on this review discussed below. Based on this review,
is to manage the process by which the and after taking account of all of the the Board concluded that the advisory
Fund's proposed management fees are other factors that the Board considered fee rate for the Fund under the Advisory
negotiated to ensure that they are in determining whether to continue the Agreement was fair and reasonable.
negotiated in a manner which is at arm's Advisory Agreement for the Fund, the
length and reasonable. To that end, the Board concluded that no changes should o Fees relative to those of comparable
Senior Officer must either supervise a be made to the Fund and that it was not funds with other advisors. The Board
competitive bidding process or prepare necessary to change the Fund's portfolio reviewed the advisory fee rate for the
an independent written evaluation. The management team at this time. However, Fund under the Advisory Agreement. The
Senior Officer has recommended an due to the Fund's under-performance, the Board compared effective contractual
independent written evaluation in lieu Board also concluded that it would be advisory fee rates at a common asset
of a competitive bidding process and, appropriate for management and the Board level and noted that the Fund's rate was
upon the direction of the Board, has to continue to closely monitor the above the median rate of the funds
prepared such an independent written performance of the Fund. advised by other advisors with
evaluation. Such written evaluation also investment strategies comparable to
considered certain of the factors o The performance of the Fund relative those of the Fund that the Board
discussed below. In addition, as to indices. The Board reviewed the reviewed. The Board noted that AIM has
discussed below, the Senior Officer made performance of the Fund during the past agreed to limit the Fund's total
certain recommendations to the Board in one, three and five calendar years operating expenses, as discussed below.
connection with such written evaluation. against the performance of the Lipper Based on this review, the Board
Money Market Fund Index. The Board noted concluded that the advisory fee rate for
The discussion below serves as a that the Fund's performance for the the Fund under the Advisory Agreement
summary of the Senior Officer's three and five year periods was was fair and reasonable.
independent written evaluation and comparable to the performance of such
recommendations to the Board in Index and below such Index for the one o Expense limitations and fee waivers.
connection therewith, as well as a year period. Based on this review and The Board noted that AIM has
discussion of the material factors and after taking account of all of the other contractually agreed to waive fees
the conclusions with respect thereto factors that the Board considered in and/or limit expenses of the Fund
that formed the basis for the Board's determining whether to continue the through April 30, 2006 so that total
approval of the Advisory Agreement. Advisory Agreement for the Fund, the annual operating expenses are limited to
After consideration of all of the Board concluded that no changes should a specified percentage of average daily
factors below and based on its informed be made to the Fund and that it was not net assets for each class of the Fund.
business judgment, the Board determined necessary to change the Fund's portfolio The Board considered the contractual
that the Advisory Agreement is in the management team at this time. However, nature of this fee waiver and noted that
best interests of the Fund and its due to the Fund's under-performance, the it remains in effect until April 30,
shareholders and that the compensation Board also concluded that it would be 2006. The Board considered the effect
to AIM under the Advisory Agreement is appropriate for management and the Board this fee waiver/expense limitation would
fair and reasonable and would have been to continue to closely monitor the have on the Fund's estimated expenses
obtained through arm's length performance of the Fund. and concluded that the levels of fee
negotiations. waivers/expense limitations for the Fund
o Meeting with the Fund's portfolio were fair and reasonable.
o The nature and extent of the managers and investment personnel. With
advisory services to be provided by AIM. respect to the Fund, the Board is
The Board reviewed the services to be meeting periodically with such Fund's
provided by AIM under the Advisory portfolio managers and/or other
Agreement. Based on such review, the investment personnel and believes that
Board concluded that the range of such individuals are competent and able
services to be provided by AIM under the to continue to carry out their
Advisory Agreement was appropriate and responsibilities under the Advisory
that AIM currently is providing services Agreement.
in accordance with the terms of the
Advisory Agreement.
(continued)
4
AIM V.I. MONEY MARKET FUND
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, who is independent of AIM and prior relationship between AIM and the
of the Fund's advisory fees, and noted AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
that such fees, as a percentage of the independent written evaluation in order of AIM's operations, and concluded that
Fund's net assets, would decrease as net to assist the Board in determining the it was beneficial to maintain the
assets increase because the Advisory reasonableness of the proposed current relationship, in part, because
Agreement includes a breakpoint. The management fees of the AIM Funds, of such knowledge. The Board also
Board noted that, due to the Fund's including the Fund. The Board noted that reviewed the general nature of the
current asset levels and the way in the Senior Officer's written evaluation non-investment advisory services
which the advisory fee breakpoints have had been relied upon by the Board in currently performed by AIM and its
been structured, the Fund has yet to this regard in lieu of a competitive affiliates, such as administrative,
benefit from the breakpoint. The Board bidding process. In determining whether transfer agency and distribution
concluded that the Fund's fee levels to continue the Advisory Agreement for services, and the fees received by AIM
under the Advisory Agreement therefore the Fund, the Board considered the and its affiliates for performing such
would reflect economies of scale at Senior Officer's written evaluation and services. In addition to reviewing such
higher asset levels and that it was not the recommendation made by the Senior services, the trustees also considered
necessary to change the advisory fee Officer to the Board that the Board the organizational structure employed by
breakpoints in the Fund's advisory fee consider implementing a process to AIM and its affiliates to provide those
schedule. assist them in more closely monitoring services. Based on the review of these
the performance of the AIM Funds. The and other factors, the Board concluded
o Investments in affiliated money market Board concluded that it would be that AIM and its affiliates were
funds. The Board also took into account advisable to implement such a process as qualified to continue to provide
the fact that uninvested cash and cash soon as reasonably practicable. non-investment advisory services to the
collateral from securities lending Fund, including administrative, transfer
arrangements (collectively, "cash o Profitability of AIM and its agency and distribution services, and
balances") of the Fund may be invested affiliates. The Board reviewed that AIM and its affiliates currently
in money market funds advised by AIM information concerning the profitability are providing satisfactory
pursuant to the terms of an SEC of AIM's (and its affiliates') non-investment advisory services.
exemptive order. The Board found that investment advisory and other activities
the Fund may realize certain benefits and its financial condition. The Board o Other factors and current trends. In
upon investing cash balances in AIM considered the overall profitability of determining whether to continue the
advised money market funds, including a AIM, as well as the profitability of AIM Advisory Agreement for the Fund, the
higher net return, increased liquidity, in connection with managing the Fund. Board considered the fact that AIM,
increased diversification or decreased The Board noted that AIM's operations along with others in the mutual fund
transaction costs. The Board also found remain profitable, although increased industry, is subject to regulatory
that the Fund will not receive reduced expenses in recent years have reduced inquiries and litigation related to a
services if it invests its cash balances AIM's profitability. Based on the review wide range of issues. The Board also
in such money market funds. The Board of the profitability of AIM's and its considered the governance and compliance
noted that, to the extent the Fund affiliates' investment advisory and reforms being undertaken by AIM and its
invests in affiliated money market other activities and its financial affiliates, including maintaining an
funds, AIM has voluntarily agreed to condition, the Board concluded that the internal controls committee and
waive a portion of the advisory fees it compensation to be paid by the Fund to retaining an independent compliance
receives from the Fund attributable to AIM under its Advisory Agreement was not consultant, and the fact that AIM has
such investment. The Board further excessive. undertaken to cause the Fund to operate
determined that the proposed securities in accordance with certain governance
lending program and related procedures o Benefits of soft dollars to AIM. The policies and practices. The Board
with respect to the lending Fund is in Board considered the benefits realized concluded that these actions indicated a
the best interests of the lending Fund by AIM as a result of brokerage good faith effort on the part of AIM to
and its respective shareholders. The transactions executed through "soft adhere to the highest ethical standards,
Board therefore concluded that the dollar" arrangements. Under these and determined that the current
investment of cash collateral received arrangements, brokerage commissions paid regulatory and litigation environment to
in connection with the securities by other funds advised by AIM are used which AIM is subject should not prevent
lending program in the money market to pay for research and execution the Board from continuing the Advisory
funds according to the procedures is in services. This research may be used by Agreement for the Fund.
the best interests of the lending Fund AIM in making investment decisions for
and its respective shareholders. the Fund. The Board 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.
5
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ---------------------------------------------------------------------------------
COMMERCIAL PAPER-30.35%(A)
ASSET-BACKED SECURITIES- COMMERCIAL LOANS/
LEASES-1.03%
Atlantis One Funding Corp.
4.15% (Acquired 10/06/05; Cost $489,683)(b) 04/03/06 $ 500 $ 494,812
=================================================================================
ASSET-BACKED SECURITIES- CONSUMER
RECEIVABLES-4.50%
Old Line Funding, LLC
4.27% (Acquired 12/08/05; Cost $995,967)(b) 01/11/06 1,000 999,051
- ---------------------------------------------------------------------------------
4.35% (Acquired 12/28/05; Cost
$1,159,753)(b) 01/13/06 1,162 1,160,596
=================================================================================
2,159,647
=================================================================================
ASSET-BACKED SECURITIES- FULLY BACKED-2.07%
Picaros Funding PLC/LLC (CEP-KBC Bank N.V.)
3.42% (Acquired 06/03/05; Cost
$974,350)(b)(c) 02/28/06 1,000 994,680
=================================================================================
ASSET-BACKED SECURITIES- MULTI-PURPOSE-6.85%
Barton Capital LLC
4.25% (Acquired 12/01/05; Cost
$1,292,326)(b) 01/20/06 1,300 1,297,391
- ---------------------------------------------------------------------------------
Gemini Securitization Corp., LLC
4.34% (Acquired 12/14/05; Cost
$1,986,016)(b) 02/10/06 2,000 1,990,838
=================================================================================
3,288,229
=================================================================================
ASSET-BACKED SECURITIES- SECURITY INVESTMENT
VEHICLES-8.27%
Beta Finance Corp./Inc.
3.93% (Acquired 09/20/05; Cost
$1,960,045)(b) 03/22/06 2,000 1,979,580
- ---------------------------------------------------------------------------------
Grenadier Funding Ltd./Corp.
4.22% (Acquired 11/18/05; Cost $992,967)(b) 01/17/06 1,000 998,359
- ---------------------------------------------------------------------------------
Sigma Finance Corp./Inc.
3.91% (Acquired 08/31/05; Cost
$980,341)(b)(c) 02/28/06 1,000 993,918
=================================================================================
3,971,857
=================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ---------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES- TRADE
RECEIVABLES-3.53%
Eureka Securitization, Inc.
4.25% (Acquired 11/28/05; Cost
$1,689,363)(b) 01/20/06 $1,700 $ 1,696,588
=================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.10%
General Electric Capital Corp.
4.40% 05/22/06 2,000 1,966,022
=================================================================================
Total Commercial Paper (Cost $14,571,835) 14,571,835
=================================================================================
VARIABLE RATE DEMAND NOTES-21.95%(D)
INSURED-3.19%(E)
Omaha (City of), Nebraska; Special Tax
Redevelopment Taxable Series 2002 B RB
(INS-Ambac Assurance Corp.) 4.48%(f)(g) 02/01/13 1,530 1,530,000
=================================================================================
LETTER OF CREDIT ENHANCED-18.76%(H)
Albuquerque (City of), New Mexico (Ktech
Corp. Project); Taxable Series 2002 IDR
(LOC-Wells Fargo Bank, N.A.)
4.42%(g) 11/01/22 1,500 1,500,000
- ---------------------------------------------------------------------------------
Corp. Finance Managers Inc.; Floating Rate
Notes (LOC-Wells Fargo Bank, N.A.)
4.42%(f)(g) 02/02/43 1,825 1,825,000
- ---------------------------------------------------------------------------------
EPC Allentown LLC-Series 2005; Floating Rate
Bond (LOC-Wachovia Bank, N.A.)
4.40%(f)(g) 07/01/30 1,000 1,000,000
- ---------------------------------------------------------------------------------
Folk Financial Services Inc.-Series A;
Floating Rate Loan Program Notes
(LOC-National City Bank of the Midwest)
4.53%(g) 10/15/27 35 35,000
- ---------------------------------------------------------------------------------
Lehigh (County of), Pennsylvania Industrial
Development Authority (Bouras Industries);
Taxable Series 2002 C IDR (LOC-Wachovia
Bank, N.A.)
4.45%(f)(g) 11/01/13 675 675,000
- ---------------------------------------------------------------------------------
Moon (City of), Pennsylvania Industrial
Development Authority (One Thorn Run Assoc.
Project); Taxable Series 1995 B IDR
(LOC-National City Bank of Pennsylvania)
4.49%(f)(g) 11/01/15 770 770,000
- ---------------------------------------------------------------------------------
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ---------------------------------------------------------------------------------
LETTER OF CREDIT ENHANCED-(CONTINUED)
North Carolina (State of) Roman Catholic
Diocese of Charlotte; Series 2002 Floating
Rate Bonds (LOC-Wachovia Bank, N.A.)
4.40%(f)(g) 05/01/14 $1,200 $ 1,200,000
- ---------------------------------------------------------------------------------
Thomasville (City of), Georgia Payroll
Development Authority (American Fresh Foods
L.P.); Taxable Series 2005 B RB
(LOC-Wachovia Bank, N.A.) 4.45%(f)(g) 09/01/17 2,000 2,000,000
=================================================================================
9,005,000
=================================================================================
Total Variable Rate Demand Notes (Cost
$10,535,000) 10,535,000
=================================================================================
MEDIUM-TERM NOTES-5.62%
Metropolitan Life Global Funding I, Floating
Rate MTN
4.45% (Acquired 11/10/04; Cost
$700,525)(b)(i) 12/28/06 700 700,352
- ---------------------------------------------------------------------------------
Societe Generale S.A.; Unsec. Floating Rate
MTN
4.26% (Acquired 10/26/05; Cost
$2,000,000)(b)(c)(i) 11/24/06 2,000 2,000,000
=================================================================================
Total Medium-Term Notes (Cost $2,700,352) 2,700,352
=================================================================================
FUNDING AGREEMENTS-4.17%
New York Life Insurance Co.
4.37% (Acquired 04/06/05; Cost
$2,000,000)(b)(i)(j) 04/05/06 2,000 2,000,000
=================================================================================
MASTER NOTE AGREEMENTS-4.17%
Merrill Lynch Mortgage Capital, Inc.
4.39% (Acquired 11/16/05; Cost
$2,000,000)(b)(f)(k)(l) 02/14/06 2,000 2,000,000
=================================================================================
ASSET-BACKED SECURITIES-2.97%
DIVERSIFIED BANKS-0.89%
Residential Mortgage Securities- Series 17A,
Class A-1, Floating Rate Bonds
4.37% (Acquired 02/10/05; Cost
$424,260)(b)(c)(i) 02/14/06 424 424,260
=================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ---------------------------------------------------------------------------------
<Caption>
FULLY BACKED-2.08%
RACERS Trust-Series 2004-6-MM, Floating Rate
Notes (CEP-Lehman Brothers Holdings Inc.)
4.37% (Acquired 04/13/04; Cost
$1,000,000)(b)(i) 06/22/06 $1,000 $ 1,000,000
=================================================================================
Total Asset-Backed Securities (Cost
$1,424,260) 1,424,260
=================================================================================
CERTIFICATES OF DEPOSIT-2.08%
Svenska Handelsbanken A.B. (Cost $1,000,000)
4.77% 12/19/06 1,000 1,000,000
=================================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $34,231,447) 34,231,447
=================================================================================
REPURCHASE AGREEMENTS-28.98%
Banc of America Securities LLC
4.27%(m) 01/03/06 2,000 2,000,000
- ---------------------------------------------------------------------------------
Bear, Stearns & Co., Inc.
4.27%(n) 01/03/06 2,000 2,000,000
- ---------------------------------------------------------------------------------
Deutsche Bank Securities Inc.
4.25%(o) 01/03/06 2,000 2,000,000
- ---------------------------------------------------------------------------------
Goldman, Sachs & Co.
4.35%(p) 01/03/06 2,000 2,000,000
- ---------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
4.35%(q) 01/03/06 1,909 1,909,462
- ---------------------------------------------------------------------------------
Morgan Stanley & Co., Inc.
4.25%(r) 01/03/06 2,000 2,000,000
- ---------------------------------------------------------------------------------
Wachovia Capital Markets, LLC
4.25%(s) 01/03/06 2,000 2,000,000
=================================================================================
Total Repurchase Agreements (Cost
$13,909,462) 13,909,462
=================================================================================
TOTAL INVESTMENTS-100.29% (Cost
$48,140,909)(t)(u) 48,140,909
=================================================================================
OTHER ASSETS LESS LIABILITIES-(0.29%) (138,745)
=================================================================================
NET ASSETS-100.00% $48,002,164
_________________________________________________________________________________
=================================================================================
</Table>
Investment Abbreviations:
<Table>
CEP - Credit Enhancement Provider
IDR - Industrial Development Revenue Bonds
INS - Insurance
LOC - Letter of Credit
MTN - Medium Term Notes
RACERS - Restructured Asset Certificates with Enhanced ReturnS(SM)
RB - Revenue Bonds
Unsec. - Unsecured
</Table>
AIM V.I. MONEY MARKET FUND
Notes to Schedule of Investments:
(a) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(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 value of these securities at December 31, 2005 was 20,730,425,
which represented 43.19% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) The security is credit guaranteed, enhanced or has credit risk by a foreign
entity. No concentration of any single foreign country was greater than 5%.
(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 the bond insurance company
listed.
(f) In accordance with the procedures established by the Board of Trustees,
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.
(g) Interest rate is redetermined weekly. Rate shown is the rate in effect on
December 31, 2005.
(h) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(i) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2005.
(j) Security considered to be illiquid. The Fund is limited to investing 10% of
net assets in illiquid securities, at the time of purchase. The value of
this security considered illiquid at December 31, 2005 represented 4.17% of
the Fund's Net Assets.
(k) Interest rate is redetermined daily. Rate shown is the rate in effect on
December 31, 2005.
(l) 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.
(m) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $500,237,222. Collateralized by $522,979,957 U.S. Government
obligations, 5.00% due 07/01/35 with an aggregate value at 12/31/05 of
$510,000,001. The amount to be received upon repurchase by the Fund is
$2,000,949.
(n) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $250,118,611. Collateralized by $359,081,246 U.S. Government
obligations, 3.58% to 5.68% due 07/01/09 to 11/01/35 with an aggregate value
at 12/31/05 of $255,001,647. The amount to be received upon repurchase by
the Fund is $2,000,949.
(o) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $125,059,028. Collateralized by $129,130,700 U.S. Government
obligations, 3.64% to 6.00% due 02/01/18 to 09/01/35 with an aggregate value
at 12/31/05 of $127,500,000. The amount to be received upon repurchase by
the Fund is $2,000,944.
(p) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $250,120,833. Collateralized by $254,562,198 U.S. Government
obligations, 4.43% to 7.50% due 04/01/27 to 01/01/36 with an aggregate value
at 12/31/05 of $255,000,000. The amount to be received upon repurchase by
the Fund is $2,000,967.
(q) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $500,241,667. Collateralized by $510,250,598 U.S. Government
obligations, 3.73% to 6.09% due 01/01/2031 to 10/01/40 with an aggregate
value at 12/31/05 of $510,000,938. The amount to be received upon repurchase
by the Fund is $1,910,385.
(r) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $250,118,056. Collateralized by $253,800,715 U.S. Government
obligations, 4.40% to 6.00% due 09/01/34 to 11/01/35 with an aggregate value
at 12/31/05 of $256,777,487. The amount to be received upon repurchase by
the Fund is $2,000,944.
(s) Joint repurchase agreement entered into 12/30/05 with an aggregate maturing
value of $250,118,056. Collateralized by $252,901,331 U.S. Government
obligations, 3.03% to 9.00% due 10/15/09 to 12/15/45 with an aggregate value
at 12/31/05 of $255,000,000. The amount to be received upon repurchase by
the Fund is $2,000,944.
(t) This table provides a listing of those entities that have either issued,
guaranteed, backed or otherwise enhanced the credit quality of more than 5%
of the securities held in the portfolio. In instances where the entity has
guaranteed, backed or otherwise enhanced the credit quality of a security,
it will not be primarily responsible for the issuer's obligations but may be
called upon to satisfy issuer's obligations.
<Table>
<Caption>
ENTITIES PERCENTAGE
- --------------------------------------------------------------------------
Wachovia Bank, N.A 14.3
- --------------------------------------------------------------------------
Wells Fargo, N.A 6.9
- --------------------------------------------------------------------------
Other Entities Less than 5% 78.8
__________________________________________________________________________
==========================================================================
</Table>
(u) Also represents cost for federal income tax purposes.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, excluding repurchase agreements,
at value (cost $34,231,447) $34,231,447
- ------------------------------------------------------------
Repurchase agreements (cost $13,909,462) 13,909,462
============================================================
Total investments (cost $48,140,909) 48,140,909
============================================================
Receivables for:
Fund shares sold 46,496
- ------------------------------------------------------------
Interest 88,906
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 45,057
- ------------------------------------------------------------
Other assets 1,867
============================================================
Total assets 48,323,235
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 234,433
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 50,765
- ------------------------------------------------------------
Accrued administrative services fees 25,953
- ------------------------------------------------------------
Accrued distribution fees -- Series II 2,374
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 104
- ------------------------------------------------------------
Accrued operating expenses 7,442
============================================================
Total liabilities 321,071
============================================================
Net assets applicable to shares outstanding $48,002,164
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $47,995,820
- ------------------------------------------------------------
Undistributed net investment income 6,344
============================================================
$48,002,164
____________________________________________________________
============================================================
NET ASSETS:
Series I $44,922,554
____________________________________________________________
============================================================
Series II $ 3,079,610
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 44,921,203
____________________________________________________________
============================================================
Series II 3,079,535
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Interest $1,792,987
============================================================
EXPENSES:
Advisory fees 218,849
- ------------------------------------------------------------
Administrative services fees 151,196
- ------------------------------------------------------------
Custodian fees 3,077
- ------------------------------------------------------------
Distribution fees -- Series II 11,398
- ------------------------------------------------------------
Transfer agent fees 4,533
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,634
- ------------------------------------------------------------
Professional services fees 35,077
- ------------------------------------------------------------
Other 17,917
============================================================
Total expenses 458,681
============================================================
Net investment income 1,334,306
============================================================
Net increase in net assets resulting from
operations $1,334,306
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,334,306 $ 461,065
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,235,959) (436,246)
- ------------------------------------------------------------------------------------------
Series II (98,347) (24,819)
==========================================================================================
Decrease in net assets resulting from distributions (1,334,306) (461,065)
==========================================================================================
Share transactions-net:
Series I (9,084,618) (23,498,214)
- ------------------------------------------------------------------------------------------
Series II (2,996,593) 3,693,695
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (12,081,211) (19,804,519)
==========================================================================================
Net increase (decrease) in net assets (12,081,211) (19,804,519)
==========================================================================================
NET ASSETS:
Beginning of year 60,083,375 79,887,894
==========================================================================================
End of year (including undistributed net investment income
of $6,344 and $6,344, respectively) $ 48,002,164 $ 60,083,375
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 recorded on the basis of
amortized cost which approximates 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. Paydown gains and losses on mortgage and asset-backed
securities are recorded as adjustments to interest income.
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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
AIM V.I. MONEY MARKET FUND
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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with AIM
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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) extraordinary items; (iv) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (v) 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 only 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.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $101,196 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 year ended
December 31, 2005, the Fund paid AISI $4,533.
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 year ended December
31, 2005, the Series II shares paid $11,398.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,098
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. MONEY MARKET FUND
NOTE 4--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. The Fund did not borrow or
lend under the facility during the year ended December 31, 2005.
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 as a compensating balance in the account so the custodian
can be compensated by earning the additional interest; or (ii) compensate by
paying the custodian bank at a rate agreed upon by the custodian bank and AIM,
not to exceed the rate contractually agreed upon.
NOTE 5--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------
Distributions paid from ordinary income $1,334,306 $461,065
____________________________________________________________________________________
====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 52,365
- ---------------------------------------------------------------------------
Temporary book/tax differences (46,021)
- ---------------------------------------------------------------------------
Shares of beneficial interest 47,995,820
===========================================================================
Total net assets $48,002,164
___________________________________________________________________________
===========================================================================
</Table>
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 31, 2005.
AIM V.I. MONEY MARKET FUND
NOTE 6--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2005 (A) 2004
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 55,383,109 $ 55,383,109 30,161,445 $ 30,161,445
- ------------------------------------------------------------------------------------------------------------------------
Series II 10,356,640 10,356,640 13,875,916 13,875,916
========================================================================================================================
Issued as reinvestment of dividends:
Series I 1,235,959 1,235,959 436,232 436,232
- ------------------------------------------------------------------------------------------------------------------------
Series II 98,347 98,347 24,822 24,822
========================================================================================================================
Reacquired:
Series I (65,703,686) (65,703,686) (54,095,891) (54,095,891)
- ------------------------------------------------------------------------------------------------------------------------
Series II (13,451,580) (13,451,580) (10,207,043) (10,207,043)
========================================================================================================================
(12,081,211) $(12,081,211) (19,804,519) $(19,804,519)
________________________________________________________________________________________________________________________
========================================================================================================================
</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 90% 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 7--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
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 0.02 0.01 0.01 0.01 0.04
- ----------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.02) (0.01) (0.01) (0.01) (0.04)
======================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(a) 2.51% 0.69% 0.58% 1.19% 3.61%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,923 $54,008 $77,505 $119,536 $128,277
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 0.82%(b) 0.75% 0.66% 0.67% 0.64%
======================================================================================================================
Ratio of net investment income to average net assets 2.46%(b) 0.67% 0.59% 1.18% 3.36%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges assessed in connection with a variable product, which if
included would reduce total returns.
(b) Ratios are based on average daily net assets of $50,153,158.
AIM V.I. MONEY MARKET FUND
NOTE 7--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------
DECEMBER 16, 2001
YEAR ENDED DECEMBER 31, (DATE SALES
---------------------------------------- COMMENCED) TO
2005 2004 2003 2002 DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.00 0.003 0.01 0.00
===========================================================================================================================
Less dividends from net investment income (0.02) (0.00) (0.003) (0.01) (0.00)
===========================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(a) 2.26% 0.44% 0.33% 0.93% 0.05%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,080 $6,076 $ 2,382 $7,831 $ 997
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.07%(b) 1.00% 0.91% 0.92% 0.89%(c)
===========================================================================================================================
Ratio of net investment income to average net assets 2.21%(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 based on average daily net assets of $4,559,061.
(c) Annualized.
NOTE 8--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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
AIM V.I. MONEY MARKET FUND
NOTE 8--LEGAL PROCEEDINGS--(CONTINUED)
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Money Market Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Money Market Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for each of the periods indicated
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian,
provides a reasonable basis for our opinion. The statement of changes in net
assets of the Fund for the year ended December 31, 2004 and the financial
highlights for each of the periods ended on or before December 31, 2004 were
audited by another independent registered public accounting firm whose report
dated February 4, 2005 expressed an unqualified opinion on those statements.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. MONEY MARKET FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
period. The change in the Fund's independent registered public accounting firm
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 fiscal 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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0.00% is eligible for the dividends received deduction for
corporations.
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment The Bank of New York
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
1177 Avenue of the Houston, TX 77210-4739
Americas
New York, NY 10036-2714
</Table>
AIM V.I. MONEY MARKET FUND
AIM V.I. PREMIER EQUITY FUND
Annual Report to Shareholders o December 31, 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 DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. PREMIER EQUITY FUND
MANAGEMENT'S DISCUSSION The growth team uses quantitative and
OF FUND PERFORMANCE fundamental analysis to identify
===================================================================================== companies generating sustainable,
PERFORMANCE SUMMARY above-average earnings and cash flow
======================================== growth that is not fully reflected in
For the year ended December 31, 2005, investor expectations or equity
the Fund outperformed the S&P 500 Index. FUND VS. INDEXES valuations. Quantitative analysis
Strong stock selection in the health focuses on the level, growth rate and
care and energy sectors resulted in TOTAL RETURNS, 12/31/04-12/31/05, sustainability of earnings, revenue and
outperformance versus the sector returns EXCLUDING VARIABLE PRODUCT ISSUER cash flow. Fundamental analysis seeks to
in the benchmark index. CHARGES. IF VARIABLE PRODUCT ISSUER understand a company's drivers of
CHARGES WERE INCLUDED, RETURNS WOULD BE success and to assess their durability.
Your Fund's long-term performance LOWER. The team's sell process seeks to
appears on Pages 4 and 5. identify deterioration in the underlying
Series I Shares 5.65% reasons a stock was initially purchased.
Conditions that may cause us to sell a
Series II Shares 5.36 stock include deteriorating business
prospects, slowing earnings growth, an
Standard & Poor's Composite extended valuation or a more attractive
Index of 500 Stocks (S&P 500 opportunity in another security.
Index) (Broad Market and
Style-specific Index) 4.91 Our portfolio is a well-diversified,
large-cap core fund of 125 to 200 stocks
Lipper Large-Cap Core Fund with the majority of holdings allocated
Index (Peer Group Index) 5.72 to core holdings and lesser amounts
allocated to value and growth holdings.
We strive to manage risk through the
SOURCE: LIPPER, INC. 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, each of which has a when a significant difference exists
different management team, to provide between a stock's market price and its During the year, economic indicators
return potential in a variety of estimate of the company's intrinsic were generally positive, pointing to the
markets. Each team manages its value. (Estimated intrinsic value is a health of the U.S. economy. Throughout
respective discipline independently. value determined by the business's the year, the nation's gross domestic
estimated future cash flows and is product reflected continuing growth.
The core team identifies growing independent of the stock market.) The Corporate earnings growth was generally
companies whose stock prices may be team considers selling a stock to healthy, while manufacturing growth
experiencing some near-term distress. capitalize on a more attractive continued and inflation remained low.
Applying rigorous fundamental research opportunity, if a stock is trading
focusing on cash flow analysis, the team significantly above estimated intrinsic
identifies companies with management value, or if there is a permanent,
teams capable of weathering any fundamental deterioration resulting in
near-term challenges while successfully reduced intrinsic value with inadequate
generating improving levels of free cash upside potential or unexpected
flow. The team considers selling a stock deterioration in financial strength.
when a price target is exceeded, there
is deterioration in fundamentals, or a
more compelling opportunity exists.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 8.5% 1. Tyco International Ltd. 3.1%
Financials 17.8% 2. Oil & Gas Equipment & 2. Microsoft Corp. 1.7
Health Care 17.6 Services 5.1 3. BJ Services Co. 1.5
Information Technology 17.2 3. Property & Casualty Insurance 5.1 4. ACE Ltd. 1.5
Industrials 11.6 4. Industrial Conglomerates 4.5 5. Waste Management, Inc. 1.5
Energy 10.5 5. Investment Banking & 6. Merck & Co. Inc. 1.4
Consumer Discretionary 9.6 Brokerage 3.9 7. Citigroup Inc. 1.4
Consumer Staples 7.9 6. Systems Software 3.7 8. Computer Associates
Telecommunication Services 1.3 7. Semiconductors 3.6 International, Inc. 1.4
Materials 0.9 8. Managed Health Care 3.3 9. Analog Devices, Inc. 1.4
Exchange Traded Funds 0.6 9. Integrated Oil & Gas 3.2 10. WellPoint, Inc. 1.3
Utilities 0.5 10.Packaged Foods & Meats 3.0
Money Market Funds Plus
Other Assets Less Liabilities 4.5 TOTAL NET ASSETS $1.56 BILLION
TOTAL NUMBER OF HOLDINGS* 148
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. PREMIER EQUITY FUND
However, many investors focused on the Some well-known large-cap names in THE VIEWS AND OPINIONS EXPRESSED IN
impact that record-breaking energy information technology (IT) struggled MANAGEMENT'S DISCUSSION OF FUND
prices and rising interest rates could this year. IBM and CISCO SYSTEMS, both PERFORMANCE ARE THOSE OF A I M ADVISORS,
have on consumer spending, which held at fiscal year-end, detracted from INC. THESE VIEWS AND OPINIONS ARE
accounts for approximately two-thirds of performance, but we remain confident in SUBJECT TO CHANGE AT ANY TIME BASED ON
the U.S. economy. their potential to achieve the price FACTORS SUCH AS MARKET AND ECONOMIC
targets we have set for them. CONDITIONS. THESE VIEWS AND OPINIONS MAY
Most domestic equity indexes produced NOT BE RELIED UPON AS INVESTMENT ADVICE
single-digit returns for 2005. In the In your Fund's 2004 annual report, we OR RECOMMENDATIONS, OR AS AN OFFER FOR A
S&P 500 Index, energy and utilities were highlighted TYCO as a top contributor PARTICULAR SECURITY. THE INFORMATION IS
the highest-performing sectors, while for the year. However, for 2005, this NOT A COMPLETE ANALYSIS OF EVERY ASPECT
consumer discretionary and holding detracted from performance. This OF ANY MARKET, COUNTRY, INDUSTRY,
telecommunication services both posted manufacturing conglomerate disappointed SECURITY OR THE FUND. STATEMENTS OF FACT
negative returns for the year. investors by missing its forecasted ARE FROM SOURCES CONSIDERED RELIABLE,
earnings for the second quarter. Part of BUT A I M ADVISORS, INC. MAKES NO
During the year, we did not change the reason for the disappointment was REPRESENTATION OR WARRANTY AS TO THEIR
the weighting of the three investment the effect of increased cost of raw COMPLETENESS OR ACCURACY. ALTHOUGH
disciplines within the portfolio. We did materials on margins in its plastics and HISTORICAL PERFORMANCE IS NO GUARANTEE
make some marginal shifts within adhesives business when oil prices rose OF FUTURE RESULTS, THESE INSIGHTS MAY
sectors. In financials, we increased our dramatically. As the price of oil HELP YOU UNDERSTAND OUR INVESTMENT
exposure by adding to our insurance flattened later in the year, Tyco was MANAGEMENT PHILOSOPHY.
HOLDINGS. In the consumer discretionary able to recapture some of the lost
sector, which was the worst performing margins. We remain confident in company RONALD S. SLOAN, Chartered
sector in the index, we reduced our leadership, which has continued to pay Financial Analyst, senior
exposure. back debt, repurchase shares and focus [SLOAN portfolio manager, is lead
on the company's most successful core PHOTO] portfolio manager of AIM
Several of the Fund's stocks in the pursuits. In December, management V.I. Premier Equity Fund.
property and casualty insurance industry announced an agreement on the sale of Mr. Sloan has 35 years of
were strong performers. These the plastics and adhesives business, and experience in the investment industry.
stocks--long-term holdings ACE LTD. and at year-end, we expected positive He joined AIM in 1998. Mr. Sloan
ST. PAUL TRAVELERS, along with CHUBB, long-term prospects for this holding. attended the University of Missouri,
which we acquired this year--saw price where he received both a B.S. in
appreciation partly based on IN CLOSING business administration and an M.B.A.
anticipation of better times ahead for
the industry. As a result of the Throughout the year, we balanced the LANNY H. SACHNOWITZ,
hurricane devastation in 2005, many weighting of the Fund's holdings to senior portfolio manager,
insurers sustained heavy losses. provide shareholders the investment [SACHNOWITZ is a manager of AIM V.I.
Investors acted on the belief that such profile of a core fund. A core fund is PHOTO] Premier Equity Fund. Mr.
losses would put an end to the designed to benefit from favorable Sachnowitz joined AIM in
discounting of premium prices and that a markets and to give up less during 1987. He received a B.S.
stronger pricing cycle would result in difficult times. As such, we provided in finance from the University of
increased profitability and competitive returns, outperforming the Southern California, and he received his
corresponding share price increases. S&P 500 Index for the year. At the same M.B.A from the University of Houston.
time, we maintained our long-term
In the second half of the year we investment horizon, owning companies BRET W. STANLEY,
shifted our focus within the energy with management teams that have track [STANLEY Chartered Financial
sector to oil and gas equipment and records of generating cash and PHOTO] Analyst, senior portfolio
services companies and away from oil and appropriating it to benefit their manager, is a manager of
gas exploration and production shareholders. Thank you for your AIM V.I. Premier Equity
companies. The top contributor to Fund investment in AIM V.I. Premier Equity Fund. Mr. Stanley has 17
performance for the year, BJ SERVICES, Fund. years of experience in the investment
is an oil and gas services company. We industry. He joined AIM in 1998. Mr.
selected BJ Services for its clean ======================================== Stanley attended The University of
balance sheet, high returns on invested In November 2005, your Fund's board Texas, where he received his B.B.A in
capital and disciplined management. approved--subject to shareholder finance, and the University of Houston,
approval--the proposed merger of AIM where he earned his M.S. in finance.
The Fund's health care holdings V.I. Premier Equity Fund into AIM V.I.
contributed to outperformance versus the Core Equity Fund. Assisted by the Mid/Large Cap Core Team,
S&P 500 Index for the year. Managed ======================================== Large/Multi-Cap Growth Team and Basic
health care companies CIGNA, Value Team
UNITEDHEALTH GROUP and WELLPOINT, as
well as pharmaceutical holdings JOHNSON [RIGHT ARROW GRAPHIC]
& JOHNSON and WYETH, benefited Fund
performance. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND,INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGE 4 AND
5.
3
AIM V.I. PREMIER EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 5/5/93, INDEX DATA FROM 4/30/93
[MOUNTAIN CHART]
<Table>
<Caption>
====================================================================================================================================
DATE AIM V.I. PREMIER LIPPER LARGE-CAP S&P
EQUITY FUND- CORE FUND 500 10/99 35794 30479 35568
SERIES I SHARES INDEX INDEX 11/99 37548 31227 36291
12/99 39835 33304 38425
4/30/93 $10000 $10000 1/00 38859 31957 36495
5/93 $10170 10259 10267 2/00 40463 31947 35805
6/93 10690 10313 10297 3/00 43389 34724 39305
7/93 10690 10273 10255 4/00 41593 33591 38123
8/93 11050 10653 10644 5/00 38369 32735 37342
9/93 11230 10653 10562 6/00 39724 33933 38261
10/93 11370 10818 10780 7/00 38369 33404 37664
11/93 10980 10647 10678 8/00 41105 35709 40002
12/93 11482 10891 10807 9/00 37229 33807 37891
1/94 12194 11242 11174 10/00 36707 33416 37730
2/94 12225 11030 10871 11/00 33261 30477 34757
3/94 11804 10523 10398 12/00 34002 30850 34928
4/94 11795 10625 10531 1/01 35845 31723 36166
5/94 11694 10709 10703 2/01 32694 28771 32871
6/94 11313 10426 10441 3/01 30154 27005 30790
7/94 11594 10739 10784 4/01 32943 29057 33180
8/94 12224 11122 11225 5/01 32756 29221 33403
9/94 12043 10889 10950 6/01 31969 28445 32590
10/94 12164 11065 11196 7/01 31333 28032 32269
11/94 11753 10675 10789 8/01 29206 26382 30251
12/94 11946 10774 10949 9/01 26989 24380 27809
1/95 11946 10964 11232 10/01 27661 24954 28339
2/95 12562 11341 11670 11/01 29393 26589 30512
3/95 13127 11623 12013 12/01 29728 26890 30780
4/95 13400 11879 12367 1/02 28646 26466 30331
5/95 13885 12262 12860 2/02 27511 26023 29746
6/95 14805 12584 13159 3/02 28708 26908 30865
7/95 15835 13014 13595 4/02 26302 25501 28994
8/95 15916 13034 13629 5/02 25781 25315 28781
9/95 16522 13521 14204 6/02 23425 23567 26732
10/95 16149 13458 14153 7/02 21809 21816 24649
11/95 16623 13984 14773 8/02 21822 21995 24810
12/95 16278 14195 15058 9/02 19441 19859 22116
1/96 16348 14613 15570 10/02 20919 21402 24061
2/96 16519 14791 15715 11/02 22065 22358 25476
3/96 16387 14926 15866 12/02 20734 21180 23980
4/96 16751 15143 16100 1/03 20262 20624 23353
5/96 16893 15445 16514 2/03 20083 20351 23002
6/96 17196 15467 16577 3/03 20455 20522 23225
7/96 16388 14835 15845 4/03 21797 22035 25137
8/96 16761 15172 16180 5/03 22679 23102 26460
9/96 17448 15959 17090 6/03 22897 23331 26798
10/96 17862 16276 17561 7/03 23408 23698 27271
11/96 18660 17331 18887 8/03 23677 24157 27801
12/96 18722 17012 18513 9/03 23497 23844 27507
1/97 19343 17942 19669 10/03 24724 25011 29062
2/97 19429 17920 19824 11/03 24813 25221 29318
3/97 18508 17153 19011 12/03 25934 26434 30854
4/97 19333 18103 20144 1/04 26230 26807 31420
5/97 20768 19202 21376 2/04 26474 27124 31857
6/97 21711 20035 22326 3/04 26103 26699 31376
7/97 23306 21617 24102 4/04 25424 26284 30885
8/97 22150 20517 22753 5/04 25707 26552 31308
9/97 23521 21573 23998 6/04 26244 27026 31916
10/97 22707 20908 23198 7/04 25039 26070 30860
11/97 23007 21591 24271 8/04 24924 26086 30984
12/97 23157 21983 24687 9/04 25283 26385 31319
1/98 23312 22200 24960 10/04 25566 26742 31798
2/98 24813 23774 26759 11/04 26566 27757 33084
3/98 25979 24950 28129 12/04 27435 28625 34209
4/98 26203 25202 28417 1/05 26905 27978 33376
5/98 25925 24772 27929 2/05 27483 28500 34077
6/98 27426 25949 29063 3/05 27085 27978 33475
7/98 27360 25739 28755 4/05 26440 27355 32840
8/98 22635 21887 24601 5/05 27085 28240 33884
9/98 24136 22975 26178 6/05 27291 28337 33933
10/98 26171 24698 28304 7/05 28167 29345 35194
11/98 27615 26167 30019 8/05 27883 29076 34873
12/98 30661 27904 31748 9/05 28231 29412 35155
1/99 32470 28880 33075 10/05 27729 29060 34569
2/99 31723 27988 32047 11/05 28772 30173 35875
3/99 33360 29114 33329 12/05 28974 30262 35888
4/99 33430 29894 34620
5/99 32892 29101 33803
6/99 35089 30725 35674
7/99 34296 29823 34565
8/99 33737 29519 34394
9/99 33832 28719 33452
====================================================================================================================================
SOURCE: LIPPER, INC.
</Table>
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and the space between $20,000
and $40,000 is the same as that between
$40,000 and $80,000, and so on.
