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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)
Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------------
Date of fiscal year end: 12/31
-------------------
Date of reporting period: 06/30/06
------------------
Item 1. Reports to Stockholders.
AIM V.I. BASIC BALANCED FUND
Semiannual Report to Shareholders o June 30,2006
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
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006,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.]
--Registered Trademark--
[AIM INVESTMENTS LOGO]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark--
AIM V.I. BASIC BALANCED FUND
MANAGEMENT'S DISCUSSION overreact to negative news.
OF FUND PERFORMANCE
Since our application of this
====================================================================================== strategy is highly disciplined and
relatively unique, it is important to
PERFORMANCE SUMMARY understand the benefits and limitations
========================================= of our process. First, the investment
For the six months ended June 30, 2006, strategy is intended to preserve your
and excluding variable product issuer FUND VS. INDEXES capital while growing it at above-market
charges, AIM V.I. Basic Balanced Fund rates over the long term. Second, we have
underperformed its broad market, CUMULATIVE TOTAL RETURNS, little portfolio commonality with popular
style-specific and peer group indexes. 12/31/05--6/30/06, EXCLUDING VARIABLE benchmark indexes and most of our peers.
PRODUCT ISSUER CHARGES. IF VARIABLE And third, the Fund's short-term relative
The Fund's underperformance relative PRODUCT ISSUER CHARGES WERE INCLUDED, performance will differ from that of its
to its broad market and style-specific RETURNS WOULD BE LOWER. indexes and have little information value
indexes was attributable to an unusual simply because we don't own the exact
number of relatively underperforming Series I Shares 1.00% same stocks (low commonality).
investments. The largest detractors from
Fund performance were the result of Series II Shares 0.92 Our fixed income portfolio investment
negative short-term sentiment or weak process is accomplished through the use
interim results that, in our opinion, had Standard & Poor's Composite Index of top-down strategies involving duration
no impact on their estimated intrinsic of 500 stocks (S&P 500 Index) management, yield-curve position and
values. (Broad Market Index) 2.71 sector allocation. (Duration is the
measure of a debt security's sensitivity
Your Fund's long-term performance 60% Russell 1000 Value Index/40% to interest rate changes, expressed in
appears on page 4. Lehman Brothers U.S. Aggregate terms of years. Longer durations usually
Bond Index (Lehman Aggregate) are more sensitive to interest rate
(Style-Specific Index) 3.63 movements. The yield curve traces the
yields of debt securities of the same
Lipper Mixed-Asset Target Allocation quality but different maturities from the
Moderate Fund Index shortest to longest available.) In
(Peer Group Index) 2.36 addition, we use bottom-up strategies
involving credit analysis and selection
Lipper Balanced Fund Index of specific securities. By combining
(Former Peer Group Index)(1) 2.25 perspectives from both the portfolio and
the security level, we seek to
SOURCE: LIPPER INC. consistently add value over time while
minimizing portfolio risk.
(1) Lipper recently reclassified AIM V.I.
Basic Balanced Fund from the Lipper MARKET CONDITIONS AND YOUR FUND
Balanced Fund category to the Lipper
Mixed-Asset Target Allocation Equity markets were mixed and bond
Moderate Fund category. markets were down slightly during the
first half of 2006 amid continued
========================================= investor concerns regarding rising
interest rates and oil prices.
======================================================================================
HOW WE INVEST that we believe have extensive empirical
evidence:
We seek to create wealth by maintaining a
long-term investment horizon and o Companies have a measurable estimated
investing in companies that are selling intrinsic value. Importantly, this
at a significant discount to their estimated fair value is independent of
estimated intrinsic value--a value that the company's stock price.
is based on the estimated future cash
flows generated by the business. The o Market prices are more volatile than
Fund's philosophy is based on two business values, partly because investors
elements regularly
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By security type 1. U.S. Mortgage-Backed 1. Cardinal Health, Inc. 2.8%
Common Stocks & Other Equity Securities 13.7% 2. Tyco International Ltd. 2.7
Interests 65.0% 2. Other Diversified Financial 3. First Data Corp. 2.5
Bonds & Notes 25.8 Services 7.9 4. JPMorgan Chase & Co. 2.4
U.S. Mortgage-Backed Securities 13.7 3. Pharmaceuticals 5.0 5. Sanofi-Aventis (France) 2.1
Asset-Backed Securities 1.5 4. Industrial Conglomerates 4.8 6. Fannie Mae 2.1
Municipal Obligations 1.2 5. Oil & Gas Equipment & Services 4.1 7. Halliburton Co. 2.0
Preferred Stocks 1.0 8. United Health Group Inc. 2.0
U.S. Government Agency Securities 0.2 TOTAL NET ASSETS $90.2 MILLION 9. Schlumberger Ltd. 2.0
U.S. Treasury Securities 0.2 TOTAL NUMBER OF HOLDINGS* 282 10. Citigroup Inc. 2.0
Money Market Funds Plus
Other Assets Less Liabilities -8.6
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
2
AIM V.I. BASIC BALANCED FUND
The Fund's energy stocks were the was available in the broad market. While BRET W. STANLEY,
largest contributors to Fund performance. there is no assurance that market value Chartered Financial
Higher energy prices and improved will ever reflect our estimate of the [STANLEY Analyst, senior
earnings prospects led to significant portfolio's intrinsic value, we believe PHOTO] portfolio manager, is
stock price increases in our three oil this provides the best indication that lead portfolio manager
service industry investments, your Fund is positioned to potentially of AIM V.I. Basic
SCHLUMBERGER, HALLIBURTON AND TRANSOCEAN. achieve its objective of long-term growth Balanced Fund. He earned a B.B.A. in
of capital. finance from The University of Texas at
Waste services company WASTE Austin and an M.S. in finance from the
MANAGEMENT and diversified entertainment IN CLOSING University of Houston.
company WALT DISNEY were also among the
biggest contributors to Fund performance We know a long-term investment horizon R. CANON COLEMAN II,
during the period. and attractive portfolio estimated Chartered Financial
intrinsic value content are critical to [COLEMAN II Analyst, portfolio
The Fund's largest detractors from creating wealth. But we understand PHOTO] manager, is manager of
performance were enterprise software firm maintaining a long-term investment AIM V.I. Basic Balanced
CA, advertising and marketing horizon is a challenge. Empirical Fund. He earned a B.S.
conglomerate INTERPUBLIC GROUP, personal evidence reveals short-term behavior by and an M.S. in accounting from the
computer company DELL and health care both portfolio managers and fund University of Florida. He also earned an
companies WELLPOINT and HCA. CA's stock shareholders can often dilute investors' M.B.A. from the Wharton School at the
declined during the reporting period as a actual returns. University of Pennsylvania.
result of investor concerns regarding
high level management turnover, a weaker One recent study estimated the JAN H. FRIEDLI, senior
than expected operating quarter and a combined effects of short-term activity portfolio manager, is
stock options issue. Nonetheless, our and expenses have caused investors to [FRIEDLI manager of AIM V.I.
intrinsic value estimate for CA remained underperform the broad market by 5% per PHOTO] Basic Balanced Fund. He
unchanged. year over a 20-year period. Over the past graduated cum laude from
25 years, the average holding period for Villanova University
During the reporting period, we a typical stock declined from more than with a B.S. in computer science before
reduced the Fund's exposure to the energy three years to less than 12 months. earning an M.B.A. with honors from the
sector. While we continued to believe Considering this market backdrop, your University of Chicago.
this energy cycle is based on sound Fund is doing something different and old
fundamentals, we believed equity fashioned--investing for the long term. BRENDAN GAU, Chartered
valuations warranted less exposure to the Our strategy of buying stocks that we Financial Analyst,
sector. In addition, we sold the Fund's consider to be undervalued and avoiding [GAU portfolio manager, is
remaining shares in WELLPOINT, MASCO and the rest is based on common sense. PHOTO] manager of AIM V.I.
KRAFT FOODS based on valuation and other Basic Balanced Fund. He
portfolio considerations. We initiated We remain optimistic about AIM V.I. earned a B.A. degree
positions in DELL and MICROSOFT. Basic Balanced Fund's portfolio. As from Rice University.
always, we are continually searching for
The Fund's fixed income holdings opportunities to increase our estimate of SCOT W. JOHNSON,
benefited from a shorter duration than the portfolio's intrinsic value. In the Chartered Financial
the Lehman Aggregate during the period. meantime, we thank you for your [JOHNSON Analyst, senior
This shorter relative duration translated investment and for sharing our long-term PHOTO] portfolio manager, is
into less sensitivity to rising interest horizon. manager of AIM V.I.
rates, which negatively affected bond Basic Balanced Fund. He
prices. The sector allocations of the THE VIEWS AND OPINIONS EXPRESSED IN earned both his bachelor's degree in
Fund's bond holdings also drove relative MANAGEMENT'S DISCUSSION OF FUND economics and an M.B.A. in finance from
performance during the reporting period. PERFORMANCE ARE THOSE OF A I M ADVISORS, Vanderbilt University.