4
AIM V.I. PREMIER EQUITY FUND
======================================== RULE 12B-1 FEES APPLICABLE TO THE SERIES THROUGH INSURANCE COMPANIES ISSUING
AVERAGE ANNUAL TOTAL RETURNS II SHARES. SERIES I AND SERIES II SHARES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
As of 12/31/05 INVEST IN THE SAME PORTFOLIO OF SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES SECURITIES AND WILL HAVE SUBSTANTIALLY FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/5/93) 8.77% SIMILAR PERFORMANCE, EXCEPT TO THE NOT INTENDED TO REFLECT ACTUAL VARIABLE
10 Years 5.94 EXTENT THAT EXPENSES BORNE BY EACH CLASS PRODUCT VALUES. THEY DO NOT REFLECT
5 Years -3.14 DIFFER. SALES CHARGES, EXPENSES AND FEES
1 Year 5.65 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
10 Years 5.67% COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years -3.38 PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
1 Year 5.36 PLEASE CONTACT YOUR VARIABLE PRODUCT
======================================== ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST
CUMULATIVE TOTAL RETURNS RECENT MONTH-END VARIABLE PRODUCT RECENT MONTH-END PERFORMANCE DATA AT THE
Six months ended 12/31/05 PERFORMANCE. PERFORMANCE FIGURES REFLECT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Series I 6.20% FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Series II 6.06 AND CHANGES IN NET ASSET VALUE. INFORMATION LINE, 866-702-4402. AS
======================================== INVESTMENT RETURN AND PRINCIPAL VALUE MENTIONED ABOVE, FOR THE MOST RECENT
WILL FLUCTUATE SO THAT YOU MAY HAVE A MONTH-END PERFORMANCE INCLUDING VARIABLE
RETURNS SINCE SEPTEMBER 19, 2001, THE GAIN OR LOSS WHEN YOU SELL SHARES. PRODUCT CHARGES, PLEASE CONTACT YOUR
INCEPTION DATE OF SERIES II SHARES, ARE VARIABLE PRODUCT ISSUER OR FINANCIAL
HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. PREMIER EQUITY FUND, A ADVISOR.
BLENDED RETURNS OF THE HISTORICAL SERIES PORTFOLIO OF AIM VARIABLE
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE FUNDS, IS CURRENTLY OFFERED
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND and/or adverse tax consequences OTHER INFORMATION
resulting from transactions in the same
The Fund may invest up to 25% of its security at or at about the same time. The returns shown in management's
assets in the securities of non-U.S. discussion of Fund performance are based
issuers. International investing ABOUT INDEXES USED IN THIS REPORT on net asset values calculated for
presents certain risks not associated shareholder transactions. Generally
with investing solely in the United The unmanaged Standard & Poor's accepted accounting principles require
States. These include risks relating to Composite Index of 500 Stocks (the S&P adjustments to be made to the net assets
fluctuations in the value of the U.S. 500--REGISTERED TRADEMARK-- INDEX) is of the Fund at period end for financial
dollar relative to the values of other an index of common stocks frequently reporting purposes, and as such, the net
currencies, the custody arrangements used as a general measure of U.S. stock asset values for shareholder
made for the Fund's foreign holdings, market performance. transactions and the returns based on
differences in accounting, political those net asset values may differ from
risks and the lesser degree of public The unmanaged LIPPER LARGE-CAP CORE the net asset values and returns
information required to be provided by FUND INDEX represents an average of the reported in the Financial Highlights.
non-U.S. companies. performance of the 30 largest Additionally, the returns and net asset
large-capitalization core equity funds values shown throughout this report are
The Fund's investments in different, tracked by Lipper, Inc., an independent at the Fund level only and do not
independently managed investment mutual fund performance monitor. include variable product issuer charges.
disciplines create allocation risk, If such charges were included, the total
which is the risk that the allocation of The Fund is not managed to track the returns would be lower.
investments among core, growth and value performance of any particular index,
companies may have a more significant including the indexes defined here, and Industry classifications used in this
effect on the Fund's net asset value consequently, the performance of the report are generally according to the
when one of these disciplines is Fund may deviate significantly from the Global Industry Classification Standard,
performing more poorly than the others. performance of the indexes. which was developed by and is the
The active rebalancing of the Fund among exclusive property and a service mark of
these investment disciplines may result A direct investment cannot be made in Morgan Stanley Capital International
in increased transaction costs. an index. Unless otherwise indicated, Inc. and Standard & Poor's.
index results include reinvested
The Fund's investments in different, dividends, and they do not reflect sales
independently managed investment charges. Performance of an index of
disciplines may result in increased funds reflects fund expenses;
transaction costs performance of a market index does not.
5
AIM V.I. PREMIER EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
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
July 1, 2005, through December 31, 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 December 31, 2005, appear in the
The table below provides information table "Cumulative Total Returns" on Page
about actual account values and actual 5.
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/01/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,062.00 $4.52 $1,020.82 $4.43 0.87%
Series II 1,000.00 1,060.60 5.82 1,019.56 5.70 1.12
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. PREMIER EQUITY FUND
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. Premier credentials and experience of the strategies. The Board reviewed the
Equity 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 comparable to the
the Fund's advisory agreement with A I 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 lower than the
comprised solely of independent issues as AIM's portfolio and product advisory fee rates for three offshore
trustees, at a meeting held on June 30, review process, various back office funds for which an AIM affiliate serves
2005, the Board, including all of the support functions provided by AIM and as 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 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 in such periods was below advised by other advisors with
the median performance of such investment strategies comparable to
One of the responsibilities of the comparable funds. The Board noted that those of the Fund that the Board
Senior Officer of the Fund, who is AIM has acknowledged that the Fund reviewed. The Board noted that AIM has
independent of AIM and AIM's affiliates, continues to require a long-term agreed to waive advisory fees of the
is to manage the process by which the solution to its underperformance, and Fund and to limit the Fund's total
Fund's proposed management fees are that management is continuing to closely operating expenses, as discussed below.
negotiated to ensure that they are monitor the performance of the Fund and Based on this review, the Board
negotiated in a manner which is at arm's analyze various possible long-term concluded that the advisory fee rate for
length and reasonable. To that end, the solutions. Based on this review, the the Fund under the Advisory Agreement
Senior Officer must either supervise a Board concluded that no changes should was fair and reasonable.
competitive bidding process or prepare be made to the Fund and that it was not
an independent written evaluation. The necessary to change the Fund's portfolio o Expense limitations and fee waivers.
Senior Officer has recommended an management team at this time. The Board noted that AIM has
independent written evaluation in lieu contractually agreed to waive advisory
of a competitive bidding process and, o The performance of the Fund relative fees of the Fund through June 30, 2006
upon the direction of the Board, has to indices. The Board reviewed the to the extent necessary so that the
prepared such an independent written performance of the Fund during the past advisory fees payable by the Fund do not
evaluation. Such written evaluation also one, three and five calendar years exceed a specified maximum advisory fee
considered certain of the factors against the performance of the Lipper rate, which maximum rate includes
discussed below. In addition, as Large Cap Core Index. The Board noted breakpoints and is based on net asset
discussed below, the Senior Officer made that the Fund's performance in such levels. The Board noted that AIM also
certain recommendations to the Board in periods was below the performance of has contractually agreed to waive an
connection with such written evaluation. such Index. The Board noted that AIM has additional 0.02% of the Fund's advisory
acknowledged that the Fund continues to fees through June 30, 2006. The Board
The discussion below serves as a require a long-term solution to its considered the contractual nature of
summary of the Senior Officer's under-performance, and that management these fee waivers and noted that they
independent written evaluation and is continuing to closely monitor the remain in effect until June 30, 2006.
recommendations to the Board in performance of the Fund and analyze The Board noted that AIM has
connection therewith, as well as a various possible long-term solutions. contractually agreed to waive fees
discussion of the material factors and Based on this review, the Board and/or limit expenses of the Fund
the conclusions with respect thereto concluded that no changes should be made through April 30, 2006 in an amount
that formed the basis for the Board's to the Fund and that it was not necessary to limit total annual
approval of the Advisory Agreement. necessary to change the Fund's portfolio operating expenses to a specified
After consideration of all of the management team at this time. percentage of average daily net assets
factors below and based on its informed for each class of the Fund. The Board
business judgment, the Board determined o Meeting with the Fund's portfolio considered the contractual nature of
that the Advisory Agreement is in the managers and investment personnel. With this fee waiver/expense limitation and
best interests of the Fund and its respect to the Fund, the Board is noted that it remains in effect through
shareholders and that the compensation meeting periodically with such Fund's April 30, 2006. The Board considered the
to AIM under the Advisory Agreement is portfolio managers and/or other effect these fee waivers/expense
fair and reasonable and would have been investment personnel and believes that limitations would have on the Fund's
obtained through arm's length such individuals are competent and able estimated expenses and concluded that
negotiations. to continue to carry out their the levels of fee waivers/expense
responsibilities under the Advisory limitations for the Fund were fair and
o The nature and extent of the advisory Agreement. reasonable.
services to be provided by AIM. The
Board reviewed the services to be o Overall performance of AIM. The Board o Breakpoints and economies of scale.
provided by AIM under the Advisory considered the overall performance of The Board reviewed the structure of the
Agreement. Based on such review, the AIM in providing investment advisory and Fund's advisory fee under the Advisory
Board concluded that the range of portfolio administrative services to the Agreement, noting that it includes one
services to be provided by AIM under the Fund and concluded that such performance breakpoint. The Board reviewed the level
Advisory Agreement was appropriate and was satisfactory. of the Fund's advisory fees, and noted
that AIM currently is providing services that such fees, as a percentage of the
in accordance with the terms of the Fund's net assets, have decreased as net
Advisory Agreement.
(continued)
7
AIM V.I. PREMIER EQUITY FUND
assets increased because the Advisory process as soon as reasonably were qualified to continue to provide
Agreement includes a breakpoint. The practicable. The Board also considered non-investment advisory services to the
Board noted that AIM has contractually the Senior Officer's recommendation that Fund, including administrative, transfer
agreed to waive advisory fees of the the Board consider an additional fee agency and distribution services, and
Fund through June 30, 2006 to the extent waiver for the Fund due to the Fund's that AIM and its affiliates currently
necessary so that the advisory fees under-performance. The Board concluded are providing satisfactory
payable by the Fund do not exceed a that such a fee waiver in the amount of non-investment advisory services.
specified maximum advisory fee rate, 0.02% of the Fund's advisory fees was
which maximum rate includes breakpoints appropriate for the Fund and requested o Other factors and current trends. In
and is based on net asset levels. The such a fee waiver from AIM. The Board determining whether to continue the
Board concluded that the Fund's fee noted that AIM has agreed to this fee Advisory Agreement for the Fund, the
levels under the Advisory Agreement waiver, as discussed above. Board considered the fact that AIM,
therefore reflect economies of scale and along with others in the mutual fund
that it was not necessary to change the o Profitability of AIM and its industry, is subject to regulatory
advisory fee breakpoints in the Fund's affiliates. The Board reviewed inquiries and litigation related to a
advisory fee schedule. information concerning the profitability wide range of issues. The Board also
of AIM's (and its affiliates') considered the governance and compliance
o Investments in affiliated money market investment advisory and other activities reforms being undertaken by AIM and its
funds. The Board also took into account and its financial condition. The Board affiliates, including maintaining an
the fact that uninvested cash and cash considered the overall profitability of internal controls committee and
collateral from securities lending AIM, as well as the profitability of AIM retaining an independent compliance
arrangements (collectively, "cash in connection with managing the Fund. consultant, and the fact that AIM has
balances") of the Fund may be invested The Board noted that AIM's operations undertaken to cause the Fund to operate
in money market funds advised by AIM remain profitable, although increased in accordance with certain governance
pursuant to the terms of an SEC expenses in recent years have reduced policies and practices. The Board
exemptive order. The Board found that AIM's profitability. Based on the review concluded that these actions indicated a
the Fund may realize certain benefits of the profitability of AIM's and its good faith effort on the part of AIM to
upon investing cash balances in AIM affiliates' investment advisory and adhere to the highest ethical standards,
advised money market funds, including a other activities and its financial and determined that the current
higher net return, increased liquidity, condition, the Board concluded that the regulatory and litigation environment to
increased diversification or decreased compensation to be paid by the Fund to which AIM is subject should not prevent
transaction costs. The Board also found AIM under its Advisory Agreement was not the Board from continuing the Advisory
that the Fund will not receive reduced excessive. Agreement for the Fund.
services if it invests its cash balances
in such money market funds. The Board o Benefits of soft dollars to AIM. The
noted that, to the extent the Fund Board considered the benefits realized
invests in affiliated money market by AIM as a result of brokerage
funds, AIM has voluntarily agreed to transactions executed through "soft
waive a portion of the advisory fees it dollar" arrangements. Under these
receives from the Fund attributable to arrangements, brokerage commissions paid
such investment. The Board further by the Fund and/or other funds advised
determined that the proposed securities by AIM are used to pay for research and
lending program and related procedures execution services. This research is
with respect to the lending Fund is in used by AIM in making investment
the best interests of the lending Fund decisions for the Fund. The Board
and its respective shareholders. The concluded that such arrangements were
Board therefore concluded that the appropriate.
investment of cash collateral received
in connection with the securities o AIM's financial soundness in light of
lending program in the money market the Fund's needs. The Board considered
funds according to the procedures is in whether AIM is financially sound and has
the best interests of the lending Fund the resources necessary to perform its
and its respective shareholders. obligations under the Advisory
Agreement, and concluded that AIM has
o Independent written evaluation and the financial resources necessary to
recommendations of the Fund's Senior fulfill its obligations under the
Officer. The Board noted that, upon Advisory Agreement.
their direction, the Senior Officer of
the Fund, who is independent of AIM and o Historical relationship between the
AIM's affiliates, had prepared an Fund and AIM. In determining whether to
independent written evaluation in order continue the Advisory Agreement for the
to assist the Board in determining the Fund, the Board also considered the
reasonableness of the proposed prior relationship between AIM and the
management fees of the AIM Funds, Fund, as well as the Board's knowledge
including the Fund. The Board noted that of AIM's operations, and concluded that
the Senior Officer's written evaluation it was beneficial to maintain the
had been relied upon by the Board in current relationship, in part, because
this regard in lieu of a competitive of such knowledge. The Board also
bidding process. In determining whether reviewed the general nature of the
to continue the Advisory Agreement for non-investment advisory services
the Fund, the Board considered the currently performed by AIM and its
Senior Officer's written evaluation and affiliates, such as administrative,
the recommendation made by the Senior transfer agency and distribution
Officer to the Board that the Board services, and the fees received by AIM
consider implementing a process to and its affiliates for performing such
assist them in more closely monitoring services. In addition to reviewing such
the performance of the AIM Funds. The services, the trustees also considered
Board concluded that it would be the organizational structure employed by
advisable to implement such a 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
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-83.94%
ADVERTISING-0.91%
Interpublic Group of Cos., Inc. (The)(a) 336,800 $ 3,250,120
- -------------------------------------------------------------------------
Omnicom Group Inc. 129,600 11,032,848
=========================================================================
14,282,968
=========================================================================
AEROSPACE & DEFENSE-2.33%
Boeing Co. (The) 90,000 6,321,600
- -------------------------------------------------------------------------
General Dynamics Corp. 30,000 3,421,500
- -------------------------------------------------------------------------
Honeywell International Inc. 160,500 5,978,625
- -------------------------------------------------------------------------
Lockheed Martin Corp. 100,000 6,363,000
- -------------------------------------------------------------------------
Northrop Grumman Corp. 185,269 11,136,520
- -------------------------------------------------------------------------
Precision Castparts Corp. 60,000 3,108,600
=========================================================================
36,329,845
=========================================================================
ALUMINUM-0.28%
Alcoa Inc. 148,900 4,402,973
=========================================================================
APPAREL RETAIL-0.87%
Chico's FAS, Inc.(a) 50,000 2,196,500
- -------------------------------------------------------------------------
Gap, Inc. (The) 418,800 7,387,632
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 174,188 4,046,387
=========================================================================
13,630,519
=========================================================================
APPLICATION SOFTWARE-0.39%
Amdocs Ltd.(a) 220,000 6,050,000
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.18%
Bank of New York Co., Inc. (The) 577,957 18,407,930
=========================================================================
BIOTECHNOLOGY-1.96%
Amgen Inc.(a) 231,000 18,216,660
- -------------------------------------------------------------------------
Genentech, Inc.(a) 35,000 3,237,500
- -------------------------------------------------------------------------
Genzyme Corp.(a) 41,000 2,901,980
- -------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 120,000 6,315,600
=========================================================================
30,671,740
=========================================================================
BUILDING PRODUCTS-0.96%
Masco Corp.(b) 496,152 14,978,829
=========================================================================
COMMUNICATIONS EQUIPMENT-1.89%
Cisco Systems, Inc.(a) 1,069,000 18,301,280
- -------------------------------------------------------------------------
QUALCOMM Inc. 260,000 11,200,800
=========================================================================
29,502,080
=========================================================================
COMPUTER & ELECTRONICS RETAIL-0.12%
Best Buy Co., Inc. 45,000 1,956,600
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
COMPUTER HARDWARE-1.63%
Apple Computer, Inc.(a) 175,000 $ 12,580,750
- -------------------------------------------------------------------------
Dell Inc.(a) 108,000 3,238,920
- -------------------------------------------------------------------------
International Business Machines Corp. 117,946 9,695,161
=========================================================================
25,514,831
=========================================================================
COMPUTER STORAGE & PERIPHERALS-0.94%
EMC Corp.(a) 295,000 4,017,900
- -------------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 238,800 10,705,404
=========================================================================
14,723,304
=========================================================================
CONSUMER FINANCE-0.34%
American Express Co. 40,000 2,058,400
- -------------------------------------------------------------------------
SLM Corp. 60,000 3,305,400
=========================================================================
5,363,800
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.93%
First Data Corp. 339,200 14,588,992
=========================================================================
DEPARTMENT STORES-1.06%
Federated Department Stores, Inc. 60,000 3,979,800
- -------------------------------------------------------------------------
J.C. Penney Co., Inc. 68,000 3,780,800
- -------------------------------------------------------------------------
Nordstrom, Inc. 235,000 8,789,000
=========================================================================
16,549,600
=========================================================================
DIVERSIFIED BANKS-0.49%
Bank of America Corp. 167,575 7,733,586
=========================================================================
DIVERSIFIED CHEMICALS-0.16%
Dow Chemical Co. (The) 55,700 2,440,774
=========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.51%
Cendant Corp. 459,200 7,921,200
=========================================================================
ELECTRIC UTILITIES-0.46%
FPL Group, Inc. 171,300 7,119,228
=========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.49%
Waste Management, Inc. 764,936 23,215,808
=========================================================================
FOOD RETAIL-1.57%
Kroger Co. (The)(a) 904,987 17,086,155
- -------------------------------------------------------------------------
Safeway Inc. 312,600 7,396,116
=========================================================================
24,482,271
=========================================================================
GENERAL MERCHANDISE STORES-0.91%
Target Corp. 257,500 14,154,775
=========================================================================
HEALTH CARE DISTRIBUTORS-1.64%
Cardinal Health, Inc. 274,100 18,844,375
- -------------------------------------------------------------------------
McKesson Corp. 131,220 6,769,640
=========================================================================
25,614,015
=========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-0.47%
Baxter International Inc. 196,800 $ 7,409,520
=========================================================================
HEALTH CARE FACILITIES-0.60%
HCA Inc. 187,200 9,453,600
=========================================================================
HEALTH CARE SERVICES-0.30%
Caremark Rx, Inc.(a) 90,000 4,661,100
=========================================================================
HOME IMPROVEMENT RETAIL-0.49%
Home Depot, Inc. (The) 190,000 7,691,200
=========================================================================
HOMEFURNISHING RETAIL-0.49%
Bed Bath & Beyond Inc.(a) 210,256 7,600,754
=========================================================================
HOUSEHOLD PRODUCTS-0.69%
Procter & Gamble Co. (The) 185,250 10,722,270
=========================================================================
INDUSTRIAL CONGLOMERATES-4.51%
General Electric Co. 548,599 19,228,395
- -------------------------------------------------------------------------
Textron Inc. 45,000 3,464,100
- -------------------------------------------------------------------------
Tyco International Ltd. 1,656,467 47,805,638
=========================================================================
70,498,133
=========================================================================
INDUSTRIAL MACHINERY-0.88%
Dover Corp. 185,384 7,506,198
- -------------------------------------------------------------------------
Illinois Tool Works Inc. 70,600 6,212,094
=========================================================================
13,718,292
=========================================================================
INSURANCE BROKERS-0.49%
Marsh & McLennan Cos., Inc. 241,000 7,654,160
=========================================================================
INTEGRATED OIL & GAS-2.34%
ConocoPhillips 153,000 8,901,540
- -------------------------------------------------------------------------
Exxon Mobil Corp. 322,030 18,088,425
- -------------------------------------------------------------------------
Murphy Oil Corp. 177,170 9,565,408
=========================================================================
36,555,373
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.30%
AT&T Inc. 535,673 13,118,632
- -------------------------------------------------------------------------
Verizon Communications Inc. 236,654 7,128,018
=========================================================================
20,246,650
=========================================================================
INTERNET RETAIL-0.24%
eBay Inc.(a) 85,000 3,676,250
=========================================================================
INTERNET SOFTWARE & SERVICES-1.10%
Google Inc.-Class A(a) 14,000 5,808,040
- -------------------------------------------------------------------------
Yahoo! Inc.(a)(b) 292,000 11,440,560
=========================================================================
17,248,600
=========================================================================
INVESTMENT BANKING & BROKERAGE-3.90%
Goldman Sachs Group, Inc. (The) 110,000 14,048,100
- -------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 65,000 8,331,050
- -------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 285,553 19,340,505
- -------------------------------------------------------------------------
Morgan Stanley 336,989 19,120,756
=========================================================================
60,840,411
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.57%
iShares Russell 1000 Growth Index Fund 175,000 $ 8,926,750
=========================================================================
IT CONSULTING & OTHER SERVICES-0.52%
Accenture Ltd.-Class A 276,941 7,995,287
=========================================================================
MANAGED HEALTH CARE-3.31%
Aetna Inc. 150,000 14,146,500
- -------------------------------------------------------------------------
CIGNA Corp. 35,000 3,909,500
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 205,000 12,738,700
- -------------------------------------------------------------------------
WellPoint, Inc.(a) 261,600 20,873,064
=========================================================================
51,667,764
=========================================================================
MOVIES & ENTERTAINMENT-1.49%
News Corp.-Class A 668,800 10,399,840
- -------------------------------------------------------------------------
Walt Disney Co. (The) 538,000 12,895,860
=========================================================================
23,295,700
=========================================================================
MULTI-LINE INSURANCE-1.84%
American International Group, Inc. 139,000 9,483,970
- -------------------------------------------------------------------------
Genworth Financial Inc.-Class A 226,000 7,815,080
- -------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 133,600 11,474,904
=========================================================================
28,773,954
=========================================================================
OFFICE ELECTRONICS-1.06%
Xerox Corp.(a) 1,132,900 16,596,985
=========================================================================
OIL & GAS DRILLING-1.23%
Nabors Industries Ltd.(a)(c) 112,200 8,499,150
- -------------------------------------------------------------------------
Transocean Inc.(a) 154,300 10,753,167
=========================================================================
19,252,317
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-4.89%
BJ Services Co.(c) 653,000 23,945,510
- -------------------------------------------------------------------------
Halliburton Co. 254,000 15,737,840
- -------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 85,000 5,329,500
- -------------------------------------------------------------------------
Schlumberger Ltd. 193,166 18,766,077
- -------------------------------------------------------------------------
Smith International, Inc. 338,915 12,577,136
=========================================================================
76,356,063
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.46%
Apache Corp. 106,000 7,263,120
=========================================================================
OIL & GAS REFINING & MARKETING-0.47%
Valero Energy Corp. 142,000 7,327,200
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.16%
Citigroup Inc. 459,400 22,294,682
- -------------------------------------------------------------------------
JPMorgan Chase & Co. 286,500 11,371,185
=========================================================================
33,665,867
=========================================================================
PACKAGED FOODS & MEATS-1.58%
Campbell Soup Co. 170,959 5,089,449
- -------------------------------------------------------------------------
ConAgra Foods, Inc. 171,000 3,467,880
- -------------------------------------------------------------------------
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
General Mills, Inc. 222,746 $ 10,985,833
- -------------------------------------------------------------------------
Kraft Foods Inc.-Class A 182,900 5,146,806
=========================================================================
24,689,968
=========================================================================
PERSONAL PRODUCTS-1.21%
Avon Products, Inc. 289,000 8,250,950
- -------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 318,234 10,654,474
=========================================================================
18,905,424
=========================================================================
PHARMACEUTICALS-5.36%
Bristol-Myers Squibb Co. 476,800 10,956,864
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 257,800 10,487,304
- -------------------------------------------------------------------------
Johnson & Johnson 220,000 13,222,000
- -------------------------------------------------------------------------
Merck & Co. Inc. 705,700 22,448,317
- -------------------------------------------------------------------------
Pfizer Inc. 314,100 7,324,812
- -------------------------------------------------------------------------
Wyeth 417,825 19,249,198
=========================================================================
83,688,495
=========================================================================
PROPERTY & CASUALTY INSURANCE-5.09%
ACE Ltd. 434,800 23,235,712
- -------------------------------------------------------------------------
Allstate Corp. (The) 110,000 5,947,700
- -------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A(a) 220 19,496,400
- -------------------------------------------------------------------------
Chubb Corp. (The) 106,668 10,416,130
- -------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 224,305 10,019,704
- -------------------------------------------------------------------------
XL Capital Ltd.-Class A 153,615 10,350,579
=========================================================================
79,466,225
=========================================================================
PUBLISHING-0.60%
Gannett Co., Inc. 154,636 9,366,303
=========================================================================
RAILROADS-0.87%
Burlington Northern Santa Fe Corp. 60,000 4,249,200
- -------------------------------------------------------------------------
Union Pacific Corp. 115,800 9,323,058
=========================================================================
13,572,258
=========================================================================
REGIONAL BANKS-0.96%
Fifth Third Bancorp 184,100 6,944,252
- -------------------------------------------------------------------------
North Fork Bancorp., Inc. 291,675 7,980,228
=========================================================================
14,924,480
=========================================================================
RESTAURANTS-0.51%
YUM! Brands, Inc. 170,000 7,969,600
=========================================================================
SEMICONDUCTOR EQUIPMENT-0.47%
Applied Materials, Inc. 406,300 7,289,022
=========================================================================
SEMICONDUCTORS-3.20%
Analog Devices, Inc. 610,381 21,894,366
- -------------------------------------------------------------------------
Intel Corp. 383,900 9,582,144
- -------------------------------------------------------------------------
National Semiconductor Corp. 300,000 7,794,000
- -------------------------------------------------------------------------
Texas Instruments Inc. 125,000 4,008,750
- -------------------------------------------------------------------------
Xilinx, Inc. 266,800 6,726,028
=========================================================================
50,005,288
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
SOFT DRINKS-0.60%
Coca-Cola Co. (The) 230,821 $ 9,304,394
=========================================================================
SPECIALTY STORES-0.31%
Office Depot, Inc.(a) 155,000 4,867,000
=========================================================================
SYSTEMS SOFTWARE-3.70%
Computer Associates International, Inc. 783,272 22,080,438
- -------------------------------------------------------------------------
Microsoft Corp. 1,013,600 26,505,640
- -------------------------------------------------------------------------
Oracle Corp.(a) 431,000 5,262,510
- -------------------------------------------------------------------------
Symantec Corp.(a) 225,000 3,937,500
=========================================================================
57,786,088
=========================================================================
THRIFTS & MORTGAGE FINANCE-0.66%
Fannie Mae 211,000 10,298,910
=========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $1,118,251,411) 1,310,866,443
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-11.54%
ARGENTINA-0.23%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 32,015 3,665,718
=========================================================================
FINLAND-0.73%
Nokia Oyj-ADR (Communications Equipment) 623,193 11,404,432
=========================================================================
FRANCE-1.92%
Sanofi-Aventis (Pharmaceuticals)(d) 187,200 16,401,212
- -------------------------------------------------------------------------
TOTAL S.A. (Integrated Oil & Gas)(d) 53,760 13,529,681
=========================================================================
29,930,893
=========================================================================
ISRAEL-0.70%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 255,036 10,969,098
=========================================================================
JAPAN-0.76%
Nintendo Co., Ltd. (Home Entertainment
Software)(d) 32,400 3,938,517
- -------------------------------------------------------------------------
Sony Corp.-ADR (Consumer Electronics) 193,300 7,886,640
=========================================================================
11,825,157
=========================================================================
MEXICO-0.48%
CEMEX, S.A. de C.V.-ADR (Construction
Materials) 127,500 7,564,575
=========================================================================
NETHERLANDS-2.84%
Heineken N.V. (Brewers)(d) 392,881 12,451,693
- -------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics) 536,600 16,675,415
- -------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(d) 222,100 15,209,888
=========================================================================
44,336,996
=========================================================================
SINGAPORE-0.23%
Marvell Technology Group Ltd.
(Semiconductors)(a) 63,000 3,533,670
=========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
SWITZERLAND-1.37%
Alcon, Inc. (Health Care Supplies) 95,000 $ 12,312,000
- -------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 96,000 5,038,080
- -------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets) 42,000 3,998,630
=========================================================================
21,348,710
=========================================================================
TAIWAN-0.21%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 325,000 3,220,750
=========================================================================
UNITED KINGDOM-2.07%
Barclays PLC (Diversified Banks) 733,204 7,707,627
- -------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats) 773,000 7,308,056
- -------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 271,000 13,680,080
- -------------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 95,000 3,685,050
=========================================================================
32,380,813
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $154,024,859) 180,180,812
=========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
- ----------------------------------------------------------------------
PUT OPTIONS
PURCHASED-0.00%
OIL & GAS
DRILLING-0.00%
Nabors Industries Ltd. 730 $60.0 Jan-06 $ 803
======================================================================
OIL & GAS EQUIPMENT &
SERVICES-0.00%
BJ Services Co. 3,000 27.5 Jan-06 0
======================================================================
Total Put Options
Purchased (Cost
$679,494) 803
======================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-4.53%
Liquid Assets Portfolio-Institutional
Class(e) 35,405,498 35,405,498
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 35,405,498 35,405,498
==========================================================================
Total Money Market Funds (Cost
$70,810,996) 70,810,996
==========================================================================
TOTAL INVESTMENTS-100.01% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,343,766,760) 1,561,859,054
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.24%
Liquid Assets Portfolio-Institutional
Class(e)(f) 3,798,900 3,798,900
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,798,900) 3,798,900
==========================================================================
TOTAL INVESTMENTS-100.25% (Cost
$1,347,565,660) 1,565,657,954
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.25%) (3,965,938)
==========================================================================
NET ASSETS-100.00% $1,561,692,016
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
(c) A portion of this security is subject to call options written. See Note 1G
and Note 8.
(d) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2005 was $61,530,991,
which represented 3.94% of the Fund's Total Net Assets. See Note 1A.
(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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,272,955,764)* $1,491,048,058
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $74,609,896) 74,609,896
=============================================================
Total investments (cost $1,347,565,660) 1,565,657,954
=============================================================
Foreign currencies, at value (cost $17,344) 17,351
- -------------------------------------------------------------
Receivables for:
Investments sold 769,295
- -------------------------------------------------------------
Fund shares sold 549,661
- -------------------------------------------------------------
Dividends 2,017,428
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 100,439
=============================================================
Total assets 1,569,112,128
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,127,692
- -------------------------------------------------------------
Options written, at value (premiums
received $395,508) 1,093,574
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 198,589
- -------------------------------------------------------------
Collateral upon return of securities loaned 3,798,900
- -------------------------------------------------------------
Accrued administrative services fees 1,180,379
- -------------------------------------------------------------
Accrued distribution fees -- Series II 17,958
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 245
- -------------------------------------------------------------
Accrued operating expenses 2,775
=============================================================
Total liabilities 7,420,112
=============================================================
Net assets applicable to shares outstanding $1,561,692,016
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,014,871,478
- -------------------------------------------------------------
Undistributed net investment income 10,913,597
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (681,486,929)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 217,393,870
=============================================================
$1,561,692,016
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,534,579,215
_____________________________________________________________
=============================================================
Series II $ 27,112,801
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 68,765,862
_____________________________________________________________
=============================================================
Series II 1,222,464
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 22.32
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 22.18
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2005, securities with an aggregate value of $3,647,079 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$346,369) $22,655,869
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$75,645, after compensation to counterparties
of $580,777) 2,536,153
============================================================
Total investment income 25,192,022
============================================================
EXPENSES:
Advisory fees 9,683,845
- ------------------------------------------------------------
Administrative services fees 4,093,164
- ------------------------------------------------------------
Custodian fees 141,500
- ------------------------------------------------------------
Distribution fees -- Series II 67,694
- ------------------------------------------------------------
Transfer agent fees 47,628
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 62,796
- ------------------------------------------------------------
Other 160,697
============================================================
Total expenses 14,257,324
============================================================
Less: Fees waived (190,304)
============================================================
Net expenses 14,067,020
============================================================
Net investment income 11,125,002
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains
(losses) from securities sold to affiliates
of $(681,377)) 71,058,925
- ------------------------------------------------------------
Foreign currencies (45,489)
============================================================
71,013,436
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (540,913)
- ------------------------------------------------------------
Foreign currencies (380)
- ------------------------------------------------------------
Option contracts written (698,066)
============================================================
(1,239,359)
============================================================
Net gain from investment securities foreign
currencies and option contracts 69,774,077
============================================================
Net increase in net assets resulting from
operations $80,899,079
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 11,125,002 $ 13,039,069
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 71,013,436 89,944,183
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, option
contracts and futures contracts (1,239,359) (11,122,088)
==============================================================================================
Net increase in net assets resulting from operations 80,899,079 91,861,164
==============================================================================================
Distributions to shareholders from net investment income:
Series I (12,768,046) (7,604,614)
- ----------------------------------------------------------------------------------------------
Series II (167,112) (82,296)
==============================================================================================
Decrease in net assets resulting from distributions (12,935,158) (7,686,910)
==============================================================================================
Share transactions-net:
Series I (213,411,831) (150,562,508)
- ----------------------------------------------------------------------------------------------
Series II (900,836) 3,053,911
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (214,312,667) (147,508,597)
==============================================================================================
Net increase (decrease) in net assets (146,348,746) (63,334,343)
==============================================================================================
NET ASSETS:
Beginning of year 1,708,040,762 1,771,375,105
==============================================================================================
End of year (including undistributed net investment income
of $10,913,597 and $12,769,243, respectively) $1,561,692,016 $1,708,040,762
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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. PREMIER EQUITY 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 are 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 recorded at amortized cost which approximates 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
AIM V.I. PREMIER EQUITY FUND
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
I. 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.
J. 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.
K. 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.
L. 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 replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
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 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. This
AIM V.I. PREMIER EQUITY FUND
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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. 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 year ended December 31, 2005, AIM waived fees of $190,304.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $367,109, for
accounting and fund administrative services and reimbursed $3,726,055 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 year ended
December 31, 2005, the Fund paid AISI $47,628.
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 year ended December
31, 2005, the Series II shares paid $67,694.
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 year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 57,924,372 $269,448,942 $(291,967,816) $ -- $35,405,498 $1,225,596 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 57,924,371 269,448,942 (291,967,815) -- 35,405,498 1,234,912 --
===================================================================================================================================
Subtotal $115,848,743 $538,897,884 $(583,935,631) $ -- $70,810,996 $2,460,508 $ --
===================================================================================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 139,206,365 $ (135,407,465) $ -- $ 3,798,900 $ 28,977 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 5,027,000 332,503,144 (337,530,144) -- -- 46,668 --
===================================================================================================================================
Subtotal $ 5,027,000 $ 471,709,509 $ (472,937,609) $ -- $ 3,798,900 $ 75,645 $ --
===================================================================================================================================
Total $120,875,743 $1,010,607,393 $(1,056,873,240) $ -- $74,609,896 $2,536,153 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 2005, the Fund
engaged in securities purchases of $16,089,111 and sales of $6,325,817, which
resulted in net realized (losses) of $(681,377).
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $10,304
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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
AIM V.I. PREMIER EQUITY FUND
or any of its agencies. Cash collateral received in connection with these loans
is invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2005, securities with an aggregate value of $3,647,079 were
on loan to brokers. The loans were secured by cash collateral of $3,798,900
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $75,645 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 3,730 395,508
===================================================================================
End of year 3,730 $395,508
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/05 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 $35 3,000 $213,498 $ 630,900 $(417,402)
- ---------------------------------------------------------------------------------------------------------------------------------
Nabors Industries Ltd. Jan-06 70 730 182,010 462,674 (280,664)
=================================================================================================================================
3,730 $395,508 $1,093,574 $(698,066)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
Distributions paid from ordinary income $12,935,158 $7,686,910
_________________________________________________________________________________________
=========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 11,123,795
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 206,708,951
- ------------------------------------------------------------------------------
Temporary book/tax differences (168,296)
- ------------------------------------------------------------------------------
Capital loss carryforward (670,802,010)
- ------------------------------------------------------------------------------
Post-October currency loss deferral (41,902)
- ------------------------------------------------------------------------------
Shares of beneficial interest 2,014,871,478
==============================================================================
Total net assets $1,561,692,016
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(358) and option contracts
written of $(698,066).
AIM V.I. PREMIER EQUITY FUND
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $70,550,997 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $101,386,215
- -----------------------------------------------------------------------------
December 31, 2010 412,231,328
- -----------------------------------------------------------------------------
December 31, 2011 157,184,467
=============================================================================
Total capital loss carryforward $670,802,010
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $744,851,666 and $925,937,024, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $249,825,237
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (42,417,862)
==============================================================================
Net unrealized appreciation of investment securities $207,407,375
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,358,250,579.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2005, undistributed net investment income was
decreased by $45,490 and undistributed net realized gain (loss) was increased by
$45,490. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2005 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 14,263,203 $ 301,261,021 11,417,183 $ 230,676,416
- --------------------------------------------------------------------------------------------------------------------------
Series II 212,080 4,478,654 399,900 8,036,658
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 504,254 11,386,064 316,128 6,667,145
- --------------------------------------------------------------------------------------------------------------------------
Series II 7,444 167,112 3,924 82,294
==========================================================================================================================
Reacquired:
Series I (24,919,301) (526,058,916) (19,262,043) (387,906,069)
- --------------------------------------------------------------------------------------------------------------------------
Series II (259,917) (5,546,602) (254,102) (5,065,041)
==========================================================================================================================
(10,192,237) $(214,312,667) (7,379,010) $(147,508,597)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are 4 entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 48% of the
outstanding shares of the Fund. The Fund's principle underwriter may have an
agreement with these entities to sell Fund shares. 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, distribution, third party record keeping and account servicing.
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 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2005 2004 2004 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.30 $ 20.23 $ 16.22 $ 23.35 $ 27.30
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.17(a) 0.09(b) 0.05(b) 0.06(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.03 1.00 3.98 (7.11) (3.50)
=================================================================================================================================
Total from investment operations 1.21 1.17 4.07 (7.06) (3.44)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.10) (0.06) (0.07) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.48)
=================================================================================================================================
Total distributions (0.19) (0.10) (0.06) (0.07) (0.51)
=================================================================================================================================
Net asset value, end of period $ 22.32 $ 21.30 $ 20.23 $ 16.22 $ 23.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.65% 5.77% 25.08% (30.26)% (12.53)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,534,579 $1,681,292 $1,748,961 $1,519,525 $ 2,558,120
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.88%(d) 0.90% 0.85% 0.85% 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.89%(d) 0.91% 0.85% 0.85% 0.85%
=================================================================================================================================
Ratio of net investment income to average net
assets 0.70%(d) 0.78%(a) 0.48% 0.24% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 49% 92% 50% 46% 40%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.14 and 0.62%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $1,566,063,319.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 19, 2001
-------------------------------------------------- (DATE SALES COMMENCED) TO
2005 2004 2004 2002 DECEMBER 31, 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) 0.11 0.09(a) 0.04(b) (0.00)(b) (0.00)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.03 1.02 3.97 (7.10) 2.85
=================================================================================================================================
Total from investment operations 1.14 1.11 4.01 (7.10) 2.85
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.14) (0.07) (0.04) (0.07) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.48)
=================================================================================================================================
Total distributions (0.14) (0.07) (0.04) (0.07) (0.51)
=================================================================================================================================
Net asset value, end of period $ 22.18 $ 21.18 $ 20.14 $ 16.17 $23.34
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.36% 5.49% 24.83% (30.44)% 13.66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,113 $26,749 $22,414 $ 10,834 $ 687
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.13%(d) 1.15% 1.10% 1.10% 1.10%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.14%(d) 1.16%(a) 1.10% 1.10% 1.10%(e)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.45%(d) 0.53% 0.23% (0.01)% (0.01)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 49% 92% 50% 46% 40%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.06 and 0.37%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $27,077,508.
(e) Annualized.
AIM V.I. PREMIER EQUITY FUND
NOTE 14--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on November 14, 2005, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM V.I. Core Equity Fund ("Buying Fund"), a series of the Trust (the
"Reorganization"). Upon closing of the Reorganization, shareholders of the Fund
will receive a corresponding class of shares of Buying Fund in exchange for
their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund currently intends to submit the Plan of Reorganization to the shareholders
for their consideration at a meeting to be held on or around April 4, 2006.
Additional information regarding the Plan of Reorganization will be included in
proxy materials to be mailed to shareholders for consideration. If the Plan of
Reorganization is approved by the shareholders of the Fund and certain
conditions required by the Plan of Reorganization are satisfied, the
Reorganization is expected to become effective on or around May 1, 2006.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
AIM V.I. PREMIER EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Premier Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Premier Equity Fund (one
of the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended December 31, 2004 and the financial highlights for each of the periods
ended on or before December 31, 2004 were audited by another independent
registered public accounting firm whose report dated February 4, 2005 expressed
an unqualified opinion on those statements.
As described in Note 14, the Board of Trustees has approved a plan of
reorganization under which the Fund will merge with AIM V.I. Core Equity Fund.
This merger is expected to take place following the approval of the Fund's
shareholders, at which time the Fund will cease to operate.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. PREMIER EQUITY FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
period. The change in the Fund's independent registered public accounting firm
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.
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year December
31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. PREMIER EQUITY FUND
AIM V.I. REAL ESTATE FUND
Annual Report to Shareholders o December 31,2005
AIM V.I. REAL ESTATE FUND seeks to achieve high total return.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. REAL ESTATE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
MARKET CONDITIONS AND YOUR FUND
==================================================================================== Despite record high oil prices and two
PERFORMANCE SUMMARY Gulf Coast hurricanes the broad U.S.
======================================= stock market (S&P 500 Index) produced
The Real Estate Investment Trust (REIT) FUND VS. INDEXES positive returns during the fiscal year.
market proved resilient during 2005. We The REIT market continued to perform
are pleased to report AIM V.I. Real TOTAL RETURNS, 12/31/04--12/31/05, well in 2005, easily outdistancing the
Estate Fund once again provided EXCLUDING VARIABLE PRODUCT ISSUER broad stock market for the sixth
shareholders with positive returns for CHARGES. IF VARIABLE PRODUCT ISSUER consecutive year. Though another
the year. During 2005, the REIT market CHARGES WERE INCLUDED, RETURNS WOULD BE positive year for REITs, performance
outperformed the broad market (S&P 500), LOWER. fluctuated throughout the year.
therefore, we posted a higher return
than our broad market index. In Series I Shares 14.24% In January of 2005, the REIT market
addition, we believe strong investment experienced a correction as investors
selection and patience during Series II Shares 13.90 took profits. Although REIT fundamentals
fluctuating market conditions enabled us are not directly linked to interest
to outperform all benchmark indexes. For Standard & Poor's Composite rates, REIT prices also dipped in the
long-term Fund performance, please turn Index of 500 Stocks early part of 2005 amid fears of rising
to Pages 4 and 5. (S&P 500 Index) interest rates. The REIT market sell-off
(Broad Market Index) 4.91 proved short-lived as real estate
markets continued their underlying
(MSCI U.S. REIT Index improvement in occupancies and rents.
Style-specific Index) 12.13
Through the second half of the year,
Lipper Real Estate REIT performance proved mixed but
Fund Index largely positive. Supporting the market
(Peer Group Index) 12.27 were continued cash inflows from both
individuals and institutions, increased
SOURCE: LIPPER, INC., BLOOMBERG merger and acquisition activity and
======================================= faster earnings growth brought about by
==================================================================================== recovering property market fundamentals
HOW WE INVEST o attractive valuations relative to (i.e. occupancy and rental rate
similar properties and geographical improvements).
Your Fund holds primarily real location
estate-oriented securities. We focus on Regional malls contributed the most
public companies whose value is driven We attempt to control risk by to performance during the fiscal year.
by tangible assets. Our goal is to diversification of property types, Many of our top contributors were
create a Fund focused on total return geographic location and limiting the regional malls including the two largest
that will perform at or above index size of any one holding. mall operators in the United
levels with a comparable level of risk. States--GENERAL GROWTH PROPERTIES and
We use a fundamentals-driven investment We will consider selling a holding SIMON PROPERTY GROUP. Despite declines
process, including property market cycle when: early in the year, regional malls proved
analysis, property evaluation, and to be one of
management review to identify securities o relative valuation falls below desired
with: levels
o high quality underlying properties o risk/return relationships change
significantly
o strong management teams
o company fundamentals change (property
type, geography or management changes)
o a more attractive investment
opportunity is identified
======================================= ======================================= =======================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $100.0 MILLION
By property type
1. Simon Property Group, Inc. 6.6% TOTAL NUMBER OF HOLDINGS* 66
Office Properties 20.9%
2. General Growth Properties, The Fund's holdings are subject to
Regional Malls 18.0 Inc. 6.4 change, and there is no assurance that
the Fund will continue to hold any
Apartments 14.7 3. ProLogis 5.7 particular security.
Lodging-Resorts 10.8 4. Boston Properties, Inc. 4.6 *Excluding money market fund holdings.
Industrial Properties 9.9 5. Host Marriott Corp. 4.4
Shopping Centers 8.5 6. Voranado Realty Trust 4.2
Diversified 6.2 7. Equity Residential 3.8
Self Storage Facilities 3.5 8. Macerich Co. (The) 3.6
Healthcare 1.6 9. SL Green Realty Corp. 3.4
Specialty Properties 0.1 10. Archstone-Smith Trust 3.4
Money Market Funds
Plus Other Assets Less
Liabilities 5.8
======================================= ======================================= =======================================
2
AIM V.I. REAL ESTATE FUND
the better performing property types for the company's management became over JOE V. RODRIGUEZ, JR.,
the fiscal year. Although we have ambitious in their expansion plan. We [RODRIGUEZ, Director of Securities
modestly reduced our exposure, we continue to maintain our position JR. Management, INVESCO Real
continue to have the most exposure to because of its attractive relative PHOTO] Estate, is lead portfolio
this property type as we believe that valuation and believe it will make manager of AIM V.I. Real
the underlying fundamentals of regional progress in addressing investor Estate Fund. He oversees
malls remain among the best within the concerns. all phases of the unit including
REIT sector. For instance, occupancies securities research and administration.
at malls continued to improve. Rent During the reporting period, there Mr. Rodriguez began his investment
spreads--the difference between what new were no wholesale changes to the career in 1983 and joined INVESCO in
leases pay compared to expiring leases-- portfolio or strategy. We remained well 1990. He has served on the editorial
also continued to show strong growth in diversified both by property type and boards of the National Association of
2005. geographic location. Real Estate Investment Trusts (NAREIT)
as well as the Institutional Real Estate
========================================= IN CLOSING Securities Newsletter. Mr. Rodriguez
We are encouraged by received his B.B.A. in economics and
the resiliency of the We are encouraged by the resiliency of finance as well as his M.B.A. in finance
REIT market during the the REIT market during the year. During from Baylor University.
fiscal year. the reporting period, we believe REIT
========================================= prices largely reflected fair levels MARK D. BLACKBURN,
relative to the value of their [BLACKBURN Chartered Financial
Select office REITs also contributed underlying holdings. Although REIT PHOTO] Analyst, Director of
to performance. SL GREEN REALTY CORP., prices increased, we believe occupancy Investments, INVESCO Real
which owns and operates a portfolio of and rental rates have supported that Estate, is portfolio
commercial office properties in Midtown growth and that REIT fundamentals manager of AIM V.I. Real
Manhattan, has benefited from rent continued to improve. Estate Fund. He joined INVESCO in 1998
increases over the last 18 months. In and has approximately 18 years of
the office sector, we continued to favor We believe future improvements in experience in institutional investing
properties in Midtown Manhattan, inside share prices may be dependent on the and risk management, along with a
the beltway Washington D.C. and Southern strength of gross domestic product background in evaluating the high-yield
California, markets which performed well expansion and investor sentiment. We and convertible securities markets. Mr.
despite sometimes challenging conditions appreciate your continued participation Blackburn received a B.S. in accounting
in other office markets throughout the in AIM V.I. Real Estate Fund. from Louisiana State University and an
U.S. M.B.A. from Southern Methodist
THE VIEWS AND OPINIONS EXPRESSED IN University. He is a Certified Public
Select apartment REITs also performed MANAGEMENT'S DISCUSSION OF FUND Accountant.
well, particularly those that focused PERFORMANCE ARE THOSE OF A I M ADVISORS,
their operations in coastal, high INC. THESE VIEWS AND OPINIONS ARE JAMES W. TROWBRIDGE,
barrier-to-entry markets. Apartment SUBJECT TO CHANGE AT ANY TIME BASED ON portfolio manager,
operating fundamentals have improved as FACTORS SUCH AS MARKET AND ECONOMIC [TROWBRIDGE INVESCO Real Estate, is
condo conversions reduce supply and CONDITIONS. THESE VIEWS AND OPINIONS MAY PHOTO] portfolio manager of AIM
landlords have gained modest degrees of NOT BE RELIED UPON AS INVESTMENT ADVICE V.I. Real Estate Fund.
pricing power. In addition, Gables OR RECOMMENDATIONS, OR AS AN OFFER FOR A Mr. Trowbridge joined
Residential Trust, which is not a Fund PARTICULAR SECURITY. THE INFORMATION IS INVESCO Real Estate in
holding, boosted the apartment sector by NOT A COMPLETE ANALYSIS OF EVERY ASPECT 1989. With 30 years of real estate
announcing plans to take the company OF ANY MARKET, COUNTRY, INDUSTRY, investment experience for major
private at a significant premium. SECURITY OR THE FUND. STATEMENTS OF FACT institutional investors, Mr. Trowbridge
Similar stocks, such as Fund holding ARE FROM SOURCES CONSIDERED RELIABLE, is responsible for integrating his
AVALONBAY COMMUNITIES, benefited from BUT A I M ADVISORS, INC. MAKES NO knowledge into INVESCO's publicly traded
the news. REPRESENTATION OR WARRANTY AS TO THEIR REIT investments. Mr. Trowbridge
COMPLETENESS OR ACCURACY. ALTHOUGH received his B.S. in finance from
Despite positive performance by the HISTORICAL PERFORMANCE IS NO GUARANTEE Indiana University.
REIT market during the fiscal year, a OF FUTURE RESULTS, THESE INSIGHTS MAY
few holdings detracted from Fund HELP YOU UNDERSTAND OUR INVESTMENT Assisted by the Real Estate Team.
performance. AMERICAN FINANCIAL REALTY MANAGEMENT PHILOSOPHY.
TRUST, which acquires, manages and After the close of the reporting period,
operates properties leased to regulated effective January 1, 2006, Ping-Ying
financial institutions, declined amid Wang and James Cowen received the title
concern over the company's business of portfolio manager and were added to
strategy. We believe the portfolio management team.
Previously, they were analysts on the
investment team.
[RIGHT ARROW GRAPHIC]
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND
5.
3
AIM V.I. REAL ESTATE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 3/31/98
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. REAL ESTATE S&P 500 LIPPER REAL ESTATE MSCI U.S.
FUND - SERIES I SHARES INDEX FUND INDEX REIT INDEX
3/31/98 $10000 $10000 $10000 $10000
4/98 9710 10102 9689 9646
5/98 9610 9929 9563 9562
6/98 9500 10332 9462 9561
7/98 8920 10223 8859 8890
8/98 7830 8746 7946 8053
9/98 8180 9307 8315 8551
10/98 8090 10062 8218 8390
11/98 8400 10672 8398 8522
12/98 8412 11287 8294 8370
1/99 8207 11758 8109 8145
2/99 8074 11393 7969 8011
3/99 7972 11849 7898 7967
4/99 8892 12308 8745 8738
5/99 9087 12017 8923 8923
6/99 8974 12682 8845 8757
7/99 8565 12288 8501 8481
8/99 8565 12227 8360 8400
9/99 8228 11892 8026 8048
10/99 8043 12645 7816 7865
11/99 7972 12902 7696 7748
12/99 8441 13661 8001 7989
1/00 8473 12974 7930 8039
2/00 8538 12729 7794 7911
3/00 9029 13973 8132 8201
4/00 9423 13553 8537 8752
5/00 9135 13275 8635 8833
6/00 9764 13602 9004 9052
7/00 10587 13390 9664 9873
8/00 10448 14221 9393 9468
9/00 10587 13470 9705 9759
10/00 10245 13413 9292 9296
11/00 10213 12357 9435 9459
12/00 10859 12417 10046 10131
1/01 10934 12858 10101 10174
2/01 10538 11686 9954 10000
3/01 10077 10946 9909 10082
4/01 10559 11796 10132 10316
5/01 10527 11875 10354 10547
6/01 10891 11586 10917 11183
7/01 10570 11472 10722 10941
8/01 10591 10755 11055 11346
9/01 10163 9886 10528 10893
10/01 9960 10075 10184 10528
11/01 10452 10847 10723 11142
12/01 10775 10943 11062 11431
1/02 10732 10783 11108 11405
2/02 10970 10575 11334 11630
3/02 11619 10973 11980 12380
4/02 11813 10308 12103 12459
5/02 12018 10232 12247 12617
6/02 12256 9504 12516 12979
7/02 11759 8763 11800 12251
8/02 11867 8820 11825 12272
9/02 11380 7863 11404 11826
10/02 11121 8554 10902 11232
11/02 11446 9057 11343 11750
12/02 11463 8525 11464 11847
1/03 11135 8302 11164 11521
2/03 11299 8177 11336 11728
3/03 11582 8257 11598 11974
4/03 12008 8936 12102 12479
5/03 12752 9407 12816 13184
6/03 13221 9527 13120 13487
7/03 13833 9695 13721 14203
8/03 13964 9884 13869 14289
9/03 14413 9779 14312 14795
10/03 14620 10332 14631 15044
11/03 15419 10423 15272 15707
12/03 15913 10969 15730 16201
1/04 16513 11170 16292 16911
2/04 16868 11325 16649 17194
3/04 17889 11155 17558 18153
4/04 15492 10980 15249 15462
5/04 16513 11130 16147 16572
6/04 17101 11347 16644 17042
7/04 17278 10971 16713 17132
8/04 18466 11015 17876 18508
9/04 18554 11134 17976 18471
10/04 19686 11304 18803 19482
11/04 20595 11762 19640 20308
12/04 21734 12162 20783 21302
1/05 20020 11865 19407 19469
2/05 20554 12115 19976 20048
3/05 20145 11901 19608 19717
4/05 21362 11675 20398 20889
5/05 21986 12046 21084 21571
6/05 22918 12063 22064 22654
7/05 24600 12512 23485 24277
8/05 23702 12398 22673 23344
9/05 23873 12498 22740 23477
10/05 23362 12290 22211 22918
11/05 24476 12754 23172 23911
12/05 24825 12758 23334 23886
====================================================================================================================================
Source: Lipper, Inc.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000 and is the same as that between
$20,000 and $40,000.
4
AIM V.I. REAL ESTATE FUND
========================================= DATE OF SERIES I SHARES IS MARCH 31, FUND DIRECTLY. PERFORMANCE FIGURES GIVEN
AVERAGE ANNUAL TOTAL RETURNS 1998. THE SERIES I AND SERIES II SHARES REPRESENT THE FUND AND ARE NOT INTENDED
INVEST IN THE SAME PORTFOLIO OF TO REFLECT ACTUAL VARIABLE PRODUCT
As of 12/31/05 SECURITIES AND WILL HAVE SUBSTANTIALLY VALUES. THEY DO NOT REFLECT SALES
SIMILAR PERFORMANCE, EXCEPT TO THE CHARGES, EXPENSES AND FEES ASSESSED IN
SERIES I SHARES EXTENT THAT EXPENSES BORNE BY EACH CLASS CONNECTION WITH A VARIABLE PRODUCT.
Inception (3/31/98) 12.44% DIFFER. SALES CHARGES, EXPENSES AND FEES, WHICH
5 Years 17.99 ARE DETERMINED BY THE VARIABLE PRODUCT
1 Year 14.24 THE PERFORMANCE DATA QUOTED REPRESENT ISSUERS, WILL VARY AND WILL LOWER THE
PAST PERFORMANCE AND CANNOT GUARANTEE TOTAL RETURN.
SERIES II SHARES COMPARABLE FUTURE RESULTS; CURRENT
Inception 12.17% PERFORMANCE MAY BE LOWER OR HIGHER. PER NASD REQUIREMENTS, THE MOST
5 Years 17.71 PLEASE CONTACT YOUR VARIABLE PRODUCT RECENT MONTH-END PERFORMANCE DATA AT THE
1 Year 13.90 ISSUER OR FINANCIAL ADVISOR FOR THE MOST FUND LEVEL, EXCLUDING VARIABLE PRODUCT
RECENT MONTH-END VARIABLE PRODUCT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
========================================= PERFORMANCE. PERFORMANCE FIGURES REFLECT INFORMATION LINE, 866-702-4402. AS
FUND EXPENSES, REINVESTED DISTRIBUTIONS MENTIONED ABOVE, FOR THE MOST RECENT
CUMULATIVE TOTAL RETURNS AND CHANGES IN NET ASSET VALUE. MONTH-END PERFORMANCE INCLUDING VARIABLE
INVESTMENT RETURN AND PRINCIPAL VALUE PRODUCT CHARGES, PLEASE CONTACT YOUR
Six months ended 12/31/05 WILL FLUCTUATE SO THAT YOU MAY HAVE A VARIABLE PRODUCT ISSUER OR FINANCIAL
Series I 8.35% GAIN OR LOSS WHEN YOU SELL SHARES. ADVISOR.
Series II 8.19
AIM V.I. REAL ESTATE FUND, A SERIES HAD THE ADVISOR NOT WAIVED FEES
========================================= PORTFOLIO OF AIM VARIABLE INSURANCE AND/OR REIMBURSED EXPENSES, PERFORMANCE
FUNDS, IS CURRENTLY OFFERED THROUGH WOULD HAVE BEEN LOWER.
RETURNS SINCE APRIL 30, 2004, THE INSURANCE COMPANIES ISSUING VARIABLE
INCEPTION DATE OF SERIES II SHARES, ARE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
HISTORICAL. ALL OTHER RETURNS ARE THE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF 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
PRINCIPAL RISKS OF INVESTING IN THE FUND Trademark-- INDEX) is an index of common OTHER INFORMATION
stocks frequently used as a general
Investing in a single-sector or measure of U.S. stock market The returns shown in management's
single-region mutual fund involves performance. discussion of Fund performance are based
greater risk and potential reward than on net asset values calculated for
investing in a more diversified fund. The unmanaged MSCI US REIT INDEX is a shareholder transactions. Generally
total-return index composed of the most accepted accounting principles require
The Fund may invest up to 25% of its actively traded real estate investment adjustments to be made to the net assets
assets in the securities of non-U.S. trusts and is designed to be a measure of the Fund at period end for financial
issuers. International investing of real estate equity performance. The reporting purposes, and as such, the net
presents certain risks not associated index was developed with a base value of asset values for shareholder
with investing solely in the United 200 as of December 31, 1994. It is transactions and the returns based on
States. These include risks relating to compiled by Morgan Stanley Capital those net asset values may differ from
fluctuations in the value of the U.S. International. the net asset values and returns
dollar relative to the values of other reported in the Financial Highlights.
currencies, the custody arrangements The unmanaged LIPPER REAL ESTATE FUND Additionally, the returns and net asset
made for the Fund's foreign holdings, INDEX represents an average of the values shown throughout this report are
differences in accounting, political performance of the 30 largest real at the Fund level only and do not
risks and the lesser degree of public estate funds tracked by Lipper, Inc., an include variable product issuer charges.
information required to be provided by independent mutual fund performance If such charges were included, the total
non-U.S. companies. monitor. returns would be lower.
A change in interest rates will The Fund is not managed to track the Property type classifications used in
affect the performance of the Fund's performance of any particular index, this report are generally according to
investments in debt securities. including the indexes defined here, and the National Association of Real Estate
consequently, the performance of the Investment Trusts (NAREIT) Equity Index,
The Fund invests substantial assets Fund may deviate significantly from the which is exclusively owned by the
in REITs, which present risks not performance of the indexes. National Association of Real Estate
associated with investing in stocks. Investment Trusts (NAREIT).
A direct investment cannot be made in
ABOUT INDEXES USED IN THIS REPORT an index. Unless otherwise indicated,
index results include reinvested
The unmanaged Standard & Poor's dividends, and they do not reflect sales
Composite Index of 500 Stocks (the S&P charges. Performance of an index of
500--Registered funds reflects fund expenses;
performance of a market index does not.
5
AIM V.I. REAL ESTATE FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR
the effect of any fees or other expenses COMPARISON PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,083.50 $6.46 $1,019.00 $6.26 1.23%
Series II 1,000.00 1,081.90 7.61 1,017.90 7.38 1.45
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. REAL ESTATE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Variable AIM's portfolio and product review of the Fund and to limit the Fund's
Insurance Funds (the "Board") oversees process, various back office support total operating expenses, as discussed
the management of AIM V.I. Real Estate functions provided by AIM and AIM's below. Based on this review, the Board
Fund (the "Fund") and, as required by equity and fixed income trading concluded that the advisory fee rate for
law, determines annually whether to operations. Based on the review of these the Fund under the Advisory Agreement
approve the continuance of the Fund's and other factors, the Board concluded was fair and reasonable.
advisory agreement with A I M Advisors, that the quality of services to be
Inc. ("AIM"). Based upon the provided by AIM was appropriate and that o Expense limitations and fee waivers.
recommendation of the Investments AIM currently is providing satisfactory The Board noted that AIM has
Committee of the Board, which is services in accordance with the terms of contractually agreed to waive advisory
comprised solely of independent the Advisory Agreement. fees of the Fund through June 30, 2006
trustees, at a meeting held on June 30, to the extent necessary so that the
2005, the Board, including all of the o The performance of the Fund relative advisory fees payable by the Fund do not
independent trustees, approved the to comparable funds. The Board reviewed exceed a specified maximum advisory fee
continuance of the advisory agreement the performance of the Fund during the rate, which maximum rate includes
(the "Advisory Agreement") between the past one, three and five calendar years breakpoints and is based on net asset
Fund and AIM for another year, effective against the performance of funds advised levels. The Board considered the
July 1, 2005. by other advisors with investment contractual nature of this fee waiver
strategies comparable to those of the and noted that it remains in effect
The Board considered the factors Fund. The Board noted that the Fund's until June 30, 2006. The Board also
discussed below in evaluating the performance for the one and three year noted that AIM has contractually agreed
fairness and reasonableness of the periods was above the median performance to waive fees and/or limit expenses of
Advisory Agreement at the meeting on of such comparable funds and below such the Fund through April 30, 2006 so that
June 30, 2005 and as part of the Board's median performance for the five year total annual operating expenses are
ongoing oversight of the Fund. In their period. The Board also noted that AIM limited to a specified percentage of
deliberations, the Board and the began serving as investment advisor to average daily net assets for each class
independent trustees did not identify the Fund in April 2004. Based on this of the Fund. The Board considered the
any particular factor that was review, the Board concluded that no contractual nature of this fee
controlling, and each trustee attributed changes should be made to the Fund and waiver/expense limitation and noted it
different weights to the various that it was not necessary to change the remains in effect until April 30, 2006.
factors. Fund's portfolio management team at this The Board considered the effect these
time. fee waivers/expense reimbursements would
One of the responsibilities of the have on the Fund's estimated expenses
Senior Officer of the Fund, who is o The performance of the Fund relative and concluded that the levels of fee
independent of AIM and AIM's affiliates, to indices. The Board reviewed the waivers/expense reimbursements for the
is to manage the process by which the performance of the Fund during the past Fund were fair and reasonable.
Fund's proposed management fees are one, three and five calendar years
negotiated to ensure that they are against the performance of the Lipper o Breakpoints and economies of scale.
negotiated in a manner which is at arm's Real Estate Fund Index. The Board noted The Board reviewed the structure of the
length and reasonable. To that end, the that the Fund's performance in such Fund's advisory fee under the Advisory
Senior Officer must either supervise a periods was above or comparable to the Agreement, noting that it does not
competitive bidding process or prepare performance of such Index. The Board include any breakpoints. The Board
an independent written evaluation. The also noted that AIM began serving as considered whether it would be
Senior Officer has recommended an investment advisor to the Fund in April appropriate to add advisory fee
independent written evaluation in lieu 2004. Based on this review, the Board breakpoints for the Fund or whether, due
of a competitive bidding process and, concluded that no changes should be made to the nature of the Fund and the
upon the direction of the Board, has to the Fund and that it was not advisory fee structures of comparable
prepared such an independent written necessary to change the Fund's portfolio funds, it was reasonable to structure
evaluation. Such written evaluation also management team at this time. the advisory fee without breakpoints.
considered certain of the factors Based on this review, the Board
discussed below. In addition, as o Meeting with the Fund's portfolio concluded that it was not necessary to
discussed below, the Senior Officer made managers and investment personnel. With add advisory fee breakpoints to the
certain recommendations to the Board in respect to the Fund, the Board is Fund's advisory fee schedule. The Board
connection with such written evaluation. meeting periodically with such Fund's reviewed the level of the Fund's
portfolio managers and/or other advisory fees, and noted that such fees,
The discussion below serves as a investment personnel and believes that as a percentage of the Fund's net
summary of the Senior Officer's such individuals are competent and able assets, would remain constant under the
independent written evaluation and to continue to carry out their Advisory Agreement because the Advisory
recommendations to the Board in responsibilities under the Advisory Agreement does not include any
connection therewith, as well as a Agreement. breakpoints. The Board noted that AIM
discussion of the material factors and has contractually agreed to waive
the conclusions with respect thereto o Overall performance of AIM. The Board advisory fees of the Fund through June
that formed the basis for the Board's considered the overall performance of 30, 2006 to the extent necessary so that
approval of the Advisory Agreement. AIM in providing investment advisory and the advisory fees payable by the Fund do
After consideration of all of the portfolio administrative services to the not exceed a specified maximum advisory
factors below and based on its informed Fund and concluded that such performance fee rate, which maximum rate includes
business judgment, the Board determined was satisfactory. breakpoints and is based on net asset
that the Advisory Agreement is in the levels. The Board concluded that the
best interests of the Fund and its o Fees relative to those of clients of Fund's fee levels under the Advisory
shareholders and that the compensation AIM with comparable investment Agreement therefore would not reflect
to AIM under the Advisory Agreement is strategies. The Board reviewed the economies of scale, although the
fair and reasonable and would have been advisory fee rate for the Fund under the advisory fee waiver reflects economies
obtained through arm's length Advisory Agreement. The Board noted that of scale.
negotiations. this rate was the same as the advisory
fee rate for one mutual fund advised by o Investments in affiliated money market
o The nature and extent of the advisory AIM with investment strategies funds. The Board also took into account
services to be provided by AIM. The comparable to those of the Fund. The the fact that uninvested cash and cash
Board reviewed the services to be Board noted that AIM has agreed to waive collateral from securities lending
provided by AIM under the Advisory advisory fees of the Fund and to limit arrangements (collectively, "cash
Agreement. Based on such review, the the Fund's total operating expenses, as balances") of the Fund may be invested
Board concluded that the range of discussed below. Based on this review, in money market funds advised by AIM
services to be provided by AIM under the the Board concluded that the advisory pursuant to the terms of an SEC
Advisory Agreement was appropriate and fee rate for the Fund under the Advisory exemptive order. The Board found that
that AIM currently is providing services Agreement was fair and reasonable. the Fund may realize certain benefits
in accordance with the terms of the upon investing cash balances in AIM
Advisory Agreement. o Fees relative to those of comparable advised money market funds, including a
funds with other advisors. The Board higher net return, increased liquidity,
o The quality of services to be provided reviewed the advisory fee rate for the increased diversification or decreased
by AIM. The Board reviewed the Fund under the Advisory Agreement. The transaction costs. The Board also found
credentials and experience of the Board compared effective contractual that the Fund will not receive reduced
officers and employees of AIM who will advisory fee rates at a common asset services if it invests its cash balances
provide investment advisory services to level and noted that the Fund's rate was in such money market funds. The Board
the Fund. In reviewing the above the median rate of the funds noted that, to the extent the Fund
qualifications of AIM to provide advised by other advisors with invests in affiliated money market
investment advisory services, the Board investment strategies comparable to funds, AIM has voluntarily agreed to
reviewed the qualifications of AIM's those of the Fund that the Board waive a portion of the advisory fees it
investment personnel and considered such reviewed. The Board noted that AIM has receives from the Fund attributable to
issues as agreed to waive advisory fees such investment. The Board further
determined that the
(continued)
7
AIM V.I. REAL ESTATE FUND
proposed securities lending program and provide non-investment advisory services o The performance of the Fund relative
related procedures with respect to the to the Fund, including administrative, to comparable funds. The Board reviewed
lending Fund is in the best interests of transfer agency and distribution the performance of the Fund during the
the lending Fund and its respective services, and that AIM and its past one, three and five calendar years
shareholders. The Board therefore affiliates currently are providing against the performance of funds advised
concluded that the investment of cash satisfactory non-investment advisory by other advisors with investment
collateral received in connection with services. strategies comparable to those of the
the securities lending program in the Fund. The Board noted that the Fund's
money market funds according to the o Other factors and current trends. In performance for the one and three year
procedures is in the best interests of determining whether to continue the periods was above the median performance
the lending Fund and its respective Advisory Agreement for the Fund, the of such comparable funds and below such
shareholders. Board considered the fact that AIM, median performance for the five year
along with others in the mutual fund period. The Board also noted that AIM
o Independent written evaluation and industry, is subject to regulatory began serving as investment advisor to
recommendations of the Fund's Senior inquiries and litigation related to a the Fund in April 2004. Based on this
Officer. The Board noted that, upon wide range of issues. The Board also review, the Board concluded that no
their direction, the Senior Officer of considered the governance and compliance changes should be made to the Fund and
the Fund, who is independent of AIM and reforms being undertaken by AIM and its that it was not necessary to change the
AIM's affiliates, had prepared an affiliates, including maintaining an Fund's portfolio management team at this
independent written evaluation in order internal controls committee and time.
to assist the Board in determining the retaining an independent compliance
reasonableness of the proposed consultant, and the fact that AIM has o The performance of the Fund relative
management fees of the AIM Funds, undertaken to cause the Fund to operate to indices. The Board reviewed the
including the Fund. The Board noted that in accordance with certain governance performance of the Fund during the past
the Senior Officer's written evaluation policies and practices. The Board one, three and five calendar years
had been relied upon by the Board in concluded that these actions indicated a against the performance of the Lipper
this regard in lieu of a competitive good faith effort on the part of AIM to Real Estate Fund Index. The Board noted
bidding process. In determining whether adhere to the highest ethical standards, that the Fund's performance in such
to continue the Advisory Agreement for and determined that the current periods was above or comparable to the
the Fund, the Board considered the regulatory and litigation environment to performance of such Index. The Board
Senior Officer's written evaluation and which AIM is subject should not prevent also noted that AIM began serving as
the recommendation made by the Senior the Board from continuing the Advisory investment advisor to the Fund in April
Officer to the Board that the Board Agreement for the Fund. 2004. Based on this review, the Board
consider implementing a process to concluded that no changes should be made
assist them in more closely monitoring APPROVAL OF SUB-ADVISORY AGREEMENT to the Fund and that it was not
the performance of the AIM Funds. The necessary to change the Fund's portfolio
Board concluded that it would be The Board oversees the management of the management team at this time.
advisable to implement such a process as Fund and, as required by law, determines
soon as reasonably practicable. annually whether to approve the o Meeting with the Fund's portfolio
continuance of the Fund's sub-advisory managers and investment personnel. The
o Profitability of AIM and its agreement. Based upon the recommendation Board is meeting periodically with the
affiliates. The Board reviewed of the Investments Committee of the Fund's portfolio managers and/or other
information concerning the profitability Board, which is comprised solely of investment personnel and believes that
of AIM's (and its affiliates') independent trustees, at a meeting held such individuals are competent and able
investment advisory and other activities on June 30, 2005, the Board, including to continue to carry out their
and its financial condition. The Board all of the independent trustees, responsibilities under the Sub-Advisory
considered the overall profitability of approved the continuance of the Agreement.
AIM, as well as the profitability of AIM sub-advisory agreement (the
in connection with managing the Fund. "Sub-Advisory Agreement") between o Overall performance of the
The Board noted that AIM's operations INVESCO Institutional (N.A.), Inc. (the Sub-Advisor. The Board considered the
remain profitable, although increased "Sub-Advisor") and AIM with respect to overall performance of the Sub-Advisor
expenses in recent years have reduced the Fund for another year, effective in providing investment advisory
AIM's profitability. Based on the review July 1, 2005. services to the Fund and concluded that
of the profitability of AIM's and its such performance was satisfactory.
affiliates' investment advisory and The Board considered the factors
other activities and its financial discussed below in evaluating the o Advisory fees, expense limitations and
condition, the Board concluded that the fairness and reasonableness of the fee waivers, and breakpoints and
compensation to be paid by the Fund to Sub-Advisory Agreement at the meeting on economies of scale. In reviewing these
AIM under its Advisory Agreement was not June 30, 2005 and as part of the Board's factors, the Board considered only the
excessive. ongoing oversight of the Fund. In their advisory fees charged to the Fund by AIM
deliberations, the Board and the and did not consider the sub-advisory
o Benefits of soft dollars to AIM. The independent trustees did not identify fees paid by AIM to the Sub-Advisor. The
Board considered the benefits realized any particular factor that was Board believes that this approach is
by AIM as a result of brokerage controlling, and each trustee attributed appropriate because the sub-advisory
transactions executed through "soft different weights to the various fees have no effect on the Fund or its
dollar" arrangements. Under these factors. shareholders, as they are paid by AIM
arrangements, brokerage commissions paid rather than the Fund. Furthermore, AIM
by the Fund and/or other funds advised The discussion below serves as a and the Sub-Advisor are affiliates and
by AIM are used to pay for research and discussion of the material factors and the Board believes that the allocation
execution services. This research is the conclusions with respect thereto of fees between them is a business
used by AIM in making investment that formed the basis for the Board's matter, provided that the advisory fees
decisions for the Fund. The Board approval of the Sub-Advisory Agreement. charged to the Fund are fair and
concluded that such arrangements were After consideration of all of the reasonable.
appropriate. factors below and based on its informed
business judgment, the Board determined o Profitability of AIM and its
o AIM's financial soundness in light of that the Sub-Advisory Agreement is in affiliates. The Board reviewed
the Fund's needs. The Board considered the best interests of the Fund and its information concerning the profitability
whether AIM is financially sound and has shareholders. of AIM's (and its affiliates')
the resources necessary to perform its investment advisory and other activities
obligations under the Advisory o The nature and extent of the advisory and its financial condition. The Board
Agreement, and concluded that AIM has services to be provided by the considered the overall profitability of
the financial resources necessary to Sub-Advisor. The Board reviewed the AIM, as well as the profitability of AIM
fulfill its obligations under the services to be provided by the in connection with managing the Fund.
Advisory Agreement. Sub-Advisor under the Sub-Advisory The Board noted that AIM's operations
Agreement. Based on such review, the remain profitable, although increased
o Historical relationship between the Board concluded that the range of expenses in recent years have reduced
Fund and AIM. In determining whether to services to be provided by the AIM's profitability. Based on the review
continue the Advisory Agreement for the Sub-Advisor under the Sub-Advisory of the profitability of AIM's and its
Fund, the Board also considered the Agreement was appropriate and that the affiliates' investment advisory and
prior relationship between AIM and the Sub-Advisor currently is providing other activities and its financial
Fund, as well as the Board's knowledge services in accordance with the terms of condition, the Board concluded that the
of AIM's operations, and concluded that the Sub-Advisory Agreement. compensation to be paid by the Fund to
it was beneficial to maintain the AIM under its Advisory Agreement was not
current relationship, in part, because o The quality of services to be provided excessive.
of such knowledge. The Board also by the Sub-Advisor. The Board reviewed
reviewed the general nature of the the credentials and experience of the o The Sub-Advisor's financial soundness
non-investment advisory services officers and employees of the in light of the Fund's needs. The Board
currently performed by AIM and its Sub-Advisor who will provide investment considered whether the Sub-Advisor is
affiliates, such as administrative, advisory services to the Fund. Based on financially sound and has the resources
transfer agency and distribution the review of these and other factors, necessary to perform its obligations
services, and the fees received by AIM the Board concluded that the quality of under the Sub-Advisory Agreement, and
and its affiliates for performing such services to be provided by the concluded that the Sub-Advisor has the
services. In addition to reviewing such Sub-Advisor was appropriate, and that financial resources necessary to fulfill
services, the trustees also considered the Sub-Advisor currently is providing its obligations under the Sub-Advisory
the organizational structure employed by satisfactory services in accordance with Agreement.
AIM and its affiliates to provide those the terms of the Sub-Advisory Agreement.
services. Based on the review of these
and other factors, the Board concluded
that AIM and its affiliates were
qualified to continue to
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-94.18%
APARTMENTS-14.74%
American Campus Communities, Inc. 25,500 $ 632,400
- -----------------------------------------------------------------------
Archstone-Smith Trust 80,500 3,372,145
- -----------------------------------------------------------------------
AvalonBay Communities, Inc. 27,200 2,427,600
- -----------------------------------------------------------------------
Camden Property Trust 32,300 1,870,816
- -----------------------------------------------------------------------
CapitaLand Ltd. (Singapore)(a) 69,000 142,302
- -----------------------------------------------------------------------
Education Realty Trust, Inc. 18,100 233,309
- -----------------------------------------------------------------------
Equity Residential 97,900 3,829,848
- -----------------------------------------------------------------------
Essex Property Trust, Inc. 20,400 1,880,880
- -----------------------------------------------------------------------
GMH Communities Trust 10,400 161,304
- -----------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Hong Kong) 20,000 194,747
=======================================================================
14,745,351
=======================================================================
DIVERSIFIED-6.17%
British Land Co. PLC (United Kingdom) 13,500 247,597
- -----------------------------------------------------------------------
Colonial Properties Trust 11,400 478,572
- -----------------------------------------------------------------------
Hysan Development Co. Ltd. (Hong Kong)(a) 66,000 162,939
- -----------------------------------------------------------------------
Land Securities Group PLC (United Kingdom)(a) 8,100 231,949
- -----------------------------------------------------------------------
Link REIT (The) (Hong Kong)(b) 101,500 192,432
- -----------------------------------------------------------------------
Mitsui Fudosan Co., Ltd. (Japan) 8,000 162,469
- -----------------------------------------------------------------------
Stockland (Australia)(a) 48,200 229,162
- -----------------------------------------------------------------------
Unibail (France)(a) 2,000 266,146
- -----------------------------------------------------------------------
Vornado Realty Trust 50,300 4,198,541
=======================================================================
6,169,807
=======================================================================
HEALTHCARE-1.55%
Healthcare Realty Trust, Inc. 7,600 252,852
- -----------------------------------------------------------------------
Ventas, Inc. 40,500 1,296,810
=======================================================================
1,549,662
=======================================================================
INDUSTRIAL PROPERTIES-9.88%
AMB Property Corp. 22,000 1,081,740
- -----------------------------------------------------------------------
CenterPoint Properties Trust 61,600 3,047,968
- -----------------------------------------------------------------------
Macquarie Goodman Group (Australia)(a) 20,600 72,082
- -----------------------------------------------------------------------
ProLogis 121,714 5,686,478
=======================================================================
9,888,268
=======================================================================
LODGING-RESORTS-10.83%
Eagle Hospitality Properties Trust,
Inc.-Series A, 8.25% Pfd.(c) 5,000 122,812
- -----------------------------------------------------------------------
Equity Inns Inc. 42,100 570,455
- -----------------------------------------------------------------------
Hersha Hospitality Trust-Series A, 8.00% Pfd 3,700 91,353
- -----------------------------------------------------------------------
Hilton Hotels Corp. 111,300 2,683,443
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
LODGING-RESORTS-(CONTINUED)
Host Marriott Corp. 233,500 $ 4,424,825
- -----------------------------------------------------------------------
LaSalle Hotel Properties 5,600 205,632
- -----------------------------------------------------------------------
Marriott International, Inc.-Class A 6,700 448,699
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(d) 35,800 2,286,188
=======================================================================
10,833,407
=======================================================================
OFFICE PROPERTIES-20.90%
Alexandria Real Estate Equities, Inc. 15,000 1,207,500
- -----------------------------------------------------------------------
American Financial Realty Trust 47,700 572,400
- -----------------------------------------------------------------------
Arden Realty, Inc. 23,900 1,071,437
- -----------------------------------------------------------------------
Boston Properties, Inc. 62,100 4,603,473
- -----------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 23,550 692,841
- -----------------------------------------------------------------------
CapitaCommercial Trust (Singapore) 52,900 47,080
- -----------------------------------------------------------------------
CarrAmerica Realty Corp. 28,100 973,103
- -----------------------------------------------------------------------
Derwent Valley Holdings PLC (United Kingdom) 19,900 493,369
- -----------------------------------------------------------------------
Digital Realty Trust, Inc.-Series A, 8.50%
Pfd 2,900 73,370
- -----------------------------------------------------------------------
Equity Office Properties Trust 41,900 1,270,827
- -----------------------------------------------------------------------
Hongkong Land Holdings Ltd. (Hong Kong)(a) 81,000 253,853
- -----------------------------------------------------------------------
Prentiss Properties Trust 30,900 1,257,012
- -----------------------------------------------------------------------
Reckson Associates Realty Corp. 53,200 1,914,136
- -----------------------------------------------------------------------
SL Green Realty Corp. 44,600 3,406,994
- -----------------------------------------------------------------------
Trizec Properties, Inc. 133,900 3,068,988
=======================================================================
20,906,383
=======================================================================
REGIONAL MALLS-17.99%
AEON Mall Co., Ltd. (Japan)(a) 4,700 228,745
- -----------------------------------------------------------------------
Diamond City Co., Ltd. (Japan)(a) 5,400 222,730
- -----------------------------------------------------------------------
General Growth Properties, Inc. 136,400 6,409,436
- -----------------------------------------------------------------------
Hang Lung Properties Ltd. (Hong Kong)(a) 101,000 158,040
- -----------------------------------------------------------------------
Macerich Co. (The) 53,300 3,578,562
- -----------------------------------------------------------------------
Mills Corp. (The) 13,000 545,220
- -----------------------------------------------------------------------
Rodamco Europe N.V. (Netherlands) 3,100 257,996
- -----------------------------------------------------------------------
Simon Property Group, Inc. 86,100 6,597,843
=======================================================================
17,998,572
=======================================================================
SELF STORAGE FACILITIES-3.48%
Extra Space Storage Inc. 29,600 455,840
- -----------------------------------------------------------------------
Public Storage, Inc. 31,200 2,112,864
- -----------------------------------------------------------------------
U-Store-It Trust 43,400 913,570
=======================================================================
3,482,274
=======================================================================
SHOPPING CENTERS-8.49%
Capital & Regional PLC (United Kingdom) 23,000 343,481
- -----------------------------------------------------------------------
Citycon Oyj (Finland) 48,300 177,830
- -----------------------------------------------------------------------
</Table>
AIM V.I. REAL ESTATE FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SHOPPING CENTERS-(CONTINUED)
Developers Diversified Realty Corp. 65,700 $ 3,089,214
- -----------------------------------------------------------------------
Federal Realty Investment Trust 22,600 1,370,690
- -----------------------------------------------------------------------
Regency Centers Corp. 50,900 3,000,555
- -----------------------------------------------------------------------
Urstadt Biddle Properties-Class A 31,400 508,994
=======================================================================
8,490,764
=======================================================================
SPECIALTY PROPERTIES-0.15%
Spirit Finance Corp. 13,100 148,685
=======================================================================
Total Real Estate Investment Trusts,
Common Stocks & Other Equity Interests
(Cost $73,959,800) 94,213,173
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-5.53%
Premier Portfolio-Institutional Class (Cost
$5,533,127)(e) 5,533,127 $ 5,533,127
=======================================================================
TOTAL INVESTMENTS-99.71% (Cost $79,492,927) 99,746,300
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.29% 292,538
=======================================================================
NET ASSETS-100.00% $100,038,838
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
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 value of these securities at December 31, 2005 was $1,967,948,
which represented 1.97% of the Fund's Net Assets. See Note 1A.
(b) Non-income producing security.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The value of this security at December 31, 2005 represented
0.12% of the Fund's Net Assets. See Note 1A.
(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 to Financial Statements which are an integral part of the
financial statements.