INC. THESE VIEWS AND OPINIONS ARE SUBJECT
PORTFOLIO ASSESSMENT TO CHANGE AT ANY TIME BASED ON FACTORS MATTHEW W. SEINSHEIMER,
SUCH AS MARKET AND ECONOMIC CONDITIONS. Chartered Financial
We believe the single most important THESE VIEWS AND OPINIONS MAY NOT BE [SEINSHEIMER Analyst, senior portfo-
indicator of the way AIM V.I. Basic RELIED UPON AS INVESTMENT ADVICE OR PHOTO] lio manager, is manager
Balanced Fund is positioned for potential RECOMMENDATIONS, OR AS AN OFFER FOR A of AIM V.I. Basic
success is not our historical investment PARTICULAR SECURITY. THE INFORMATION IS Balanced Fund. He earned
results or popular statistical measures, NOT A COMPLETE ANALYSIS OF EVERY ASPECT a B.B.A. from Southern Methodist
but the portfolio's estimated intrinsic OF ANY MARKET, COUNTRY, INDUSTRY, University and an M.B.A. from The
value. Our unique valuation model allows SECURITY OR THE FUND. STATEMENTS OF FACT University of Texas at Austin.
us to regularly estimate the intrinsic ARE FROM SOURCES CONSIDERED RELIABLE, BUT
value of each holding in the A I M ADVISORS, INC. MAKES NO MICHAEL J. SIMON,
portfolio--and to estimate the intrinsic REPRESENTATION OR WARRANTY AS TO THEIR Chartered Financial
value of the entire Fund. COMPLETENESS OR ACCURACY. ALTHOUGH [SIMON Analyst, senior
HISTORICAL PERFORMANCE IS NO GUARANTEE OF PHOTO] portfolio manager, is
At the close of the reporting period FUTURE RESULTS, THESE INSIGHTS MAY HELP manager of AIM V.I.
and in our opinion the difference between YOU UNDERSTAND OUR INVESTMENT MANAGEMENT Basic Balanced Fund. He
the market price and the estimated PHILOSOPHY. earned a B.B.A. in finance from Texas
intrinsic value of the portfolio was Christian University and an M.B.A. from
above our estimate of the Fund's FOR A DISCUSSION OF THE RISKS OF the University of Chicago.
historical average. Moreover, we believed INVESTING IN YOUR FUND, INDEXES USED IN
our estimate of the Fund's intrinsic THIS REPORT AND YOUR FUND'S LONG-TERM Assisted by the Basic Value Team and
value content was significantly greater PERFORMANCE, PLEASE TURN TO PAGE 4. Taxable Investment-Grade Bond Team
than what we believe
3
AIM V.I. BASIC BALANCED FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S SERIES I AND SERIES II OF THE FUND DIRECTLY. PERFORMANCE FIGURES
SHARE CLASSES WILL DIFFER PRIMARILY DUE GIVEN REPRESENT THE FUND AND ARE NOT
As of 6/30/06 TO DIFFERENT CLASS EXPENSES. INTENDED TO REFLECT ACTUAL VARIABLE
PRODUCT VALUES. THEY DO NOT REFLECT SALES
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT CHARGES, EXPENSES AND FEES ASSESSED IN
Inception (5/1/98) 2.89% PAST PERFORMANCE AND CANNOT GUARANTEE CONNECTION WITH A VARIABLE PRODUCT. SALES
5 Years 0.97 COMPARABLE FUTURE RESULTS; CURRENT CHARGES, EXPENSES AND FEES, WHICH ARE
1 Year 5.45 PERFORMANCE MAY BE LOWER OR HIGHER. DETERMINED BY THE VARIABLE PRODUCT
PLEASE CONTACT YOUR VARIABLE PRODUCT ISSUERS, WILL VARY AND WILL LOWER THE
SERIES II SHARES ISSUER OR FINANCIAL ADVISOR FOR THE MOST TOTAL RETURN.
Inception 2.65% RECENT MONTH-END VARIABLE PRODUCT
5 Years 0.73 PERFORMANCE. PERFORMANCE FIGURES REFLECT PER NASD REQUIREMENTS, THE MOST
1 Year 5.26 FUND EXPENSES, REINVESTED DISTRIBUTIONS RECENT MONTH-END PERFORMANCE DATA AT THE
AND CHANGES IN NET ASSET VALUE. FUND LEVEL, EXCLUDING VARIABLE PRODUCT
========================================= INVESTMENT RETURN AND PRINCIPAL VALUE CHARGES, IS AVAILABLE ON THIS AIM
WILL FLUCTUATE SO THAT YOU MAY HAVE A AUTOMATED INFORMATION LINE, 866-702-4402.
SERIES II SHARES' INCEPTION DATE IS GAIN OR LOSS WHEN YOU SELL SHARES. AS MENTIONED ABOVE, FOR THE MOST RECENT
JANUARY 24, 2002. RETURNS SINCE THAT DATE MONTH-END PERFORMANCE INCLUDING VARIABLE
ARE HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. BASIC BALANCED FUND, A PRODUCT CHARGES, PLEASE CONTACT YOUR
BLENDED RETURNS OF THE HISTORICAL SERIES PORTFOLIO OF AIM VARIABLE VARIABLE PRODUCT ISSUER OR FINANCIAL
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE FUNDS, IS CURRENTLY OFFERED ADVISOR.
THEIR INCEPTION AND THE RESTATED THROUGH INSURANCE COMPANIES ISSUING
HISTORICAL PERFORMANCE OF SERIES I SHARES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
(FOR PERIODS PRIOR TO INCEPTION OF SERIES SHARES
II SHARES) ADJUSTED TO REFLECT THE RULE
12b-1 FEES APPLICABLE TO SERIES II
SHARES. THE INCEPTION DATE OF SERIES I
SHARES IS MAY 1, 1998. THE PERFORMANCE
PRINCIPAL RISKS OF INVESTING IN THE FUND U.S. AGGREGATE BOND INDEX. The unmanaged dends, and they do not reflect sales
RUSSELL 1000--Registered Trademark-- charges. Performance of an index of funds
The Fund can invest up to 25% of its INDEX represents the performance of the reflects fund expenses; performance of a
assets in foreign securities that involve stocks of large-capitalization companies; market index does not.
risks not associated with investing the Value segment measures the
solely in the United States. These performance of Russell 1000 companies OTHER INFORMATION
include risks relating to fluctuations in with lower price/book ratios and lower
the value of the U.S. dollar relative to forecasted growth values. The unmanaged The returns shown in the management's
the values of other currencies, the Lehman Brothers U.S. Aggregate Bond Index discussion of Fund performance are based
custody arrangements made for the Fund's (The Lehman Aggregate), which represents on net asset values calculated for
foreign holdings, differences in the U.S. investment-grade fixed-rate bond shareholder transactions. Generally
accounting, political risks and the market (including government and accepted accounting principles require
lesser degree of public information corporate securities, mortgage adjustments to be made to the net assets
required to be provided by non-U.S. pass-through securities and asset-backed of the Fund at period end for financial
companies. securities), is compiled by Lehman reporting purposes, and as such, the net
Brothers, a global investment bank. asset values for shareholder transactions
U.S. Treasury securities such as and the returns based on those net asset
bills, notes and bonds offer a high The unmanaged LIPPER BALANCED FUND values may differ from the net asset
degree of safety, and they guarantee the INDEX represents an average of the 30 values and returns reported in the
payment of principal and any applicable largest balanced funds tracked by Lipper Financial Highlights. Additionally, the
interest if held to maturity. Fund shares Inc., an independent mutual fund returns and net asset values shown
are not insured, and their value and performance monitor. It is calculated throughout this report are at the Fund
yield will vary with market conditions. daily, with adjustments for distributions level only and do not include variable
as of the ex-dividend dates. product issuer charges. If such charges
Rising interest rates will affect the were included, the total returns would be
performance of the Fund's investments in The LIPPER MIXED-ASSET TARGET lower.
debt securities. The Fund may invest in ALLOCATION MODERATE FUND INDEX is an
asset-backed or mortgage-backed equally weighted representation of 10 Industry classifications used in this
securities which may lose value if they largest moderate funds that by portfolio report are generally according to the
are called or prepaid. practice maintain a mix of between Global Industry Classification Standard,
40%-60% equity securities, with the which was developed by and is the
ABOUT INDEXES USED IN THIS REPORT remainder invested in bonds, cash, and exclusive property and a service mark of
cash equivalents. Morgan Stanley Capital International Inc.
The blended index used in this report is and Standard & Poor's.
composed of 60% RUSSELL 1000--Registered The unmanaged STANDARD & POOR'S
Trademark-- VALUE INDEX and 40% LEHMAN COMPOSITE INDEX OF 500 STOCKS (the S&P Commonality measures the similarity
BROTHERS 500--Registered Trademark-- Index) is an of holdings between two portfolios using
index of common stocks frequently used as the lowest common percentage method. This
a general measure of U.S. stock market method compares each security's
performance. percentage of total net assets in both
portfolios and adds the lower percentages
The Fund is not managed to track the of the two portfolios to determine
performance of any particular index, commonality.
including the indexes defined here, and
consequently, the performance of the Fund
may deviate significantly from the
performance of the indexes.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested divi-
4
AIM V.I. BASIC BALANCED 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 fees; about actual account values and actual value after expenses for the six months
distribution and/or service fees (12b-1); expenses. You may use the information in ended June 30, 2006, appear in the table
and other Fund expenses. This example is this table, together with the amount you "Funds vs. Indexes" on page 2.
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 January 1, 2006, through Paid During Period" to estimate the TO DO SO, COMPARE THIS 5% HYPOTHETICAL
June 30, 2006. The actual and expenses you paid on your account during EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
hypothetical expenses in the examples this period. THAT APPEAR IN THE SHAREHOLDER REPORTS OF
below do not represent the effect of any THE OTHER FUNDS.
fees or other expenses assessed in HYPOTHETICAL EXAMPLE FOR COMPARISON
connection with a variable product; if PURPOSES Please note that the expenses shown
they did, the expenses shown would be in the table are meant to highlight your
higher while the ending account values The table below also provides information ongoing costs. Therefore, the
shown would be lower. about hypothetical account values and hypothetical information is useful in
hypothetical expenses based on the Fund's comparing ongoing costs, and will not
actual expense ratio and an assumed rate help you determine the relative total
of return of 5% per 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,010.00 $4.54 $1,020.28 $4.56 0.91%
Series II 1,000.00 1,009.20 5.78 1,019.04 5.81 1.16
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. BASIC BALANCED FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory Board concluded that no changes should be
Insurance Funds (the "Board") oversees services to be provided by AIM. The Board made to the Fund and that it was not
the management of AIM V.I. Basic Balanced reviewed the services to be provided by necessary to change the Fund's portfolio
Fund (the "Fund") and, as required by AIM under the Advisory Agreement. Based management team at this time. Although
law, determines annually whether to on such review, the Board concluded that the independent written evaluation of the
approve the continuance of the Fund's the range of services to be provided by Fund's Senior Officer (discussed below)
advisory agreement with A I M Advisors, AIM under the Advisory Agreement was only considered Fund performance through
Inc. ("AIM"). Based upon the appropriate and that AIM currently is the most recent calendar year, the Board
recommendation of the Investments providing services in accordance with the also reviewed more recent Fund
Committee of the Board, at a meeting held terms of the Advisory Agreement. performance, which did not change their
on June 27, 2006, the Board, including conclusions.
all of the independent trustees, approved o The quality of services to be provided
the continuance of the advisory agreement by AIM. The Board reviewed the o Meetings with the Fund's portfolio
(the "Advisory Agreement") between the credentials and experience of the managers and investment personnel. With
Fund and AIM for another year, effective officers and employees of AIM who will respect to the Fund, the Board is meeting
July 1, 2006. provide investment advisory services to periodically with such Fund's portfolio
the Fund. In reviewing the qualifications managers and/or other investment
The Board considered the factors of AIM to provide investment advisory personnel and believes that such
discussed below in evaluating the services, the Board considered such individuals are competent and able to
fairness and reasonableness of the issues as AIM's portfolio and product continue to carry out their
Advisory Agreement at the meeting on June review process, various back office responsibilities under the Advisory
27, 2006 and as part of the Board's support functions provided by AIM and Agreement.
ongoing oversight of the Fund. In their AIM's equity and fixed income trading
deliberations, the Board and the operations. Based on the review of these o Overall performance of AIM. The Board
independent trustees did not identify any and other factors, the Board concluded considered the overall performance of AIM
particular factor that was controlling, that the quality of services to be in providing investment advisory and
and each trustee attributed different provided by AIM was appropriate and that portfolio administrative services to the
weights to the various factors. AIM currently is providing satisfactory Fund and concluded that such performance
services in accordance with the terms of was satisfactory.
One responsibility of the independent the Advisory Agreement.
Senior Officer of the Fund is to manage o Fees relative to those of clients of
the process by which the Fund's proposed o The performance of the Fund relative to AIM with comparable investment
management fees are negotiated to ensure comparable funds. The Board reviewed the strategies. The Board reviewed the
that they are negotiated in a manner performance of the Fund during the past effective advisory fee rate (before
which is at arms' length and reasonable. one, three and five calendar years waivers) for the Fund under the Advisory
To that end, the Senior Officer must against the performance of funds advised Agreement. The Board noted that this rate
either supervise a competitive bidding by other advisors with investment was (i) above the effective advisory fee
process or prepare an independent written strategies comparable to those of the rate (before waivers) for a mutual fund
evaluation. The Senior Officer has Fund. The Board noted that the Fund's advised by AIM with investment strategies
recommended an independent written performance was above the median comparable to those of the Fund; (ii)
evaluation in lieu of a competitive performance of such comparable funds for above the effective sub-advisory fee rate
bidding process and, upon the direction the one year period and below such median for an offshore fund advised and
of the Board, has prepared such an performance for the three and five year sub-advised by AIM affiliates with
independent written evaluation. Such periods. Based on this review and after investment strategies comparable to those
written evaluation also considered taking account of all of the other of the Fund, although the total advisory
certain of the factors discussed below. factors that the Board considered in fees for such offshore fund were above
In addition, as discussed below, the determining whether to continue the those for the Fund; and (iii) above the
Senior Officer made a recommendation to Advisory Agreement for the Fund, the effective sub-advisory fee rates for two
the Board in connection with such written Board concluded that no changes should be Canadian mutual funds advised by an AIM
evaluation. made to the Fund and that it was not affiliate and sub-advised by AIM with
necessary to change the Fund's portfolio investment strategies comparable to those
The discussion below serves as a management team at this time. Although of the Fund, although the total advisory
summary of the Senior Officer's the independent written evaluation of the fees for one such Canadian mutual fund
independent written evaluation and Fund's Senior Officer (discussed below) were above those for the Fund. The Board
recommendation to the Board in connection only considered Fund performance through noted that AIM has agreed to waive
therewith, as well as a discussion of the the most recent calendar year, the Board advisory fees of the Fund and to limit
material factors and the conclusions with also reviewed more recent Fund the Fund's total operating expenses, as
respect thereto that formed the basis for performance, which did not change their discussed below. Based on this review,
the Board's approval of the Advisory conclusions. the Board concluded that the advisory fee
Agreement. After consideration of all of rate for the Fund under the Advisory
the factors below and based on its o The performance of the Fund relative to Agreement was fair and reasonable.
informed business judgment, the Board indices. The Board reviewed the
determined that the Advisory Agreement is performance of the Fund during the past o Fees relative to those of comparable
in the best interests of the Fund and its one, three and five calendar years funds with other advisors. The Board
shareholders and that the compensation to against the performance of the Lipper reviewed the advisory fee rate for the
AIM under the Advisory Agreement is fair Variable Underlying Fund Balanced Index. Fund under the Advisory Agreement. The
and reasonable and would have been The Board noted that the Fund's Board compared effective contractual
obtained through arm's length performance was above the performance of advisory fee rates at a common asset
negotiations. such Index for the one year period and level at the end of the past calendar
below such Index for the three and five year and noted that the Fund's rate was
Unless otherwise stated, information year periods. Based on this review and comparable to the median rate of the
presented below is as of June 27, 2006 after taking account of all of the other funds advised by other advisors with
and does not reflect any changes that may factors that the Board considered in investment strategies comparable to those
have occurred since June 27, 2006, determining whether to continue the of the Fund that the Board reviewed. The
including but not limited to changes to Advisory Agreement for the Fund, the Board noted that AIM has agreed to waive
the Fund's performance, advisory fees, advisory fees of the Fund and to limit
expense limitations and/or fee waivers. the Fund's total operating expenses, as
dis-
(continued)
6
AIM V.I. BASIC BALANCED FUND
cussed below. Based on this review, the realize certain benefits upon investing o Benefits of soft dollars to AIM. The
Board concluded that the advisory fee cash balances in AIM advised money market Board considered the benefits realized by
rate for the Fund under the Advisory funds, including a higher net return, AIM as a result of brokerage transactions
Agreement was fair and reasonable. increased liquidity, increased executed through "soft dollar"
diversification or decreased transaction arrangements. Under these arrangements,
o Expense limitations and fee waivers. costs. The Board also found that the Fund brokerage commissions paid by the Fund
The Board noted that AIM has will not receive reduced services if it and/or other funds advised by AIM are
contractually agreed to waive advisory invests its cash balances in such money used to pay for research and execution
fees of the Fund through December 31, market funds. The Board noted that, to services. This research may be used by
2009 to the extent necessary so that the the extent the Fund invests uninvested AIM in making investment decisions for
advisory fees payable by the Fund do not cash in affiliated money market funds, the Fund. The Board concluded that such
exceed a specified maximum advisory fee AIM has voluntarily agreed to waive a arrangements were appropriate.
rate, which maximum rate includes portion of the advisory fees it receives
breakpoints and is based on net asset from the Fund attributable to such o AIM's financial soundness in light of
levels. The Board considered the investment. The Board further determined the Fund's needs. The Board considered
contractual nature of this fee waiver and that the proposed securities lending whether AIM is financially sound and has
noted that it remains in effect until program and related procedures with the resources necessary to perform its
December 31, 2009. The Board also noted respect to the lending Fund is in the obligations under the Advisory Agreement,
that AIM has contractually agreed to best interests of the lending Fund and and concluded that AIM has the financial
waive fees and/or limit expenses of the its respective shareholders. The Board resources necessary to fulfill its
Fund through April 30, 2008 so that total therefore concluded that the investment obligations under the Advisory Agreement.
annual operating expenses are limited to of cash collateral received in connection
a specified percentage of average daily with the securities lending program in o Historical relationship between the
net assets for each class of the Fund. the money market funds according to the Fund and AIM. In determining whether to
The Board considered the contractual procedures is in the best interests of continue the Advisory Agreement for the
nature of this fee waiver and noted that the lending Fund and its respective Fund, the Board also considered the prior
it remains in effect until April 30, shareholders. relationship between AIM and the Fund, as
2008. The Board considered the effect well as the Board's knowledge of AIM's
these fee waivers/expense limitations o Independent written evaluation and operations, and concluded that it was
would have on the Fund's estimated recommendations of the Fund's Senior beneficial to maintain the current
expenses and concluded that the levels of Officer. The Board noted that, upon their relationship, in part, because of such
fee waivers/expense limitations for the direction, the Senior Officer of the knowledge. The Board also reviewed the
Fund were fair and reasonable. Fund, who is independent of AIM and AIM's general nature of the non-investment
affiliates, had prepared an independent advisory services currently performed by
o Breakpoints and economies of scale. The written evaluation in order to assist the AIM and its affiliates, such as
Board reviewed the structure of the Board in determining the reasonableness administrative, transfer agency and
Fund's advisory fee under the Advisory of the proposed management fees of the distribution services, and the fees
Agreement, noting that it includes one AIM Funds, including the Fund. The Board received by AIM and its affiliates for
breakpoint. The Board reviewed the level noted that the Senior Officer's written performing such services. In addition to
of the Fund's advisory fees, and noted evaluation had been relied upon by the reviewing such services, the trustees
that such fees, as a percentage of the Board in this regard in lieu of a also considered the organizational
Fund's net assets, would decrease as net competitive bidding process. In structure employed by AIM and its
assets increase because the Advisory determining whether to continue the affiliates to provide those services.