AIM V.I. REAL ESTATE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $73,959,800) $ 94,213,173
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $5,533,127) 5,533,127
=============================================================
Total investments (cost $79,492,927) 99,746,300
=============================================================
Receivables for:
Fund shares sold 137,085
- -------------------------------------------------------------
Dividends 442,426
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 7,109
=============================================================
Total assets 100,332,920
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 168,335
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 8,644
- -------------------------------------------------------------
Accrued administrative services fees 83,750
- -------------------------------------------------------------
Accrued distribution fees -- Series II 33
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 108
- -------------------------------------------------------------
Accrued transfer agent fees 1,118
- -------------------------------------------------------------
Accrued operating expenses 32,094
=============================================================
Total liabilities 294,082
=============================================================
Net assets applicable to shares outstanding $100,038,838
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 71,957,761
- -------------------------------------------------------------
Undistributed net investment income 1,635,123
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 6,192,611
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 20,253,343
=============================================================
$100,038,838
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 99,976,963
_____________________________________________________________
=============================================================
Series II $ 61,875
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,747,791
_____________________________________________________________
=============================================================
Series II 2,949
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 21.06
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 20.98
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$25,057) $ 2,595,954
- ------------------------------------------------------------
Dividends from affiliated money market funds 91,113
============================================================
Total investment income 2,687,067
============================================================
EXPENSES:
Advisory fees 774,807
- ------------------------------------------------------------
Administrative services fees 241,239
- ------------------------------------------------------------
Custodian fees 32,657
- ------------------------------------------------------------
Distribution fees -- Series II 57
- ------------------------------------------------------------
Transfer agent fees 12,672
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 17,404
- ------------------------------------------------------------
Other 93,394
============================================================
Total expenses 1,172,230
============================================================
Less: Fees waived (131,049)
============================================================
Net expenses 1,041,181
============================================================
Net investment income 1,645,886
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 6,353,442
- ------------------------------------------------------------
Foreign currencies (27,526)
============================================================
6,325,916
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 3,519,251
- ------------------------------------------------------------
Foreign currencies (335)
============================================================
3,518,916
============================================================
Net gain from investment securities and foreign
currencies 9,844,832
============================================================
Net increase in net assets resulting from
operations $11,490,718
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. REAL ESTATE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,645,886 $ 896,234
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 6,325,916 2,617,646
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 3,518,916 12,603,568
=========================================================================================
Net increase in net assets resulting from operations 11,490,718 16,117,448
=========================================================================================
Distributions to shareholders from net investment income:
Series I (1,018,056) (553,411)
- -----------------------------------------------------------------------------------------
Series II (468) (100)
=========================================================================================
Total distributions from net investment income (1,018,524) (553,511)
=========================================================================================
Distributions to shareholders from net realized gains:
Series I (2,594,476) (1,213,446)
- -----------------------------------------------------------------------------------------
Series II (1,222) (218)
=========================================================================================
Total distributions from net realized gains (2,595,698) (1,213,664)
=========================================================================================
Decrease in net assets resulting from distributions (3,614,222) (1,767,175)
=========================================================================================
Share transactions-net:
Series I 12,711,422 38,957,318
- -----------------------------------------------------------------------------------------
Series II 46,237 10,318
=========================================================================================
Net increase in net assets resulting from share
transactions 12,757,659 38,967,636
=========================================================================================
Net increase in net assets 20,634,155 53,317,909
=========================================================================================
NET ASSETS:
Beginning of year 79,404,683 26,086,774
=========================================================================================
End of year (including undistributed net investment income
of $1,635,123 and $902,500, respectively) $100,038,838 $79,404,683
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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 high total return.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. REAL ESTATE FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
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. REAL ESTATE 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 0.90% 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. This
agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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. 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 year ended December 31, 2005, AIM waived fees of $131,049.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $191,239 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 year ended
December 31, 2005, the Fund paid AISI $12,672.
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 year ended December
31, 2005, the Series II shares paid $57.
Certain officers and trustees of the Trust are also officers and directors
of AIM, AISI, INVESCO and/or ADI.
AIM V.I. REAL ESTATE 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 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 funds for the year ended December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class $6,720,218 $38,958,842 $(40,145,933) $ -- $5,533,127 $91,113 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,178
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $2,067,539 $1,581,743
- --------------------------------------------------------------------------------------
Long-term capital gain 1,546,683 185,432
======================================================================================
Total distributions $3,614,222 $1,767,175
______________________________________________________________________________________
======================================================================================
</Table>
AIM V.I. REAL ESTATE FUND
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,690,029
- ----------------------------------------------------------------------------
Undistributed long-term gain 5,344,603
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 20,064,269
- ----------------------------------------------------------------------------
Temporary book/tax differences (5,976)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (11,848)
- ----------------------------------------------------------------------------
Shares of beneficial interest 71,957,761
============================================================================
Total net assets 100,038,838
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales and
market to market of certain passive foreign investment securities. The tax-basis
unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(30).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The fund did not have a capital loss carryforward as of December 31, 2005.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $54,868,131 and $42,550,900, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $20,440,094
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (375,795)
===============================================================================
Net unrealized appreciation of investment securities $20,064,299
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $79,682,001.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and passive foreign investment companies, on December 31, 2005,
undistributed net investment income was increased by $105,261 and undistributed
net realized gain was decreased by $105,261. This reclassification had no effect
on the net assets of the Fund.
AIM V.I. REAL ESTATE FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2005(A) 2004
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,014,083 $ 39,818,911 3,115,355 $ 50,705,698
- ---------------------------------------------------------------------------------------------------------------------------
Series II(b) 2,307 48,084 716 10,000
===========================================================================================================================
Issued as reinvestment of dividends:
Series I 171,210 3,612,532 94,788 1,766,857
- ---------------------------------------------------------------------------------------------------------------------------
Series II(b) 81 1,690 17 318
===========================================================================================================================
Reacquired:
Series I (1,587,102) (30,720,021) (879,455) (13,515,237)
- ---------------------------------------------------------------------------------------------------------------------------
Series II(b) (172) (3,537) -- --
===========================================================================================================================
600,407 $ 12,757,659 2,331,421 $ 38,967,636
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a)There are six entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 78% 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 entities are also owned
beneficially.
(b)Series II shares commenced sales on April 30, 2004.
AIM V.I. REAL ESTATE 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
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.13 $ 14.34 $ 10.49 $ 9.97 $10.15
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38(a) 0.32(a) 0.20 0.14 0.20
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.34 4.92 3.87 0.50 (0.28)
======================================================================================================================
Total from investment operations 2.72 5.24 4.07 0.64 (0.08)
======================================================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.14) (0.22) (0.12) (0.10)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.57) (0.31) -- -- --
======================================================================================================================
Total distributions (0.79) (0.45) (0.22) (0.12) (0.10)
======================================================================================================================
Net asset value, end of period $ 21.06 $ 19.13 $ 14.34 $ 10.49 $ 9.97
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 14.24% 36.58% 38.82% 6.37% (0.76)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,977 $79,391 $26,087 $12,869 $4,723
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.21%(c) 1.31% 1.35% 1.36% 1.38%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.36%(c) 1.42% 1.62% 1.89% 2.70%
======================================================================================================================
Ratio of net investment income to average net assets 1.91%(c) 1.96% 3.02% 4.53% 4.35%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 51% 34% 126% 191% 163%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connections with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $86,067,051.
AIM V.I. REAL ESTATE FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.12 $13.96
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.20(a)
- -----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.31 5.41
===============================================================================================
Total from investment operations 2.65 5.61
===============================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.14)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gains (0.57) (0.31)
===============================================================================================
Total distributions (0.79) (0.45)
===============================================================================================
Net asset value, end of period $20.98 $19.12
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 13.85% 40.23%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 62 $ 14
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%(c) 1.45%(d)
- -----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.61%(c) 1.66%(d)
===============================================================================================
Ratio of net investment income to average net assets 1.67%(c) 1.82%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate 51% 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 based on average daily net assets of $22,600.
(d) Annualized.
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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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,
AIM V.I. REAL ESTATE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave
AIM V.I. REAL ESTATE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
plaintiffs leave to replead facts sufficient to show that such defendants acted
as de facto fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their
prohibited transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Real Estate Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2005 by correspondence with the custodian, provide a reasonable
basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. REAL ESTATE FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. REAL ESTATE FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers INVESCO Institutional
Suite 100 11 Greenway Plaza Inc. LLP (N.A.), Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street INVESCO Realty Advisors
Houston, TX 77046-1173 Suite 100 Suite 2900 Division
Houston, TX 77046-1173 Houston, TX 77002-5678 Three Galleria Tower,
Suite 500
13155 Noel Road
Dallas, TX 75240
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $1,546,683 for the
Fund's tax year ended December 31, 2005.
AIM V.I. REAL ESTATE FUND
AIM V.I. SMALL CAP EQUITY FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. SMALL CAP EQUITY FUND seeks to provide long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. SMALL CAP EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE stock when:
===================================================================================== o the company's fundamental business
PERFORMANCE SUMMARY prospects deteriorate
========================================
For the year ended December 31, 2005, FUND VS. INDEXES o a stock hits our target price
your Fund posted solid, index-beating
returns as illustrated by the TOTAL RETURNS, 12/31/04-12/31/05, o the company's technical profile
accompanying table. EXCLUDING VARIABLE PRODUCT ISSUER deteriorates
CHARGES. IF VARIABLE PRODUCT ISSUER
The Fund outperformed both the S&P CHARGES WERE INCLUDED, RETURNS WOULD BE MARKET CONDITIONS AND YOUR FUND
500 Index and the Russell 2000 Index LOWER.
largely due to strong returns by The U.S. economy continued to expand
holdings in the consumer discretionary, Series I Shares 8.11% throughout the year, with corporate
industrials and financials sectors. profits generally improving. However,
Positive performance was broad-based, as Series II Shares 7.97 rising short-term interest rates, record
significant detractors were concentrated high oil and natural gas prices, two
in the information technology sector. Standard & Poor's Composite Gulf Coast hurricanes and other concerns
Index of 500 Stocks (The S&P 500) restrained stock market performance.
For long-term performance, see Pages 4 (Broad Market Index) 4.91
and 5. Consumer discretionary, which
Russell 2000 Index includes many retailers, was our
(Style-specific Index) 4.55 best-performing sector. While we were
generally pleased with the performance
Lipper Small-Cap Core Fund Index of our consumer discretionary holdings,
(Peer Group Index) 7.56 we reduced our exposure to this sector.
We were concerned that rising fuel costs
SOURCE: LIPPER,INC. might adversely affect consumer
======================================== spending, which had been solid earlier
in the year and had bolstered the
===================================================================================== performance of retail stocks.
HOW WE INVEST 1. Fundamental analysis--Building The stock that contributed the most
financial models and conducting in-depth to Fund performance was Guess?, a
We focus on small-cap companies with interviews with company management. company that markets upscale apparel and
visible and long-term growth accessories. Best known for its designer
opportunities demonstrated by consistent 2. Valuation analysis--Identifying jeans, the company reported record third
and accelerating earnings growth. attractively valued stocks given their quarter earnings, largely because of the
growth potential over a one- to two-year success of its European business. Men's
We align the Fund with the benchmark horizon. Wearhouse, which sells business clothing
we believe represents the small-cap-core at more than 700 stores in the U.S. and
asset class. We seek to control risk by 3. Technical analysis--Identifying the Canada, also contributed significantly
keeping the Fund's sector weightings in "timeliness" of a stock purchase. We to our performance. The company
line with the benchmark by staying fully review trading volume characteristics benefited from improved merchandising
diversified in all those sectors. and trend analysis to make sure there and increased suit sales. We sold the
are no signs of stock deterioration. stock due to valuation.
We select stocks based on analysis of This also serves as a risk management
individual companies. Our three-step measure that helps us confirm our high Higher energy prices and improved
selection process includes: conviction candidates. earnings
We consider selling or trimming a
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Regional Banks 6.3% 1. Warren Resources Inc. 1.7%
Financials 19.4% 2. Oil & Gas Exploration & 2. Penn Virginia Corp. 1.7
Production 5.3
Information Technology 18.9 3. Assured Guaranty Ltd 1.4
3. Health Care Supplies 5.1
Industrials 16.1 4. Haemonetics Corp. 1.4
4. Property & Casualty Insurance 4.8
Health Care 11.8 5. Philadelphia Consolidated
5. Apparel Retail 4.1
Consumer Discretionary 10.8 Holding Corp. 1.4
Energy 7.8 6. Oceaneering International, Inc. 1.4
TOTAL NET ASSETS $43.4 million
Materials 3.4 7. Pinnacle Entertainment, Inc. 1.3
TOTAL NUMBER OF HOLDINGS* 105
Consumer Staples 3.4 8. Jones Lang Lasalle Inc. 1.3
Utilities 2.1 9. United Online,Inc. 1.3
Money Market Funds 10. Affiliated Managers Group, Inc. 1.2
Plus Other Assets Less Liabilities 6.3
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.
======================================== ======================================== ========================================
2
AIM V.I. SMALL CAP EQUITY FUND
prospects led to significant stock price would face competitive pressure and JULIET ELLIS,
increases in many of our investments in eventually miss earnings expectations [ELLIS Chartered Financial
the energy sector. Our top holding, because a number of large technology PHOTO] Analyst and senior
WARREN RESOURCES, a leading developer of companies had recently made acquisitions portfolio manager,
coal bed methane natural gas, was an of several competitors. We continue to is lead portfolio
energy stock that boosted our own the stock as we see upside potential manager of AIM V.I.
performance. We believe the company has based on our earnings forecast for the Small Cap Equity Fund. Ms. Ellis joined
a strong management team and solid company. AIM in 2004. She previously served as
business fundamentals. The company Senior Portfolio Manager of two
reported a 23% increase in revenue and The Fund's materials stocks, small-cap funds for another company and
43% increase in oil and gas production including WAUSAU PAPER, which reported was responsible for the management of
for the third quarter of 2005 compared second and third quarter losses, also more than $2 billion in assets.
to the same period for the previous detracted from Fund returns. We
year. Other key contributors in the subsequently sold the stock due to a Ms. Ellis began her investment career
sector included PENN VIRGINIA CORP. and weak outlook. At the close of the in 1981 as a financial consultant. She
PLAINS EXPLORATION. reporting period, we further reduced the is a Cum Laude and Phi Beta Kappa
Fund's weighting in materials by selling graduate of Indiana University with a
A number of the Fund's capital goods two long-term specialty-chemicals B.A. in economics and political science.
holdings in the industrials sector also holdings, MINERALS TECHNOLOGIES and
enhanced Fund performance. One example ALBEMARLE CORP., as we believe the MICHAEL CHAPMAN,
is WATSCO, a company that distributes companies will be negatively affected by [CHAPMAN Chartered Financial
air conditioning and heating units. reduced pricing power. PHOTO] Analyst and
Watsco reported record earnings for the portfolio manager,
third quarter of 2005, as the company IN CLOSING is a portfolio
continued to expand its distribution manager of AIM V.I.
network. While we continue to own We remain committed to our bottom-up Small Cap Equity Fund. He began his
Watsco, we reduced the Fund's investment process of identifying investment career in 1995. He joined AIM
industrials holdings over the year as we attractively valued stocks of small-cap in 2001 and was promoted to his current
were concerned that rising fuel costs companies with visible and long-term position as portfolio manager in 2002.
might adversely affect corporate profits growth opportunities while striving to Mr. Chapman has a B.S. in petroleum
in this sector. avoid high-risk stocks. We believe our engineering and an M.A. in energy and
disciplined investment strategy has the mineral resources from The University of
The financials sector was another potential to provide shareholders with Texas.
area of strength for the Fund. For reliable, long-term, risk-adjusted
sometime, we have maintained an performance consistent with a small-cap Assisted by the Small Cap Growth/Core
underweight position in bank stocks core-stock fund, complementing their Team
because a flat or inverted yield curve more aggressive equity investments. As
tends to squeeze profit margins for always, we thank you for your continuing
banks that derive a large portion of investment in AIM V.I. Small Cap Equity
their revenues from lending activities. Fund.
In this environment, we have selected
bank stocks that focus on other areas THE VIEWS AND OPINIONS EXPRESSED IN
such as investment management. An MANAGEMENT'S DISCUSSION OF FUND
example is BOSTON PRIVATE FINANCIAL PERFORMANCE ARE THOSE OF A I M ADVISORS,
HOLDINGS, a bank stock that has INC. THESE VIEWS AND OPINIONS ARE
benefited from strong demand for SUBJECT TO CHANGE AT ANY TIME BASED ON
investment management services as well FACTORS SUCH AS MARKET AND ECONOMIC
as rapid geographic expansion. CONDITIONS. THESE VIEWS AND OPINIONS MAY
Additionally, several of the Fund's NOT BE RELIED UPON AS INVESTMENT ADVICE
insurance stocks contributed to OR RECOMMENDATIONS, OR AS AN OFFER FOR A
performance as they benefited from PARTICULAR SECURITY. THE INFORMATION IS
improved pricing power in the wake of NOT A COMPLETE ANALYSIS OF EVERY ASPECT
the two major hurricanes. OF ANY MARKET, COUNTRY, INDUSTRY,
SECURITY OR THE FUND. STATEMENTS OF FACT
Holdings in the information ARE FROM SOURCES CONSIDERED RELIABLE,
technology sector detracted from Fund BUT A I M ADVISORS, INC. MAKES NO
performance, largely because many of our REPRESENTATION OR WARRANTY AS TO THEIR
technology hardware stocks COMPLETENESS OR ACCURACY. ALTHOUGH [RIGHT ARROW GRAPHIC]
underperformed. One of the most HISTORICAL PERFORMANCE IS NO GUARANTEE
significant detractors was PACKETEER, a OF FUTURE RESULTS, THESE INSIGHTS MAY FOR A DISCUSSION OF THE RISKS OF
company that develops bandwidth HELP YOU UNDERSTAND OUR INVESTMENT INVESTING IN YOUR FUND,INDEXES USED IN
management systems. The stock price of MANAGEMENT PHILOSOPHY. THIS REPORT AND YOUR FUND'S LONG-TERM
this holding fell as investors became PERFORMANCE, PLEASE TURN TO PAGES 4
concerned that Packeteer AND 5.
3
AIM V.I. SMALL CAP EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/29/03, index data from 8/31/03
=====================================================================================================================
[MOUNTAIN CHART]
DATE LIPPER SMALL-CAP
AIM V.I. SMALL CAP EQUITY AIM V.I. SMALL CAP EQUITY RUSSELL 2000 S&P 500 CORE FUND
FUND-SERIES I SHARES FUND-SERIES II SHARES INDEX INDEX INDEX
8/29/03 $10000 $10000
8/03 10000 10000 $10000 $10000 $10000
9/03 9830 9830 9815 9894 9783
10/03 10650 10650 10640 10454 10552
11/03 10990 10990 11017 10545 10932
12/03 11393 11387 11241 11098 11236
1/04 11713 11707 11729 11302 11592
2/04 11964 11958 11834 11459 11793
3/04 12074 12068 11945 11286 11921
4/04 11563 11548 11336 11109 11512
5/04 11694 11678 11516 11261 11612
6/04 12034 12018 12001 11480 12107
7/04 11183 11167 11193 11100 11469
8/04 10732 10717 11135 11145 11369
9/04 11163 11137 11658 11265 11934
10/04 11433 11418 11888 11437 12130
11/04 12224 12208 12919 11900 13088
12/04 12465 12439 13301 12305 13299
1/05 12065 12038 12746 12005 12914
2/05 12445 12419 12962 12257 13215
3/05 12185 12158 12591 12041 12883
4/05 11484 11458 11870 11812 12187
5/05 12205 12168 12647 12188 12840
6/05 12506 12469 13135 12205 13278
7/05 13066 13028 13967 12659 14067
8/05 12916 12879 13708 12544 13937
9/05 13105 13069 13751 12645 14070
10/05 12875 12829 13324 12434 13638
11/05 13565 13509 13971 12904 14261
12/05 13468 13422 13907 12909 14304
=====================================================================================================================
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
4
AIM V.I. SMALL CAP EQUITY FUND
========================================
AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; ACTUAL VARIABLE PRODUCT VALUES. THEY DO
As of 12/31/05 CURRENT PERFORMANCE MAY BE LOWER OR NOT REFLECT SALES CHARGES, EXPENSES AND
HIGHER. PLEASE CONTACT YOUR VARIABLE FEES ASSESSED IN CONNECTION WITH A
SERIES I SHARES PRODUCT ISSUER OR FINANCIAL ADVISOR FOR VARIABLE PRODUCT. SALES CHARGES,
Inception (8/29/03) 13.57% THE MOST RECENT MONTH-END VARIABLE EXPENSES AND FEES, WHICH ARE DETERMINED
1 Year 8.11 PRODUCT PERFORMANCE. PERFORMANCE FIGURES BY THE VARIABLE PRODUCT ISSUERS, WILL
REFLECT FUND EXPENSES, REINVESTED VARY AND WILL LOWER THE TOTAL RETURN.
SERIES II SHARES DISTRIBUTIONS AND CHANGES IN NET ASSET
Inception (8/29/03) 13.40% VALUE. INVESTMENT RETURN AND PRINCIPAL PER NASD REQUIREMENTS, THE MOST RECENT
1 Year 7.97 VALUE WILL FLUCTUATE SO THAT YOU MAY MONTH-END PERFORMANCE DATA AT THE FUND
HAVE A GAIN OR LOSS WHEN YOU SELL LEVEL, EXCLUDING VARIABLE PRODUCT
SHARES. CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
======================================== INFORMATION LINE, 866-702-4402. AS
AIM V.I. SMALL CAP EQUITY FUND, A MENTIONED ABOVE, FOR THE MOST RECENT
CUMULATIVE TOTAL RETURNS SERIES PORTFOLIO OF AIM VARIABLE MONTH-END PERFORMANCE INCLUDING VARIABLE
INSURANCE FUNDS, IS CURRENTLY OFFERED PRODUCT CHARGES, PLEASE CONTACT YOUR
Six months ended 12/31/05 THROUGH INSURANCE COMPANIES ISSUING VARIABLE PRODUCT ISSUER OR FINANCIAL
Series I Shares 7.77% VARIABLE PRODUCTS. YOU CANNOT PURCHASE ADVISOR.
Series II Shares 7.70 SHARES OF THE FUND DIRECTLY.
======================================== PERFORMANCE FIGURES GIVEN REPRESENT
THE FUND AND ARE NOT INTENDED TO REFLECT
SERIES AND SERIES II SHARES INVEST IN
THE SAME PORTFOLIO OF SECURITIES AND
WILL HAVE SUBSTANTIALLY SIMILAR
PERFORMANCE, EXCEPT TO THE EXTENT THAT
EXPENSES BORNE BY EACH CLASS DIFFER.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
Investing in smaller companies involves The unmanaged Standard & Poor's The returns shown in the management's
greater risk than investing in more Composite Index of 500 Stocks (the S&P discussion of Fund performance are based
established companies, such as business 500--Registered Trademark-- INDEX) is an on net asset values calculated for
risk, significant stock price index of common stocks frequently used shareholder transactions. Generally
fluctuations and illiquidity. as a general measure of U.S. stock accepted accounting principles require
market 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 LIPPER SMALL-CAP CORE reporting purposes, and as such, the net
issuers. International investing FUND INDEX represents an average of the asset value for shareholder transactions
presents certain risks not associated performance of the 30 largest and the returns based on those net asset
with investing solely in the United small-capitalization core funds tracked values may differ from the net asset
States. These include risks relating to by Lipper, Inc., an independent mutual values and returns reported in the
fluctuations in the value of the U.S. fund performance monitor. Financial Highlights. Additionally, the
dollar relative to the values of other returns and net asset values shown
currencies, the custody arrangements The unmanaged RUSSELL 2000--Registered throughout this report are at the Fund
made for the fund's foreign holdings, Trademark-- INDEX represents the level only and do not include variable
differences in accounting, political performance of the stocks of domestic product issuer charges. If such charges
risks and the lesser degree of public small-capitalization companies. were included, the total returns would
information required to be provided by be lower.
non-U.S. companies. The Fund is not managed to track the
performance of any particular index, Industry classifications used in this
The Fund may invest a portion of its including the indexes defined here, and report are generally according to the
assets in synthetic instruments, such as consequently, the performance of the Global Industry Classification Standard,
warrants, futures, options, exchange Fund may deviate significantly from the which was developed by and is the
traded funds and American Depositary performance of the indexes. exclusive property and a service mark of
Receipts, the value of which may not Morgan Stanley Capital International
correlate perfectly with the overall A direct investment cannot be made in Inc. and Standard & Poor's
securities market. Risks associated with an index. Unless otherwise indicated,
synthetic instruments may include index results include reinvested
counter party risk and sensitivity to dividends, and they do not reflect sales
interest rate changes and market price charges. Performance of an index of
fluctuations. See the prospectus for funds reflects fund expenses;
more details. performance of a market index does not.
Although the Fund's return during
certain periods was positively impacted
by its investments in initial public
offerings (IPOs), there can be no
assurance that the Fund will have
favorable IPO investment opportunities
in the future.
AIM V.I. SMALL CAP EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES year before expenses, which is not the
Fund's actual return. The Fund's actual
As a shareholder of the Fund, you incur The table below provides information cumulative total returns at net asset
ongoing costs, including management about actual account values and actual value after expenses for the six months
fees; distribution and/or service fees expenses. You may use the information in ended December 31, 2005, appear in the
(12b-1); and other Fund expenses. This this table, together with the amount you table "Cumulative Total Returns" on Page
example is intended to help you invested, to estimate the expenses that 5.
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
July 1, 2005, through December 31, 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 help you determine the relative total
costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,077.70 $6.02 $1,019.41 $5.85 1.15%
Series II 1,000.00 1,077.00 7.33 1,018.15 7.12 1.40
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. SMALL CAP EQUITY FUND
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. Small Cap credentials and experience of the strategies. The Board reviewed the
Equity 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 was the same as the advisory
the Fund's advisory agreement with A I M qualifications of AIM to provide fee rates for a mutual fund advised by
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board AIM with investment strategies
recommendation of the Investments reviewed the qualifications of AIM's comparable to those of the Fund. The
Committee of the Board, which is investment personnel and considered such Board noted that AIM has agreed to waive
comprised solely of independent issues as AIM's portfolio and product advisory fees of the Fund and to limit
trustees, at a meeting held on June 30, review process, various back office the Fund's total operating expenses, as
2005, the Board, including all of the support functions provided by AIM and discussed below. Based on this review,
independent trustees, approved the AIM's equity and fixed income trading the Board concluded that the advisory
continuance of the advisory agreement operations. Based on the review of these fee rate for the Fund under the Advisory
(the "Advisory Agreement") between the and other factors, the Board concluded Agreement was fair and reasonable.
Fund and AIM for another year, effective that the quality of services to be
July 1, 2005. provided by AIM was appropriate and that o Fees relative to those of comparable
AIM currently is providing satisfactory funds with other advisors. The Board
The Board considered the factors services in accordance with the terms of reviewed the advisory fee rate for the
discussed below in evaluating the the Advisory Agreement. Fund under the Advisory Agreement. The
fairness and reasonableness of the Board compared effective contractual
Advisory Agreement at the meeting on o The performance of the Fund relative advisory fee rates at a common asset
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed level and noted that the Fund's rate was
ongoing oversight of the Fund. In their the performance of the Fund during the above the median rate of the funds
deliberations, the Board and the past calendar year against the advised by other advisors with
independent trustees did not identify performance of funds advised by other investment strategies comparable to
any particular factor that was advisors with investment strategies those of the Fund that the Board
controlling, and each trustee attributed comparable to those of the Fund. The reviewed. The Board noted that AIM has
different weights to the various Board noted that the Fund's performance agreed to waive advisory fees of the
factors. was below the median performance of such Fund and to limit the Fund's total
comparable funds for the one year operating expenses, as discussed below.
One of the responsibilities of the period. The Board noted that AIM has Based on this review, the Board
Senior Officer of the Fund, who is recently made changes to the Fund's concluded that the advisory fee rate for
independent of AIM and AIM's affiliates, portfolio management team, which appear the Fund under the Advisory Agreement
is to manage the process by which the to be producing encouraging early was fair and reasonable.
Fund's proposed management fees are results but need more time to be
negotiated to ensure that they are evaluated before a conclusion can be o Expense limitations and fee waivers.
negotiated in a manner which is at arm's made that the changes have addressed the The Board noted that AIM has
length and reasonable. To that end, the Fund's under-performance. Based on this contractually agreed to waive advisory
Senior Officer must either supervise a review, the Board concluded that no fees of the Fund through June 30, 2006
competitive bidding process or prepare changes should be made to the Fund and to the extent necessary so that the
an independent written evaluation. The that it was not necessary to change the advisory fees payable by the Fund do not
Senior Officer has recommended an Fund's portfolio management team at this exceed a specified maximum advisory fee
independent written evaluation in lieu time. rate, which maximum rate includes
of a competitive bidding process and, breakpoints and is based on net asset
upon the direction of the Board, has o The performance of the Fund relative levels. The Board considered the
prepared such an independent written to indices. The Board reviewed the contractual nature of this fee waiver
evaluation. Such written evaluation also performance of the Fund during the past and noted that it remains in effect
considered certain of the factors calendar year against the performance of until June 30, 2006. The Board noted
discussed below. In addition, as the Lipper Small-Cap Core Index. The that AIM has contractually agreed to
discussed below, the Senior Officer made Board noted that the Fund's performance waive fees and/or limit expenses of the
certain recommendations to the Board in was below the performance of such Index Fund through June 30, 2006 in an amount
connection with such written evaluation. for the one year period. The Board noted necessary to limit total annual
that AIM has recently made changes to operating expenses to a specified
The discussion below serves as a the Fund's portfolio management team, percentage of average daily net assets
summary of the Senior Officer's which appear to be producing encouraging for each class of the Fund. The Board
independent written evaluation and early results but need more time to be considered the contractual nature of
recommendations to the Board in evaluated before a conclusion can be this fee waiver/expense limitation and
connection therewith, as well as a made that the changes have addressed the noted that it remains in effect until
discussion of the material factors and Fund's under-performance. Based on this June 30, 2006. The Board considered the
the conclusions with respect thereto review, the Board concluded that no effect these fee waivers/expense
that formed the basis for the Board's changes should be made to the Fund and limitations would have on the Fund's
approval of the Advisory Agreement. that it was not necessary to change the estimated expenses and concluded that
After consideration of all of the Fund's portfolio management team at this the levels of fee waivers/expense
factors below and based on its informed time. limitations for the Fund were fair and
business judgment, the Board determined reasonable.
that the Advisory Agreement is in the o Meeting with the Fund's portfolio
best interests of the Fund and its managers and investment personnel. With o Breakpoints and economies of scale.
shareholders and that the compensation respect to the Fund, the Board is The Board reviewed the structure of the
to AIM under the Advisory Agreement is meeting periodically with such Fund's Fund's advisory fee under the Advisory
fair and reasonable and would have been portfolio managers and/or other Agreement, noting that it does not
obtained through arm's length investment personnel and believes that include any breakpoints. The Board
negotiations. such individuals are competent and able considered whether it would be
to continue to carry out their appropriate to add advisory fee
o The nature and extent of the advisory responsibilities under the Advisory breakpoints for the Fund or whether, due
services to be provided by AIM. The Agreement. to the nature of the Fund and the
Board reviewed the services to be advisory fee structures of comparable
provided by AIM under the Advisory o Overall performance of AIM. The Board funds, it was reasonable to structure
Agreement. Based on such review, the considered the overall performance of the advisory fee without breakpoints.
Board concluded that the range of AIM in providing investment advisory and Based on this review, the Board
services to be provided by AIM under the portfolio administrative services to the concluded that it was not necessary to
Advisory Agreement was appropriate and Fund and concluded that such performance add advisory fee breakpoints to the
that AIM currently is providing services was satisfactory. Fund's advisory fee schedule. The Board
in accordance with the terms of the reviewed the level of the Fund's
Advisory Agreement.
(continued)
7
AIM V.I. SMALL CAP EQUITY FUND
advisory fees, and noted that such fees, o Profitability of AIM and its o Other factors and current trends. In
as a percentage of the Fund's net affiliates. The Board reviewed determining whether to continue the
assets, would remain constant under the information concerning the profitability Advisory Agreement for the Fund, the
Advisory Agreement because the Advisory of AIM's (and its affiliates') Board considered the fact that AIM,
Agreement does not include any investment advisory and other activities along with others in the mutual fund
breakpoints. The Board noted that AIM and its financial condition. The Board industry, is subject to regulatory
has contractually agreed to waive considered the overall profitability of inquiries and litigation related to a
advisory fees of the Fund through June AIM, as well as the profitability of AIM wide range of issues. The Board also
30, 2006 to the extent necessary so that in connection with managing the Fund. considered the governance and compliance
the advisory fees payable by the Fund do The Board noted that AIM's operations reforms being undertaken by AIM and its
not exceed a specified maximum advisory remain profitable, although increased affiliates, including maintaining an
fee rate, which maximum rate includes expenses in recent years have reduced internal controls committee and
breakpoints and is based on net asset AIM's profitability. Based on the review retaining an independent compliance
levels. The Board concluded that the of the profitability of AIM's and its consultant, and the fact that AIM has
Fund's fee levels under the Advisory affiliates' investment advisory and undertaken to cause the Fund to operate
Agreement therefore would not reflect other activities and its financial in accordance with certain governance
economies of scale, although the condition, the Board concluded that the policies and practices. The Board
advisory fee waiver reflects economies compensation to be paid by the Fund to concluded that these actions indicated a
of scale. AIM under its Advisory Agreement was not good faith effort on the part of AIM to
excessive. adhere to the highest ethical standards,
o Investments in affiliated money market and determined that the current
funds. The Board also took into account o Benefits of soft dollars to AIM. The regulatory and litigation environment to
the fact that uninvested cash and cash Board considered the benefits realized which AIM is subject should not prevent
collateral from securities lending by AIM as a result of brokerage the Board from continuing the Advisory
arrangements (collectively, "cash transactions executed through "soft Agreement for the Fund.
balances") of the Fund may be invested dollar" arrangements. Under these
in money market funds advised by AIM arrangements, brokerage commissions paid
pursuant to the terms of an SEC by the Fund and/or other funds advised
exemptive order. The Board found that by AIM are used to pay for research and
the Fund may realize certain benefits execution services. This research is
upon investing cash balances in AIM used by AIM in making investment
advised money market funds, including a decisions for the Fund. The Board
higher net return, increased liquidity, concluded that such arrangements were
increased diversification or decreased appropriate.
transaction costs. The Board also found
that the Fund will not receive reduced o AIM's financial soundness in light of
services if it invests its cash balances the Fund's needs. The Board considered
in such money market funds. The Board whether AIM is financially sound and has
noted that, to the extent the Fund the resources necessary to perform its
invests in affiliated money market obligations under the Advisory
funds, AIM has voluntarily agreed to Agreement, and concluded that AIM has
waive a portion of the advisory fees it the financial resources necessary to
receives from the Fund attributable to fulfill its obligations under the
such investment. The Board further Advisory Agreement.
determined that the proposed securities
lending program and related procedures o Historical relationship between the
with respect to the lending Fund 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. The Fund, the Board also considered the
Board therefore concluded that the prior relationship between AIM and the
investment of cash collateral received Fund, as well as the Board's knowledge
in connection with the securities of AIM's operations, and concluded that
lending program in the money market it was beneficial to maintain the
funds according to the procedures is in current relationship, in part, because
the best interests of the lending Fund of such knowledge. The Board also
and its respective shareholders. reviewed the general nature of the
non-investment advisory services
o Independent written evaluation and currently performed by AIM and its
recommendations of the Fund's Senior affiliates, such as administrative,
Officer. The Board noted that, upon transfer agency and distribution
their direction, the Senior Officer of services, and the fees received by AIM
the Fund, who is independent of AIM and and its affiliates for performing such
AIM's affiliates, had prepared an services. In addition to reviewing such
independent written evaluation in order services, the trustees also considered
to assist the Board in determining the the organizational structure employed by
reasonableness of the proposed AIM and its affiliates to provide those
management fees of the AIM Funds, services. Based on the review of these
including the Fund. The Board noted that and other factors, the Board concluded
the Senior Officer's written evaluation that AIM and its affiliates were
had been relied upon by the Board in qualified to continue to provide
this regard in lieu of a competitive non-investment advisory services to the
bidding process. In determining whether Fund, including administrative, transfer
to continue the Advisory Agreement for agency and distribution services, and
the Fund, the Board considered the that AIM and its affiliates currently
Senior Officer's written evaluation and are providing satisfactory
the recommendation made by the Senior non-investment advisory services.
Officer to the Board that the Board
consider implementing a process to
assist them in more closely monitoring
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-93.66%
ADVERTISING-1.01%
R.H. Donnelley Corp.(a) 7,102 $ 437,625
=======================================================================
AEROSPACE & DEFENSE-2.00%
Alliant Techsystems Inc.(a) 5,667 431,655
- -----------------------------------------------------------------------
Curtiss-Wright Corp. 8,011 437,401
=======================================================================
869,056
=======================================================================
AIR FREIGHT & LOGISTICS-1.13%
UTi Worldwide, Inc. 5,281 490,288
=======================================================================
ALUMINUM-0.55%
Century Aluminum Co.(a) 9,083 238,065
=======================================================================
APPAREL RETAIL-4.06%
Dress Barn, Inc. (The)(a) 12,951 500,038
- -----------------------------------------------------------------------
Genesco Inc.(a) 8,592 333,284
- -----------------------------------------------------------------------
Guess?, Inc.(a) 7,468 265,861
- -----------------------------------------------------------------------
Stage Stores, Inc. 11,360 338,301
- -----------------------------------------------------------------------
Too Inc.(a) 11,544 325,656
=======================================================================
1,763,140
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.84%
Kenneth Cole Productions, Inc.-Class A 14,328 365,364
=======================================================================
APPLICATION SOFTWARE-3.86%
Epicor Software Corp.(a) 33,771 477,184
- -----------------------------------------------------------------------
FileNET Corp.(a) 11,810 305,289
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 13,354 478,340
- -----------------------------------------------------------------------
Transaction Systems Architects, Inc.(a) 14,462 416,361
=======================================================================
1,677,174
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.21%
Affiliated Managers Group, Inc.(a) 6,525 523,631
=======================================================================
BIOTECHNOLOGY-2.45%
CV Therapeutics, Inc.(a) 7,646 189,086
- -----------------------------------------------------------------------
DOV Pharmaceutical, Inc.(a) 11,898 174,663
- -----------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 7,037 441,431
- -----------------------------------------------------------------------
ViroPharma Inc.(a) 13,897 257,789
=======================================================================
1,062,969
=======================================================================
BUILDING PRODUCTS-0.68%
NCI Building Systems, Inc.(a) 6,909 293,494
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
CASINOS & GAMING-1.32%
Pinnacle Entertainment, Inc.(a) 23,159 $ 572,259
=======================================================================
COMMERCIAL PRINTING-0.63%
Banta Corp. 5,501 273,950
=======================================================================
COMMUNICATIONS EQUIPMENT-2.26%
CommScope, Inc.(a) 22,518 453,287
- -----------------------------------------------------------------------
Packeteer, Inc.(a) 28,533 221,701
- -----------------------------------------------------------------------
SpectraLink Corp. 25,824 306,531
=======================================================================
981,519
=======================================================================
COMPUTER HARDWARE-1.90%
Intergraph Corp.(a) 8,829 439,773
- -----------------------------------------------------------------------
Stratasys, Inc.(a) 15,482 387,205
=======================================================================
826,978
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.76%
Emulex Corp.(a) 16,596 328,435
=======================================================================
CONSTRUCTION & ENGINEERING-0.81%
URS Corp.(a) 9,340 351,277
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.46%
Manitowoc Co., Inc. (The) 7,585 380,919
- -----------------------------------------------------------------------
Wabash National Corp. 13,600 259,080
- -----------------------------------------------------------------------
Wabtec Corp. 15,929 428,490
=======================================================================
1,068,489
=======================================================================
CONSUMER FINANCE-0.84%
World Acceptance Corp.(a) 12,828 365,598
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.22%
BISYS Group, Inc. (The)(a) 32,115 449,931
- -----------------------------------------------------------------------
Wright Express Corp.(a) 23,286 512,292
=======================================================================
962,223
=======================================================================
DIVERSIFIED CHEMICALS-0.84%
FMC Corp.(a) 6,886 366,129
=======================================================================
DIVERSIFIED METALS & MINING-0.99%
Compass Minerals International, Inc. 17,523 430,014
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.04%
Genlyte Group Inc. (The)(a) 8,431 451,649
=======================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES-2.16%
Rollins, Inc. 21,108 $ 416,039
- -----------------------------------------------------------------------
Waste Connections, Inc.(a) 15,099 520,312
=======================================================================
936,351
=======================================================================
FOOD RETAIL-0.84%
Ruddick Corp. 17,152 364,995
=======================================================================
GAS UTILITIES-1.58%
Energen Corp. 12,794 464,678
- -----------------------------------------------------------------------
New Jersey Resources Corp. 5,246 219,755
=======================================================================
684,433
=======================================================================
HEALTH CARE FACILITIES-1.82%
Kindred Healthcare, Inc.(a) 12,652 325,916
- -----------------------------------------------------------------------
VCA Antech, Inc.(a) 16,527 466,061
=======================================================================
791,977
=======================================================================
HEALTH CARE SERVICES-0.77%
Apria Healthcare Group Inc.(a) 13,945 336,214
=======================================================================
HEALTH CARE SUPPLIES-5.09%
Cynosure Inc.-Class A(a) 13,618 285,842
- -----------------------------------------------------------------------
DJ Orthopedics Inc.(a) 18,424 508,134
- -----------------------------------------------------------------------
Haemonetics Corp.(a) 12,155 593,893
- -----------------------------------------------------------------------
ICU Medical, Inc.(a) 10,940 428,957
- -----------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 9,931 395,353
=======================================================================
2,212,179
=======================================================================
HOUSEHOLD APPLIANCES-1.06%
Snap-on Inc. 12,284 461,387
=======================================================================
HOUSEHOLD PRODUCTS-0.86%
Central Garden & Pet Co.(a) 8,122 373,125
=======================================================================
INDUSTRIAL MACHINERY-1.11%
Middleby Corp. (The)(a) 5,593 483,795
=======================================================================
INSURANCE BROKERS-0.87%
Hilb Rogal and Hobbs Co. 9,851 379,362
=======================================================================
INTERNET SOFTWARE & SERVICES-1.72%
DealerTrack Holdings Inc.(a) 9,001 188,841
- -----------------------------------------------------------------------
United Online, Inc. 39,151 556,727
=======================================================================
745,568
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.02%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $20,000)(a)(b)(c) 200 7,306
=======================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.48%
iShares Nasdaq Biotechnology Index Fund(a) 2,679 207,087
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
MANAGED HEALTH CARE-0.99%
Sierra Health Services, Inc.(a) 5,375 $ 429,785
=======================================================================
METAL & GLASS CONTAINERS-1.04%
AptarGroup, Inc. 8,652 451,634
=======================================================================
MULTI-UTILITIES-0.50%
Avista Corp. 12,284 217,550
=======================================================================
OFFICE SERVICES & SUPPLIES-0.79%
Brady Corp.-Class A 9,469 342,588
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.54%
FMC Technologies, Inc.(a) 11,898 510,662
- -----------------------------------------------------------------------
Oceaneering International, Inc.(a) 11,898 592,282
=======================================================================
1,102,944
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-5.30%
Comstock Resources, Inc.(a) 14,074 429,398
- -----------------------------------------------------------------------
Penn Virginia Corp. 12,539 719,739
- -----------------------------------------------------------------------
Plains Exploration & Production Co.(a) 10,652 423,204
- -----------------------------------------------------------------------
Warren Resources Inc.(a) 46,004 727,783
=======================================================================
2,300,124
=======================================================================
PACKAGED FOODS & MEATS-1.65%
Flowers Foods, Inc. 16,993 468,327
- -----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 13,164 246,430
=======================================================================
714,757
=======================================================================
PHARMACEUTICALS-0.69%
Aspreva Pharmaceuticals Corp. (Canada)(a) 19,160 301,195
=======================================================================
PROPERTY & CASUALTY INSURANCE-4.81%
Assured Guaranty Ltd. 24,705 627,260
- -----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 12,171 422,334
- -----------------------------------------------------------------------
Ohio Casualty Corp. 15,807 447,654
- -----------------------------------------------------------------------
Philadelphia Consolidated Holding Corp.(a) 6,141 593,773
=======================================================================
2,091,021
=======================================================================
REAL ESTATE-3.55%
Alexandria Real Estate Equities, Inc. 3,838 308,959
- -----------------------------------------------------------------------
Global Signal Inc. 10,056 434,017
- -----------------------------------------------------------------------
LaSalle Hotel Properties 14,074 516,797
- -----------------------------------------------------------------------
Universal Health Realty Income Trust 8,956 280,681
=======================================================================
1,540,454
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.30%
Jones Lang LaSalle Inc. 11,194 563,618
=======================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REGIONAL BANKS-6.31%
Alabama National BanCorp. 5,303 $ 343,422
- -----------------------------------------------------------------------
Boston Private Financial Holdings, Inc. 4,794 145,833
- -----------------------------------------------------------------------
Columbia Banking System, Inc. 9,213 263,031
- -----------------------------------------------------------------------
CVB Financial Corp. 12,379 251,418
- -----------------------------------------------------------------------
Hancock Holding Co. 6,909 261,229
- -----------------------------------------------------------------------
MB Financial, Inc. 8,444 298,918
- -----------------------------------------------------------------------
Signature Bank(a) 10,491 294,482
- -----------------------------------------------------------------------
Sterling Bancshares, Inc. 15,354 237,066
- -----------------------------------------------------------------------
Sterling Financial Corp. 9,596 239,708
- -----------------------------------------------------------------------
United Community Banks, Inc. 15,203 405,312
=======================================================================
2,740,419
=======================================================================
RESTAURANTS-2.04%
Papa John's International, Inc.(a) 8,792 521,454
- -----------------------------------------------------------------------
Steak n Shake Co. (The)(a) 21,614 366,357
=======================================================================
887,811
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.14%
ATMI, Inc.(a) 17,400 486,678
- -----------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 10,107 444,001
=======================================================================
930,679
=======================================================================
SEMICONDUCTORS-3.08%
DSP Group, Inc.(a) 18,424 461,705
- -----------------------------------------------------------------------
Micrel, Inc.(a) 34,886 404,678
- -----------------------------------------------------------------------
Semtech Corp.(a) 12,155 221,950
- -----------------------------------------------------------------------
Silicon Laboratories Inc.(a) 6,780 248,555
=======================================================================
1,336,888
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SYSTEMS SOFTWARE-0.97%
Progress Software Corp.(a) 14,840 $ 421,159
=======================================================================
TIRES & RUBBER-0.49%
Bandag, Inc. 4,990 212,923
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-2.03%
UAP Holding Corp. 22,852 466,638
- -----------------------------------------------------------------------
Watsco, Inc. 6,948 415,560
=======================================================================
882,198
=======================================================================
TRUCKING-1.20%
Landstar System, Inc. 12,539 523,378
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $35,268,754) 40,674,230
=======================================================================
MONEY MARKET FUNDS-5.36%
Liquid Assets Portfolio-Institutional
Class(d) 1,164,526 1,164,526
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 1,164,526 1,164,526
=======================================================================
Total Money Market Funds (Cost
$2,329,052) 2,329,052
=======================================================================
TOTAL INVESTMENTS-99.02% (Cost $37,597,806) 43,003,282
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.98% 427,589
=======================================================================
NET ASSETS-100.00% $43,430,871
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The value of this security at December 31, 2005 represented 0.02% 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 at the time of
purchase.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2005 represented 0.02% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $35,268,754) $40,674,230
- --------------------------------------------------------
Investments in affiliated money market
funds (cost $2,329,052) 2,329,052
========================================================
Total investments (cost $37,597,806) 43,003,282
========================================================
Receivables for:
Investments sold 368,876
- --------------------------------------------------------
Fund shares sold 205,212
- --------------------------------------------------------
Dividends 21,669
- --------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 5,361
========================================================
Total assets 43,604,400
________________________________________________________
========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 111,184
- --------------------------------------------------------
Trustee deferred compensation and
retirement plans 5,605
- --------------------------------------------------------
Accrued administrative services fees 24,843
- --------------------------------------------------------
Accrued distribution fees -- Series II 550
- --------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 103
- --------------------------------------------------------
Accrued transfer agent fees 347
- --------------------------------------------------------
Accrued operating expenses 30,897
========================================================
Total liabilities 173,529
========================================================
Net assets applicable to shares outstanding $43,430,871
________________________________________________________
========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $38,657,256
- --------------------------------------------------------
Undistributed net investment income (loss) (73,864)
- --------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (557,997)
- --------------------------------------------------------
Unrealized appreciation of investment
securities 5,405,476
========================================================
$43,430,871
________________________________________________________
========================================================
NET ASSETS:
Series I $42,751,676
________________________________________________________
========================================================
Series II $ 679,195
________________________________________________________
========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 3,175,578
________________________________________________________
========================================================
Series II 50,631
________________________________________________________
========================================================
Series I:
Net asset value per share $ 13.46
________________________________________________________
========================================================
Series II:
Net asset value per share $ 13.41
________________________________________________________
========================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$83) $ 210,428
- --------------------------------------------------------
Dividends from affiliated money market funds 44,285
========================================================
Total investment income 254,713
========================================================
EXPENSES:
Advisory fees 278,323
- --------------------------------------------------------
Administrative services fees 130,414
- --------------------------------------------------------
Custodian fees 21,243
- --------------------------------------------------------
Distribution fees -- Series II 1,582
- --------------------------------------------------------
Transfer agent fees 3,481
- --------------------------------------------------------
Trustees' and officer's fees and benefits 15,651
- --------------------------------------------------------
Professional services fees 42,089
- --------------------------------------------------------
Other 22,225
========================================================
Total expenses 515,008
========================================================
Less: Fees waived and expense offset
arrangement (115,981)
- --------------------------------------------------------
Net expenses 399,027
========================================================
Net investment income (loss) (144,314)
========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains from
securities sold to affiliates of
$54,343) 662,088
- --------------------------------------------------------
Foreign currencies 182
========================================================
662,270
========================================================
Change in net unrealized appreciation of
investment securities 2,398,286
========================================================
Net gain from investment securities and
foreign currencies 3,060,556
========================================================
Net increase in net assets resulting from
operations $2,916,242
________________________________________________________
========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (144,314) $ (82,316)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contract 662,270 (1,216,759)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 2,398,286 2,814,379
========================================================================================
Net increase in net assets resulting from operations 2,916,242 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 13,921,136 22,271,440
- ----------------------------------------------------------------------------------------
Series II 7,329 125
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 13,928,465 22,271,565
========================================================================================
Net increase in net assets 16,844,707 23,785,872
========================================================================================
NET ASSETS:
Beginning of year 26,586,164 2,800,292
========================================================================================
End of year (including undistributed net investment income
(loss) of $(73,864) and $(3,910), respectively) $43,430,871 $26,586,164
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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-seven 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.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. SMALL CAP EQUITY FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
J. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading.