Agreement includes a breakpoint. The Advisory Agreement for the Fund, the Based on the review of these and other
Board noted that, due to the Fund's asset Board considered the Senior Officer's factors, the Board concluded that AIM and
levels at the end of the past calendar written evaluation and the recommendation its affiliates were qualified to continue
year and the way in which the advisory made by the Senior Officer to the Board to provide non-investment advisory
fee breakpoint has been structured, the that the Board consider whether the services to the Fund, including
Fund has yet to benefit from the advisory fee waivers for certain equity administrative, transfer agency and
breakpoint. The Board noted that AIM has AIM Funds, including the Fund, should be distribution services, and that AIM and
contractually agreed to waive advisory simplified. The Board concluded that it its affiliates currently are providing
fees of the Fund through December 31, would be advisable to consider this issue satisfactory non-investment advisory
2009 to the extent necessary so that the and reach a decision prior to the services.
advisory fees payable by the Fund do not expiration date of such advisory fee
exceed a specified maximum advisory fee waivers. o Other factors and current trends. The
rate, which maximum rate includes Board considered the steps that AIM and
breakpoints and is based on net asset o Profitability of AIM and its its affiliates have taken over the last
levels. The Board concluded that the affiliates. The Board reviewed several years, and continue to take, in
Fund's fee levels under the Advisory information concerning the profitability order to improve the quality and
Agreement therefore would reflect of AIM's (and its affiliates') investment efficiency of the services they provide
economies of scale at higher asset levels advisory and other activities and its to the Funds in the areas of investment
and that it was not necessary to change financial condition. The Board considered performance, product line
the advisory fee breakpoints in the the overall profitability of AIM, as well diversification, distribution, fund
Fund's advisory fee schedule. as the profitability of AIM in connection operations, shareholder services and
with managing the Fund. The Board noted compliance. The Board concluded that
o Investments in affiliated money market that AIM's operations remain profitable, these steps taken by AIM have improved,
funds. The Board also took into account although increased expenses in recent and are likely to continue to improve,
the fact that uninvested cash and cash years have reduced AIM's profitability. the quality and efficiency of the
collateral from securities lending Based on the review of the profitability services AIM and its affiliates provide
arrangements, if any (collectively, "cash of AIM's and its affiliates' investment to the Fund in each of these areas, and
balances") of the Fund may be invested in advisory and other activities and its support the Board's approval of the
money market funds advised by AIM financial condition, the Board concluded continuance of the Advisory Agreement for
pursuant to the terms of an SEC exemptive that the compensation to be paid by the the Fund.
order. The Board found that the Fund may Fund to AIM under its Advisory Agreement
was not excessive.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-65.05%
ADVERTISING-3.18%
Interpublic Group of Cos., Inc. (The)(a) 141,932 $ 1,185,132
- -----------------------------------------------------------------------
Omnicom Group Inc. 18,891 1,682,999
=======================================================================
2,868,131
=======================================================================
AEROSPACE & DEFENSE-0.90%
Honeywell International Inc. 20,100 810,030
=======================================================================
ALUMINUM-0.93%
Alcoa Inc. 25,900 838,124
=======================================================================
APPAREL RETAIL-1.02%
Gap, Inc. (The) 52,900 920,460
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.22%
Bank of New York Co., Inc. (The) 34,100 1,098,020
=======================================================================
BREWERS-1.43%
Molson Coors Brewing Co.-Class B 19,012 1,290,534
=======================================================================
BUILDING PRODUCTS-0.74%
American Standard Cos. Inc. 15,500 670,685
=======================================================================
COMPUTER HARDWARE-1.15%
Dell Inc.(a) 42,638 1,040,794
=======================================================================
CONSTRUCTION MATERIALS-1.81%
Cemex S.A. de C.V.-ADR (Mexico)(a) 28,739 1,637,261
=======================================================================
CONSUMER ELECTRONICS-1.73%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 27,800 865,692
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 15,817 696,581
=======================================================================
1,562,273
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.14%
Ceridian Corp.(a) 25,302 618,381
- -----------------------------------------------------------------------
First Data Corp. 49,200 2,215,968
=======================================================================
2,834,349
=======================================================================
DIVERSIFIED CHEMICALS-0.22%
Dow Chemical Co. (The) 5,000 195,150
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.33%
Cendant Corp. 73,621 1,199,286
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES-1.91%
Waste Management, Inc. 48,000 $ 1,722,240
=======================================================================
FOOD RETAIL-1.71%
Kroger Co. (The) 31,165 681,267
- -----------------------------------------------------------------------
Safeway Inc. 33,000 858,000
=======================================================================
1,539,267
=======================================================================
GENERAL MERCHANDISE STORES-1.39%
Target Corp. 25,647 1,253,369
=======================================================================
HEALTH CARE DISTRIBUTORS-3.43%
Cardinal Health, Inc. 38,808 2,496,519
- -----------------------------------------------------------------------
McKesson Corp. 12,666 598,848
=======================================================================
3,095,367
=======================================================================
HEALTH CARE EQUIPMENT-0.84%
Baxter International Inc. 20,600 757,256
=======================================================================
HEALTH CARE FACILITIES-0.99%
HCA, Inc. 20,800 897,520
=======================================================================
INDUSTRIAL CONGLOMERATES-4.32%
General Electric Co. 45,497 1,499,581
- -----------------------------------------------------------------------
Tyco International Ltd. 87,000 2,392,500
=======================================================================
3,892,081
=======================================================================
INDUSTRIAL MACHINERY-1.33%
Illinois Tool Works Inc. 25,200 1,197,000
=======================================================================
INSURANCE BROKERS-0.28%
Marsh & McLennan Cos., Inc. 9,257 248,921
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.94%
Merrill Lynch & Co., Inc. 19,434 1,351,829
- -----------------------------------------------------------------------
Morgan Stanley 20,600 1,302,126
=======================================================================
2,653,955
=======================================================================
MANAGED HEALTH CARE-2.00%
UnitedHealth Group Inc. 40,279 1,803,694
=======================================================================
MOVIES & ENTERTAINMENT-1.66%
Walt Disney Co. (The) 49,930 1,497,900
=======================================================================
MULTI-LINE INSURANCE-1.36%
Hartford Financial Services Group, Inc. (The) 14,500 1,226,700
=======================================================================
OIL & GAS DRILLING-1.90%
Transocean Inc.(a) 21,300 1,710,816
=======================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-4.01%
Halliburton Co. 24,500 $ 1,818,145
- -----------------------------------------------------------------------
Schlumberger Ltd. 27,600 1,797,036
=======================================================================
3,615,181
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.35%
Citigroup Inc. 37,100 1,789,704
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 50,768 2,132,256
=======================================================================
3,921,960
=======================================================================
PACKAGED FOODS & MEATS-1.14%
Unilever N.V. (Netherlands)(b) 45,300 1,026,554
=======================================================================
PHARMACEUTICALS-5.04%
Pfizer Inc. 46,100 1,081,967
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 19,461 1,899,478
- -----------------------------------------------------------------------
Wyeth 35,293 1,567,362
=======================================================================
4,548,807
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.46%
ACE Ltd. 26,000 1,315,340
=======================================================================
SYSTEMS SOFTWARE-2.14%
CA Inc. 54,800 1,126,140
- -----------------------------------------------------------------------
Microsoft Corp. 34,643 807,182
=======================================================================
1,933,322
=======================================================================
THRIFTS & MORTGAGE FINANCE-2.05%
Fannie Mae 38,395 1,846,799
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $51,249,720) 58,669,146
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-25.78%
ASSET MANAGEMENT & CUSTODY BANKS-0.40%
GAMCO Investors, Inc., Sr. Unsec. Unsub.
Notes, 5.22%, 02/17/07(c) $ 90,000 89,571
- -----------------------------------------------------------------------
Janus Capital Group Inc., Sr. Unsec. Notes,
7.00%, 11/01/06(c) 80,000 80,277
- -----------------------------------------------------------------------
Mellon Capital II-Series B, Jr. Unsec. Gtd.