AIM V.I. SMALL CAP EQUITY FUND
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.
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 replace 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 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 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 1.15% and Series II shares to 1.40% of average daily net assets, through June
30, 2006. This agreement has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 only 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.
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 year ended December 31, 2005, AIM waived fees of $115,253.
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 year ended December 31, 2005, AMVESCAP did not
reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000, for
accounting and fund administrative services and reimbursed $80,414 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 year ended
December 31, 2005, the Fund paid AISI $3,481.
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
AIM V.I. SMALL CAP EQUITY FUND
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. Pursuant to the Plan, for the year ended December 31, 2005, the Series
II shares paid $1,280 after ADI waived Plan fees of $302.
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 year ended December 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $344,833 $12,591,835 $(11,772,142) $ -- $1,164,526 $22,075 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 344,833 12,591,835 (11,772,142) -- 1,164,526 22,210 --
==================================================================================================================================
Total $689,666 $25,183,670 $(23,544,284) $ -- $2,329,052 $44,285 $ --
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2005, the Fund
engaged in securities purchases of $1,173,417 and sales of $249,383, which
resulted in net realized gains of $54,343.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $426.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,009
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.
AIM V.I. SMALL CAP EQUITY 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 year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $ -- $ 997
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 5,270,902
- -----------------------------------------------------------------------------
Temporary book/tax differences (4,902)
- -----------------------------------------------------------------------------
Capital loss carryforward (492,385)
- -----------------------------------------------------------------------------
Shares of beneficial interest 38,657,256
=============================================================================
Total net assets $ 43,430,871
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, treatment of certain option contracts, and passive foreign
investment companies.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions
The Fund utilized $689,298 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2012 $492,385
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $33,858,143 and $22,120,736, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 6,368,299
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,097,397)
===============================================================================
Net unrealized appreciation of investment securities $ 5,270,902
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $37,732,380.
</Table>
AIM V.I. SMALL CAP EQUITY FUND
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2005, undistributed net
investment income was increased by $74,360, undistributed net realized gain
(loss) decreased by $182 and shares of beneficial interest decreased by $74,178.
This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005(A) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,778,336 $ 22,484,880 2,694,847 $ 31,500,234
- ----------------------------------------------------------------------------------------------------------------------
Series II 807 10,132 8 100
======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 79 972
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- 2 25
======================================================================================================================
Reacquired:
Series I (688,338) (8,563,744) (805,404) (9,229,766)
- ----------------------------------------------------------------------------------------------------------------------
Series II (224) (2,803) -- --
======================================================================================================================
1,090,581 $ 13,928,465 1,889,532 $ 22,271,565
______________________________________________________________________________________________________________________
======================================================================================================================
</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 97% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to 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. SMALL CAP EQUITY 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
--------------------------------------------
AUGUST 29, 2003
YEAR ENDED DECEMBER (DATE OPERATIONS
31, COMMENCED) TO
--------------------- 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) (0.06)(a) (0.06)(a) (0.01)
- ----------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.07 1.13 1.41
==========================================================================================================
Total from investment operations 1.01 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 $ 13.46 $ 12.45 $ 11.38
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 8.11% 9.41% 13.94%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $42,752 $25,964 $ 2,231
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(c) 1.30% 1.32%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.57%(c) 2.01% 12.86%(d)
==========================================================================================================
Ratio of net investment income (loss) to average net assets (0.44)%(c) (0.56)% (0.44)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 70% 156% 26%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product,which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $32,111,059.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
AUGUST 29,
2003
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------- 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) (0.08)(a) (0.08)(a) (0.02)
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.06 1.13 1.41
=============================================================================================================
Total from investment operations 0.98 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 $ 13.41 $ 12.43 $ 11.38
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 7.88% 9.23% 13.88%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 679 $ 622 $ 569
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.42%(c) 1.45% 1.47%(d)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.82%(c) 2.26% 13.11%(d)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (0.64)%(c) (0.71)% (0.59)%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(e) 70% 156% 26%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product,which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $632,845.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created 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, which was done pursuant to the terms of the settlement. 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. SMALL CAP EQUITY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
PENDING LITIGATION AND REGULATORY INQUIRIES
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to the
MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. Initial research
indicates that these damages could be limited or capped by statute. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
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; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders implementing
these rulings in the AIM and IFG lawsuits. The MDL Court has not entered any
orders on the motions to dismiss in these lawsuits and it is possible the orders
may differ in some respects from the rulings described above. Based on the MDL
Court's opinion and both parties' proposed orders, however, all claims asserted
against the Funds that have been transferred to the MDL Court will be dismissed,
although certain Funds will remain nominal defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL
AIM V.I. SMALL CAP EQUITY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
Court: (i) denied the motion to dismiss on the grounds that the plaintiffs lack
standing or that the defendants' investments in company stock are entitled to a
presumption of prudence; (ii) granted the motion to dismiss as to defendants not
named in the employee benefit plan documents as fiduciaries but gave plaintiffs
leave to replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Small Cap Equity Fund (one
of the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations, changes in
its net assets and financial highlights for each of the periods indicated for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion. The statement of changes
in net assets of the Fund for the year ended December 31, 2004 and the financial
highlights for each of the periods ended on or before December 31, 2004 were
audited by another independent registered public accounting firm whose report
dated February 4, 2005 expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. SMALL CAP EQUITY FUND
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 LLP ("TAIT") was the
Fund's independent registered public accounting firm for the prior reporting
periods. The change in the Fund's independent registered public accounting firm
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.
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
AIM V.I. SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and Senior
Portfolio Manager, INVESCO Institutional
(N.A.), Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment State Street Bank and
300 K N.W., Suite 500 Kramer, Levin, Naftalis Services, Inc. Trust Company
Washington, D.C. 20007-5111 & Frankel LLP P.O. Box 4739 225 Franklin Street
1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
AIM V.I. SMALL CAP EQUITY FUND
AIM V.I. SMALL COMPANY GROWTH FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. SMALL COMPANY GROWTH FUND seeks long-term capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. SMALL COMPANY GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE management measure that helps us confirm
our high conviction candidates.
=======================================================================================
PERFORMANCE SUMMARY We consider selling or trimming a
========================================== stock when:
On September 16, 2005, changes were made FUND VS. INDEXES
to your Fund's management team with the o the company's fundamental business
intention of improving long-term TOTAL RETURNS, 12/31/04-12/31/05, prospects deteriorate
performance. The new team consists of EXCLUDING VARIABLE PRODUCT ISSUER
Juliet Ellis (lead) and Juan Hartsfield, CHARGES. IF VARIABLE PRODUCT ISSUER o a stock hits its target price
who are assisted by the Small Cap Core/ CHARGES WERE INCLUDED, RETURNS WOULD BE
Growth Team. Our goal is to produce LOWER. o the company's technical profile
consistent, strong risk-adjusted returns deteriorates
for long-term investors. Series I Shares 5.19%
MARKET CONDITIONS AND YOUR FUND
For the year covered by this report, Series II Shares 4.93
your Fund recorded positive returns. When we assumed management of the Fund,
Standard & Poor's Composite Index major stock market indexes had been
The Fund fared slightly better than of 500 Stocks (S&P 500 Index) fluctuating within a relatively narrow
the S&P 500 Index and outperformed the (Broad Market Index) 4.91 range for several months. Although
Russell 2000 Growth Index by a wider corporate earnings were generally solid,
margin, largely due to strong returns by Russell 2000 Growth Index concerns about rising oil prices and
holdings in the industrials and energy (Style-specific Index) 4.15 interest rates, the economic impact of
sectors. Positive performance was two Gulf Coast hurricanes and other
broad-based, Lipper Small-Cap Growth Fund Index matters restrained index performance for
(Peer Group Index) 5.34 the reporting period.
SOURCE: LIPPER, INC. We increased our weighting in
========================================== industrials, the best-performing sector
as significant detractors were for your Fund during the year. Within
concentrated in the information this sector, we added to our
technology sector. transportation industry holdings. We
particularly liked trucking companies
For long-term performance, see Pages because of their increased pricing
4 and 5. power. An industrials stock that
contributed positively to portfolio
======================================================================================= performance was Ceradyne, which makes
advanced technical ceramics products,
HOW WE INVEST models and conducting in-depth including body armor for the military.
interviews with company management. The company reported record sales and
We focus on small-cap growth companies earnings for the third quarter of 2005.
with visible and long-term growth o Valuation analysis: identifying We continue to own the stock as we
opportunities, as demonstrated by attractively valued stocks given their believe the company is likely to
consistent and accelerating earnings growth potential over a one- to two-year continue to grow its dominant market
growth. horizon. share position. Another stock in this
sector which enhanced performance was
We select stocks based on analysis of o Technical analysis--identifying the WATSCO, which distributes air
individual companies. Our three-step "timeliness" of a stock purchase. We
selection process includes: review trading volume characteristics
and trend analysis to make sure there
o Fundamental analysis--building are no signs of the stock deteriorating.
financial This also serves as a risk
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Application Software 5.5% 1. Cytyc Corp. 1.5%
Information Technology 24.0% 2. Health Care Equipment 4.6 2. Aeropostale, Inc. 1.4
Industrials 19.4 3. Electronic Equipment Manufacturers 4.2 3. Celadon Group, Inc. 1.3
Health Care 13.6 4. Apparel Retail 4.1 4. SBA Communications Corp.-Class A 1.3
Consumer Discretionary 13.1 5. Regional Banks 3.0 5. Hyperion Solutions Corp. 1.3
Financials 9.0 6. Henry (Jack) & Associates, Inc. 1.3
Energy 6.3 TOTAL NET ASSETS $31.2 MILLION 7. Swift Transportation Co., Inc. 1.3
TOTAL NUMBER OF HOLDINGS* 120
Materials 3.9 8. Nara Bancorp, Inc. 1.2
Consumer Staples 2.3 9. Carpenter Technology Corp. 1.2
Telecommunication Services 2.2 10. Barrett (Bill) Corp. 1.2
Money Market Funds
Plus Other Assets Less Liabilities 6.2
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
</Table>
2
AIM V.I. SMALL COMPANY GROWTH FUND
conditioning and heating units. Watsco RIGEL PHARMACEUTICALS and ORCHID JULIET ELLIS, Chartered
also reported record earnings for the CELLMARK, which were both subsequently [ELLIS Financial Analyst and
third quarter of 2005, as the company sold. We further reduced the Fund's PHOTO] Senior Portfolio Manager,
continued to expand its distribution weight in the health care sector by is lead portfolio manager
network. We sold the stock and took selling the stocks of several health of AIM V.I. Small
profits. care companies we believed had weak Company Growth Fund.
prospects for long-term profitability.
An industrials stock that we sold was Ms. Ellis joined AIM in 2004. She
SIRVA, the largest detractor from our Although the Fund's return during the previously served as Senior Portfolio
performance for the year. Sirva is a reporting period was positively impacted Manager of two small-cap funds for
global relocation services company that by its investments in initial public another company and was responsible for
had to restate its earnings for the offerings (IPOs), there can be no the management of more than $2 billion
years 2000 to 2003 and for the first assurance that the Fund will have in assets.
nine months of 2004 because of favorable IPO investment opportunities
accounting errors. in the future. Ms. Ellis began her investment career
in 1981 as a financial consultant. She
Higher energy prices and improved IN CLOSING is a Cum Laude and Phi Beta Kappa
earnings prospects led to significant graduate of Indiana University with a
stock price increases in many of the We are pleased to have provided positive B.A. in economics and political science.
Fund's investments in the energy sector. return for the reporting period. We
One of the leading contributors in this remain committed to our bottom-up stock JUAN HARTSFIELD, Chartered
sector was SPINNAKER EXPLORATION, a selection process of identifying Financial Analyst and
natural gas and oil exploration and attractively valued small-cap growth [HARTSFIELD Portfolio Manager, is
production company that benefited from companies' with high growth potential PHOTO] portfolio manager of AIM V.I.
record-high oil and natural gas prices. while endeavoring to avoid high-risk Small Company Growth Fund.
The company was also acquired during the stocks. We believe our disciplined Prior to joining AIM in 2004, he began
year for a premium. Other key investment strategy has the potential to his investment career in 2000 as an
contributors included BILL BARRETT provide shareholders with consistent, equity analyst and most recently served
CORP., a Denver-based oil and gas attractive returns over a long-term as a portfolio manager.
exploration company, and UNIT CORP., an investment horizon with below-market
onshore natural gas drilling company. We risk. We thank you for your continued Mr. Hartsfield earned a B.S. in
increased our weighting in energy due to participation in AIM V.I. Small Company petroleum engineering from the
the strong pricing power of many of the Growth Fund. University of Texas and his M.B.A. from
companies in this sector. The University of Michigan.
Within the information technology THE VIEWS AND OPINIONS EXPRESSED IN Assisted by the Small Cap Core/Growth
sector, many of the Fund's software and MANAGEMENT'S DISCUSSION OF FUND Team
services holdings detracted from Fund PERFORMANCE ARE THOSE OF A I M ADVISORS,
performance during the reporting period. INC. THESE VIEWS AND OPINIONS ARE
One of the most significant detractors SUBJECT TO CHANGE AT ANY TIME BASED ON
was KINTERA, a company that markets FACTORS SUCH AS MARKET AND ECONOMIC
software and services to help CONDITIONS. THESE VIEWS AND OPINIONS MAY
not-for-profit organizations raise NOT BE RELIED UPON AS INVESTMENT ADVICE
money. The stock price of this holding OR RECOMMENDATIONS, OR AS AN OFFER FOR A
fell earlier in the year after the PARTICULAR SECURITY. THE INFORMATION IS
company reported losses for the first NOT A COMPLETE ANALYSIS OF EVERY ASPECT
and second quarters of its fiscal year. OF ANY MARKET, COUNTRY, INDUSTRY,
The holding was subsequently sold due to SECURITY OR THE FUND. STATEMENTS OF FACT
deteriorating fundamentals. Other ARE FROM SOURCES CONSIDERED RELIABLE,
detractors in this area included BUT A I M ADVISORS, INC. MAKES NO
Infocrossing and ALLIANCE DATA SYSTEMS. REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH
The Fund's health care holdings also HISTORICAL PERFORMANCE IS NO GUARANTEE
detracted from returns, primarily due to OF FUTURE RESULTS, THESE INSIGHTS MAY
underperformance by several HELP YOU UNDERSTAND OUR INVESTMENT [RIGHT ARROW GRAPHIC]
biotechnology stocks. A leading MANAGEMENT PHILOSOPHY.
detractor was EYETECH PHARMACEUTICALS, FOR A DISCUSSION OF THE RISKS OF
which markets therapeutics to treat eye INVESTING IN YOUR FUND,INDEXES USED IN
diseases. The stock declined due to THIS REPORT AND YOUR FUND'S LONG-TERM
concerns about a competitor's PERFORMANCE, PLEASE TURN TO PAGES 4 AND 5.
experimental drug which produced
positive results in late-stage trials in
treating blindness in older adults. We
sold the stock based on this weaker
competitive position. Other detractors
included
</Table>
3
AIM V.I. SMALL COMPANY GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/22/97, index data from 8/31/97
<Caption>
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. SMALL COMPANY RUSSELL 2000 S&P 500 LIPPER SMALL-CAP
GROWTH FUND- GROWTH INDEX INDEX GROWTH FUND INDEX
SERIES I SHARES
8/22/97 $10000
8/97 10090 $10000 $10000 $10000
9/97 10820 10798 10547 10842
10/97 10110 10149 10196 10287
11/97 9809 9907 10667 10055
12/97 9910 9913 10850 9921
1/98 9770 9781 10970 9774
2/98 10710 10644 11761 10564
3/98 11249 11091 12363 11042
4/98 11299 11159 12489 11122
5/98 10499 10348 12275 10335
6/98 10929 10454 12773 10638
7/98 10120 9581 12638 9837
8/98 7969 7369 10812 7689
9/98 9039 8116 11505 8100
10/98 9449 8540 12440 8419
11/98 10489 9202 13193 9104
12/98 11532 10035 13953 10017
1/99 11682 10486 14536 10259
2/99 10551 9527 14085 9272
3/99 11232 9866 14648 9691
4/99 11612 10738 15215 10069
5/99 11673 10755 14856 10124
6/99 13054 11321 15679 11072
7/99 14164 10971 15191 11032
8/99 13854 10561 15116 10878
9/99 14895 10764 14702 11272
10/99 15556 11040 15632 11929
11/99 17948 12208 15950 13434
12/99 22032 14359 16888 16143
1/00 20961 14226 16040 15975
2/00 26465 17535 15736 20656
3/00 25153 15692 17275 19035
4/00 21548 14108 16755 16682
5/00 19107 12872 16412 15318
6/00 23740 14535 16816 18015
7/00 21699 13290 16553 16843
8/00 24721 14687 17581 18655
9/00 23391 13958 16653 17731
10/00 21770 12825 16582 16401
11/00 17259 10496 15276 13608
12/00 18732 11138 15351 14811
1/01 18659 12040 15895 15262
2/01 16099 10390 14447 13309
3/01 14627 9445 13532 12016
4/01 16846 10601 14583 13313
5/01 17011 10847 14681 13674
6/01 17229 11143 14323 14019
7/01 16057 10192 14182 13237
8/01 14678 9556 13295 12454
9/01 12159 8014 12222 10510
10/01 13341 8785 12455 11280
11/01 14419 9518 13410 12154
12/01 15258 10111 13528 12891
1/02 14584 9751 13330 12501
2/02 13267 9120 13073 11744
3/02 14086 9912 13565 12704
4/02 13764 9698 12743 12369
5/02 13257 9131 12649 11873
6/02 12272 8357 11749 10991
7/02 10603 7072 10833 9432
8/02 10572 7069 10904 9418
9/02 9992 6558 9720 8847
10/02 10613 6890 10575 9225
11/02 11235 7573 11197 9997
12/02 10509 7051 10539 9329
1/03 10188 6859 10264 9083
2/03 9991 6676 10109 8800
3/03 10095 6778 10207 8981
4/03 10685 7419 11048 9724
5/03 11691 8255 11629 10715
6/03 11846 8414 11778 11078
7/03 12593 9050 11985 11726
8/03 13256 9536 12219 12348
9/03 12811 9295 12089 12045
10/03 13796 10098 12773 13138
11/03 14262 10427 12885 13487
12/03 14024 10474 13560 13507
1/04 14739 11024 13809 14139
2/04 14678 11007 14001 14085
3/04 14594 11058 13790 13988
4/04 13909 10503 13574 13305
5/04 14158 10712 13760 13582
6/04 14583 11069 14027 13969
7/04 13381 10075 13563 12737
8/04 13030 9858 13617 12324
9/04 13703 10403 13765 13028
10/04 14169 10656 13975 13394
11/04 15091 11557 14540 14331
12/04 15973 11972 15035 14964
1/05 15289 11433 14669 14398
2/05 15465 11590 14977 14682
3/05 15040 11155 14712 14189
4/05 14190 10445 14433 13396
5/05 14968 11181 14892 14284
6/05 15786 11543 14913 14783
7/05 16781 12350 15468 15685
8/05 16615 12176 15327 15414
9/05 16346 12272 15451 15498
10/05 15973 11819 15193 14973
11/05 16823 12488 15767 15776
12/05 $16805 $12469 $15773 $15763
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
</Table>
4
AIM V.I. SMALL COMPANY GROWTH FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS II SHARES. THE INCEPTION DATE OF SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
I SHARES IS AUGUST 22, 1997. THE SERIES SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 12/31/05 I AND SERIES II SHARES INVEST IN THE FIGURES GIVEN REPRESENT THE FUND AND ARE
SAME PORTFOLIO OF SECURITIES AND WILL NOT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES HAVE SUBSTANTIALLY SIMILAR PERFORMANCE, PRODUCT VALUES. THEY DO NOT REFLECT
Inception (8/22/97) 6.41% EXCEPT TO THE EXTENT THAT EXPENSES BORNE SALES CHARGES, EXPENSES AND FEES
5 Years -2.15 BY EACH CLASS DIFFER. ASSESSED IN CONNECTION WITH A VARIABLE
1 Year 5.19 PRODUCT. SALES CHARGES, EXPENSES AND
THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
Inception 6.15% COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
5 Years -2.37 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 4.93 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
========================================== RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 6.43% WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 6.32 GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
========================================== AIM V.I. SMALL COMPANY GROWTH FUND, A
SERIES PORTFOLIO OF AIM VARIABLE
RETURNS SINCE APRIL 30, 2004, THE INSURANCE FUNDS, IS CURRENTLY OFFERED
INCEPTION DATE OF SERIES II SHARES, ARE THROUGH INSURANCE COMPANIES ISSUING
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER RULE 12b-1 FEES APPLICABLE TO
THE SERIES
PRINCIPAL RISKS OF INVESTING IN THE FUND The Fund's return during certain The Fund is not managed to track the
periods was positively impacted by its performance of any particular index,
Investing in micro and small companies investments in initial public offerings including the indexes defined here, and
involves risks not associated with (IPOs). There can be no assurance that consequently, the performance of the
investing in more established companies, the Fund will have favorable IPO Fund may deviate significantly from the
such as business risk, significant stock investment opportunities in the future. performance of the indexes.
price fluctuations and illiquidity. Moreover, the prices of IPO securities
may go up and down more than prices of A direct investment cannot be made in
The Fund may invest up to 25% of its equity securities of companies with an index. Unless otherwise indicated,
assets in the securities of non-U.S. longer trading histories. In addition, index results include reinvested
issuers. Securities of Canadian issuers companies offering securities in IPOs dividends, and they do not reflect sales
and American Depositary Receipts are not may have less experienced management or charges. Performance of an index of
subject to this 25% limitation. limited operating histories. For funds reflects fund expenses;
International investing presents certain additional information regarding the performance of a market index does not.
risks not associated with investing fund's performance, please see the
solely in the United States. These fund's prospectus. OTHER INFORMATION
include risks relating to fluctuations
in the value of the U.S. dollar relative ABOUT INDEXES USED IN THIS REPORT The returns shown in the management's
to the values of other currencies, the discussion of Fund performance are based
custody arrangements made for the Fund's The unmanaged Standard & Poor's on net asset values calculated for
foreign holdings, differences in Composite Index of 500 Stocks (the S&P shareholder transactions. Generally
accounting, political risks and the 500--REGISTERED TRADEMARK-- INDEX) is accepted accounting principles require
lesser degree of public information an index of common stocks frequently adjustments to be made to the net assets
required to be provided by non-U.S. used as a general measure of U.S. stock of the Fund at period end for financial
companies. market performance. reporting purposes, and as such, the net
asset value for shareholder transactions
At any given time, the Fund may be The unmanaged LIPPER SMALL-CAP GROWTH and the returns based on those net asset
subject to sector risk, which means a FUND INDEX represents an average of the values may differ from the net asset
certain sector may underperform other performance of the 30 largest values and returns reported in the
sectors or the market as a whole. The small-capitalization growth funds Financial Highlights. Additionally, the
Fund is not limited with respect to the tracked by Lipper, Inc., an independent returns and net asset values shown
sectors in which it can invest. mutual fund performance monitor. throughout this report are at the Fund
level only and do not include variable
Portfolio turnover is greater than The unmanaged RUSSELL 2000 product issuer charges. If such charges
that of most funds, which may affect --REGISTERED TRADEMARK-- GROWTH INDEX is were included, the total returns would
performance. a subset of the unmanaged RUSSELL 2000 be lower.
--REGISTERED TRADEMARK-- INDEX, which
represents the performance of the stocks Industry classifications used in this
of small-capitalization companies; the report are generally according to the
Growth subset measures the performance Global Industry Classification Standard,
of Russell 2000 companies with higher which was developed by and is the
price/ book ratios and higher forecasted exclusive property and a service mark of
growth values. Morgan Stanley Capital International
Inc. and Standard & Poor's.
</Table>
5
AIM V.I. SMALL COMPANY GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE ACTUAL EXPENSES Fund's 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 December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on Page
(12b-1); and other Fund expenses. This this table, together with the amount you 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON
the effect of any fees or other expenses PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,064.30 $6.24 $1,019.16 $6.11 1.20%
Series II 1,000.00 1,063.20 7.54 1,017.90 7.38 1.45
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
6
AIM V.I. SMALL COMPANY 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 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. Small Company credentials and experience of the respect to the Fund, the Board is
Growth 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 the same as the initial
ongoing oversight of the Fund. In their the performance of the Fund during the advisory fee rate for a mutual fund
deliberations, the Board and the past one, three and five calendar years advised by AIM with investment
independent trustees did not identify against the performance of funds advised strategies comparable to those of the
any particular factor that was by other advisors with investment Fund, although the mutual fund included
controlling, and each trustee attributed strategies comparable to those of the breakpoints. The Board noted that AIM
different weights to the various Fund. The Board noted that the Fund's has agreed to waive advisory fees of the
factors. performance was above the median Fund and to limit the Fund's total
performance of such comparable funds for operating expenses, as discussed below.
One of the responsibilities of the the one year period and below such Based on this review, the Board
Senior Officer of the Fund, who is median performance for the three and concluded that the advisory fee rate for
independent of AIM and AIM's affiliates, five year periods. The Board also noted the Fund under the Advisory Agreement
is to manage the process by which the that AIM began serving as investment was fair and reasonable.
Fund's proposed management fees are advisor to the Fund in April 2004. The
negotiated to ensure that they are Board noted that AIM has recently made o Fees relative to those of comparable
negotiated in a manner which is at arm's changes to the Fund's portfolio funds with other advisors. The Board
length and reasonable. To that end, the management team, which appear to be reviewed the advisory fee rate for the
Senior Officer must either supervise a producing encouraging early results but Fund under the Advisory Agreement. The
competitive bidding process or prepare need more time to be evaluated before a Board compared effective contractual
an independent written evaluation. The conclusion can be made that the changes advisory fee rates at a common asset
Senior Officer has recommended an have addressed the Fund's level and noted that the Fund's rate was
independent written evaluation in lieu under-performance. Based on this review, above the median rate of the funds
of a competitive bidding process and, the Board concluded that no changes advised by other advisors with
upon the direction of the Board, has should be made to the Fund and that it investment strategies comparable to
prepared such an independent written was not necessary to change the Fund's those of the Fund that the Board
evaluation. Such written evaluation also portfolio management team at this time. reviewed. The Board noted that AIM has
considered certain of the factors agreed to waive advisory fees of the
discussed below. In addition, as o The performance of the Fund relative Fund and to limit the Fund's total
discussed below, the Senior Officer made to indices. The Board reviewed the operating expenses, as discussed below.
certain recommendations to the Board in performance of the Fund during the past Based on this review, the Board
connection with such written evaluation. one, three and five calendar years concluded that the advisory fee rate for
against the performance of the Lipper the Fund under the Advisory Agreement
The discussion below serves as a Small-Cap Growth Index. The Board noted was fair and reasonable.
summary of the Senior Officer's that the Fund's performance was above
independent written evaluation and the performance of such Index for the o Expense limitations and fee waivers.
recommendations to the Board in one year period and below such Index for The Board noted that AIM has
connection therewith, as well as a the three and five year periods. The contractually agreed to waive advisory
discussion of the material factors and Board also noted that AIM began serving fees of the Fund through June 30, 2006
the conclusions with respect thereto as investment advisor to the Fund in to the extent necessary so that the
that formed the basis for the Board's April 2004. The Board noted that AIM has advisory fees payable by the Fund do not
approval of the Advisory Agreement. recently made changes to the Fund's exceed a specified maximum advisory fee
After consideration of all of the portfolio management team, which appear rate, which maximum rate includes
factors below and based on its informed to be producing encouraging early breakpoints and is based on net asset
business judgment, the Board determined results but need more time to be levels. The Board considered the
that the Advisory Agreement is in the evaluated before a conclusion can be contractual nature of this fee waiver
best interests of the Fund and its made that the changes have addressed the and noted that it remains in effect
shareholders and that the compensation Fund's under-performance. Based on this until June 30, 2006. The Board noted
to AIM under the Advisory Agreement is review, the Board concluded that no that AIM has contractually agreed to
fair and reasonable and would have been changes should be made to the Fund and waive fees and/or limit expenses of the
obtained through arm's length that it was not necessary to change the Fund through June 30, 2006 in an amount
negotiations. Fund's portfolio management team at this necessary to limit total annual
time. operating expenses to a specified
o The nature and extent of the advisory percentage of average daily net assets
services to be provided by AIM. The for each class of the Fund. The Board
Board reviewed the services to be considered the contractual nature of
provided by AIM under the Advisory this fee waiver/expense limitation and
Agreement. Based on such review, the noted that it remains in effect until
Board concluded that the range of June 30, 2006. The Board considered the
services to be provided by AIM under the effect these fee waivers/expense
Advisory Agreement was appropriate and limitations would have on the Fund's
that AIM currently is providing services estimated expenses and concluded that
in accordance with the terms of the the levels of fee waivers/expense
Advisory Agreement. limitations for the Fund were fair and
reasonable.
(continued)
</Table>
7
AIM V.I. SMALL COMPANY 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 does not their direction, the Senior Officer of Fund, the Board also considered the
include any breakpoints. The Board the Fund, who is independent of AIM and prior relationship between AIM and the
considered whether it would be AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
appropriate to add advisory fee independent written evaluation in order of AIM's operations, and concluded that
breakpoints for the Fund or whether, due to assist the Board in determining the it was beneficial to maintain the
to the nature of the Fund and the reasonableness of the proposed current relationship, in part, because
advisory fee structures of comparable management fees of the AIM Funds, of such knowledge. The Board also
funds, it was reasonable to structure including the Fund. The Board noted that reviewed the general nature of the
the advisory fee without breakpoints. the Senior Officer's written evaluation non-investment advisory services
Based on this review, the Board had been relied upon by the Board in currently performed by AIM and its
concluded that it was not necessary to this regard in lieu of a competitive affiliates, such as administrative,
add advisory fee breakpoints to the bidding process. In determining whether transfer agency and distribution
Fund's advisory fee schedule. The Board to continue the Advisory Agreement for services, and the fees received by AIM
reviewed the level of the Fund's the Fund, the Board considered the and its affiliates for performing such
advisory fees, and noted that such fees, Senior Officer's written evaluation and services. In addition to reviewing such
as a percentage of the Fund's net the recommendation made by the Senior services, the trustees also considered
assets, would remain constant under the Officer to the Board that the Board the organizational structure employed by
Advisory Agreement because the Advisory consider implementing a process to AIM and its affiliates to provide those
Agreement does not include any assist them in more closely monitoring services. Based on the review of these
breakpoints. The Board noted that AIM the performance of the AIM Funds. The and other factors, the Board concluded
has contractually agreed to waive Board concluded that it would be that AIM and its affiliates were
advisory fees of the Fund through June advisable to implement such a process as qualified to continue to provide
30, 2006 to the extent necessary so that soon as reasonably practicable. non-investment advisory services to the
the advisory fees payable by the Fund do Fund, including administrative, transfer
not exceed a specified maximum advisory o Profitability of AIM and its agency and distribution services, and
fee rate, which maximum rate includes affiliates. The Board reviewed that AIM and its affiliates currently
breakpoints and is based on net asset information concerning the profitability are providing satisfactory
levels. The Board concluded that the of AIM's (and its affiliates') non-investment advisory services.
Fund's fee levels under the Advisory investment advisory and other activities
Agreement therefore would not reflect and its financial condition. The Board o Other factors and current trends. In
economies of scale, although the considered the overall profitability of determining whether to continue the
advisory fee waiver reflects economies AIM, as well as the profitability of AIM Advisory Agreement for the Fund, the
of scale. in connection with managing the Fund. Board considered the fact that AIM,
The Board noted that AIM's operations along with others in the mutual fund
o Investments in affiliated money market remain profitable, although increased industry, is subject to regulatory
funds. The Board also took into account expenses in recent years have reduced inquiries and litigation related to a
the fact that uninvested cash and cash AIM's profitability. Based on the review wide range of issues. The Board also
collateral from securities lending of the profitability of AIM's and its considered the governance and compliance
arrangements (collectively, "cash affiliates' investment advisory and reforms being undertaken by AIM and its
balances") of the Fund may be invested other activities and its financial affiliates, including maintaining an
in money market funds advised by AIM condition, the Board concluded that the internal controls committee and
pursuant to the terms of an SEC compensation to be paid by the Fund to retaining an independent compliance
exemptive order. The Board found that AIM under its Advisory Agreement was not consultant, and the fact that AIM has
the Fund may realize certain benefits excessive. undertaken to cause the Fund to operate
upon investing cash balances in AIM in accordance with certain governance
advised money market funds, including a o Benefits of soft dollars to AIM. The policies and practices. The Board
higher net return, increased liquidity, Board considered the benefits realized concluded that these actions indicated a
increased diversification or decreased by AIM as a result of brokerage good faith effort on the part of AIM to
transaction costs. The Board also found transactions executed through "soft adhere to the highest ethical standards,
that the Fund will not receive reduced dollar" arrangements. Under these and determined that the current
services if it invests its cash balances arrangements, brokerage commissions paid regulatory and litigation environment to
in such money market funds. The Board by the Fund and/or other funds advised which AIM is subject should not prevent
noted that, to the extent the Fund by AIM are used to pay for research and the Board from continuing the Advisory
invests in affiliated money market execution services. This research is Agreement for the Fund.
funds, AIM has voluntarily agreed to used by AIM in making investment
waive a portion of the advisory fees it decisions for the Fund. The Board
receives from the Fund attributable to concluded that such arrangements were
such investment. The Board further appropriate.
determined that the proposed securities
lending program and related procedures o AIM's financial soundness in light of
with respect to the lending Fund is in the Fund's needs. The Board considered
the best interests of the lending Fund whether AIM is financially sound and has
and its respective shareholders. The the resources necessary to perform its
Board therefore concluded that the obligations under the Advisory
investment of cash collateral received Agreement, and concluded that AIM has
in connection with the securities the financial resources necessary to
lending program in the money market fulfill its obligations under the
funds according to the procedures is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders.
</Table>
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
-------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-93.83%
AEROSPACE & DEFENSE-1.09%
Ceradyne, Inc./(a)/ 7,773 $ 340,457
-------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.66%
Corn Products International, Inc. 8,602 205,502
-------------------------------------------------------------
AIR FREIGHT & LOGISTICS-1.14%
Forward Air Corp. 9,723 356,348
-------------------------------------------------------------
APPAREL RETAIL-4.08%
Aeropostale, Inc./(a)/ 16,041 421,878
-------------------------------------------------------------
DSW Inc.-Class A/(a)/ 7,646 200,478
-------------------------------------------------------------
Hot Topic, Inc./(a)/ 19,681 280,454
-------------------------------------------------------------
New York & Co., Inc./(a)/ 17,378 368,414
-------------------------------------------------------------
1,271,224
-------------------------------------------------------------
APPLICATION SOFTWARE-5.53%
ANSYS, Inc./(a)/ 3,406 145,402
-------------------------------------------------------------
Blackboard Inc./(a)/ 8,295 240,389
-------------------------------------------------------------
FileNET Corp./(a)/ 10,709 276,828
-------------------------------------------------------------
Henry (Jack) & Associates, Inc. 20,834 397,513
-------------------------------------------------------------
Hyperion Solutions Corp./(a)/ 11,250 402,975
-------------------------------------------------------------
TIBCO Software Inc./(a)/ 34,682 259,074
-------------------------------------------------------------
1,722,181
-------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-1.48%
Affiliated Managers Group, Inc./(a)/ 2,878 230,959
-------------------------------------------------------------
Nuveen Investments, Inc.-Class A 5,430 231,427
-------------------------------------------------------------
462,386
-------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.97%
Keystone Automotive Industries, Inc./(a)/ 9,593 301,988
-------------------------------------------------------------
BIOTECHNOLOGY-2.70%
CV Therapeutics, Inc./(a)/ 5,996 148,281
-------------------------------------------------------------
Digene Corp./(a)/ 7,707 224,813
-------------------------------------------------------------
Incyte Corp./(a)/ 18,864 100,734
-------------------------------------------------------------
Myriad Genetics, Inc./(a)/ 7,790 162,032
-------------------------------------------------------------
Neurocrine Biosciences, Inc./(a)/ 3,269 205,064
-------------------------------------------------------------
840,924
-------------------------------------------------------------
BROADCASTING & CABLE TV-0.50%
Radio One, Inc.-Class D/(a)/ 14,965 154,888
-------------------------------------------------------------
BUILDING PRODUCTS-1.17%
Lennox International Inc. 7,496 211,387
-------------------------------------------------------------
Quixote Corp. 7,710 152,658
-------------------------------------------------------------
364,045
-------------------------------------------------------------
CATALOG RETAIL-0.13%
PetMed Express, Inc./(a)/ 2,952 41,830
-------------------------------------------------------------
SHARES VALUE
---------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.11%
ADC Telecommunications, Inc./(a)/ 11,018 $ 246,142
---------------------------------------------------------
F5 Networks, Inc./(a)/ 2,306 131,880
---------------------------------------------------------
NICE Systems Ltd. (Israel)/(a)/ 3,258 156,905
---------------------------------------------------------
Symmetricom, Inc./(a)/ 14,621 123,840
---------------------------------------------------------
658,767
---------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-1.82%
Emulex Corp./(a)/ 15,837 313,414
---------------------------------------------------------
QLogic Corp./(a)/ 7,820 254,228
---------------------------------------------------------
567,642
---------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.98%
Infrasource Services Inc./(a)/ 8,232 107,675
---------------------------------------------------------
Perini Corp./(a)/ 8,210 198,271
---------------------------------------------------------
305,946
---------------------------------------------------------
CONSTRUCTION & FARM MACHINERY &
HEAVY TRUCKS-2.01%
Astec Industries, Inc./(a)/ 9,806 320,264
---------------------------------------------------------
Terex Corp./(a)/ 5,174 307,336
---------------------------------------------------------
627,600
---------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-1.72%
Alliance Data Systems Corp./(a)/ 8,106 288,574
---------------------------------------------------------
Euronet Worldwide, Inc./(a)/ 8,917 247,893
---------------------------------------------------------
536,467
---------------------------------------------------------
DISTRIBUTORS-0.62%
Source Interlink Cos., Inc./(a)/ 17,241 191,720
---------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.98%
Advisory Board Co. (The)/(a)/ 4,892 233,202
---------------------------------------------------------
CoStar Group Inc./(a)/ 3,107 134,129
---------------------------------------------------------
Pike Electric Corp./(a)/ 15,359 249,123
---------------------------------------------------------
616,454
---------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-2.92%
Regal-Beloit Corp. 7,756 274,562
---------------------------------------------------------
Thomas & Betts Corp./(a)/ 8,736 366,563
---------------------------------------------------------
Ultralife Batteries, Inc./(a)/ 22,429 269,148
---------------------------------------------------------
910,273
---------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-4.20%
Aeroflex Inc./(a)/ 28,917 310,858
---------------------------------------------------------
Cogent Inc./(a)/ 6,460 146,513
---------------------------------------------------------
FARO Technologies, Inc./(a)(b)/ 9,647 192,940
---------------------------------------------------------
FLIR Systems, Inc./(a)/ 12,858 287,119
---------------------------------------------------------
AIM V.I. SMALL COMPANY GROWTH FUND
SHARES VALUE
-------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-(CONTINUED)
Lipman (Israel)/(a)/ 8,360 $ 194,537
-------------------------------------------------------------
Photon Dynamics, Inc./(a)/ 9,712 177,535
-------------------------------------------------------------
1,309,502
-------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-0.96%
Staktek Holdings Inc./(a)/ 40,113 298,441
-------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES-0.93%
Standard Parking Corp./(a)/ 14,756 288,332
-------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.37%
Tuesday Morning Corp. 5,535 115,792
-------------------------------------------------------------
HEALTH CARE EQUIPMENT-4.64%
Advanced Medical Optics, Inc./(a)/ 8,606 359,731
-------------------------------------------------------------
Cytyc Corp./(a)/ 16,774 473,530
-------------------------------------------------------------
Dionex Corp./(a)/ 3,527 173,105
-------------------------------------------------------------
PerkinElmer, Inc. 5,868 138,250
-------------------------------------------------------------
Vnus Medical Technologies/(a)/ 22,237 186,346
-------------------------------------------------------------
Wright Medical Group, Inc./(a)/ 5,581 113,852
-------------------------------------------------------------
1,444,814
-------------------------------------------------------------
HEALTH CARE FACILITIES-1.25%
AmSurg Corp./(a)/ 6,770 154,762
-------------------------------------------------------------
Kindred Healthcare, Inc./(a)/ 9,114 234,777
-------------------------------------------------------------
389,539
-------------------------------------------------------------
HEALTH CARE SERVICES-2.51%
HealthExtras, Inc./(a)/ 8,938 224,344
-------------------------------------------------------------
Merge Technologies Inc./(a)/ 7,856 196,714
-------------------------------------------------------------
Phase Forward Inc./(a)/ 37,019 360,935
-------------------------------------------------------------
781,993
-------------------------------------------------------------
HEALTH CARE SUPPLIES-0.99%
Align Technology, Inc./(a)(b)/ 19,081 123,454
-------------------------------------------------------------
Gen-Probe Inc./(a)/ 3,763 183,597
-------------------------------------------------------------
307,051
-------------------------------------------------------------
HOME FURNISHINGS-0.61%
Tempur-Pedic International Inc./(a)/ 16,595 190,842
-------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.63%
Four Seasons Hotels Inc. (Canada) 3,951 196,562
-------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.89%
Blount International, Inc./(a)/ 17,390 277,023
-------------------------------------------------------------
HOUSEHOLD PRODUCTS-0.75%
Church & Dwight Co., Inc. 7,108 234,777
-------------------------------------------------------------
HUMAN RESOURCE & EMPLOYMENT
SERVICES-0.79%
Korn/Ferry International/(a)/ 13,183 246,390
-------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.17%
Carlisle Cos. Inc. 785 54,283
-------------------------------------------------------------
SHARES VALUE
------------------------------------------------------------
INDUSTRIAL MACHINERY-0.76%
Kadant Inc./(a)/ 12,718 $ 235,283
------------------------------------------------------------
INSURANCE BROKERS-1.96%
Hub International Ltd. (Canada) 12,289 317,056
------------------------------------------------------------
National Financial Partners Corp. 5,574 292,914
------------------------------------------------------------
609,970
------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-0.84%
NeuStar, Inc.-Class A/(a)/ 8,549 260,659
------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.18%
CyberSource Corp./(a)/ 55,611 367,033
------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.65%
Perot Systems Corp.-Class A/(a)/ 14,247 201,453
------------------------------------------------------------
LEISURE PRODUCTS-0.74%
RC2 Corp./(a)/ 6,445 228,926
------------------------------------------------------------
METAL & GLASS CONTAINERS-1.94%
Crown Holdings, Inc./(a)/ 11,990 234,165
------------------------------------------------------------
Silgan Holdings Inc. 10,243 369,977
------------------------------------------------------------
604,142
------------------------------------------------------------
OFFICE SERVICES & SUPPLIES-1.21%
Mine Safety Appliances Co. 4,671 169,137
------------------------------------------------------------
PeopleSupport, Inc./(a)/ 24,473 207,776
------------------------------------------------------------
376,913
------------------------------------------------------------
OIL & GAS DRILLING-1.97%
Atwood Oceanics, Inc./(a)/ 3,320 259,060
------------------------------------------------------------
Grey Wolf, Inc./(a)/ 19,637 151,794
------------------------------------------------------------
Unit Corp./(a)/ 3,677 202,345
------------------------------------------------------------
613,199
------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-2.14%
Gulf Island Fabrication, Inc. 12,619 306,768
------------------------------------------------------------
Hydril/(a)/ 5,759 360,513
------------------------------------------------------------
667,281
------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-2.20%
Barrett (Bill) Corp./(a)/ 9,777 377,490
------------------------------------------------------------
Whiting Petroleum Corp./(a)/ 7,673 306,920
------------------------------------------------------------
684,410
------------------------------------------------------------
PACKAGED FOODS & MEATS-0.92%
Premium Standard Farms, Inc. 9,173 137,228
------------------------------------------------------------
TreeHouse Foods, Inc./(a)/ 8,060 150,883
------------------------------------------------------------
288,111
------------------------------------------------------------
PHARMACEUTICALS-1.53%
Medicis Pharmaceutical Corp.-Class A 9,955 319,058
------------------------------------------------------------
MGI Pharma, Inc./(a)/ 9,141 156,860
------------------------------------------------------------
475,918
------------------------------------------------------------
AIM V.I. SMALL COMPANY GROWTH FUND
SHARES VALUE
-------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.15%
FPIC Insurance Group, Inc./(a)/ 10,300 $ 357,410
-------------------------------------------------------------
REAL ESTATE-0.39%
BioMed Realty Trust, Inc. 5,003 122,073
-------------------------------------------------------------
REGIONAL BANKS-2.98%
East West Bancorp, Inc. 7,681 280,280
-------------------------------------------------------------
Nara Bancorp, Inc. 21,876 388,955
-------------------------------------------------------------
PrivateBancorp, Inc. 1,719 61,145
-------------------------------------------------------------
UCBH Holdings, Inc./(a)/ 10,997 196,626
-------------------------------------------------------------
927,006
-------------------------------------------------------------
REINSURANCE-1.04%
Max Re Capital Ltd. 12,480 324,106
-------------------------------------------------------------
RESTAURANTS-2.80%
Applebee's International, Inc. 13,543 305,936
-------------------------------------------------------------
P.F. Chang's China Bistro, Inc./(a)/ 4,471 221,896
-------------------------------------------------------------
RARE Hospitality International, Inc./(a)/ 11,321 344,045
-------------------------------------------------------------
871,877
-------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.39%
FormFactor Inc./(a)/ 13,218 322,916
-------------------------------------------------------------
Mattson Technology, Inc./(a)/ 25,190 253,411
-------------------------------------------------------------
Rudolph Technologies, Inc./(a)/ 13,073 168,380
-------------------------------------------------------------
744,707
-------------------------------------------------------------
SEMICONDUCTORS-2.10%
Genesis Microchip Inc./(a)/ 7,800 141,102
-------------------------------------------------------------
Hittite Microwave Corp./(a)/ 8,743 202,313
-------------------------------------------------------------
Integrated Device Technology, Inc./(a)/ 23,592 310,943
-------------------------------------------------------------
654,358
-------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-0.80%
Jackson Hewitt Tax Service Inc. 9,029 250,194
-------------------------------------------------------------
SPECIALTY CHEMICALS-0.74%
Rockwood Holdings Inc./(a)/ 11,637 229,598
-------------------------------------------------------------
SHARES VALUE
-----------------------------------------------------------------------------
STEEL-1.22%
Carpenter Technology Corp. 5,383 $ 379,340
-----------------------------------------------------------------------------
SYSTEMS SOFTWARE-1.31%
MICROS Systems, Inc./(a)/ 5,080 245,466
-----------------------------------------------------------------------------
Quality Systems, Inc. 2,130 163,499
-----------------------------------------------------------------------------
408,965
-----------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-1.66%
United Rentals, Inc./(a)/ 7,989 186,863
-----------------------------------------------------------------------------
WESCO International, Inc./(a)/ 7,761 331,627
-----------------------------------------------------------------------------
518,490
-----------------------------------------------------------------------------
TRUCKING-2.60%
Celadon Group, Inc./(a)/ 14,550 419,040
-----------------------------------------------------------------------------
Swift Transportation Co., Inc./(a)/ 19,244 390,653
-----------------------------------------------------------------------------
809,693
-----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-1.31%
SBA Communications Corp.-Class A/(a)/ 22,812 408,335
-----------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $27,054,963) 29,231,433
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-5.19%
Premier Portfolio-Institutional Class
(Cost $1,615,213)/(c)/ 1,615,213 1,615,213
-----------------------------------------------------------------------------
Total Investments-99.02% (excluding investments
purchased with cash collateral from securities
loaned) (Cost $28,670,176) 30,846,646
-----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.75%
Premier Portfolio-Institutional Class/(c)(d)/ 233,040 233,040
-----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $233,040) 233,040
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-99.77% (Cost $28,903,216) 31,079,686
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.23% 72,739
-----------------------------------------------------------------------------
NET ASSETS-100.00% $ 31,152,425
-----------------------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
/(c)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(d)/The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $27,054,963)* $29,231,433
- ----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,848,253) 1,848,253
- ----------------------------------------------------------------------------------
Total investments (cost $28,903,216) 31,079,686
- ----------------------------------------------------------------------------------
Receivables for:
Investments sold 558,988
- ----------------------------------------------------------------------------------
Fund shares sold 4,849
- ----------------------------------------------------------------------------------
Dividends 16,092
- ----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 7,515
- ----------------------------------------------------------------------------------
Total assets 31,667,130
- ----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 196,934
- ----------------------------------------------------------------------------------
Fund shares reacquired 2,519
- ----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 8,575
- ----------------------------------------------------------------------------------
Collateral upon return of securities loaned 233,040
- ----------------------------------------------------------------------------------
Accrued administrative services fees 42,800
- ----------------------------------------------------------------------------------
Accrued distribution fees-Series II 4
- ----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 102
- ----------------------------------------------------------------------------------
Accrued transfer agent fees 642
- ----------------------------------------------------------------------------------
Accrued operating expenses 30,089
- ----------------------------------------------------------------------------------
Total liabilities 514,705
- ----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $31,152,425
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $29,397,800
- ----------------------------------------------------------------------------------
Undistributed net investment income (loss) (5,973)
- ----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
futures contracts and option contracts (415,872)
- ----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and option contracts 2,176,470
- ----------------------------------------------------------------------------------
$31,152,425
- ----------------------------------------------------------------------------------
NET ASSETS:
Series I $31,139,288
- ----------------------------------------------------------------------------------
Series II $ 13,137
- ----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 1,920,888
- ----------------------------------------------------------------------------------
Series II 813
- ----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 16.21
- ----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 16.16
- ----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $111) $ 146,487
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities
lending income of $6,993, after compensation to counterparties of
$68,574) 86,008
- ----------------------------------------------------------------------------------------
Total investment income 232,495
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 317,373
- ----------------------------------------------------------------------------------------
Administrative services fees 155,316
- ----------------------------------------------------------------------------------------
Custodian fees 32,847
- ----------------------------------------------------------------------------------------
Distribution fees-Series II 29
- ----------------------------------------------------------------------------------------
Transfer agent fees 8,112
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 16,085
- ----------------------------------------------------------------------------------------
Professional services fees 49,464
- ----------------------------------------------------------------------------------------
Other 9,440
- ----------------------------------------------------------------------------------------
Total expenses 588,666
- ----------------------------------------------------------------------------------------
Less: Fees waived and expense offset arrangement (59,141)
- ----------------------------------------------------------------------------------------
Net expenses 529,525
- ----------------------------------------------------------------------------------------
Net investment income (loss) (297,030)
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates
of $60,244) 5,114,708
- ----------------------------------------------------------------------------------------
Futures contracts (199,508)
- ----------------------------------------------------------------------------------------
Option contracts written 79,160
- ----------------------------------------------------------------------------------------
4,994,360
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,875,615)
- ----------------------------------------------------------------------------------------
Option contracts written 18,363
- ----------------------------------------------------------------------------------------
(2,857,252)
- ----------------------------------------------------------------------------------------
Net gain from investment securities, futures contracts and option
contracts 2,137,108
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,840,078
- ----------------------------------------------------------------------------------------
* At December 31, 2005, securities with an aggregate value of $225,706 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (297,030)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures contracts and option contracts 4,994,360
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and option contracts (2,857,252)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,840,078
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (18,504,692)
- ----------------------------------------------------------------------------------------------------------------------------
Series II 1,095
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (18,503,597)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (16,663,519)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 47,815,944
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(5,973) and $(66,907), respectively) $ 31,152,425
- ----------------------------------------------------------------------------------------------------------------------------
2004
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (432,598)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures contracts and option contracts 8,781,174
- --------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and option contracts (2,316,154)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,032,422
- --------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (7,824,302)
- --------------------------------------------------------------------------------------------------------------------------
Series II 10,000
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (7,814,302)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,781,880)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 49,597,824
- --------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(5,973) and $(66,907), respectively) $47,815,944
- --------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Company Growth Fund, (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 long-term capital growth.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. SMALL COMPANY GROWTH FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to
reflect the market value of the contracts at the end of each day's trading.
Variation margin payments are 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.
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 replace 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. SMALL COMPANY GROWTH FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% 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:
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%
-------------------------
Effective July 1, 2005 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 1.20% and Series II shares to 1.45% of average daily net assets, through
June 30, 2006. This agreement has been renewed through April 30, 2007. 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, if
any) of Series I and Series II 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 numbers reflected above:
(i) interest; (ii) taxes; (iii) dividend expense on short sales;
(iv) extraordinary items; (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.
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 year ended December 31, 2005, AIM waived fees of $58,928.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $105,316 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 year ended
December 31, 2005, the Fund paid AISI $8,112.
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. Pursuant to the Plan, for the year ended December 31, 2005, the
Series II shares paid $24 after ADI waived Plan fees of $5.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or ADI.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
fund below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in an affiliated money market fund for the year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $6,346,809 $36,253,257 $(40,984,853) $ -- $1,615,213 $79,015 $ --
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $ 163,764 $23,575,665 $(23,506,389) $ -- $ 233,040 $ 6,993 $ --
- -------------------------------------------------------------------------------------------------------------------------
Total $6,510,573 $59,828,922 $(64,491,242) $ -- $1,848,253 $86,008 $ --
- -------------------------------------------------------------------------------------------------------------------------
* 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 year ended December 31,
2005, the Fund engaged in securities purchases of $535,130 and sales of
$678,586, which resulted in net realized gains of $60,244.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2005, the Fund received credits from this arrangement, which
resulted in the reduction of the Fund's total expenses of $208.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,056
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.
AIM V.I. SMALL COMPANY GROWTH FUND
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2005, securities with an aggregate value of $225,706 were on
loan to brokers. The loans were secured by cash collateral of $233,040 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended December 31, 2005, the Fund received dividends on cash
collateral of $6,993 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
------------------------------
CALL OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of year 521 $ 51,840
---------------------------------------
Written 839 99,245
---------------------------------------
Closed (420) (47,339)
---------------------------------------
Exercised (344) (44,660)
---------------------------------------
Expired (596) (59,086)
---------------------------------------
End of year -- $ --
---------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-------------------------------------------------
Unrealized appreciation--investments $ 2,133,387
-------------------------------------------------
Temporary book/tax differences (5,973)
-------------------------------------------------
Capital loss carryforward (372,789)
-------------------------------------------------
Share of beneficial interest 29,397,800
-------------------------------------------------
Total net assets $31,152,425
-------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
AIM V.I. SMALL COMPANY GROWTH FUND
The Fund utilized $4,791,401 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $372,789
-------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
On September 23, 2005, 918,227 Series I shares valued at $14,324,344 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $150,594 to the Fund for book
purposes. From a federal income tax perspective, the realized gains are not
recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $79,843,009 and $94,408,065, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the the year ended December 31, 2005, in the amount of $238. These
research credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 3,196,278
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,062,891)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 2,133,387
-------------------------------------------------------------------------
Cost of investments for tax purposes is $28,946,299.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of redemption-in-kind,
net operating loss reclassification and passive foreign investment company sale
on December 31, 2005, undistributed net investment income (loss) was increased
by $357,964, undistributed net realized gain (loss) was decreased by $115,712
and shares of beneficial interest decreased by $242,252. This reclassification
had no effect on the net assets of the Fund.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 13--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005/(A)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
Sold:
Series I 513,619 $ 7,854,216 797,111 $ 10,996,485
---------------------------------------------------------------------
Series II/(b)/ 68 1,095 745 10,000
---------------------------------------------------------------------
Reacquired:
Series I (1,694,646) (26,358,908) (1,362,554) (18,820,787)
---------------------------------------------------------------------
(1,180,959) $(18,503,597) (564,698) $ (7,814,302)
---------------------------------------------------------------------
/(a)/There are six entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 84% 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 entities
are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.41 $ 13.52 $ 10.14 $ 14.72 $ 18.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)/(a)/ (0.14) (0.08) (0.00)/(b)/ (0.00)/(b)/
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.91 2.03 3.46 (4.58) (3.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.80 1.89 3.38 (4.58) (3.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.21 $ 15.41 $ 13.52 $ 10.14 $ 14.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 5.19% 13.98% 33.33% (31.11)% (18.54)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,139 $47,804 $49,598 $32,990 $39,211
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.25%/(d)/ 1.28% 1.25% 1.25% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%/(d)/ 1.36% 1.30% 1.31% 1.29%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.70)%/(d)/ (0.96)% (0.75)% (0.87)% (0.48)%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 203% 198% 133% 95% 88%
- ---------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.09) and $(0.06) for
the years ended December 31, 2002 and 2001 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 do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(d)/Ratios are based on average daily net assets of $42,305,071.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
SERIES II
------------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2005 2004
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.40 $13.42
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)/(a)/ (0.10)
- --------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.90 2.08
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.76 1.98
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $16.16 $15.40
- --------------------------------------------------------------------------------------------------
Total return/(b)/ 4.93% 14.75%
- --------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 13 $ 11
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets: -- --
With fee waivers and/or expense reimbursements 1.45%/(c)/ 1.45%/(d)/
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.64%/(c)/ 1.61%/(d)/
- --------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.90)%/(c)/ (1.13)%/(d)/
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 203% 198%
- --------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $11,403.
/(d)/Annualized.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 46A-1-101, et seq. (the West Virginia
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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
AIM V.I. SMALL COMPANY GROWTH FUND
and procedures for locating lost securityholders. IFG, AIM and ADI are
providing full cooperation with respect to these inquiries. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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 COMPANY GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds and
Shareholders of AIM V.I. Small Company Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Small Company Growth Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2005, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. SMALL COMPANY GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. SMALL COMPANY GROWTH FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
AIM V.I. SMALL COMPANY GROWTH FUND
AIM V.I. TECHNOLOGY FUND
Annual Report to Shareholders o December 31, 2005
AIM V.I. TECHNOLOGY FUND seeks capital growth.
UNLESS OTHERWISE STATED,INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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 202-942-8090 or 800-732-0330, or by electronic request at the following
E-mail address: publicinfo@sec.gov. The SEC file numbers for the Fund are
811-07452 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. TECHNOLOGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Depending on market conditions, we may
invest up to 80% of the Fund's assets in
=================================================================================== strategic, or core, holdings--companies
we expect to hold for two or more years.
PERFORMANCE SUMMARY ======================================== We normally invest 20% to 50% of the
FUND VS. INDEXES Fund's assets in tactical, or non-core,
For the year ended December 31, 2005, holdings we believe have compelling
AIM V.I. Technology Fund underperformed TOTAL RETURNS, 12/31/04-12/31/05, near-term appreciation potential.
the broad market but slightly EXCLUDING VARIABLE PRODUCT ISSUER
outperformed its style-specific index. CHARGES. IF VARIABLE PRODUCT ISSUER We manage risk through diversification
Your Fund underperformed the broad CHARGES WERE INCLUDED, RETURNS WOULD BE within the sector and by allocating a
market largely because the information LOWER. portion of assets to core holdings,
technology (IT) sector was one of the which are generally more predictable. We
weaker performing sectors of the S&P 500 Series I Shares 2.17% also rely on internal controls and
Index for the year. The S&P 500 Index proprietary software to identify and
returned 4.91% for the year, but the IT Series II Shares 1.94 manage risk.
sector returned just 0.99%.
Standard & Poor's Composite We may reduce or eliminate exposure
The Fund slightly outperformed its Index of 500 Stocks (S&P 500 to a stock when:
style-specific index because of strong Index) (Broad Market Index) 4.91
stock selection among communications o we identify a more attractive
equipment, computers and peripherals, Goldman Sachs Technology investment opportunity
and wireless telecommunications services Composite Index
stocks. (Style-specific Index) 1.54 o a company's fundamentals change
(product failure, reduced pricing power,
Lipper Science and Technology margin compression, etc.)
Fund Index (Peer Group Index) 5.37
o a company's earnings disappoint
SOURCE: LIPPER, INC.
======================================== o management's strategic direction
shifts or unfavorable changes occur
Your Fund's long-term performance
appears on Pages 4 and 5. MARKET CONDITIONS AND YOUR FUND
=================================================================================== Despite widespread concern about the
potential impact of rising short-term
HOW WE INVEST Within each industry, we look for: interest rates and historically high
energy prices, the U.S. economy showed
We seek attractively valued, o market leaders expected to demonstrate signs of strength for the year. Economic
well-managed companies in the above-average earnings growth activity expanded, inflation remained
information technology sector with the contained and corporate profits
potential to deliver attractive returns. o strong management teams generally rose. Late in the year, some
worried that higher energy prices and
We begin by identifying industries in o large and growing markets that can rising interest rates might crimp
the sector we believe may benefit over support continued growth consumer spending, which accounts for
the next 12 to 24 months from strong approximately two-thirds of the U.S.
fundamentals: increased demand, a new o proprietary content or products that economy. Initial
product cycle, or greater visibility provide a competitive advantage
among investors and the public. We
weight these industries according to our We then apply our proprietary
assessment of the fundamentals and the valuation analysis, comparing a stock's
perception of the industry among current valuation to its historical
investors and analysts. valuations as well as the valuations of
its competitors.
======================================= ======================================= =========================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $190.8 MILLION
TOTAL NUMBER OF HOLDINGS* 86
By industry 1. Yahoo! Inc. 3.5%
The Fund's holdings are subject to
Semiconductors 20.1% 2. EMC Corp. 3.1 change, and there is no assurance that
the Fund will continue to hold any
Communications Equipment 16.1 3. Microsoft Corp. 3.0 particular security.
*Excluding money market fund holdings.
Internet Software & Services 9.8 4. Google Inc.-Class A 2.9
Application Software 8.1 5. Apple Computer,Inc. 2.8
Computer Hardware 6.4 6. Marvell Technology Group Ltd.
(Singapore) 2.8
Computer Storage & Peripherals 5.3
7. Motorola,Inc. 2.5
Systems Software 4.4
8. Intel Corp. 2.2
Wireless Telecommunication
Services 4.3 9. Hewlett-Packard Co. 2.2
Data Processing & Outsourced 10. Adobe Systems Inc. 2.1
Services 3.7
Semiconductor Equipment 3.5
Biotechnology 3.1
12 other industries each
with less than 3% of total
net assets 11.4
Money Market Funds Plus Other
Assets Less Liabilities 3.8
======================================= ======================================= =========================================
2
AIM V.I. TECHNOLOGY FUND
data suggested that holiday sales were manufacturer MARVELL TECHNOLOGY. THE VIEWS AND OPINIONS EXPRESSED IN
solid, with consumer electronics sales MANAGEMENT'S DISCUSSION OF FUND
especially strong. Google maintains the world's largest PERFORMANCE ARE THOSE OF A I M ADVISORS,
online searchable database of Internet INC. THESE VIEWS AND OPINIONS ARE
Corporate IT spending continued to sites, generating revenue through online SUBJECT TO CHANGE AT ANY TIME BASED ON
grow as expected during the year, in the advertising. We believe online ad FACTORS SUCH AS MARKET AND ECONOMIC
3% - 6% range. Corporations were spending is likely to expand CONDITIONS. THESE VIEWS AND OPINIONS MAY
spending their IT budgets to upgrade significantly as advertisers seek to NOT BE RELIED UPON AS INVESTMENT ADVICE
their hardware, software and networks. reach consumers who are spending more OR RECOMMENDATIONS, OR AS AN OFFER FOR A
However, due to the deflationary nature and more time on line. Google's stock PARTICULAR SECURITY. THE INFORMATION IS
of the prices of many IT products price more than doubled in 2005. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
(notably, hardware, but also software OF ANY MARKET, COUNTRY, INDUSTRY,
and services), revenue growth for many Marvell Technology's diverse products SECURITY OR THE FUND. STATEMENTS OF FACT
companies did not keep pace with unit are used in high-growth markets, ARE FROM SOURCES CONSIDERED RELIABLE,
sales growth. We expect that corporate including communication switches, BUT A I M ADVISORS, INC. MAKES NO
spending on technology products and wireless storage devices and game REPRESENTATION OR WARRANTY AS TO THEIR
services will grow at about the same consoles, and the company has a record COMPLETENESS OR ACCURACY. ALTHOUGH
rate in 2006. Against the odds, consumer of meeting or exceeding earnings HISTORICAL PERFORMANCE IS NO GUARANTEE
spending continues to drive technology forecasts for the past several years. OF FUTURE RESULTS, THESE INSIGHTS MAY
spending in a significant way. Marvell's stock price almost doubled in HELP YOU UNDERSTAND OUR INVESTMENT
2005. MANAGEMENT PHILOSOPHY.
The year began with many investors
concerned about semiconductor In addition to Dell, detractors from WILLIAM R. KEITHLER,
inventories, but as the year went on Fund performance included IBM and [KEITHLER Chartered Financial Analyst,
those concerns largely dissipated as Internet auctioneer EBAY. PHOTO] senior portfolio manager,
inventories declined and demand is lead portfolio manager
increased. Stronger-than-expected demand IBM reported disappointing first of AIM V.I. Technology Fund.
for cell phones, digital cameras, quarter earnings, and the stock declined He began his career in the
digital music players and computers significantly in April. We were investment industry in 1982 and joined
(particularly laptops) caused many concerned about the company's outlook the Fund's advisor in 1986, managing
semiconductor stocks to perform well as and eliminated it from the Fund. several funds for the company until
inventory concerns lessened. At the However, much later in the year we 1993. He rejoined the Fund's advisor in
close of the year, approximately 20% of repurchased the stock based on improved 1999. Mr. Keithler has a B.A. from
your Fund's net assets were invested in fundamentals which, in our opinion, made Webster College in St. Louis, and an
semiconductor stocks, and Fund the stock attractively valued. M.A. in finance from the University of
performance benefited as a result. Wisconsin-Madison.
In September, eBay proposed acquiring
The personal computer (PC) industry Skype, an Internet phone company. Like MICHELLE ESPELIEN FENTON,
saw significant changes during the year, many other investors, we questioned the [FENTON Chartered Financial Analyst,
after IBM decided in late 2004 to sell strategic value of the proposed PHOTO] portfolio manager, is a
its PC division to Chinese manufacturer acquisition, which hurt eBay's portfolio manager of AIM
Levono. Also: short-term performance. But we held the V.I. Technology Fund. She
stock at the close of the year because began her career in the
o In August, long-time market leader we believed the company's core business investment industry in 1995. Before
DELL reported disappointing second remains strong, it continues to generate joining the Fund's advisor in 1998, she
quarter results. The company's profits significant cash flow, and it continues worked as an equity analyst at another
met forecasts, but its revenues to grow faster than most companies. investment firm. She assumed her current
disappointed many investors, and its duties in 2003. Ms. Fenton received her
stock suffered as a result. We sold our IN CLOSING B.A. in finance from Montana State
Dell stock during the year. University.
We were pleased to have provided
o New leadership helped rejuvenate investors with positive returns even as Assisted by the Technology Team
HEWLETT-PACKARD, which reported the IT sector underperformed the broad
quarterly results that topped market for the year. During 2005, IT
expectations. The stock gained stocks were very volatile and highly
approximately 50% since Mark Hurd became rotational, providing challenges to
the company's chief executive in March. investors. At the close of the year, we
continued to seek out stocks of
o Largely on the strength of its companies in industries that we believed
iPod--REGISTERED TRADEMARK-- digital would demonstrate growth in 2006. As
music player, APPLE COMPUTER was the always, we thank you for your continued
top-performing Fund holding for the investments in AIM V.I. Technology Fund.
year. There was increasing evidence that
consumers were buying more
Macintosh--REGISTERED TRADEMARK--
computers to go with their new iPods.
[RIGHT ARROW GRAPHIC]
In addition to Apple, Fund performance
was enhanced by our investments in FOR A DISCUSSION OF THE RISKS OF
Internet search engine GOOGLE and INVESTING IN YOUR FUND, INDEXES USED IN
semiconductor THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGES 4 AND 5.
3
AIM V.I. TECHNOLOGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/20/97, index data from 5/31/97
====================================================================
[MOUNTAIN CHART]
DATE AIM V.I. LIPPER SCIENCE S&P 500
TECHNOLOGY FUND- AND TECHNOLOGY INDEX
CLASS I SHARES FUND INDEX
5/20/97 $10000
5/97 10000 $10000 $10000
6/97 10000 10093 10445
7/97 11870 11508 11275
8/97 11970 11580 10644
9/97 12510 12071 11227
10/97 11799 10795 10852
11/97 11699 10703 11354
12/97 11479 10202 11549
1/98 11529 10382 11677
2/98 12569 11618 12518
3/98 13059 11712 13159
4/98 13300 12215 13294
5/98 12590 11320 13066
6/98 13680 11983 13596
7/98 12650 11871 13452
8/98 10299 9642 11509
9/98 11100 10780 12247
10/98 11569 11603 13241
11/98 12450 12903 14043
12/98 14429 14990 14852
1/99 16865 16932 15473
2/99 15165 15165 14992
3/99 17600 16710 15592
4/99 18104 16919 16196
5/99 17953 16895 15813
6/99 20499 19090 16689
7/99 20198 19084 16170
8/99 21747 20134 16090
9/99 22421 20407 15649
10/99 25733 22557 16639
11/99 30120 25902 16977
12/99 37367 32067 17976
1/00 37337 31731 17073
2/00 49796 40278 16750
3/00 47087 39052 18388
4/00 41804 34493 17835
5/00 37043 30331 17469
6/00 43214 34928 17899
7/00 41382 33081 17620
8/00 48317 38101 18713
9/00 44998 34194 17726
10/00 40669 30444 17650
11/00 28387 22595 16260
12/00 28620 22359 16340
1/01 30990 24626 16919
2/01 21256 18209 15377
3/01 16807 15541 14404
4/01 21225 18575 15522
5/01 19793 17709 15626
6/01 19419 17416 15246
7/01 17906 16021 15096
8/01 15182 14020 14152
9/01 11227 11011 13009
10/01 13235 12679 13257
11/01 15555 14525 14274
12/01 15505 14595 14399
1/02 15454 14340 14189
2/02 13083 12425 13916
3/02 14536 13556 14439
4/02 12618 11943 13564
5/02 11922 11318 13464
6/02 10207 9827 12506
7/02 8997 8778 11531
8/02 8614 8570 11607
9/02 7161 7379 10346
10/02 8261 8495 11256
11/02 9552 9792 11918
12/02 8240 8555 11218
1/03 8221 8505 10925
2/03 8322 8539 10761
3/03 8150 8533 10865
4/03 8917 9331 11759
5/03 9926 10406 12378
6/03 9824 10479 12536
7/03 10258 11042 12758
8/03 11074 11849 13006
9/03 10661 11533 12868
10/03 11862 12693 13596
11/03 12074 12885 13715
12/03 11971 12946 14434
1/04 12445 13582 14699
2/04 12233 13368 14903
3/04 11911 13085 14678
4/04 11184 12184 14448
5/04 11719 12791 14646
6/04 11920 13014 14931
7/04 10720 11593 14437
8/04 10326 11126 14495
9/04 10811 11644 14652
10/04 11517 12302 14875
11/04 12172 12988 15477
12/04 12525 13478 16004
1/05 11818 12670 15614
2/05 11889 12703 15942
3/05 11516 12364 15660
4/05 11022 11868 15363
5/05 11960 12923 15851
6/05 11738 12773 15874
7/05 12313 13543 16464
8/05 12192 13458 16314
9/05 12333 13718 16446
10/05 12111 13421 16172
11/05 12867 14164 16783
12/05 $12798 $14202 $16789
====================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. TECHNOLOGY FUND
=======================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO SERIES II FUNDS, IS CURRENTLY OFFERED THROUGH
SHARES. THE INCEPTION DATE OF SERIES I INSURANCE COMPANIES ISSUING VARIABLE
As of 12/31/05 SHARES IS MAY 20, 1997. THE SERIES I AND PRODUCTS. YOU CANNOT PURCHASE SHARES OF
SERIES II SHARES INVEST IN THE SAME THE FUND DIRECTLY. PERFORMANCE FIGURES
SERIES I SHARES PORTFOLIO OF SECURITIES AND WILL HAVE GIVEN REPRESENT THE FUND AND ARE NOT
Inception (5/20/97) 2.90% SUBSTANTIALLY SIMILAR PERFORMANCE, INTENDED TO REFLECT ACTUAL VARIABLE
5 Years -14.86 EXCEPT TO THE EXTENT THAT EXPENSES BORNE PRODUCT VALUES. THEY DO NOT REFLECT
1 Year 2.17 BY EACH CLASS DIFFER. SALES CHARGES, EXPENSES AND FEES
ASSESSED IN CONNECTION WITH A VARIABLE
SERIES II SHARES THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT. SALES CHARGES, EXPENSES AND
Inception 2.63% PAST PERFORMANCE AND CANNOT GUARANTEE FEES, WHICH ARE DETERMINED BY THE
5 Years -15.10 COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 1.94 PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
PLEASE CONTACT YOUR VARIABLE PRODUCT
======================================= ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST RECENT
RECENT MONTH-END VARIABLE PRODUCT MONTH-END PERFORMANCE DATA AT THE FUND
CUMULATIVE TOTAL RETURNS PERFORMANCE. PERFORMANCE FIGURES REFLECT LEVEL, EXCLUDING VARIABLE PRODUCT
FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
Six months ended 12/31/05 AND CHANGES IN NET ASSET VALUE. INFORMATION LINE, 866-702-4402. AS
Series I Shares 9.02% INVESTMENT RETURN AND PRINCIPAL VALUE MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 8.79 WILL FLUCTUATE SO THAT YOU MAY HAVE A MONTH-END PERFORMANCE INCLUDING VARIABLE
GAIN OR LOSS WHEN YOU SELL SHARES. PRODUCT CHARGES, PLEASE CONTACT YOUR
======================================= VARIABLE PRODUCT ISSUER OR FINANCIAL
AIM V.I. TECHNOLOGY FUND, A SERIES ADVISOR.
RETURNS SINCE APRIL 30, 2004, THE PORTFOLIO OF AIM VARIABLE INSURANCE
INCEPTION DATE OF SERIES II SHARES, ARE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND management or limited operating include reinvested dividends, and they
histories. There can be no assurance do not reflect sales charges.
Investing in a single-sector or that the Fund will have favorable IPO Performance of an index of funds
single-region mutual fund involves investment opportunities. reflects fund expenses; performance of a
greater risk and potential reward than market index does not.
investing in a more diversified fund. ABOUT INDEXES USED IN THIS REPORT
OTHER INFORMATION
Investing in smaller companies The GOLDMAN SACHS TECHNOLOGY COMPOSITE
involves greater risk than investing in INDEX is a modified The returns shown in the management's
more established companies, such as capitalization-weighted index composed discussion of Fund performance are based
business risk, significant stock price of companies involved in the technology on net asset values calculated for
fluctuations and illiquidity. industry. The index is rebalanced shareholder transactions. Generally
semiannually. accepted accounting principles require
The Fund may invest up to 25% of its adjustments to be made to the net assets
assets in the securities of non-U.S. The unmanaged LIPPER SCIENCE AND of the Fund at period end for financial
issuers. Securities of Canadian issuers TECHNOLOGY FUND INDEX represents an reporting purposes, and as such, the net
and American Depositary Receipts are not average of the performance of the 30 asset values for shareholder
subject to this 25% limitation. largest science and technology funds transactions and the returns based on
International investing presents certain tracked by Lipper, Inc., an independent those net asset values may differ from
risks not associated with investing mutual fund performance monitor. the net asset values and returns
solely in the United States. These reported in the Financial Highlights.
include risks relating to fluctuations The unmanaged Standard & Poor's Additionally, the returns and net asset
in the value of the U.S. dollar relative Composite Index of 500 Stocks (the S&P values shown throughout this report are
to the values of other currencies, the 500--REGISTERED TRADEMARK-- INDEX) is an at the Fund level only and do not
custody arrangements made for the Fund's index of common stocks frequently used include variable product issuer charges.
foreign holdings, differences in as a general measure of U.S. stock If such charges were included, the total
accounting, political risks and the market performance. returns would be lower.
lesser degree of public information
required to be provided by non-U.S. The Fund is not managed to track the Industry classifications used in this
companies. performance of any particular index, report are generally according to the
including the indexes defined here, and Global Industry Classification Standard,
Portfolio turnover is greater than consequently, the performance of the which was developed by and is the
that of most funds, which may affect Fund may deviate significantly from the exclusive property and a service mark of
performance. performance of the indexes. Morgan Stanley Capital International
Inc. and Standard & Poor's.
The prices of initial public offering A direct investment cannot be made in
(IPO) securities may go up and down more an index. Unless otherwise indicated,
than prices of equity securities of index results
companies with longer trading histories.
In addition, companies offering
securities in IPOs may have less
experienced
5
AIM V.I. TECHNOLOGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is
not the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information actual cumulative total returns at net
ongoing costs, including management about actual account values and actual asset value after expenses for the six
fees; distribution and/or service fees expenses. You may use the information in months ended December 31, 2005, appear
(12b-1); and other Fund expenses. This this table, together with the amount you in the table "Cumulative Total Returns"
example is intended to help you invested, to estimate the expenses that on Page 5.
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
July 1, 2005, through December 31, 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 help you determine the relative total
costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,090.20 $5.90 $1,019.56 $5.70 1.12%
Series II 1,000.00 1,087.90 7.21 1,018.30 6.97 1.37
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. TECHNOLOGY FUND
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. Technology 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 initial advisory fee rate for a mutual
Inc. ("AIM"). Based upon the investment advisory services, the Board fund 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, although the advisory fee schedule
comprised solely of independent issues as AIM's portfolio and product for the mutual fund included
trustees, at a meeting held on June 30, review process, various back office breakpoints; (ii) was lower than the
2005, the Board, including all of the support functions provided by AIM and advisory fee rate for four offshore
independent trustees, approved the AIM's equity and fixed income trading funds for which an AIM affiliate serves
continuance of the advisory agreement operations. Based on the review of these as advisor with investment strategies
(the "Advisory Agreement") between the and other factors, the Board concluded comparable to those of the Fund; and
Fund and AIM for another year, effective that the quality of services to be (iii) was higher than the sub-advisory
July 1, 2005. provided by AIM was appropriate and that fee rates for two unaffiliated mutual
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 sub-advisor, although the total
discussed below in evaluating the the Advisory Agreement. management fees paid by such
fairness and reasonableness of the unaffiliated mutual funds were higher
Advisory Agreement at the meeting on o The performance of the Fund relative than the advisory fee rate for the Fund.