Sub. Trust Pfd. Bonds,
8.00%, 01/15/27(c) 125,000 131,347
- -----------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes, 5.50%, 09/15/15(c) 65,000 61,198
=======================================================================
362,393
=======================================================================
AUTOMOBILE MANUFACTURERS-0.11%
DaimlerChrysler North America Holding Corp.,
Notes, 4.13%, 03/07/07(c) 100,000 98,895
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-2.81%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06(c) $ 200,000 $ 200,672
- -----------------------------------------------------------------------
Clear Channel Communications, Inc.,
Sr. Unsec. Global Notes,
6.00%, 11/01/06(c) 630,000 630,668
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
3.13%, 02/01/07(c) 215,000 211,962
- -----------------------------------------------------------------------
Comcast Cable Communications Holdings Inc.,
Unsec. Gtd. Global Notes,
9.46%, 11/15/22(c) 167,000 206,048
- -----------------------------------------------------------------------
Unsec. Unsub. Global Notes,
8.38%, 05/01/07(c) 50,000 51,082
- -----------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(c) 60,000 71,706
- -----------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
7.75%, 08/15/06(c) 390,000 390,909
- -----------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 10/03/05-04/27/06; Cost
$620,684)(c)(d) 600,000 606,996
- -----------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(c) 150,000 166,095
=======================================================================
2,536,138
=======================================================================
CASINOS & GAMING-0.61%
Caesars Entertainment, Inc., Sr. Unsec.
Notes, 8.50%, 11/15/06(c) 460,000 463,565
- -----------------------------------------------------------------------
Harrah's Operating Co., Inc., Unsec. Gtd.
Global Notes, 7.13%, 06/01/07(c) 90,000 90,803
=======================================================================
554,368
=======================================================================
COMMERCIAL PRINTING-0.09%
Deluxe Corp., Medium Term Notes, 2.75%,
09/15/06(c) 80,000 79,570
=======================================================================
CONSUMER ELECTRONICS-0.06%
Koninklijke (Royal) Philips Electronics N.V.
(Netherlands), Yankee Notes, 8.38%,
09/15/06(c) 50,000 50,236
=======================================================================
CONSUMER FINANCE-0.65%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 6.70%, 02/01/27 (Acquired
09/16/04-04/12/06; Cost $294,885)(c)(d)(e) 290,000 292,323
- -----------------------------------------------------------------------
Ford Motor Credit Co., Sr. Unsec. Notes,
4.95%, 01/15/08(c) 310,000 293,970
=======================================================================
586,293
=======================================================================
DIVERSIFIED BANKS-1.41%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $167,403)(c)(d)(f) 150,000 150,379
- -----------------------------------------------------------------------
Bangkok Bank PCL (Hong Kong), Unsec. Sub.
Notes, 9.03%, 03/15/29 (Acquired 04/22/05;
Cost $75,121)(c)(d) 60,000 69,189
- -----------------------------------------------------------------------
BankBoston Capital Trust II-Series B, Gtd.
Trust Pfd. Bonds, 7.75%, 12/15/26(c)(g) 125,000 130,762
- -----------------------------------------------------------------------
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Barclays Bank PLC (United Kingdom), Floating
Rate Global Notes, 4.87%, 08/08/07
(Acquired 04/06/06; Cost $99,481)(c)(d)(h) $ 100,000 $ 100,047
- -----------------------------------------------------------------------
BNP Paribas U.S. Medium-Term Note Program
LLC- Series 1, Sub. Gtd. Medium
Term Notes, 5.13%, 01/15/15 (Acquired
05/11/06; Cost $133,258)(c)(d) 140,000 133,165
- -----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes, 8.85%, 06/01/27 (Acquired 05/22/03;
Cost $63,272)(c)(d) 50,000 53,340
- -----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
5.75%(c)(f)(g) 130,000 116,311
- -----------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands), Gtd. Sub. Second Tier Euro Bonds,
8.38%(c)(f) 30,000 31,462
- -----------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 5.13%, 08/29/87(c)(g) 60,000 49,341
- -----------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 5.19%(c)(f)(g) 100,000 88,641
- -----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(c) 50,000 59,608
- -----------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(c)(f) 60,000 55,959
- -----------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan), Sub.
Second Tier Euro Notes,
8.15%(c)(f) 90,000 93,246
- -----------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 6.17%, 09/21/07 (Acquired 12/14/05;
Cost $140,000)(c)(d)(e) 140,000 140,105
=======================================================================
1,271,555
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.78%
Cendant Corp., Sr. Unsec. Global Notes,
6.88%, 08/15/06(c) 700,000 700,791
=======================================================================
ELECTRIC UTILITIES-0.30%
Commonwealth Edison Co., Unsec. Notes, 7.63%,
01/15/07(c) 63,000 63,528
- -----------------------------------------------------------------------
Indiana Michigan Power Co.-Series C, Sr.
Unsec. Notes, 6.13%, 12/15/06(c) 40,000 40,086
- -----------------------------------------------------------------------
Northeast Utilities-Series A, Notes, 8.58%,
12/01/06(c) 33,600 33,903
- -----------------------------------------------------------------------
Portland General Electric Co.-Series 4, Sec.
First Mortgage Medium Term Notes, 7.15%,
06/15/07(c) 35,000 35,402
- -----------------------------------------------------------------------
Potomac Electric Power Co.-Series A, Medium
Term Notes, 7.64%, 01/17/07(c) 100,000 100,777
=======================================================================
273,696
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.37%
Waste Management, Inc., Unsec. Notes, 7.00%,
10/15/06(c) 335,000 336,179
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
FOOD RETAIL-0.35%
ARAMARK Services Inc., Unsec. Gtd. Notes,
7.00%, 07/15/06(c) $ 156,000 $ 156,031
- -----------------------------------------------------------------------
Kroger Co. (The), Sr. Unsec. Gtd. Notes,
7.63%, 09/15/06(c) 160,000 160,531
=======================================================================
316,562
=======================================================================
FOREST PRODUCTS-0.09%
Weyerhaeuser Co., Unsec. Unsub. Global Notes,
6.13%, 03/15/07(c) 80,000 80,187
=======================================================================
GAS UTILITIES-0.32%
Consolidated Natural Gas Co.-Series B, Sr.
Unsec. Unsub. Notes, 5.38%, 11/01/06(c) 290,000 289,626
=======================================================================
HEALTH CARE DISTRIBUTORS-0.32%
Cardinal Health, Inc., Sr. Unsec. Notes,
7.30%, 10/15/06(c) 285,000 286,163
=======================================================================
HEALTH CARE SERVICES-0.51%
Caremark Rx, Inc., Sr. Unsec. Notes, 7.38%,
10/01/06(c) 300,000 300,990
- -----------------------------------------------------------------------
Quest Diagnostics Inc., Sr. Unsec. Gtd.
Notes, 6.75%, 07/12/06(c) 155,000 155,028
=======================================================================
456,018
=======================================================================
HOME IMPROVEMENT RETAIL-0.07%
Sherwin-Williams Co. (The), Sr. Notes, 6.85%,
02/01/07(c) 65,000 65,273
=======================================================================
HOMEBUILDING-0.48%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(c) 100,000 104,972
- -----------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 8.00%, 08/15/06(c) 330,000 330,676
=======================================================================
435,648
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.23%
Carnival Corp., Sr. Unsec. Gtd. Global Notes,
3.75%, 11/15/07(c) 21,000 20,472
- -----------------------------------------------------------------------
Hyatt Equities LLC, Notes, 6.88%, 06/15/07
(Acquired 01/25/06; Cost $190,957)(c)(d) 187,000 188,174
=======================================================================
208,646
=======================================================================
HOUSEWARES & SPECIALTIES-0.02%
Newell Rubbermaid Inc., Unsec. Notes, 6.00%,
03/15/07(c) 15,000 15,016
=======================================================================
INDUSTRIAL CONGLOMERATES-0.50%
Tyco International Group S.A. (Luxembourg),
Unsec. Gtd. Unsub. Yankee Notes, 5.80%,
08/01/06(c) 454,000 454,054
=======================================================================
INDUSTRIAL REIT'S-0.30%
ProLogis, Sr. Unsec. Notes, 7.05%,
07/15/06(c) 270,000 270,081
=======================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
INSURANCE BROKERS-0.14%
Marsh & McLennan Cos., Inc., Sr. Unsec.
Global Notes, 5.38%, 03/15/07(c) $ 124,000 $ 123,661
=======================================================================
INTEGRATED OIL & GAS-0.91%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(c) 65,000 65,796
- -----------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes,
7.13%, 11/15/06(c) 410,000 411,984
- -----------------------------------------------------------------------
Yankee Bonds,
8.90%, 08/15/28(c) 325,000 341,656
=======================================================================
819,436
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.66%
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 6.68%, 11/28/07(c) 170,000 171,581
- -----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(c) 100,000 101,471
- -----------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(c) 65,000 75,745
- -----------------------------------------------------------------------
Verizon Maryland Inc.-Series A, Unsec. Global
Notes, 6.13%, 03/01/12(c) 65,000 64,240
- -----------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(c) 90,000 86,121
- -----------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(c) 105,000 94,446
=======================================================================
593,604
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.03%
Jefferies Group, Inc.-Series B, Sr. Unsec.
Notes, 7.50%, 08/15/07(c) 30,000 30,509
=======================================================================
LEISURE PRODUCTS-0.28%
Brunswick Corp., Unsec. Unsub. Notes, 6.75%,
12/15/06(c) 250,000 251,120
=======================================================================
LIFE & HEALTH INSURANCE-0.65%
Prudential Holdings, LLC-Series B, Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23 (Acquired
01/22/04-02/17/06; Cost $329,829)(c)(d)(i) 280,000 307,107
- -----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(c) 20,000 20,139
- -----------------------------------------------------------------------
Sun Life Canada (U.S.) Capital Trust, Gtd.
Trust Pfd. Notes, 8.53% (Acquired 02/13/06;
Cost $171,666)(c)(d)(f) 160,000 169,920
- -----------------------------------------------------------------------
Torchmark Corp., Notes, 6.25%, 12/15/06(c) 90,000 90,186
=======================================================================
587,352
=======================================================================
MANAGED HEALTH CARE-0.26%
Cigna Corp., Unsec. Notes, 7.40%, 05/15/07(c) 50,000 50,640
- -----------------------------------------------------------------------
Humana Inc., Sr. Unsec. Notes, 7.25%,
08/01/06(c) 180,000 180,212
=======================================================================
230,852
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
METAL & GLASS CONTAINERS-0.25%
Pactiv Corp., Unsec. Notes, 8.00%,
04/15/07(c) $ 220,000 $ 223,441
=======================================================================
MOVIES & ENTERTAINMENT-0.74%
News America Holdings Inc., Sr. Unsec. Gtd.
Deb., 7.75%, 12/01/45(c) 100,000 105,364
- -----------------------------------------------------------------------
Time Warner Cos., Inc., Notes,
8.11%, 08/15/06(c) 254,000 254,612
- -----------------------------------------------------------------------
8.18%, 08/15/07(c) 120,000 123,039
- -----------------------------------------------------------------------
Unsec. Deb.,
9.15%, 02/01/23(c) 155,000 183,537
=======================================================================
666,552
=======================================================================
MULTI-LINE INSURANCE-0.25%
Liberty Mutual Insurance Co., Notes, 8.20%,
05/04/07 (Acquired 04/13/06; Cost
$225,799)(c)(d) 220,000 223,395
=======================================================================
MULTI-UTILITIES-0.69%
Ameren Corp., Bonds, 4.26%, 05/15/07(c) 115,000 113,544
- -----------------------------------------------------------------------
Dominion Resources, Inc.-Series G, Sr. Notes,
3.66%, 11/15/06(c) 150,000 148,938
- -----------------------------------------------------------------------
Duke Energy Corp., Notes, 7.00%, 10/15/06(c) 130,000 130,365
- -----------------------------------------------------------------------
PSI Energy, Inc., Unsec. Deb., 7.85%,
10/15/07(c) 40,000 40,987
- -----------------------------------------------------------------------
Sempra Energy, Sr. Notes, 4.62%, 05/17/07(c) 40,000 39,612
- -----------------------------------------------------------------------
Virginia Electric and Power Co.-Series A, Sr.
Unsec. Unsub. Notes,
5.38%, 02/01/07(c) 150,000 149,651
=======================================================================
623,097
=======================================================================
OFFICE REIT'S-0.23%
Spieker Properties, Inc, Unsec. Unsub. Notes,
7.13%, 12/01/06(c) 210,000 211,082
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.11%
Halliburton Co., Medium Term Notes, 6.00%,
08/01/06(c) 102,000 102,041
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.73%
Devon Energy Corp., Sr. Unsec. Notes, 2.75%,
08/01/06(c) 309,000 308,413
- -----------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico),
Sr. Unsec. Gtd. Notes,
5.75%, 12/15/15 (Acquired 01/26/06; Cost
$39,556)(c)(d) 40,000 36,750
- -----------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes,
5.75%, 12/15/15(c) 125,000 114,844
- -----------------------------------------------------------------------
8.63%, 02/01/22(c) 175,000 194,477
=======================================================================
654,484
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.03%
General Electric Capital Corp., Unsec.
Floating Rate Putable Deb.,
5.10%, 09/01/07(c)(h) 55,000 53,665
- -----------------------------------------------------------------------
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87% (Acquired 06/16/04-07/28/05;
Cost $356,092)(c)(d)(f) $ 315,000 $ 337,885
- -----------------------------------------------------------------------
Pemex Finance Ltd. (Mexico),
Sr. Unsec. Global Notes,
8.02%, 05/15/07(c) 100,000 100,578
- -----------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(c) 364,000 384,355
- -----------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $199,866)(c)(d) 200,000 188,290
- -----------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $169,578)(c)(d) 143,333 156,216
- -----------------------------------------------------------------------
Residential Capital Corp., Sr. Unsec.
Floating Rate Global Notes, 6.88%,
06/29/07(c)(e) 150,000 150,540
- -----------------------------------------------------------------------
SIUK PLC (United Kingdom), Gtd. Trust Pfd.
Yankee Notes, 8.23%, 02/01/27(c) 60,000 63,500
- -----------------------------------------------------------------------
Toll Road Investors Partnership II,
L.P.-Series 2005A, Disc. Bonds, (INS-MBIA
Insurance Corp.) 5.63%, 02/15/45 (Acquired
03/11/05-05/03/05; Cost
$153,647)(c)(d)(i)(j) 1,309,916 158,039
- -----------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 6.17% (Acquired
12/07/04-04/03/06; Cost
$200,332)(c)(d)(f)(h) 200,000 200,009
- -----------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(c)(f) 40,000 42,190
=======================================================================
1,835,267
=======================================================================
PACKAGED FOODS & MEATS-0.51%
General Mills, Inc., Notes, 6.45%,
10/15/06(c) 60,000 60,125
- -----------------------------------------------------------------------
Tyson Foods, Inc., Sr. Unsec. Global Notes,
7.25%, 10/01/06(c) 395,000 396,169
=======================================================================
456,294
=======================================================================
PAPER PRODUCTS-0.05%
International Paper Co., Notes, 7.88%,
08/01/06(c) 50,000 50,081
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.39%
ACE INA Holdings Inc., Sr. Unsec. Gtd. Unsub.
Notes, 8.30%, 08/15/06(c) 115,000 115,277
- -----------------------------------------------------------------------
CNA Financial Corp., Sr. Unsec. Notes, 6.75%,
11/15/06(c) 45,000 45,119
- -----------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(c) 125,000 132,149
- -----------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(c) 285,000 298,141
- -----------------------------------------------------------------------
Oil Casualty Insurance Ltd. (Bermuda), Unsec.
Sub. Deb., 8.00%, 09/15/34 (Acquired
04/29/05-06/09/05; Cost $213,696)(c)(d) 200,000 191,910
- -----------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Notes,
7.56% (Acquired 06/15/06; Cost
$360,000)(c)(d)(f) 360,000 361,123
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
Sr. Unsec. Floating Rate Notes,
5.34%, 10/06/06 (Acquired 10/12/05; Cost
$99,250)(c)(d)(h) $ 100,000 $ 99,971
- -----------------------------------------------------------------------
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06(c) 10,000 10,037
=======================================================================
1,253,727
=======================================================================
PUBLISHING-0.56%
Pearson Inc., Medium Term Notes, 7.38%,
09/15/06 (Acquired 01/11/06; Cost
$507,560)(c)(d) 500,000 502,010
=======================================================================
RAILROADS-0.16%
Norfolk Southern Corp.-Series A, Medium Term
Notes, 7.40%, 09/15/06(c) 20,000 20,064
- -----------------------------------------------------------------------
Union Pacific Corp., Unsec. Notes, 6.70%,
12/01/06(c) 120,000 120,380
=======================================================================
140,444
=======================================================================
REGIONAL BANKS-1.08%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 6.78%, 03/01/34(c)(e) 200,000 200,628
- -----------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 5.80%, 06/01/28(c)(e) 100,000 97,281
- -----------------------------------------------------------------------
Popular North America Inc.,-Series E, Medium
Term Notes,
6.13%, 10/15/06(c) 65,000 65,043
- -----------------------------------------------------------------------
-Series F, Medium Term Notes,
5.20%, 12/12/07(c) 220,000 217,907
- -----------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(c) 60,000 58,106
- -----------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(c) 300,000 332,229
=======================================================================
971,194
=======================================================================
REINSURANCE-0.31%
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(c) 100,000 92,327
- -----------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs., 5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $196,920)(c)(d) 200,000 191,880
=======================================================================
284,207
=======================================================================
RESIDENTIAL REIT'S-0.09%
AvalonBay Communities, Inc., Sr. Unsec.
Notes, 6.80%, 07/15/06(c) 80,000 80,022
=======================================================================
RETAIL REIT'S-0.16%
Developers Diversified Realty Corp., Sr.
Medium Term Notes, 7.00%, 03/19/07(c) 140,000 141,081
=======================================================================
SOVEREIGN DEBT-0.09%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04-05/18/04; Cost
$90,094)(c)(d) 80,000 83,160
=======================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
SPECIALIZED REIT'S-0.21%
Health Care Property Investors, Inc., Sr.
Unsec. Notes, 7.07%, 06/08/15(c) $ 90,000 $ 92,995
- -----------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(c) 100,000 95,183
=======================================================================
188,178
=======================================================================
SPECIALTY CHEMICALS-0.37%
ICI North America, Unsec. Gtd. Deb., 8.88%,
11/15/06(c) 331,000 334,419
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.25%
Countrywide Home Loans, Inc.-Series E, Gtd.