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed The Board noted that AIM has agreed to
ongoing oversight of the Fund. In their the performance of the Fund during the waive advisory fees of the Fund and to
deliberations, the Board and the past one, three and five calendar years limit the Fund's total operating
independent trustees did not identify against the performance of funds advised expenses, as discussed below. Based on
any particular factor that was by other advisors with investment this review, the Board concluded that
controlling, and each trustee attributed strategies comparable to those of the the advisory fee rate for the Fund under
different weights to the various Fund. The Board noted that the Fund's the Advisory Agreement was fair and
factors. performance for the three and five year reasonable.
periods was below the median performance
One of the responsibilities of the of such comparable funds and above such o Fees relative to those of comparable
Senior Officer of the Fund, who is median performance for the one-year funds with other advisors. The Board
independent of AIM and AIM's affiliates, period. The Board also noted that AIM reviewed the advisory fee rate for the
is to manage the process by which the began serving as investment advisor to Fund under the Advisory Agreement. The
Fund's proposed management fees are the Fund in April 2004. Based on this Board compared effective contractual
negotiated to ensure that they are review, the Board concluded that no advisory fee rates at a common asset
negotiated in a manner which is at arm's changes should be made to the Fund and level and noted that the Fund's rate was
length and reasonable. To that end, the that it was not necessary to change the above the median rate of the funds
Senior Officer must either supervise a Fund's portfolio management team at this advised by other advisors with
competitive bidding process or prepare time. investment strategies comparable to
an independent written evaluation. The those of the Fund that the Board
Senior Officer has recommended an o The performance of the Fund relative reviewed. The Board noted that AIM has
independent written evaluation in lieu to indices. The Board reviewed the agreed to waive advisory fees of the
of a competitive bidding process and, performance of the Fund during the past Fund and to limit the Fund's total
upon the direction of the Board, has one, three and five calendar years operating expenses, as discussed below.
prepared such an independent written against the performance of the Lipper Based on this review, the Board
evaluation. Such written evaluation also Science & Technology Fund Index. The concluded that the advisory fee rate for
considered certain of the factors Board noted that the Fund's performance the Fund under the Advisory Agreement
discussed below. In addition, as was comparable to the performance of was fair and reasonable.
discussed below, the Senior Officer made such Index for the one year period and
certain recommendations to the Board in below the Index performance for the o Expense limitations and fee waivers.
connection with such written evaluation. three and five year periods. The Board The Board noted that AIM has
also noted that AIM began serving as contractually agreed to waive advisory
The discussion below serves as a investment advisor to the Fund in April fees of the Fund through June 30, 2006
summary of the Senior Officer's 2004. Based on this review, the Board to the extent necessary so that the
independent written evaluation and concluded that no changes should be made advisory fees payable by the Fund do not
recommendations to the Board in to the Fund and that it was not exceed a specified maximum advisory fee
connection therewith, as well as a necessary to change the Fund's portfolio rate, which maximum rate includes
discussion of the material factors and management team at this time. breakpoints and is based on net asset
the conclusions with respect thereto levels. The Board considered the
that formed the basis for the Board's o Meeting with the Fund's portfolio contractual nature of this fee waiver
approval of the Advisory Agreement. managers and investment personnel. With and noted that it remains in effect
After consideration of all of the respect to the Fund, the Board is until June 30, 2006. The Board noted
factors below and based on its informed meeting periodically with such Fund's that AIM has contractually agreed to
business judgment, the Board determined portfolio managers and/or other waive fees and/or limit expenses of the
that the Advisory Agreement is in the investment personnel and believes that Fund through April 30, 2006 in an amount
best interests of the Fund and its such individuals are competent and able necessary to limit total annual
shareholders and that the compensation to continue to carry out their operating expenses to a specified
to AIM under the Advisory Agreement is responsibilities under the Advisory percentage of average daily net assets
fair and reasonable and would have been Agreement. for each class of the Fund. The Board
obtained through arm's length considered the contractual nature of
negotiations. o Overall performance of AIM. The Board this fee waiver/expense limitation and
considered the overall performance of noted that it remains in effect until
o The nature and extent of the advisory AIM in providing investment advisory and April 30, 2006. The Board considered the
services to be provided by AIM. The portfolio administrative services to the effect these fee waivers/expense
Board reviewed the services to be Fund and concluded that such performance limitations would have on the Fund's
provided by AIM under the Advisory was satisfactory. estimated expenses and concluded that
Agreement. Based on such review, the the levels of fee waivers/expense
Board concluded that the range of limitations for the Fund were fair and
services to be provided by AIM under the reasonable.
Advisory Agreement was appropriate and
that AIM currently is providing services
in accordance with the terms of the
Advisory Agreement.
(continued)
7
AIM V.I. TECHNOLOGY FUND
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 does not their direction, the Senior Officer of Fund, the Board also considered the
include any breakpoints. The Board the Fund, who is independent of AIM and prior relationship between AIM and the
considered whether it would be AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
appropriate to add advisory fee independent written evaluation in order of AIM's operations, and concluded that
breakpoints for the Fund or whether, due to assist the Board in determining the it was beneficial to maintain the
to the nature of the Fund and the reasonableness of the proposed current relationship, in part, because
advisory fee structures of comparable management fees of the AIM Funds, of such knowledge. The Board also
funds, it was reasonable to structure including the Fund. The Board noted that reviewed the general nature of the
the advisory fee without breakpoints. the Senior Officer's written evaluation non-investment advisory services
Based on this review, the Board had been relied upon by the Board in currently performed by AIM and its
concluded that it was not necessary to this regard in lieu of a competitive affiliates, such as administrative,
add advisory fee breakpoints to the bidding process. In determining whether transfer agency and distribution
Fund's advisory fee schedule. The Board to continue the Advisory Agreement for services, and the fees received by AIM
reviewed the level of the Fund's the Fund, the Board considered the and its affiliates for performing such
advisory fees, and noted that such fees, Senior Officer's written evaluation and services. In addition to reviewing such
as a percentage of the Fund's net the recommendation made by the Senior services, the trustees also considered
assets, would remain constant under the Officer to the Board that the Board the organizational structure employed by
Advisory Agreement because the Advisory consider implementing a process to AIM and its affiliates to provide those
Agreement does not include any assist them in more closely monitoring services. Based on the review of these
breakpoints. The Board noted that AIM the performance of the AIM Funds. The and other factors, the Board concluded
has contractually agreed to waive Board concluded that it would be that AIM and its affiliates were
advisory fees of the Fund through June advisable to implement such a process as qualified to continue to provide
30, 2006 to the extent necessary so that soon as reasonably practicable. non-investment advisory services to the
the advisory fees payable by the Fund do Fund, including administrative, transfer
not exceed a specified maximum advisory o Profitability of AIM and its agency and distribution services, and
fee rate, which maximum rate includes affiliates. The Board reviewed that AIM and its affiliates currently
breakpoints and is based on net asset information concerning the profitability are providing satisfactory
levels. The Board concluded that the of AIM's (and its affiliates') non-investment advisory services.
Fund's fee levels under the Advisory investment advisory and other activities
Agreement therefore would not reflect and its financial condition. The Board o Other factors and current trends. In
economies of scale, although the considered the overall profitability of determining whether to continue the
advisory fee waiver reflects economies AIM, as well as the profitability of AIM Advisory Agreement for the Fund, the
of scale. in connection with managing the Fund. Board considered the fact that AIM,
The Board noted that AIM's operations along with others in the mutual fund
o Investments in affiliated money market remain profitable, although increased industry, is subject to regulatory
funds. The Board also took into account expenses in recent years have reduced inquiries and litigation related to a
the fact that uninvested cash and cash AIM's profitability. Based on the review wide range of issues. The Board also
collateral from securities lending of the profitability of AIM's and its considered the governance and compliance
arrangements (collectively, "cash affiliates' investment advisory and reforms being undertaken by AIM and its
balances") of the Fund may be invested other activities and its financial affiliates, including maintaining an
in money market funds advised by AIM condition, the Board concluded that the internal controls committee and
pursuant to the terms of an SEC compensation to be paid by the Fund to retaining an independent compliance
exemptive order. The Board found that AIM under its Advisory Agreement was not consultant, and the fact that AIM has
the Fund may realize certain benefits excessive. undertaken to cause the Fund to operate
upon investing cash balances in AIM in accordance with certain governance
advised money market funds, including a o Benefits of soft dollars to AIM. The policies and practices. The Board
higher net return, increased liquidity, Board considered the benefits realized concluded that these actions indicated a
increased diversification or decreased by AIM as a result of brokerage good faith effort on the part of AIM to
transaction costs. The Board also found transactions executed through "soft adhere to the highest ethical standards,
that the Fund will not receive reduced dollar" arrangements. Under these and determined that the current
services if it invests its cash balances arrangements, brokerage commissions paid regulatory and litigation environment to
in such money market funds. The Board by the Fund and/or other funds advised which AIM is subject should not prevent
noted that, to the extent the Fund by AIM are used to pay for research and the Board from continuing the Advisory
invests in affiliated money market execution services. This research is Agreement for the Fund.
funds, AIM has voluntarily agreed to used by AIM in making investment
waive a portion of the advisory fees it decisions for the Fund. The Board
receives from the Fund attributable to concluded that such arrangements were
such investment. The Board further appropriate.
determined that the proposed securities
lending program and related procedures o AIM's financial soundness in light of
with respect to the lending Fund is in the Fund's needs. The Board considered
the best interests of the lending Fund whether AIM is financially sound and has
and its respective shareholders. The the resources necessary to perform its
Board therefore concluded that the obligations under the Advisory
investment of cash collateral received Agreement, and concluded that AIM has
in connection with the securities the financial resources necessary to
lending program in the money market fulfill its obligations under the
funds according to the procedures is in Advisory Agreement.
the best interests of the lending Fund
and its respective shareholders.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
-------------------------------------------------------------------
DOMESTIC COMMON STOCKS-80.85%
APPLICATION SOFTWARE-6.56%
Adobe Systems Inc. 106,643 $ 3,941,525
-------------------------------------------------------------------
Amdocs Ltd./(a)/ 84,670 2,328,425
-------------------------------------------------------------------
Autodesk, Inc./(a)/ 46,428 1,994,083
-------------------------------------------------------------------
Cadence Design Systems, Inc./(a)/ 91,461 1,547,520
-------------------------------------------------------------------
Quest Software, Inc./(a)/ 119,376 1,741,696
-------------------------------------------------------------------
Witness Systems, Inc./(a)/ 49,500 973,665
-------------------------------------------------------------------
12,526,914
-------------------------------------------------------------------
BIOTECHNOLOGY-3.05%
Amgen Inc./(a)/ 24,109 1,901,236
-------------------------------------------------------------------
Genentech, Inc./(a)/ 19,898 1,840,565
-------------------------------------------------------------------
Genzyme Corp./(a)/ 29,330 2,075,977
-------------------------------------------------------------------
5,817,778
-------------------------------------------------------------------
BROADCASTING & CABLE TV-1.53%
Liberty Global, Inc.-Class A/(a)/ 3,547 79,807
-------------------------------------------------------------------
Liberty Global, Inc.-Series C/(a)/ 3,547 75,196
-------------------------------------------------------------------
Sirius Satellite Radio Inc./(a)(b)/ 206,421 1,383,021
-------------------------------------------------------------------
XM Satellite Radio Holdings Inc.-Class A/(a)/ 50,996 1,391,171
-------------------------------------------------------------------
2,929,195
-------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-11.91%
ADTRAN, Inc. 97,649 2,904,081
-------------------------------------------------------------------
Cisco Systems, Inc./(a)/ 141,697 2,425,853
-------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 90,875 2,416,366
-------------------------------------------------------------------
Corning Inc./(a)/ 169,709 3,336,479
-------------------------------------------------------------------
Motorola, Inc. 213,202 4,816,233
-------------------------------------------------------------------
QUALCOMM Inc. 55,030 2,370,692
-------------------------------------------------------------------
SafeNet, Inc./(a)/ 48,023 1,547,301
-------------------------------------------------------------------
Scientific-Atlanta, Inc. 33,794 1,455,508
-------------------------------------------------------------------
Tellabs, Inc./(a)/ 132,982 1,449,504
-------------------------------------------------------------------
22,722,017
-------------------------------------------------------------------
COMPUTER HARDWARE-5.88%
Apple Computer, Inc./(a)(c)/ 73,903 5,312,887
-------------------------------------------------------------------
Hewlett-Packard Co. 143,185 4,099,386
-------------------------------------------------------------------
International Business Machines Corp. 22,084 1,815,305
-------------------------------------------------------------------
11,227,578
-------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-4.77%
Electronics for Imaging, Inc./(a)/ 54,277 1,444,311
-------------------------------------------------------------------
EMC Corp./(a)/ 427,509 5,822,673
-------------------------------------------------------------------
Network Appliance, Inc./(a)/ 68,029 1,836,783
-------------------------------------------------------------------
9,103,767
-------------------------------------------------------------------
CONSUMER ELECTRONICS-0.52%
Directed Electronics, Inc./(a)/ 68,928 989,117
-------------------------------------------------------------------
SHARES VALUE
-----------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-3.66%
DST Systems, Inc./(a)/ 47,193 $ 2,827,333
-----------------------------------------------------------------------------
First Data Corp. 44,728 1,923,751
-----------------------------------------------------------------------------
Fiserv, Inc./(a)/ 51,574 2,231,607
-----------------------------------------------------------------------------
6,982,691
-----------------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-0.52%
Evergreen Solar, Inc./(a)(b)/ 92,944 989,854
-----------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-0.27%
SunPower Corp.-Class A/(a)/ 15,088 512,841
-----------------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.69%
Electronic Arts Inc./(a)/ 25,056 1,310,679
-----------------------------------------------------------------------------
INTERNET RETAIL-1.57%
eBay Inc./(a)/ 49,249 2,130,019
-----------------------------------------------------------------------------
VistaPrint Ltd./(a)/ 38,357 872,775
-----------------------------------------------------------------------------
3,002,794
-----------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-9.80%
Akamai Technologies, Inc./(a)/ 147,320 2,936,088
-----------------------------------------------------------------------------
Google Inc.-Class A/(a)/ 13,488 5,595,632
-----------------------------------------------------------------------------
HomeStore, Inc./(a)/ 3,684 18,788
-----------------------------------------------------------------------------
j2 Global Communications, Inc./(a)/ 24,353 1,040,847
-----------------------------------------------------------------------------
Openwave Systems Inc./(a)/ 143,119 2,500,289
-----------------------------------------------------------------------------
Yahoo! Inc./(a)/ 168,652 6,607,785
-----------------------------------------------------------------------------
18,699,429
-----------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.89%
Cognizant Technology Solutions Corp.-Class A/(a)/ 71,517 3,600,881
-----------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-0.51%
BlueStream Ventures L.P. (Acquired 08/03/00-06/14/05;
Cost $2,474,655)/(d)(e)(f)(g)/ 2,598,750 975,545
-----------------------------------------------------------------------------
PUBLISHING-1.00%
Getty Images, Inc./(a)/ 21,281 1,899,755
-----------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.72%
Applied Materials, Inc. 141,098 2,531,298
-----------------------------------------------------------------------------
FormFactor Inc./(a)/ 71,861 1,755,564
-----------------------------------------------------------------------------
Lam Research Corp./(a)/ 25,210 899,493
-----------------------------------------------------------------------------
5,186,355
-----------------------------------------------------------------------------
SEMICONDUCTORS-16.87%
Analog Devices, Inc. 50,738 1,819,972
-----------------------------------------------------------------------------
Broadcom Corp.-Class A/(a)/ 82,113 3,871,628
-----------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A/(a)/ 25,600 644,864
-----------------------------------------------------------------------------
AIM V.I. TECHNOLOGY FUND
SHARES VALUE
---------------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Freescale Semiconductor Inc.-Class B/(a)/ 142,924 $ 3,597,397
---------------------------------------------------------------------------
Intel Corp. 171,160 4,272,154
---------------------------------------------------------------------------
Intersil Corp. 83,634 2,080,814
---------------------------------------------------------------------------
Linear Technology Corp. 71,186 2,567,679
---------------------------------------------------------------------------
Maxim Integrated Products, Inc. 41,727 1,512,186
---------------------------------------------------------------------------
Microchip Technology Inc. 56,791 1,825,831
---------------------------------------------------------------------------
National Semiconductor Corp. 120,411 3,128,278
---------------------------------------------------------------------------
NVIDIA Corp./(a)/ 56,619 2,069,991
---------------------------------------------------------------------------
PMC-Sierra, Inc./(a)/ 123,669 953,488
---------------------------------------------------------------------------
Texas Instruments Inc. 119,780 3,841,345
---------------------------------------------------------------------------
32,185,627
---------------------------------------------------------------------------
SYSTEMS SOFTWARE-4.35%
Microsoft Corp. 215,157 5,626,355
---------------------------------------------------------------------------
Oracle Corp./(a)/ 219,561 2,680,840
---------------------------------------------------------------------------
8,307,195
---------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.69%
Ingram Micro Inc.-Class A/(a)/ 65,700 1,309,401
---------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-2.09%
NII Holdings Inc./(a)/ 56,800 2,481,024
---------------------------------------------------------------------------
Sprint Nextel Corp. 38,922 909,218
---------------------------------------------------------------------------
Syniverse Holdings Inc./(a)/ 28,589 597,510
---------------------------------------------------------------------------
3,987,752
---------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $131,022,661) 154,267,165
---------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-15.32%
CANADA-1.98%
Nortel Networks Corp. (Communications Equipment)/(a)/ 570,700 1,746,342
---------------------------------------------------------------------------
TELUS Corp. (Integrated Telecommunication Services) 49,400 2,033,618
---------------------------------------------------------------------------
3,779,960
---------------------------------------------------------------------------
CHINA-0.10%
Suntech Power Holdings Co., Ltd.-ADR (Electrical
Components & Equipment)/(a)/ 6,695 182,439
---------------------------------------------------------------------------
FRANCE-1.27%
Alcatel S.A.-ADR (Communications Equipment)/(a)(b)/ 120,410 1,493,084
---------------------------------------------------------------------------
Business Objects S.A.-ADR (Application Software)/(a)/ 22,837 922,843
---------------------------------------------------------------------------
2,415,927
---------------------------------------------------------------------------
GERMANY-1.04%
SAP A.G.-ADR (Application Software) 44,183 1,991,328
---------------------------------------------------------------------------
ISRAEL-1.09%
NICE Systems Ltd.-ADR (Communications Equipment)/(a)/ 43,307 2,085,665
---------------------------------------------------------------------------
SHARES VALUE
- ------------------------------------------------------------------------------------
JAPAN-0.60%
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)/(h)/ 159 $ 243,492
- ------------------------------------------------------------------------------------
Sumco Corp. (Semiconductors) (Acquired 11/07/05;
Cost $119,970)/(d)/ 4,300 225,702
- ------------------------------------------------------------------------------------
Sumco Corp. (Semiconductors) 12,800 671,856
- ------------------------------------------------------------------------------------
1,141,050
- ------------------------------------------------------------------------------------
MEXICO-1.32%
America Movil S.A. de C.V.-Series L-ADR (Wireless
Telecommunication Services) 86,190 2,521,919
- ------------------------------------------------------------------------------------
NETHERLANDS-0.79%
ASML Holding N.V.-New York Shares (Semiconductor
Equipment)/(a)/ 75,211 1,510,237
- ------------------------------------------------------------------------------------
RUSSIA-0.78%
Vimpel-Communications-ADR (Wireless
Telecommunication Services)/(a)/ 33,864 1,497,805
- ------------------------------------------------------------------------------------
SINGAPORE-2.77%
Marvell Technology Group Ltd. (Semiconductors)/(a)(c)/ 94,291 5,288,782
- ------------------------------------------------------------------------------------
SWEDEN-1.41%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 78,346 2,695,102
- ------------------------------------------------------------------------------------
TAIWAN-2.17%
Acer Inc. (Computer Hardware)/(h)/ 392,000 979,031
- ------------------------------------------------------------------------------------
Catcher Technology Co., Ltd. (Computer Storage &
Peripherals)/(h)/ 133,000 1,058,117
- ------------------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd. (Electronic
Manufacturing Services) 383,868 2,104,892
- ------------------------------------------------------------------------------------
4,142,040
- ------------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $23,441,245) 29,252,254
- ------------------------------------------------------------------------------------
MONEY MARKET FUNDS-3.62%
Premier Portfolio-Institutional Class (Cost $6,911,034)/(i)/ 6,911,034 6,911,034
- ------------------------------------------------------------------------------------
Total Investments-99.79% (excluding investments
purchased with cash collateral from securities
loaned) (Cost $161,374,940) 190,430,453
- ------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.04%
Premier Portfolio-Institutional Class/(i)(j)/ 1,989,759 1,989,759
- ------------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $1,989,759) 1,989,759
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.83% (Cost $163,364,699) 192,420,212
- ------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.83%) (1,578,359)
- ------------------------------------------------------------------------------------
NET ASSETS-100.00% $190,841,853
- ------------------------------------------------------------------------------------
AIM V.I. TECHNOLOGY FUND
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2005.
/(c)/A portion of this security is subject to call options written. See Note 1I
and Note 9.
/(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 aggregate value of these securities at December 31,
2005 was $1,201,247, which represented 0.63% of the Fund's Net Assets.
Unless otherwise indicated, these securities are not considered illiquid.
/(e)/Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at
December 31, 2005 represented 0.51% of the Fund's Net Assets. See Note 1A.
/(f)/The Fund has a remaining commitment of $776,250 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of
the limited partnership agreement.
/(g)/Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The value of
this security considered illiquid at December 31, 2005 represented 0.51%
of the Fund's Net Assets.
/(h)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at December 31, 2005 was
$2,280,640, which represented 1.20% of the Fund's Net Assets. See Note 1A.
/(i)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(j)/The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $154,463,906)* $ 183,519,419
- ---------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $8,900,793) 8,900,793
- ---------------------------------------------------------------------------------
Total investments (cost $163,364,699) 192,420,212
- ---------------------------------------------------------------------------------
Foreign currencies, at value (cost $193,167) 195,789
- ---------------------------------------------------------------------------------
Receivables for:
Investments sold 3,106,051
- ---------------------------------------------------------------------------------
Fund shares sold 49,585
- ---------------------------------------------------------------------------------
Dividends 114,700
- ---------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 40,587
- ---------------------------------------------------------------------------------
Total assets 195,926,924
- ---------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,926,262
- ---------------------------------------------------------------------------------
Fund shares reacquired 830,995
- ---------------------------------------------------------------------------------
Options written, at value (premiums received $39,473) 125,070
- ---------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 48,652
- ---------------------------------------------------------------------------------
Collateral upon return of securities loaned 1,989,759
- ---------------------------------------------------------------------------------
Accrued administrative services fees 121,518
- ---------------------------------------------------------------------------------
Accrued distribution fees-Series II 89
- ---------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 117
- ---------------------------------------------------------------------------------
Accrued transfer agent fees 1,868
- ---------------------------------------------------------------------------------
Accrued operating expenses 40,741
- ---------------------------------------------------------------------------------
Total liabilities 5,085,071
- ---------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 190,841,853
- ---------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 674,028,569
- ---------------------------------------------------------------------------------
Undistributed net investment income (loss) (42,432)
- ---------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies and option contracts (512,116,777)
- ---------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and option contracts 28,972,493
- ---------------------------------------------------------------------------------
$ 190,841,853
- ---------------------------------------------------------------------------------
NET ASSETS:
Series I $ 190,699,502
- ---------------------------------------------------------------------------------
Series II $ 142,351
- ---------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 15,028,192
- ---------------------------------------------------------------------------------
Series II 11,278
- ---------------------------------------------------------------------------------
Series I:
Net asset value per share $ 12.69
- ---------------------------------------------------------------------------------
Series II:
Net asset value per share $ 12.62
- ---------------------------------------------------------------------------------
* At December 31, 2005, securities with an aggregate value of $1,893,262 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $33,960) $ 699,892
- ----------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities
lending income of $17,638, after compensation to counterparties
of $103,288) 238,833
- ----------------------------------------------------------------------------------------
Total investment income 938,725
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,352,694
- ----------------------------------------------------------------------------------------
Administrative services fees 494,632
- ----------------------------------------------------------------------------------------
Custodian fees 29,963
- ----------------------------------------------------------------------------------------
Distribution fees-Series II 371
- ----------------------------------------------------------------------------------------
Transfer agent fees 27,440
- ----------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 20,347
- ----------------------------------------------------------------------------------------
Other 93,979
- ----------------------------------------------------------------------------------------
Total expenses 2,019,426
- ----------------------------------------------------------------------------------------
Less: Fees waived and expense offset arrangements (3,095)
- ----------------------------------------------------------------------------------------
Net expenses 2,016,331
- ----------------------------------------------------------------------------------------
Net investment income (loss) (1,077,606)
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates
of $657,392) 6,861,712
- ----------------------------------------------------------------------------------------
Foreign currencies (141)
- ----------------------------------------------------------------------------------------
Option contracts written 275,845
- ----------------------------------------------------------------------------------------
7,137,416
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,836,591)
- ----------------------------------------------------------------------------------------
Foreign currencies 2,552
- ----------------------------------------------------------------------------------------
Option contracts written (85,597)
- ----------------------------------------------------------------------------------------
(2,919,636)
- ----------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and option
contracts 4,217,780
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,140,174
- ----------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,077,606) $ (715,172)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and option contracts 7,137,416 18,354,333
- --------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies
and option contracts (2,919,636) (7,898,979)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,140,174 9,740,182
- --------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (13,115,433) 19,407,886
- --------------------------------------------------------------------------------------------------------------------------------
Series II (26,030) 148,977
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (13,141,463) 19,556,863
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (10,001,289) 29,297,045
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 200,843,142 171,546,097
- --------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(42,432) and $(36,600),
respectively) $190,841,853 $200,843,142
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Technology Fund, (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 capital growth.
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. The risk of material loss as a result of such indemnification claims
is considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. TECHNOLOGY FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
J. 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. TECHNOLOGY FUND
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 replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the Fund's
average daily net assets.
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. This agreement
has been renewed through April 30, 2007. 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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 only 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. 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 year ended December 31, 2005, AIM waived fees of $2,094.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $444,632 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 year ended
December 31, 2005, the Fund paid AISI $27,440.
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 year ended
December 31, 2005, the Series II shares paid $371.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or ADI.
AIM V.I. TECHNOLOGY 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
fund below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market fund for the year ended December 31,
2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $2,875,986 $77,414,001 $(73,378,953) $ -- $6,911,034 $221,195 $ --
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $ 898,697 $126,489,524 $(125,398,462) $ -- $1,989,759 $ 17,638 $ --
- ---------------------------------------------------------------------------------------------------------------------------
Total $3,774,683 $203,903,525 $(198,777,415) $ -- $8,900,793 $238,833 $ --
- ---------------------------------------------------------------------------------------------------------------------------
* 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 year ended December 31,
2005, the Fund engaged in securities purchases of $1,865,164 and sales of
$2,785,616, which resulted in net realized gains of $657,392.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended December 31, 2005, the Fund received credits from these
arrangements, which resulted in the reduction of the Fund's total expenses of
$1,001.
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,601
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 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. TECHNOLOGY 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2005, securities with an aggregate value of $1,893,262 were
on loan to brokers. The loans were secured by cash collateral of $1,989,759
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2005, the Fund received dividends on cash
collateral of $17,638 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Beginning of year -- $ --
---------------------------------------
Written 3,634 501,090
---------------------------------------
Closed (950) (243,467)
---------------------------------------
Exercised (284) (25,269)
---------------------------------------
Expired (2,235) (192,881)
---------------------------------------
End of year 165 $ 39,473
---------------------------------------
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- --------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/05 (DEPRECIATION)
-------- ------ --------- -------- -------- --------------
Apple Computer, Inc. Jan-06 $60 99 $23,502 $121,770 $(98,268)
- --------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. Jan-06 60 66 15,971 3,300 12,671
- --------------------------------------------------------------------------------------------
Total outstanding options written 165 $39,473 $125,070 $(85,597)
- --------------------------------------------------------------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
---------------------------------------------------
Unrealized appreciation--investments $ 29,012,822
---------------------------------------------------
Temporary book/tax differences (38,348)
---------------------------------------------------
Capital loss carryforward (512,157,107)
---------------------------------------------------
Post-October currency loss deferral (4,083)
---------------------------------------------------
Shares of beneficial interest 674,028,569
---------------------------------------------------
Total net assets $ 190,841,853
---------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales, the
deferral of losses on certain straddles and the treatment of partnerships. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $2,577 and option contracts written of
$(85,597).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
AIM V.I. TECHNOLOGY FUND
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
December 31, 2005 to utilizing $506,206,634 of capital loss carryforward in the
fiscal year ended December 31, 2006.
The Fund utilized $5,632,549 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2007 $ 64,729,977
---------------------------------------------
December 31, 2008 260,086,552
---------------------------------------------
December 31, 2009 153,547,080
---------------------------------------------
December 31, 2010 33,793,498
---------------------------------------------
Total capital loss carryforward $512,157,107
---------------------------------------------
* 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 AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund into the Fund, are realized on securities held in
each fund at such date, the capital loss carryforward may be further limited
for up to five years from the date of the reorganization.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $198,338,544 and $216,555,152, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended December 31, 2005, in the amount of $5,557. These
research credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $32,440,487
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,344,645)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $29,095,842
-------------------------------------------------------------------------
Cost of investments for tax purposes is $163,324,370.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating loss reclassifications, and partnerships, on
December 31, 2005, undistributed net investment income (loss) was increased by
$1,071,774, undistributed net realized gain (loss) was increased by $46,397 and
shares of beneficial interest decreased by $1,118,171. This reclassification
had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2005/(A)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Series I 4,018,565 $ 48,024,772 3,614,575 $ 42,139,572
- ------------------------------------------------------------------------------------------------
Series II/(b)/ 11,967 142,892 2,057 20,311
- ------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(c)/
Series I -- -- 4,598,616 52,226,205
- ------------------------------------------------------------------------------------------------
Series II -- -- 13,169 149,420
- ------------------------------------------------------------------------------------------------
Reacquired:
Series I (5,144,542) (61,140,205) (6,509,875) (74,957,891)
- ------------------------------------------------------------------------------------------------
Series II/(b)/ (14,093) (168,922) (1,822) (20,754)
- ------------------------------------------------------------------------------------------------
(1,128,103) $(13,141,463) 1,716,720 $ 19,556,863
- ------------------------------------------------------------------------------------------------
/(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 66% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The trust has no knowledge as to whether all or
any portion of the shares owned of record by these shareholders are also
owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
/(c)/As of the opening of business on April 30, 2004, the Fund acquired all the
net assets of AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund pursuant to a plan of reorganization approved
by the Directors/Trustees of the Fund on December 9, 2003 and by the
shareholders of AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund on April 2, 2004. The acquisition was
accomplished by a tax free exchange of 4,611,785 shares of the Fund for
5,656,964 shares of AIM V.I. New Technology Fund outstanding and 9,244,509
shares of INVESCO VIF-Telecommunications Fund outstanding as of the close
of business on April 29, 2004. AIM V.I. New Technology Fund's net assets
at that date of $19,064,848, including $2,583,733 of unrealized
appreciation, and INVESCO VIF-Telecommunications Fund's net assets at that
date of $33,310,776, including $3,626,227 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $153,042,987.
AIM V.I. TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.42 $ 11.87 $ 8.17 $ 15.37
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.04)/(a)/ (0.08) (0.00)/(b)/
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.34 0.59 3.78 (7.20)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.27 0.55 3.70 (7.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.69 $ 12.42 $ 11.87 $ 8.17
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(d)/ 2.17% 4.63% 45.29% (46.84)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $190,700 $200,556 $171,546 $105,508
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.12%/(e)/ 1.15% 1.10% 1.11%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.60)%/(e)/ (0.39)%/(a)/ (0.85)% (0.96)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 137% 89% 92%
- -----------------------------------------------------------------------------------------------------------------------------
---------
---------
2001
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.37
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)/(b)(c)/
- ------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (12.88)
- ------------------------------------------------------------------------------------
Total from investment operations (13.00)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 15.37
- ------------------------------------------------------------------------------------
Total return/(d)/ (45.82)%
- ------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $240,253
- ------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.07%
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.66)%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 88%
- ------------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net income (loss)
to average net assets include a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
(loss) per share and the ratio of net investment (loss) to average net
assets excluding the special dividend are $(0.09) and (0.82)%, respectively.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
current method, which is before reclassification of net operating losses,
net investment income (loss) per share would have been $(0.12) and $(0.12)
for the years ended December 31, 2002 and 2001, respectively.
/(c)/Calculated using average shares outstanding.
/(d)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(e)/Ratios are based on average daily net assets of $180,210,763.
SERIES II
---------------------------
APRIL 30, 2004
(DATES SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2005 2004
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.39 $11.09
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.05)/(a)/
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.34 1.35
- -------------------------------------------------------------------------------------------------
Total from investment operations 0.23 1.30
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $12.62 $12.39
- -------------------------------------------------------------------------------------------------
Total return/(b)/ 1.86% 11.72%
- -------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 142 $ 166
- -------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.37%/(c)/ 1.40%/(d)/
- -------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.85)%/(c)/ (0.64)%/(a)(d)/
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 137%
- -------------------------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net income (loss)
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income (loss) per share and the ratio of net investment (loss) to average
net assets excluding the special dividend are $(0.10) and (1.07)%,
respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios based on average daily net assets of $148,478.
/(d)/Annualized.
AIM V.I. TECHNOLOGY FUND
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
AIM V.I. TECHNOLOGY FUND
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. TECHNOLOGY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Technology Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. TECHNOLOGY FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. TECHNOLOGY FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
AIM V.I. TECHNOLOGY FUND
AIM V.I. UTILITIES FUND
Annual Report to Shareholders o December 31,2005
AIM V.I. UTILITIES FUND seeks capital growth and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 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
202-942-8090 or 800-732-0330, or by electronic request at the following E-mail
address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 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. UTILITIES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE o earnings growth is threatened by
deterioration in the firm's fundamentals
======================================================================================= or change in the operating environment
==========================================
An investor preference for FUND VS. INDEXES o valuation becomes too high
dividend-paying equities boosted the
performance of utilities stocks, helping TOTAL RETURNS, 12/31/04-12/31/05, o corporate strategy changes
your Fund post double-digit gains for EXCLUDING VARIABLE PRODUCT ISSUER
the year ended December 31, 2005. CHARGES. IF VARIABLE PRODUCT ISSUER o A company's fundamentals change
CHARGES WERE INCLUDED, RETURNS WOULD BE (product failure, reduced pricing power,
Your Fund outperformed the S&P 500 LOWER. margin compression, etc.)
Index because utilities generally
outperformed other sectors in that Series I Shares 16.83% MARKET CONDITIONS AND YOUR FUND
broad-based benchmark by a wide margin.
Series II Shares 16.55 Despite impressive corporate earnings,
For long-term performance, please see key domestic stock market indexes
Pages 4 and 5. Standard & Poor's Composite generally posted only modest gains for
Index of 500 Stocks the reporting period amid concerns about
(S&P 500 Index) rising interest rates and fuel costs and
(Broad market Index) 4.91 the long-term economic effects of two
devastating Gulf Coast hurricanes.
Lipper Utility Fund Index Energy and utilities were the
(Peer Group Index) 15.00 best-performing sectors of the S&P 500
Index and the only ones to post
SOURCE: LIPPER,INC. double-digit gains for the year,
========================================== although both sectors declined in the
======================================================================================= fourth quarter of 2005. Rising
short-term interest rates hurt the
HOW WE INVEST industry and position weights according performance of utilities stocks toward
to prevailing economic trends such as the close of the year. Other sectors
We invest primarily in natural gas, gross domestic product growth and generally recorded modest gains or
electricity and telecommunication interest rate changes. losses for the year.
services companies, selecting stocks
based on quantitative and fundamental We control risk by: During the year, the Federal Reserve
analysis of individual companies. (the Fed) continued its tightening
Quantitative analysis focuses on o diversifying across most industries policy, raising the key federal funds
positive cash flows and predictable and sub-industries within the utilities rate to 4.25%. The Fed began raising
earnings. Fundamental analysis seeks sector short-term interest rates in 2004 to
strong balance sheets, competent contain inflation. We observed that for
management and sustainable dividends and o owning both regulated and unregulated much of the year utilities stocks tended
distributions. utilities--unregulated companies provide to be more attractive than
greater growth potential, while interest-paying, investment-grade
We look for companies that could regulated firms provide more stable bonds--another income option for
potentially benefit from industry dividends and principal investors--because of their generally
trends, such as increased demand for greater price appreciation potential.
certain products and deregulation of o generally avoiding excessive
state markets, and that are attractively concentration of assets in a small
valued relative to the rest of the number of stocks
market. We also monitor and may adjust
We may sell a stock for any of the
following reasons:
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Electric Utilities 27.2% 1. TXU Corp. 5.5%
[PIE CHART] 2. Multi-Utilities 26.5 2. Dominion Resources, Inc. 4.9
Utilities 77.2% 3. Independent Power Producers 3. Exelon Corp. 4.5
& Energy Traders 13.8
Energy 11.7% 4. Questar Corp. 4.4
4. Oil & Gas Storage &
Telecommunication Services 8.2% Transportation 8.5 5. Williams Cos., Inc. (The) 4.3
Money Market Funds Plus Other 5. Integrated Telecommunication 6. PG&E Corp. 4.2
Services 7.8
Asset Less Liabilities 2.9% 7. Kinder Morgan ,Inc. 4.2
TOTAL NET ASSETS $114.9 MILLION 8. Sempra Energy 3.8
TOTAL NUMBER OF HOLDINGS* 37
9. Duke Energy Corp. 3.5
10. Peabody Energy Corp. 3.2
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
2
AIM V.I. UTILITIES FUND
We believe utilities stocks also Our telecommunication services JOHN S. SEGNER, Mr.
benefited from several other trends, holdings, such as VERIZON Segner, portfolio
including: COMMUNICATIONS, also detracted from Fund [SEGNER manager of AIM V.I.
performance. We observed that Verizon, PHOTO] Utilities Fund, has
o hot summer weather over much of the which already has significant debt, is more than 20 years
country, which increased demand for expected to incur more with its of experience in the
electricity for climate control indoors acquisition of MCI (not a Fund holding). energy and investment
The firm, along with other major U.S. industries. Before joining the Fund's
o the signing into law of the Energy telephone companies, also is facing a advisor in 1997, he was managing
Policy Act of 2005, which abolishes loss of customers to cable television director and principal with an
geographic constraints that have limited providers, which are offering competing investment management company that
energy utilities to local markets services. focused exclusively on publicly-traded
energy stocks. Prior to that, he held
o a trend among utilities companies to IN CLOSING positions with several energy companies.
divest themselves of outside businesses, Mr. Segner holds a B.S. in civil
allowing them to concentrate on their While some provisions of the Tax Relief engineering from the University of
core operations Reconciliation Act of 2003 could be Alabama and an M.B.A. with a
reconsidered, we believe the 15% tax concentration in finance from The
For the year, our holdings in rate for qualified dividends, which has University of Texas at Austin.
electric utilities and oil, gas and made utilities stocks attractive to
consumable fuel companies had the most investors, will be extended. However, we Assisted by the Energy/Gold/Utilities
positive impact on Fund performance. We are somewhat concerned about interest Team
observed that rising energy prices had rate and inflation trends. Because
relatively little negative effect on utilities tend to underperform when
utilities, particularly those that were interest rates and inflation are rising,
relatively deregulated and had the we intend to maintain our focus on
ability to pass on fuel costs to their holding the favorably priced stocks of
customers. Indeed, companies with this strong companies with reasonable growth
ability were among the better- prospects and attractive dividend
performing stocks for the Fund. yields. We thank you for your continued
investment in AIM V.I. Utilities Fund.
One of these stocks was TXU, a
Texas-based power company and the Fund's THE VIEWS AND OPINIONS EXPRESSED IN
top holding. TXU has made an impressive MANAGEMENT'S DISCUSSION OF FUND
turnaround through restructuring, going PERFORMANCE ARE THOSE OF A I M ADVISORS,
from unprofitable early in 2004 to INC. THESE VIEWS AND OPINIONS ARE
profitable in 2005. Toward the end of SUBJECT TO CHANGE AT ANY TIME BASED ON
the year, the company raised its FACTORS SUCH AS MARKET AND ECONOMIC
earnings guidance for the remainder of CONDITIONS. THESE VIEWS AND OPINIONS MAY
2005. TXU benefited from the NOT BE RELIED UPON AS INVESTMENT ADVICE
deregulation of the electric industry in OR RECOMMENDATIONS, OR AS AN OFFER FOR A
Texas, which enabled it to increase its PARTICULAR SECURITY. THE INFORMATION IS
customer base. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
PEABODY ENERGY, the world's largest SECURITY OR THE FUND. STATEMENTS OF FACT
private-sector coal company, was also a ARE FROM SOURCES CONSIDERED RELIABLE,
positive contributor to Fund BUT A I M ADVISORS, INC. MAKES NO
performance. The company, which provides REPRESENTATION OR WARRANTY AS TO THEIR
fuel for generating about 3% of the COMPLETENESS OR ACCURACY. ALTHOUGH
world's electricity, has benefited from HISTORICAL PERFORMANCE IS NO GUARANTEE
increased coal demand. The firm reported OF FUTURE RESULTS, THESE INSIGHTS MAY
its net income for the third quarter of HELP YOU UNDERSTAND OUR INVESTMENT
2005 increased 161% in comparison to the MANAGEMENT PHILOSOPHY.
same quarter for the previous year.
Detracting from Fund performance was
CALPINE, a California-based power
producer and marketer. The company was [RIGHT ARROW GRAPHIC]
adversely affected by equipment outages
in key markets and service agreement FOR A DISCUSSION OF THE RISKS OF
cancellations and was saddled with INVESTING IN YOUR FUND, INDEXES USED IN
considerable debt. We no longer owned THIS REPORT AND YOUR FUND'S LONG-TERM
the stock when the company filed for PERFORMANCE, PLEASE TURN TO PAGES 4 AND
bankruptcy toward the end of the year. 5.
3
AIM V.I. UTILITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 12/30/94, index data from 12/31/94
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM V.I. S&P 500 LIPPER
UTILITIES FUND- INDEX UTILITY FUND
SERIES I SHARES INDEX
12/30/94 $10000
12/94 10000 $10000 $10000
01/95 10040 10259 10360
02/95 10090 10659 10456
03/95 10090 10973 10447
04/95 10100 11295 10676
05/95 10120 11746 11101
06/95 10110 12019 11131
07/95 10110 12417 11273
08/95 10131 12448 11404
09/95 10180 12973 11900
10/95 10240 12927 11998
11/95 10601 13493 12231
12/95 10909 13753 12711
01/96 10969 14221 12936
02/96 10889 14353 12726
03/96 11050 14491 12662
04/96 11453 14705 12688
05/96 11644 15083 12758
06/96 11815 15141 13122
07/96 11362 14472 12526
08/96 11514 14778 12705
09/96 11634 15609 12826
10/96 11977 16039 13268
11/96 12329 17251 13776
12/96 12302 16909 13897
01/97 12405 17965 14161
02/97 12343 18106 14188
03/97 11942 17363 13761
04/97 12024 18399 13886
05/97 12590 19524 14539
06/97 13095 20392 14984
07/97 13280 22014 15359
08/97 12961 20782 14880
09/97 13754 21919 15739
10/97 13754 21188 15604
11/97 14547 22168 16617
12/97 15182 22548 17470
01/98 15372 22798 17382
02/98 16015 24441 17893
03/98 17185 25691 19202
04/98 16795 25955 18801
05/98 16711 25509 18541
06/98 17059 26544 18906
07/98 17016 26264 18650
08/98 15214 22469 17437
09/98 16258 23910 18712
10/98 17102 25852 19151
11/98 17671 27418 19637
12/98 19051 28997 20684
01/99 19522 30209 20590
02/99 19276 29270 19935
03/99 19480 30441 19914
04/99 20445 31620 21240
05/99 20960 30874 21784
06/99 21270 32583 22085
07/99 21227 31570 22026
08/99 20264 31414 21380
09/99 20436 30554 21335
10/99 21153 32486 22460
11/99 21432 33147 22613
12/99 22699 35096 23690
01/00 23997 33333 24127
02/00 25092 32703 24197
03/00 25925 35900 25372
04/00 24333 34820 24359
05/00 23498 34106 24106
06/00 23672 34946 24078
07/00 23163 34400 23968
08/00 24593 36536 25659
09/00 25166 34608 26485
10/00 24257 34461 25790
11/00 22166 31746 24440
12/00 23895 31902 25721
01/01 23417 33033 25068
02/01 22759 30023 24548
03/01 21999 28122 24024
04/01 23541 30306 25352
05/01 22077 30509 24798
06/01 19955 29767 23249
07/01 18798 29473 22522
08/01 17640 27630 21719
09/01 15643 25399 20392
10/01 15892 25884 19927
11/01 16065 27869 19823
12/01 16147 28113 20231
01/02 14954 27703 19154
02/02 14438 27169 18618
03/02 15343 28191 19792
04/02 14930 26482 19024
05/02 14335 26288 18418
06/02 13681 24416 17233
07/02 12545 22513 15391
08/02 12729 22661 15727
09/02 11822 20200 14295
10/02 12373 21976 14920
11/02 12591 23268 15496
12/02 12864 21902 15638
01/03 12427 21330 15168
02/03 12081 21009 14658
03/03 12289 21212 14983
04/03 12866 22959 16004
05/03 13995 24167 17327
06/03 14076 24476 17562
07/03 13430 24908 16934
08/03 13569 25393 17000
09/03 13938 25124 17339
10/03 14099 26544 17755
11/03 14273 26778 17942
12/03 15113 28181 19012
01/04 15230 28698 19413
02/04 15568 29097 19820
03/04 15498 28658 19818
04/04 15120 28209 19350
05/04 15251 28595 19422
06/04 15515 29151 19817
07/04 15779 28186 19994
08/04 16162 28299 20516
09/04 16557 28606 20981
10/04 17214 29043 21832
11/04 18255 30217 22852
12/04 18673 31245 23555
01/05 18662 30484 23559
02/05 19237 31125 24154
03/05 19248 30574 24192
04/05 19393 29995 24390
05/05 19703 30948 24804
06/05 20611 30993 25946
07/05 21388 32145 26744
08/05 22058 31852 27183
09/05 23026 32109 28071
10/05 21543 31574 26646
11/05 21520 32767 26901
12/05 $21816 $32778 $27089
====================================================================================================================================
SOURCE: LIPPER, INC.