Medium Term Notes, 6.94%, 07/16/07(c) 100,000 101,288
- -----------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(c) 60,000 64,073
- -----------------------------------------------------------------------
Washington Mutual Capital I, Gtd. Sub. Trust
Pfd. Notes, 8.38%, 06/01/27(c) 60,000 63,409
=======================================================================
228,770
=======================================================================
TOBACCO-0.35%
Altria Group, Inc., Unsec. Notes, 7.20%,
02/01/07(c) 311,000 313,283
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.28%
GATX Financial Corp.,
Series D, Medium Term Notes, 6.88%,
12/15/06(c) 100,000 100,384
- -----------------------------------------------------------------------
Sr. Notes,
7.75%, 12/01/06(c) 100,000 100,696
- -----------------------------------------------------------------------
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
7.38%, 12/15/28 (Acquired 01/25/05; Cost
$56,019)(c)(d) 50,000 52,908
=======================================================================
253,988
=======================================================================
TRUCKING-0.19%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(c) 100,000 103,927
- -----------------------------------------------------------------------
Ryder System, Inc-Series 16, Sr. Medium Term
Notes, 6.46%, 10/18/06(c) 70,000 70,120
=======================================================================
174,047
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.99%
Sprint Capital Corp., Unsec. Gtd. Notes,
4.78%, 08/17/06(c) 450,000 449,599
- -----------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(c) 140,000 170,443
- -----------------------------------------------------------------------
Telephone & Data Systems, Inc.,
Sec. Notes, 7.00%, 08/01/06(c) 150,000 150,134
- -----------------------------------------------------------------------
Series A,
Sr. Unsec. Notes,
7.60%, 12/01/41 5,000 123,350
=======================================================================
893,526
=======================================================================
Total Bonds & Notes (Cost $23,619,917) 23,251,712
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-13.67%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-5.24%
Federal Home Loan Mortgage Corp., Pass
Through Ctfs.,
7.00%, 06/01/15 to 06/01/32(c) $ 49,554 $ 50,787
- -----------------------------------------------------------------------
6.00%, 04/01/16 to 11/01/33(c) 579,224 573,774
- -----------------------------------------------------------------------
5.50%, 10/01/18(c) 243,467 239,263
- -----------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31(c) 32,333 33,482
- -----------------------------------------------------------------------
6.50%, 05/01/32 to 08/01/32(c) 40,123 40,513
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/21 to 07/01/36(c)(k) 1,498,880 1,415,657
- -----------------------------------------------------------------------
5.50%, 07/01/36(c)(k) 2,472,702 2,375,339
=======================================================================
4,728,815
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-7.42%
Federal National Mortgage Association, Pass
Through Ctfs.,
6.50%, 04/01/14 to 10/01/35(c) 582,315 588,403
- -----------------------------------------------------------------------
7.50%, 11/01/15(c) 4,360 4,538
- -----------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32(c) 85,622 87,793
- -----------------------------------------------------------------------
6.00%,01/01/17 to 05/01/17(c) 104,704(l) 105,135
- -----------------------------------------------------------------------
5.00%, 04/01/18(c) 273,237 263,829
- -----------------------------------------------------------------------
4.50%, 11/01/18(c) 105,978 100,436
- -----------------------------------------------------------------------
8.00%, 08/01/21 to 12/01/23(c) 30,957 32,574
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/21(c)(k) 466,270 449,076
- -----------------------------------------------------------------------
5.50%, 07/01/21 to 07/01/36(c)(k) 3,762,840 3,646,353
- -----------------------------------------------------------------------
6.00%, 07/01/36(c)(k) 1,159,650 1,141,531
- -----------------------------------------------------------------------
6.50%, 07/01/36(c)(k) 273,803 275,258
=======================================================================
6,694,926
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.01%
Government National Mortgage Association,
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(c) 41,440 43,333
- -----------------------------------------------------------------------
8.50%, 11/15/24(c) 92,578 100,090
- -----------------------------------------------------------------------
8.00%, 08/15/25(c) 14,618 15,514
- -----------------------------------------------------------------------
6.50%, 03/15/29 to 12/15/33(c) 147,099 149,144
- -----------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33(c) 349,541 347,564
- -----------------------------------------------------------------------
7.00%, 09/15/31 to 03/15/33(c) 25,235 26,036
- -----------------------------------------------------------------------
5.50%, 12/15/33 to 02/15/34(c) 231,399 224,607
=======================================================================
906,288
=======================================================================
Total U.S. Mortgage-Backed Securities
(Cost $12,510,419) 12,330,029
=======================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
ASSET-BACKED SECURITIES-1.49%
AEROSPACE & DEFENSE-0.20%
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 $187,135)(c)(d)(i) $ 169,795 $ 175,806
=======================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS-0.13%
Federal Home Loan Bank (FHLB)-Series TQ-2015,
Class A, Pass Through Ctfs., 5.07%,
10/20/15(c) 124,926 120,044
=======================================================================
MULTI-SECTOR HOLDINGS-0.11%
Longport Funding Ltd.-Series 2005-2A, Class
A1J, Floating Rate Bonds,
5.63%, 02/03/40 (Acquired 03/31/05; Cost
$100,000)(d)(e)(m) 100,000 100,000
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.94%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-01/26/06; Cost $364,942)(c)(d) 325,000 365,829
- -----------------------------------------------------------------------
LILACS Repackaging 2005-I-Series A, Sec.
Notes, 5.14%, 01/15/64 (Acquired 07/14/05;
Cost $500,000)(d)(m) 500,000 485,000
=======================================================================
850,829
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.11%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$100,000)(c)(d) 100,000 96,572
=======================================================================
Total Asset-Backed Securities (Cost
$1,372,286) 1,343,251
=======================================================================
MUNICIPAL OBLIGATIONS-1.23%
Chicago (City of), Illinois O'Hare
International Airport; Series 2004 E,
Refunding Taxable General Airport Third
Lien RB, (INS-MBIA Insurance Corp.) 3.88%,
01/01/08(c)(i) 250,000 244,375
- -----------------------------------------------------------------------
Dallas (City of), Texas; Series 2005 A,
Taxable Pension Limited Tax GO,
4.61%, 02/15/14(c) 50,000 46,562
- -----------------------------------------------------------------------
Detroit (City of), Michigan;, Series 2005
A-1, Taxable Capital Improvement Limited
Tax GO
(INS-Ambac Assurance Corp.),
4.96%, 04/01/20(c)(i) 65,000 58,754
- -----------------------------------------------------------------------
Series 2005, Taxable COP (INS-Financial
Guaranty Insurance Co.),
4.95%, 06/15/25(c)(i) 80,000 70,441
- -----------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank;, Series 2005 A,
Taxable RB,
4.87%, 07/15/16(c) 50,000 46,430
- -----------------------------------------------------------------------
5.22%, 07/15/20(c) 50,000 46,605
- -----------------------------------------------------------------------
5.28%, 01/15/22(c) 25,000 23,188
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-(CONTINUED)
Industry (City of), California Urban
Development Agency (Project 3); Series
2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.) 6.10%, 05/01/24(c)(i) $ 125,000 $ 127,344
- -----------------------------------------------------------------------
New Hampshire (State of); Series 2005 B,
Taxable Unlimited Tax GO,
4.65%, 05/15/15(c) 100,000 93,250
- -----------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.;, Series 2004, Taxable Rental Car
Facility Charge RB
(INS-Financial Guaranty Insurance Co.),
3.69%, 07/01/07(c)(i) 50,000 49,137
- -----------------------------------------------------------------------
4.21%, 07/01/08(c)(i) 75,000 73,079
- -----------------------------------------------------------------------
Sacramento (County of), California; Series
2004 C-1, Taxable Pension Funding CARS
Disc. RB, (INS-MBIA Insurance Corp.) 3.42%,
07/10/30(c)(i)(n) 225,000 224,860
=======================================================================
Total Municipal Obligations (Cost
$1,134,154) 1,104,025
=======================================================================
<Caption>
SHARES
PREFERRED STOCKS-1.00%
LIFE & HEALTH INSURANCE-0.11%
Aegon N.V. 6.38% Pfd. (Netherlands) 4,100 96,104
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.56%
Zurich RegCaPS Funding Trust IV, 5.70%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$244,120)(c)(d)(e) 250 253,047
- -----------------------------------------------------------------------
Zurich RegCaPS Funding Trust VI, 5.88%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$242,867)(c)(d)(e) 250 255,469
=======================================================================
508,516
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.33%
Fannie Mae, Series J,
4.72% Floating Rate Pfd.,(o) 2,950 147,205
- -----------------------------------------------------------------------
Series K, 5.40% Floating Rate Pfd.,(o) 2,950 147,795
=======================================================================
295,000
=======================================================================
Total Preferred Stocks (Cost $886,405) 899,620
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-0.22%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.22%
Unsec. Floating Rate Global Notes, 4.50%
02/17/09(c)(h) )(Cost $200,000) $ 200,000 195,010
=======================================================================
U.S. TREASURY SECURITIES-0.19%
U.S. TREASURY NOTES-0.19%
3.00% 12/31/06(c)(p) (Cost $173,355) 175,000 173,045
=======================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
SHARES
- -----------------------------------------------------------------------
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-1.56%
Liquid Assets Portfolio-Institutional
Class(q) 703,241 $ 703,241
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(q) 703,241 703,241
=======================================================================
Total Money Market Funds (Cost
$1,406,482) 1,406,482
=======================================================================
TOTAL INVESTMENTS-110.19% (Cost $92,552,738) 99,372,320
=======================================================================
OTHER ASSETS LESS LIABILITIES-(10.19)% (9,186,370)
=======================================================================
NET ASSETS-100.00% $90,185,950
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
CARS - Convertible Auction Rate Security
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
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,
the foreign security is fair valued using adjusted closing market
prices. The aggregate value of these securities at June 30, 2006 was
$2,926,032, which represented 3.24% of the Fund's Net Assets. See Note
1A.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2006 was $38,197,238, which represented 42.35% 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 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 June 30,
2006 was $6,726,014, which represented 7.46% of the Fund's Net Assets.
Unless otherwise indicated, these securities are not considered to be
illiquid.
(e) Interest or dividend rate is redetermined quarterly. Rate shown is in
effect on June 30, 2006.
(f) Perpetual bond with no specified maturity date.
(g) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on June 30, 2006.