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic
chart, presents the fluctuations in the
value of the Fund and its indexes. We
believe that a logarithmic chart is more
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates
the dollar value of an investment, is
constructed with each segment
representing a percent change in the
value of the investment. In this chart,
each segment represents a doubling, or
100% change, in the value of the
investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000, and so on.
4
AIM V.I. UTILITIES FUND
========================================
AVERAGE ANNUAL TOTAL RETURNS RULE 12b-1 FEES APPLICABLE TO SERIES II YOU CANNOT PURCHASE SHARES OF THE FUND
SHARES. SERIES I AND SERIES II SHARES DIRECTLY. PERFORMANCE FIGURES GIVEN
As of 12/31/05 INVEST IN THE SAME PORTFOLIO OF REPRESENT THE FUND AND ARE NOT INTENDED
SECURITIES AND WILL HAVE SUBSTANTIALLY TO REFLECT ACTUAL VARIABLE PRODUCT
SERIES I SHARES SIMILAR PERFORMANCE, EXCEPT TO THE VALUES. THEY DO NOT REFLECT SALES
10 Years 7.18% EXTENT THAT EXPENSES BORNE BY EACH CLASS CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years -1.80 DIFFER. CONNECTION WITH A VARIABLE PRODUCT.
1 Year 16.83 SALES CHARGES, EXPENSES AND FEES, WHICH
THE PERFORMANCE DATA QUOTED REPRESENT ARE DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 6.91% COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
5 Years -2.04 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 16.55 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
======================================== RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON AIM'S AUTOMATED
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS INFORMATION LINE, 866-702-4402. AS
AND CHANGES IN NET ASSET VALUE. MENTIONED ABOVE, FOR THE MOST RECENT
Six months ended 12/31/05 INVESTMENT RETURN AND PRINCIPAL VALUE MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 5.85% WILL FLUCTUATE SO THAT YOU MAY HAVE A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 5.63 GAIN OR LOSS WHEN YOU SELL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ADVISOR.
======================================== AIM V.I. UTILITIES FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE
RETURNS SINCE APRIL 30, 2004, THE FUNDS, IS CURRENTLY OFFERED THROUGH
INCEPTION DATE OF SERIES II SHARES, ARE INSURANCE COMPANIES ISSUING VARIABLE
HISTORICAL. ALL OTHER RETURNS ARE THE PRODUCTS.
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE HIGHER
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
Investing in a single-sector or The unmanaged Standard & Poor's The returns shown in the Management's
single-region mutual fund involves Composite Index of 500 Stocks (the S&P Discussion of Fund Performance are based
greater risk and potential reward than 500 --REGISTERED TRADEMARK-- INDEX) is on net asset values calculated for
investing in a more diversified fund. an index of common stocks frequently shareholder transactions. Generally
used as a general measure of U.S. stock accepted accounting principles require
The Fund may invest up to 25% of its market performance. adjustments to be made to the net assets
assets in the securities of non-U.S. of the Fund at period end for financial
issuers. Securities of Canadian issuers The unmanaged LIPPER UTILITY FUND reporting purposes, and as such, the net
and American Depositary Receipts are not INDEX represents an average of the 30 asset value for shareholder transactions
subject to this 25% limitation. largest utility funds tracked by Lipper, and the returns based on those net asset
International investing presents certain Inc., an independent mutual fund values may differ from the net asset
risks not associated with investing performance monitor. values and returns reported in the
solely in the United States. These Financial Highlights. Additionally, the
include risks relating to fluctuations The Fund is not managed to track the returns and net asset values shown
in the value of the U.S. dollar relative performance of any particular index, throughout this report are at the Fund
to the values of other currencies, the including the indexes defined here, and level only and do not include variable
custody arrangements made for the Fund's consequently, the performance of the product issuer charges. If such charges
foreign holdings, differences in Fund may deviate significantly from the were included, the total returns would
accounting, political risks and the performance of the indexes. be lower.
lesser degree of public information
required to be provided by non-U.S. A direct investment cannot be made in Industry classifications used in this
companies. an index. Unless otherwise indicated, report are generally according to the
index results include reinvested Global Industry Classification Standard,
Investing in smaller companies dividends, and they do not reflect sales which was developed by and is the
involves greater risk than investing in charges. Performance of an index of exclusive property and a service mark of
more established companies, such as funds reflects fund expenses; Morgan Stanley Capital International
business risk, significant stock price performance of a market index does not. Inc. and Standard & Poor's.
fluctuations and illiquidity.
5
AIM V.I. UTILITIES FUND
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 about actual account values and actual ended December 31, 2005, appear in the
fees; distribution and/or service fees expenses. You may use the information in table "Cumulative Total Returns" on
(12b-1); and other Fund expenses. This this table, together with the amount you Page 5.
example is intended to help you invested, to estimate the expenses that
understand your ongoing costs (in you paid over the period. Simply divide The hypothetical account values and
dollars) of investing in the Fund and to your account value by $1,000 (for expenses may not be used to estimate the
compare these costs with ongoing costs example, an $8,600 account value divided actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so, compare this
July 1, 2005, through December 31, 2005. expenses you paid on your account during 5% hypothetical example with the 5%
this period. hypothetical examples that appear in the
The actual and hypothetical expenses shareholder reports of the other funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR
the effect of any fees or other expenses COMPARISON PURPOSES Please note that the expenses shown
assessed in connection with a variable in the table are meant to highlight your
product; if they did, the expenses shown The table below also provides ongoing costs. Therefore, the
would be higher while the ending account information about hypothetical account hypothetical information is useful in
values shown would be lower. values and hypothetical expenses based comparing ongoing costs, and will not
on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/05) (12/31/05)(1) PERIOD(2) (12/31/05) PERIOD(2) RATIO
Series I $1,000.00 $1,058.50 $4.83 $1,020.52 $4.74 0.93%
Series II 1,000.00 1,056.30 6.12 1,019.26 6.01 1.18
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2005, through December
31, 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 December 31, 2005, appear in the table "Cumulative Total Returns" on Page 5.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. UTILITIES FUND
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. Utilities 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 was lower than the initial
advisory agreement with A I M Advisors, qualifications of AIM to provide advisory fee rate 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, although the advisory fee schedule
comprised solely of independent issues as AIM's portfolio and product for the mutual fund included
trustees, at a meeting held on June 30, review process, various back office breakpoints. The Board noted that AIM
2005, the Board, including all of the support functions provided by AIM and has agreed to waive advisory fees of the
independent trustees, approved the AIM's equity and fixed income trading Fund and to limit the Fund's total
continuance of the advisory agreement operations. Based on the review of these operating expenses, as discussed below.
(the "Advisory Agreement") between the and other factors, the Board concluded Based on this review, the Board
Fund and AIM for another year, effective that the quality of services to be concluded that the advisory fee rate for
July 1, 2005. provided by AIM was appropriate and that the Fund under the Advisory Agreement
AIM currently is providing satisfactory was fair and reasonable.
The Board considered the factors services in accordance with the terms of
discussed below in evaluating the the Advisory Agreement. o Fees relative to those of comparable
fairness and reasonableness of the funds with other advisors. The Board
Advisory Agreement at the meeting on o The performance of the Fund relative reviewed the advisory fee rate for the
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed Fund under the Advisory Agreement. The
ongoing oversight of the Fund. In their the performance of the Fund during the Board compared effective contractual
deliberations, the Board and the past one, three and five calendar years advisory fee rates at a common asset
independent trustees did not identify against the performance of funds advised level and noted that the Fund's rate was
any particular factor that was by other advisors with investment above the median rate of the funds
controlling, and each trustee attributed strategies comparable to those of the advised by other advisors with
different weights to the various Fund. The Board noted that the Fund's investment strategies comparable to
factors. performance in such periods was below those of the Fund that the Board
the median performance of such reviewed. The Board noted that AIM has
One of the responsibilities of the comparable funds. The Board also noted agreed to waive advisory fees of the
Senior Officer of the Fund, who is that AIM began serving as investment Fund and to limit the Fund's total
independent of AIM and AIM's affiliates, advisor to the Fund in April 2004. Based operating expenses, as discussed below.
is to manage the process by which the on this review, the Board concluded that Based on this review, the Board
Fund's proposed management fees are no changes should be made to the Fund concluded that the advisory fee rate for
negotiated to ensure that they are and that it was not necessary to change the Fund under the Advisory Agreement
negotiated in a manner which is at arm's the Fund's portfolio management team at was fair and reasonable.
length and reasonable. To that end, the this time.
Senior Officer must either supervise a o Expense limitations and fee waivers.
competitive bidding process or prepare o The performance of the Fund relative The Board noted that AIM has
an independent written evaluation. The to indices. The Board reviewed the contractually agreed to waive advisory
Senior Officer has recommended an performance of the Fund during the past fees of the Fund through June 30, 2006
independent written evaluation in lieu one, three and five calendar years to the extent necessary so that the
of a competitive bidding process and, against the performance of the Lipper advisory fees payable by the Fund do not
upon the direction of the Board, has Utility Fund Index. The Board noted that exceed a specified maximum advisory fee
prepared such an independent written the Fund's performance for the one and rate, which maximum rate includes
evaluation. Such written evaluation also three year periods was comparable to the breakpoints and is based on net asset
considered certain of the factors performance of such Index and below such levels. The Board considered the
discussed below. In addition, as Index for the five year period. The contractual nature of this fee waiver
discussed below, the Senior Officer made Board also noted that AIM began serving and noted that it remains in effect
certain recommendations to the Board in as investment advisor to the Fund in until June 30, 2006. The Board noted
connection with such written evaluation. April 2004. Based on this review, the that AIM has contractually agreed to
Board concluded that no changes should waive fees and/or limit expenses of the
The discussion below serves as a be made 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 o Meeting with the Fund's portfolio for each class of the Fund. The Board
discussion of the material factors and managers and investment personnel. With considered the contractual nature of
the conclusions with respect thereto respect to the Fund, the Board is this fee waiver/expense limitation and
that formed the basis for the Board's meeting periodically with such Fund's noted that it remains in effect until
approval of the Advisory Agreement. portfolio managers and/or other April 30, 2006. The Board considered the
After consideration of all of the investment personnel and believes that effect these fee waivers/expense
factors below and based on its informed such individuals are competent and able limitations would have on the Fund's
business judgment, the Board determined to continue to carry out their estimated expenses and concluded that
that the Advisory Agreement is in the responsibilities under the Advisory the levels of fee waivers/expense
best interests of the Fund and its Agreement. limitations for the Fund were fair and
shareholders and that the compensation reasonable.
to AIM under the Advisory Agreement is o Overall performance of AIM. The Board
fair and reasonable and would have been considered the overall performance of o Breakpoints and economies of scale.
obtained through arm's length AIM in providing investment advisory and The Board reviewed the structure of the
negotiations. portfolio administrative services to the Fund's advisory fee under the Advisory
Fund and concluded that such performance Agreement, noting that it does not
o The nature and extent of the advisory was satisfactory. include any breakpoints. The Board
services to be provided by AIM. The considered whether it would be
Board reviewed the services to be appropriate to add advisory fee
provided by AIM under the Advisory breakpoints for the Fund or whether, due
Agreement. Based on such review, the to the nature of the Fund and the
Board concluded that the range of advisory fee structures of comparable
services to be provided by AIM under the funds, it was reasonable to structure
Advisory Agreement was appropriate and the advisory fee without breakpoints.
that AIM currently is providing services Based on this review, the Board
in accordance with the terms of the concluded that it was not necessary to
Advisory Agreement. add advi-
(continued)
7
AIM V.I. UTILITIES FUND
sory fee breakpoints to the Fund's o Profitability of AIM and its o Other factors and current trends. In
advisory fee schedule. The Board affiliates. The Board reviewed determining whether to continue the
reviewed the level of the Fund's information concerning the profitability Advisory Agreement for the Fund, the
advisory fees, and noted that such fees, of AIM's (and its affiliates') Board considered the fact that AIM,
as a percentage of the Fund's net investment advisory and other activities along with others in the mutual fund
assets, would remain constant under the and its financial condition. The Board industry, is subject to regulatory
Advisory Agreement because the Advisory considered the overall profitability of inquiries and litigation related to a
Agreement does not include any AIM, as well as the profitability of AIM wide range of issues. The Board also
breakpoints. The Board noted that AIM in connection with managing the Fund. considered the governance and compliance
has contractually agreed to waive The Board noted that AIM's operations reforms being undertaken by AIM and its
advisory fees of the Fund through June remain profitable, although increased affiliates, including maintaining an
30, 2006 to the extent necessary so that expenses in recent years have reduced internal controls committee and
the advisory fees payable by the Fund do AIM's profitability. Based on the review retaining an independent compliance
not exceed a specified maximum advisory of the profitability of AIM's and its consultant, and the fact that AIM has
fee rate, which maximum rate includes affiliates' investment advisory and undertaken to cause the Fund to operate
breakpoints and is based on net asset other activities and its financial in accordance with certain governance
levels. The Board concluded that the condition, the Board concluded that the policies and practices. The Board
Fund's fee levels under the Advisory compensation to be paid by the Fund to concluded that these actions indicated a
Agreement therefore would not reflect AIM under its Advisory Agreement was not good faith effort on the part of AIM to
economies of scale, although the excessive. adhere to the highest ethical standards,
advisory fee waiver reflects economies and determined that the current
of scale. o Benefits of soft dollars to AIM. The regulatory and litigation environment to
Board considered the benefits realized which AIM is subject should not prevent
o Investments in affiliated money market by AIM as a result of brokerage the Board from continuing the Advisory
funds. The Board also took into account transactions executed through "soft Agreement for the Fund.
the fact that uninvested cash and cash dollar" arrangements. Under these
collateral from securities lending arrangements, brokerage commissions paid
arrangements (collectively, "cash by the Fund and/or other funds advised
balances") of the Fund may be invested by AIM are used to pay for research and
in money market funds advised by AIM execution services. This research is
pursuant to the terms of an SEC used by AIM in making investment
exemptive order. The Board found that decisions for the Fund. The Board
the Fund may realize certain benefits concluded that such arrangements were
upon investing cash balances in AIM appropriate.
advised money market funds, including a
higher net return, increased liquidity, o AIM's financial soundness in light of
increased diversification or decreased the Fund's needs. The Board considered
transaction costs. The Board also found whether AIM is financially sound and has
that the Fund will not receive reduced the resources necessary to perform its
services if it invests its cash balances obligations under the Advisory
in such money market funds. The Board Agreement, and concluded that AIM has
noted that, to the extent the Fund the financial resources necessary to
invests in affiliated money market fulfill its obligations under the
funds, AIM has voluntarily agreed to Advisory Agreement.
waive a portion of the advisory fees it
receives from the Fund attributable to o Historical relationship between the
such investment. The Board further Fund and AIM. In determining whether to
determined that the proposed securities continue the Advisory Agreement for the
lending program and related procedures Fund, the Board also considered the
with respect to the lending Fund 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. The of AIM's operations, and concluded that
Board therefore concluded that the it was beneficial to maintain the
investment of cash collateral received current relationship, in part, because
in connection with the securities of such knowledge. The Board also
lending program in the money market reviewed the general nature of the
funds according to the procedures is in non-investment advisory services
the best interests of the lending Fund currently performed by AIM and its
and its respective shareholders. affiliates, such as administrative,
transfer agency and distribution
o Independent written evaluation and services, and the fees received by AIM
recommendations of the Fund's Senior and its affiliates for performing such
Officer. The Board noted that, upon services. In addition to reviewing such
their direction, the Senior Officer of services, the trustees also considered
the Fund, who is independent of AIM and the organizational structure employed by
AIM's affiliates, had prepared an AIM and its affiliates to provide those
independent written evaluation in order services. Based on the review of these
to assist the Board in determining the and other factors, the Board concluded
reasonableness of the proposed that AIM and its affiliates were
management fees of the AIM Funds, qualified to continue to provide
including the Fund. The Board noted that non-investment advisory services to the
the Senior Officer's written evaluation Fund, including administrative, transfer
had been relied upon by the Board in agency and distribution services, and
this regard in lieu of a competitive that AIM and its affiliates currently
bidding process. In determining whether are providing satisfactory
to continue the Advisory Agreement for non-investment advisory services.
the Fund, the Board considered the
Senior Officer's written evaluation and
the recommendation made by the Senior
Officer to the Board that the Board
consider implementing a process to
assist them in more closely monitoring
the performance of the AIM Funds. The
Board concluded that it would be
advisable to implement such a process as
soon as reasonably practicable.
8
SCHEDULE OF INVESTMENTS
December 31, 2005
SHARES VALUE
-----------------------------------------------------------
DOMESTIC COMMON STOCKS-86.48%
COAL & CONSUMABLE FUELS-3.23%
Peabody Energy Corp. 45,000 $ 3,708,900
-----------------------------------------------------------
ELECTRIC UTILITIES-22.31%
Cinergy Corp. 44,000 1,868,240
-----------------------------------------------------------
Edison International 85,000 3,706,850
-----------------------------------------------------------
Entergy Corp. 50,000 3,432,500
-----------------------------------------------------------
Exelon Corp. 98,000 5,207,720
-----------------------------------------------------------
FirstEnergy Corp. 73,868 3,618,793
-----------------------------------------------------------
FPL Group, Inc. 87,068 3,618,546
-----------------------------------------------------------
PPL Corp. 105,539 3,102,847
-----------------------------------------------------------
Westar Energy, Inc. 50,000 1,075,000
-----------------------------------------------------------
25,630,496
-----------------------------------------------------------
GAS UTILITIES-7.80%
Equitable Resources, Inc. 85,000 3,118,650
-----------------------------------------------------------
Peoples Energy Corp. 22,164 777,292
-----------------------------------------------------------
Questar Corp. 67,000 5,071,900
-----------------------------------------------------------
8,967,842
-----------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-13.82%
Constellation Energy Group 60,000 3,456,000
-----------------------------------------------------------
Duke Energy Corp. 145,000 3,980,250
-----------------------------------------------------------
NRG Energy, Inc./(a)/ 45,000 2,120,400
-----------------------------------------------------------
TXU Corp. 126,000 6,323,940
-----------------------------------------------------------
15,880,590
-----------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-7.81%
AT&T Inc. 93,000 2,277,570
-----------------------------------------------------------
BellSouth Corp. 125,000 3,387,500
-----------------------------------------------------------
Verizon Communications Inc. 110,000 3,313,200
-----------------------------------------------------------
8,978,270
-----------------------------------------------------------
MULTI-UTILITIES-21.17%
Ameren Corp. 47,494 2,433,593
-----------------------------------------------------------
CenterPoint Energy, Inc. 126,624 1,627,118
-----------------------------------------------------------
Dominion Resources, Inc. 73,000 5,635,600
-----------------------------------------------------------
KeySpan Corp. 58,042 2,071,519
-----------------------------------------------------------
OGE Energy Corp. 36,937 989,542
-----------------------------------------------------------
SHARES VALUE
----------------------------------------------------------------------------
MULTI-UTILITIES-(CONTINUED)
PG&E Corp. 130,000 $ 4,825,600
----------------------------------------------------------------------------
PNM Resources Inc. 45,000 1,102,050
----------------------------------------------------------------------------
SCANA Corp. 31,658 1,246,692
----------------------------------------------------------------------------
Sempra Energy 98,000 4,394,320
----------------------------------------------------------------------------
24,326,034
----------------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-8.50%
Kinder Morgan, Inc. 52,000 4,781,400
----------------------------------------------------------------------------
Williams Cos., Inc. (The) 215,000 4,981,550
----------------------------------------------------------------------------
9,762,950
----------------------------------------------------------------------------
WATER UTILITIES-1.84%
Aqua America Inc. 77,388 2,112,692
----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $77,715,748) 99,367,774
----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-10.60%
FRANCE-2.76%
Veolia Environnement (Multi-Utilities)/(b)/ 70,000 3,171,753
----------------------------------------------------------------------------
GERMANY-2.38%
E.ON A.G. (Electric Utilities)/(b)/ 26,387 2,730,891
----------------------------------------------------------------------------
ITALY-1.48%
Enel S.p.A. (Electric Utilities) 216,309 1,699,074
----------------------------------------------------------------------------
SPAIN-1.03%
Endesa, S.A. (Electric Utilities)/(b)/ 44,846 1,179,789
----------------------------------------------------------------------------
UNITED KINGDOM-2.95%
National Grid PLC (Multi-Utilities)/(b)/ 300,000 2,934,509
----------------------------------------------------------------------------
Vodafone Group PLC-ADR (Wireless
Telecommunication Services) 21,424 459,973
----------------------------------------------------------------------------
3,394,482
----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $10,348,806) 12,175,989
----------------------------------------------------------------------------
MONEY MARKET FUNDS-4.54%
Premier Portfolio-Institutional Class
(Cost $5,216,837)/(c)/ 5,216,837 5,216,837
----------------------------------------------------------------------------
TOTAL INVESTMENTS-101.62% (Cost $93,281,391) 116,760,600
----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.62%) (1,856,008)
----------------------------------------------------------------------------
NET ASSETS-100.00% $114,904,592
----------------------------------------------------------------------------
Investment Abbreviations:
ADR-American Depositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at December 31, 2005 was
$10,016,942, which represented 8.72% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of
the financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value (cost $88,064,554) $111,543,763
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $5,216,837) 5,216,837
- -----------------------------------------------------------------------------------
Total investments (cost $93,281,391) 116,760,600
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 30,526
- -----------------------------------------------------------------------------------
Dividends 350,947
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 46,090
- -----------------------------------------------------------------------------------
Other assets 2,822
- -----------------------------------------------------------------------------------
Total assets 117,190,985
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 2,112,289
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 51,016
- -----------------------------------------------------------------------------------
Accrued administrative services fees 95,937
- -----------------------------------------------------------------------------------
Accrued distribution fees--Series II 498
- -----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 109
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 1,495
- -----------------------------------------------------------------------------------
Accrued operating expenses 25,049
- -----------------------------------------------------------------------------------
Total liabilities 2,286,393
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $114,904,592
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 88,630,892
- -----------------------------------------------------------------------------------
Undistributed net investment income 4,337,557
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (1,539,350)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 23,475,493
- -----------------------------------------------------------------------------------
$114,904,592
- -----------------------------------------------------------------------------------
NET ASSETS:
Series I $114,103,774
- -----------------------------------------------------------------------------------
Series II $ 800,818
- -----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,400,615
- -----------------------------------------------------------------------------------
Series II 45,081
- -----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 17.83
- -----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 17.76
- -----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $105,410) $ 5,684,336
-----------------------------------------------------------------------
Dividends from affiliated money market funds 254,377
-----------------------------------------------------------------------
Interest 8,958
-----------------------------------------------------------------------
Total investment income 5,947,671
-----------------------------------------------------------------------
EXPENSES:
Advisory fees 1,043,296
-----------------------------------------------------------------------
Administrative services fees 463,332
-----------------------------------------------------------------------
Custodian fees 26,896
-----------------------------------------------------------------------
Distribution fees--Series II 1,721
-----------------------------------------------------------------------
Transfer agent fees 17,986
-----------------------------------------------------------------------
Trustees' and officer's fees and benefits 20,224
-----------------------------------------------------------------------
Other 91,093
-----------------------------------------------------------------------
Total expenses 1,664,548
-----------------------------------------------------------------------
Less: Fees waived (43,450)
-----------------------------------------------------------------------
Net expenses 1,621,098
-----------------------------------------------------------------------
Net investment income 4,326,573
-----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 33,034,341
-----------------------------------------------------------------------
Foreign currencies 65,366
-----------------------------------------------------------------------
33,099,707
-----------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (3,895,246)
-----------------------------------------------------------------------
Foreign currencies (7,284)
-----------------------------------------------------------------------
(3,902,530)
-----------------------------------------------------------------------
Net gain from investment securities and foreign currencies 29,197,177
-----------------------------------------------------------------------
Net increase in net assets resulting from operations $33,523,750
-----------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
2005
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,326,573
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 33,099,707
- ------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (3,902,530)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 33,523,750
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (2,617,447)
- ------------------------------------------------------------------------------------------------------------------------
Series II (17,260)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (2,634,707)
- ------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (76,258,358)
- ------------------------------------------------------------------------------------------------------------------------
Series II 118,284
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (76,140,074)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (45,251,031)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 160,155,623
- ------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $4,337,557 and $2,579,006, respectively) $114,904,592
- ------------------------------------------------------------------------------------------------------------------------
2004
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,157,181
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 4,136,977
- -----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 19,374,088
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,668,246
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (1,790,572)
- -----------------------------------------------------------------------------------------------------------------------
Series II --
- -----------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,790,572)
- -----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 72,272,573
- -----------------------------------------------------------------------------------------------------------------------
Series II 494,954
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 72,767,527
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 97,645,201
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 62,510,422
- -----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $4,337,557 and $2,579,006, respectively) $160,155,623
- -----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM V.I. UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Utilities Fund, (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-seven 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 capital growth and current income.
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. The risk of material loss as a result of indemnification claims is
considered remote.
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 are 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 recorded at amortized cost which approximates 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.
AIM V.I. UTILITIES FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.60% of the Fund's
average daily net assets.
Effective September 23, 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 0.93% and Series II shares to 1.18% of average daily net assets, through
April 30, 2007. Prior to September 23, 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) 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 numbers
reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items; (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 only
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.
AIM V.I. UTILITIES 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 year ended December 31, 2005, AIM waived fees of $43,450.
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 year ended December 31, 2005,
AMVESCAP did not reimburse any expenses.
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 the
participants; and the servicing of participants' accounts. Pursuant to such
agreement, for the year ended December 31, 2005, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $413,332 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 year ended
December 31, 2005, the Fund paid AISI $17,986.
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 year ended
December 31, 2005, the Series II shares paid $1,721.
Certain officers and trustees of the Trust are also 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 an
affiliated money market fund for the year ended December 31, 2005.
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $6,951,654 $93,720,487 $(95,455,304) $ -- $5,216,837 $254,377 $ --
- -------------------------------------------------------------------------------------------------------------------------
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 and Officer of the Fund who is not an
"interested person" of AIM. 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.
During the year ended December 31, 2005, the Fund paid legal fees of $4,581
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. UTILITIES FUND
During the year ended December 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2005 and 2004 was as follows:
2005 2004
-------------------------------------------------------------
Distributions paid from ordinary income $2,634,707 $1,790,572
-------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2005, the components of net assets on a tax basis were as
follows:
2005
--------------------------------------------------
Undistributed ordinary income $ 4,387,224
--------------------------------------------------
Undistributed long-term gain 2,709,304
--------------------------------------------------
Unrealized appreciation--investments 22,899,819
--------------------------------------------------
Temporary book/tax differences (44,076)
--------------------------------------------------
Capital loss carryforward (3,678,571)
--------------------------------------------------
Shares of beneficial interest 88,630,892
--------------------------------------------------
Total net assets $114,904,592
--------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the
deferral of losses on wash sales and the treatment of defaulted bonds. The
tax-basis unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on foreign currencies of $(3,716).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
December 31, 2005 to utilizing $919,643 of capital loss carryforward in the
fiscal year ended December 31, 2006.
The Fund utilized $5,603,621 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2008 $ 441,827
---------------------------------------------
December 31, 2009 3,236,744
---------------------------------------------
Total capital loss carryforward $3,678,571
---------------------------------------------
* 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 AIM V.I. Global Utilities 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.
On September 23, 2005, 5,596,472 Series I shares valued at $104,933,842 were
redeemed by a significant shareholder and settled through a redemption- in-kind
transaction, which resulted in a realized gain of $24,838,897 to the Fund for
book purposes. From a federal income tax perspective, the realized gains are
not recognized. Furthermore, the redemption may trigger limitations under the
Internal Revenue Code and related regulations regarding the amount of capital
loss carryforward available for future utilization by the Fund.
AIM V.I. UTILITIES FUND
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2005 was $79,555,242 and $150,346,290, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended December 31, 2005, in the amount of $16,098. These
research credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $23,923,906
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,020,371)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $22,903,535
-------------------------------------------------------------------------
Cost of investments for tax purposes is $93,857,065.
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of redemption in kind
transactions, defaulted bond, reorganization expenses and foreign currency
transactions, on December 31, 2005, undistributed net investment income was
increased by $66,685, undistributed net realized gain (loss) was decreased by
$24,387,158 and shares of beneficial interest increased by $24,320,473. This
reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005/(A)/ 2004
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
Sold:
Series I 6,323,063 $ 104,776,537 7,260,883 $ 98,809,827
- --------------------------------------------------------------------------------------------------
Series II/(b)/ 42,862 681,910 9,123 123,917
- --------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 144,530 2,617,447 141,547 1,790,572
- --------------------------------------------------------------------------------------------------
Series II/(b)/ 956 17,260 -- --
- --------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(c)/
Series I -- -- 1,651,306 20,891,460
- --------------------------------------------------------------------------------------------------
Series II/(b)/ -- -- 35,261 445,966
- --------------------------------------------------------------------------------------------------
Reacquired:
Series I (10,289,904) (183,652,342) (3,656,840) (49,219,286)
- --------------------------------------------------------------------------------------------------
Series II/(b)/ (37,379) (580,886) (5,742) (74,929)
- --------------------------------------------------------------------------------------------------
(3,815,872) $ (76,140,074) 5,435,538 $ 72,767,527
- --------------------------------------------------------------------------------------------------
/(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 64% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by these entities are also owned
beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
/(c)/As of the opening of business on April 30, 2004, the Fund acquired all of
the net assets of AIM V.I. Global Utilities Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on December 9, 2003
and AIM V.I. Global Utilities Fund shareholders on April 2, 2004. The
acquisition was accomplished by a tax free exchange of 1,686,567 shares of
the Fund for 1,960,982 shares of AIM V.I. Global Utilities Fund
outstanding as of the close of business on April 29, 2004. AIM V.I. Global
Utilities Fund's net assets at that date of $21,337,426, including
$1,651,275 of unrealized appreciation, were combined with those of the
Fund. The aggregate net assets of the Fund immediately before the
acquisition were $69,390,372.
AIM V.I. UTILITIES FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.61 $ 12.95 $ 11.16 $ 14.08
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42/(a)/ 0.42/(a)/ 0.33/(a)/ 0.19
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.21 2.57 1.60 (3.05)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.63 2.99 1.93 (2.86)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.41) (0.33) (0.14) (0.06)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.41) (0.33) (0.14) (0.06)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.83 $ 15.61 $ 12.95 $ 11.16
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 16.83% 23.65% 17.38% (20.32)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $114,104 $159,554 $62,510 $31,204
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.93%/(c)(d)/ 1.01% 1.08% 1.15%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.49%/(c)/ 3.09% 2.84% 2.59%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 52% 58% 102%
- --------------------------------------------------------------------------------------------------------------------------
--------
--------
2001
- ----------------------------------------------------------------------------
Net asset value, beginning of period $ 21.06
- ----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- ----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (6.83)
- ----------------------------------------------------------------------------
Total from investment operations (6.83)
- ----------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07)
- ----------------------------------------------------------------------------
Distributions from net realized gains (0.08)
- ----------------------------------------------------------------------------
Total distributions (0.15)
- ----------------------------------------------------------------------------
Net asset value, end of period $ 14.08
- ----------------------------------------------------------------------------
Total return/(b)/ (32.41)%
- ----------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,947
- ----------------------------------------------------------------------------
Ratio of expenses to average net assets 1.15%
- ----------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.13%
- ----------------------------------------------------------------------------
Portfolio turnover rate 33%
- ----------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(c)/Ratios are based on average daily net assets of $173,194,374.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
0.96% for the year ended December 31, 2005.
SERIES II
-------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES COMMENCED)
DECEMBER 31, 2005 TO DECEMBER 31, 2004
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.57 $12.63
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38/(a)/ 0.26/(a)/
- -----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.20 2.68
- -----------------------------------------------------------------------------------------------------
Total from investment operations 2.58 2.94
- -----------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.39) --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $17.76 $15.57
- -----------------------------------------------------------------------------------------------------
Total return /(b)/ 16.55% 23.28%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 801 $ 602
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.18%/(c)(d)/ 1.28%/(e)/
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.24%/(c)/ 2.82%/(e)/
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 52%
- -----------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $688,281.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.21% for the year ended December 31, 2005.
/(e)/Annualized.
AIM V.I. UTILITIES FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created 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, which was done pursuant to the terms of the settlement.
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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (S) 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 October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority 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.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI. The WVASC makes findings of fact
that essentially mirror the WVAG's allegations mentioned above and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
AIM and ADI have the right to contest the WVASC's findings and conclusions,
which they intend to do.
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; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege 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.
AIM V.I. UTILITIES FUND
NOTE 11--LEGAL PROCEEDINGS-(CONTINUED)
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to
the MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
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, among others, 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. 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.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries 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. UTILITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Utilities Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2005, and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2005 by correspondence with the custodian,
provide a reasonable basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 14, 2006
Houston, Texas
AIM V.I. UTILITIES FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair, Principal Group Inc. (financial services holding
Executive Officer and President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2 /-- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services,
Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products, and Chairman, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company); and CompuDyne
Corporation (provider of products and
services to the public security
market); and Homeowners of America
Holding Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) and Owner, Dos Angelos Ranch, profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
AIM V.I. UTILITIES FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of December 31, 2005
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and Vice President, A
I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary Secretary and General Counsel, A I M
and Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC.; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President, Principal Financial M Advisors, Inc.
Officer and Treasurer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company, and Vice President,
A I M Advisors, Inc.
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The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
300 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 96.41% is eligible for the dividends received deduction for
corporations.
AIM V.I. UTILITIES FUND
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered
by the report. The Registrant did not grant any waivers, including
implicit waivers, from any provisions of the Code to the PEO or PFO
during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
On the date of the reporting period, October 31, 2005, the Registrant's
audit committee financial expert was Prema Mathai-Davis. Dr.
Mathai-Davis is "independent" within the meaning of that term as used
in Form N-CSR.
On October 27, 2005, the Board of Trustees determined that Raymond
Stickel, Jr. is an audit committee financial expert. Mr. Stickel was
appointed to the Registrant's Audit Committee effective as of October
1, 2005. Mr. Stickel is "independent" within the meaning of that term
as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Registrant's Audit Committee appointed PricewaterhouseCoopers LLP
("PWC") as the principal independent registered public accounting firm for all
of the Registrant's series portfolios for the fiscal year 2005. Such appointment
was ratified and approved by the independent trustees of the Registrant's Board
of Trustees. For the fiscal year ended 2004, Tait Weller and Baker ("TWB")
served as the principal independent registered public accounting firm for
certain of the Registrant's series portfolios, while PWC served as principal
independent registered public accounting firm for the Registrant's remaining
series portfolios.
The information set forth below shows, among other things, fees billed
by PWC and TWB to the Registrant in respect of its series portfolios, and
certain affiliated entities of the Registrant.
FEES BILLED BY PWC TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant's series portfolios for the last two fiscal years as follows:
Percentage of Fees Billed Percentage of Fees Billed
Fees Billed by PWC for Applicable to Non-Audit Fees Billed by PWC for Applicable to Non-Audit
Services Rendered to the Services Provided for Services Rendered to certain Services Provided for
Registrant's series fiscal year end 2005 of the Registrant series fiscal year end 2004
portfolios for fiscal Pursuant to Waiver of portfolios for fiscal year Pursuant to Waiver of
year end 2005 Pre-Approval Requirement(1) end 2004 Pre-Approval Requirement(1)
------------------------ --------------------------- ---------------------------- ---------------------------
Audit Fees $ 579,295 N/A $ 248,732 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(2) $ 108,332 0% $ 29,580 0%
All Other Fees $ 0 0% $ 0 0%
-------------- --------------
Total Fees $ 687,627 0% $ 278,312 0%
PWC billed the Registrant aggregate non-audit fees of $108,332 for the fiscal
year ended 2005 for non-audit services rendered to the Registrant's series
portfolios. PWC billed the Registrant aggregate non-audit fees of $29,580 for
the fiscal year ended 2004 for non-audit services rendered to certain of the
Registrant's series portfolios.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Tax Fees for the fiscal year end December 31, 2005 includes fees billed
for reviewing tax returns. Tax fees for fiscal year end December 31,
2004 includes fees billed for reviewing tax returns.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and
any entity controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("AIM Affiliates") aggregate fees
for pre-approved non-audit services rendered to AIM and AIM Affiliates for the
last two fiscal years as follows:
Fees Billed by PWC
for Non-Audit Fees Billed by PWC
Services Rendered to Percentage of Fees for Non-Audit Services Percentage of Fees
AIM and AIM Billed Applicable to Rendered to AIM and Billed Applicable to
Affiliates for fiscal Non-Audit Services AIM Affiliates for Non-Audit Services
year end 2005 That Provided for fiscal fiscal year end 2004 Provided for fiscal year
Were Required year end 2005 That Were Required end 2004 Pursuant to
to be Pre-Approved Pursuant to Waiver of to be Pre-Approved Waiver of Pre-
by the Registrant's Pre-Approval by the Registrant's Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
--------------------- --------------------- ---------------------- ------------------------
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
------------ ------------
Total Fees(2) $ 0 0% $ 0 0%
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the
pre-approval requirement is waived pursuant to a de minimis
exception if (i) such services were not recognized as non-audit
services by the Registrant at the time of engagement, (ii) the
aggregate amount of all such services provided is no more than 5% of
the aggregate audit and non-audit fees paid by the Registrant, AIM
and AIM Affiliates during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Including the fees for services not required to be pre-approved by
the registrant's audit committee, PWC billed AIM and AIM Affiliates
aggregate non-audit fees of $0 for the fiscal year ended 2005, and
PWC billed AIM and AIM Affiliates aggregate non-audit fees of $0 for
the fiscal year ended 2004, for non-audit services rendered to AIM
and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining the principal accountant's
independence.
FEES BILLED BY TWB TO THE REGISTRANT
TWB billed the Registrant aggregate fees for services rendered to
the Registrant's series portfolios for the last two fiscal years as follows:
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Fees Billed by TWB Non-Audit Services Fees Billed by TWB Non-Audit Services
for Services Provided for fiscal for Services Rendered Provided for fiscal
Rendered to the year end 2005 to certain of the year end 2004
Registrant's series Pursuant to Waiver of Registrant series Pursuant to Waiver of
portfolios for fiscal Pre-Approval portfolios for fiscal Pre-Approval
year end 2005 Requirement(1) year end 2004 Requirement(1)
--------------------- --------------------- --------------------- ---------------------
Audit Fees $ 0 N/A $ 241,300 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(2) $ 0 0% $ 41,400 0%
All Other Fees $ 0 0% $ 0 0%
-------------- --------------
Total Fees $ 0 0% $ 282,700 0%
TWB billed the Registrant aggregate non-audit fees of $0 for the fiscal year
ended 2005 for non-audit services rendered to the Registrant's series
portfolios. TWB billed the Registrant aggregate non-audit fees of $41,400 for
the fiscal year ended 2004 for non-audit services rendered to certain of the
Registrant's series portfolios.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Tax fees for fiscal year end December 31, 2004 includes fees billed for
reviewing tax returns.
FEES BILLED BY TWB RELATED TO AIM AND AIM AFFILIATES
TWB billed AIM and AIM Affiliates aggregate fees for pre-approved
non-audit services rendered to AIM and AIM Affiliates for the last two fiscal
years as follows:
Fees Billed by TWB
for Non-Audit Fees Billed by TWB
Services Rendered to Percentage of Fees for Non-Audit Services Percentage of Fees
AIM and AIM Billed Applicable to Rendered to AIM and Billed Applicable to
Affiliates for fiscal Non-Audit Services AIM Affiliates for Non-Audit Services
year end 2005 That Provided for fiscal year fiscal year end 2004 Provided for fiscal year
Were Required end 2005 Pursuant to That Were Required end 2004 Pursuant to
to be Pre-Approved Waiver of Pre- to be Pre-Approved Waiver of Pre-
by the Registrant's Approval by the Registrant's Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
--------------------- ------------------------ --------------------- ------------------------
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
---------- ---------
Total Fees(2) $ 0 0% $ 0 0%
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant,
AIM and AIM Affiliates during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Including the fees for services not required to be pre-approved by the
registrant's audit committee, TWB billed AIM and AIM Affiliates
aggregate non-audit fees of $0 for the fiscal year ended 2005, and TWB
billed AIM and AIM Affiliates aggregate non-audit fees of $0 for the
fiscal year ended 2004, for non-audit services rendered to AIM and AIM
Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining the principal accountant's
independence.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 13, 2005
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of estimated
pre-approved fee levels provided at the time the service was pre-approved will
also require specific approval by the Audit Committees before payment is made.
The Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
II. DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
III. AUDIT SERVICES
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
IV. NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers, compliance with ratings agency requirements and
interfund lending activities.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER AUDITOR SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
V. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit Committee will always factor
in the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
VI. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees and such other information as the Audit Committee may
request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation
o Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines by
regulation is impermissible.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 15, 2005, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and
PFO, concluded that, as of December 16, 2004, the Registrant's
disclosure controls and procedures were reasonably designed to ensure:
(1) that information required to be disclosed by the Registrant on Form
N-CSR is recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the Securities and Exchange
Commission; and (2) that material information relating to the
Registrant is made known to the PEO and PFO as appropriate to allow
timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by the
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ ROBERT H. GRAHAM
----------------------------------
Robert H. Graham
Principal Executive Officer
Date: March 3, 2006
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: March 3, 2006
By: /s/ SIDNEY M. DILGREN
----------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: March 3, 2006
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.