(h) Interest rate is redetermined monthly. Rate shown is the rate in effect
on June 30, 2006.
(i) Principal and/or interest payments are secured by the bond insurance
company listed.
(j) Zero coupon bond issued at a discount. The interest rate shown
represents the yield to maturity at issue.
(k) Security purchased on forward commitment basis. This security is subject
to dollar roll transactions. See Note 1G.
(l) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1L and Note 8.
(m) 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 June 30, 2006
was $585,000, which represented 0.65% of the Fund's Net Assets.
(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) Dividend rate is redetermined bi-annually. Rate shown is the rate in
effect on June 30, 2006.
(p) A portion of this security is subject to put options written. See Note
1K and Note 9.
(q) 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $91,146,256) $97,965,838
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,406,482) 1,406,482
============================================================
Total investments (cost $92,552,738) 99,372,320
============================================================
Receivables for:
Investments sold 101,412
- ------------------------------------------------------------
Variation margin 15,928
- ------------------------------------------------------------
Fund shares sold 53,371
- ------------------------------------------------------------
Dividends and Interest 520,071
- ------------------------------------------------------------
Fund expenses absorbed 5,347
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 34,433
- ------------------------------------------------------------
Other assets 2,269
============================================================
Total assets 100,105,151
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 9,562,293
- ------------------------------------------------------------
Fund shares reacquired 226,558
- ------------------------------------------------------------
Options written, at value (premiums received
$1,069) 703
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 39,714
- ------------------------------------------------------------
Accrued administrative services fees 48,969
- ------------------------------------------------------------
Accrued distribution fees -- Series II 3,584
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 445
- ------------------------------------------------------------
Accrued transfer agent fees 793
- ------------------------------------------------------------
Accrued operating expenses 36,142
============================================================
Total liabilities 9,919,201
============================================================
Net assets applicable to shares outstanding $90,185,950
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $99,573,071
- ------------------------------------------------------------
Undistributed net investment income 2,650,381
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts and option contracts (18,818,040)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, futures
contracts and option contracts 6,780,538
============================================================
$90,185,950
____________________________________________________________
============================================================
NET ASSETS:
Series I $84,612,881
____________________________________________________________
============================================================
Series II $ 5,573,069
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,621,719
____________________________________________________________
============================================================
Series II 505,895
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 11.10
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 11.02
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$12,068) $ 544,244
- -------------------------------------------------------------
Dividends from affiliated money market funds 53,439
- -------------------------------------------------------------
Interest 862,695
=============================================================
Total investment income 1,460,378
=============================================================
EXPENSES:
Advisory fees 355,506
- -------------------------------------------------------------
Administrative services fees 123,925
- -------------------------------------------------------------
Custodian fees 13,937
- -------------------------------------------------------------
Distribution fees--Series II 7,202
- -------------------------------------------------------------
Transfer agent fees 4,405
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 8,799
- -------------------------------------------------------------
Other 36,889
=============================================================
Total expenses 550,663
=============================================================
Less: Fees waived and expense offset arrangement (112,053)
=============================================================
Net expenses 438,610
=============================================================
Net investment income 1,021,768
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS
Net realized gain (loss) from:
Investment securities (includes gains from
securities sold to affiliates of $8,262) 2,486,571
- -------------------------------------------------------------
Foreign currencies 2,074
- -------------------------------------------------------------
Futures contracts (127,700)
- -------------------------------------------------------------
Option contracts written 2,921
=============================================================
2,363,866
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (2,258,742)
- -------------------------------------------------------------
Foreign currencies 7
- -------------------------------------------------------------
Futures contracts (57,380)
- -------------------------------------------------------------
Option contracts written 366
=============================================================
(2,315,749)
=============================================================
Net gain from investment securities, foreign
currencies, futures contracts and option
contracts 48,117
=============================================================
Net increase in net assets resulting from
operations $ 1,069,885
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,021,768 $ 1,647,423
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 2,363,866 2,363,092
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures
contracts and option contracts (2,315,749) 914,805
=========================================================================================
Net increase in net assets resulting from operations 1,069,885 4,925,320
=========================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,309,455)
- -----------------------------------------------------------------------------------------
Series II -- (72,217)
=========================================================================================
Decrease in net assets resulting from distributions -- (1,381,672)
=========================================================================================
Share transactions-net:
Series I (7,031,627) (11,775,262)
- -----------------------------------------------------------------------------------------
Series II (355,512) 23,488
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (7,387,139) (11,751,774)
=========================================================================================
Net increase (decrease) in net assets (6,317,254) (8,208,126)
=========================================================================================
NET ASSETS:
Beginning of period 96,503,204 104,711,330
=========================================================================================
End of period (including undistributed net investment
income of $2,650,381 and $1,628,613, respectively) $90,185,950 $ 96,503,204
_________________________________________________________________________________________
=========================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic 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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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 are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
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 transactions
by the Fund, fee income is agreed upon amongst the parties at the
commencement of the dollar roll. This fee 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. 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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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. 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.
M. 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>
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 April 30, 2008. 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
net annual
AIM V.I. BASIC BALANCED 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. To the extent
that the annualized expense ratio does not exceed the expense limitation, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursements
prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $111,907.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $99,131 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $4,405.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $7,202.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 850,068 $ 8,269,249 $ (8,416,076) $ -- $ 703,241 $26,654 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 843,060 (139,819) -- 703,241 316 --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 850,068 8,195,310 (9,045,378) -- -- 26,469 --
=================================================================================================================================
Total $1,700,136 $17,307,619 $(17,601,273) $ -- $1,406,482 $53,439 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $59,520, which resulted in net realized gains of
$8,262 and securities purchases of $990,360.
AIM V.I. BASIC BALANCED FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $146.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,932 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--FUTURES CONTRACTS
On June 30, 2006, $98,796 principal amount of U.S. mortgage-backed obligations
were pledged as collateral to cover margin requirements for open futures
contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------
Eurodollar
GLOBEX2
etrading 13 Dec-06/Long $ 3,068,163 $(39,540)
- -----------------------------------------------------------------------------------------
Eurodollar
GLOBEX2
etrading 4 Mar-07/Long 944,400 (9,532)
- -----------------------------------------------------------------------------------------
U.S. Treasury 2
Year Notes 11 Sep-06/Long 2,230,594 (7,102)
- -----------------------------------------------------------------------------------------
U.S. Treasury
10 Year Notes 20 Sep-06/Long 2,097,187 1,775
- -----------------------------------------------------------------------------------------
U.S. Treasury
30 Year Bonds 9 Sep-06/Long 959,906 3,642
=========================================================================================
$ 9,300,250 $(50,757)
=========================================================================================
U.S. Treasury 5
Year Notes 13 Sep-06/Short (1,344,281) 8,404
=========================================================================================
$ 7,955,969 $(42,353)
_________________________________________________________________________________________
=========================================================================================
</Table>
AIM V.I. BASIC BALANCED FUND
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
CALL OPTION CONTRACTS PUT OPTION CONTRACTS
---------------------------------- ----------------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED
- ---------------------------------------------------------------------------------------------------------------------------------
Beginning of period -- $ -- -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Written 7 1,059 20 2,931
- ---------------------------------------------------------------------------------------------------------------------------------
Closed -- -- (10) (1,184)
- ---------------------------------------------------------------------------------------------------------------------------------
Expired (7) (1,059) (5) (678)
=================================================================================================================================
End of period -- $ -- 5 $ 1,069
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
CONTRACT STRIKE NUMBER OF PREMIUMS UNREALIZED
PUTS MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
10 Year Notes
Future Aug-06 $104 5 $1,069 $703 $366
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10 -- TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 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 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 six months
ended June 30, 2006 was $22,208,678 and $28,225,514, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 10,010,686
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,660,715)
===============================================================================
Net unrealized appreciation of investment securities $ 6,349,971
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $93,022,349.
</Table>
AIM V.I. BASIC BALANCED FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006(a) 2005
----------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Series I 183,932 $ 2,065,851 6,962,166 $ 72,685,111
- -------------------------------------------------------------------------------------------------------------------
Series II 24,326 271,429 271,411 2,830,503
===================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 119,258 1,309,455
- -------------------------------------------------------------------------------------------------------------------
Series II -- -- 6,619 72,217
===================================================================================================================
Reacquired:
Series I (812,312) (9,097,478) (8,187,375) (85,769,828)
- -------------------------------------------------------------------------------------------------------------------
Series II (56,235) (626,941) (276,220) (2,879,232)
===================================================================================================================
(660,289) $(7,387,139) (1,104,141) $(11,751,774)
___________________________________________________________________________________________________________________
===================================================================================================================
</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 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.
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2006 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.99 $ 10.59 $ 9.99 $ 8.75 $ 10.84 $ 12.46
- --------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.14 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) (0.03) 0.38 0.62 1.29 (2.02) (1.70)
========================================================================================================
Total from investment
operations 0.11 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 $ 11.10 $ 10.99 $ 10.59 $ 9.99 $ 8.75 $ 10.84
________________________________________________________________________________________________________
========================================================================================================
Total return(c) 1.00% 5.29% 7.52% 16.36% (17.02)% (11.43)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $84,613 $90,633 $99,070 $97,665 $82,866 $105,395
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 0.91%(d) 0.95% 1.12% 1.11% 1.17% 1.12%
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.15%(d) 1.15% 1.12% 1.11% 1.17% 1.12%
========================================================================================================
Ratio of net investment income to
average net assets 2.17%(d) 1.68% 1.24% 1.47% 1.90% 2.37%(b)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 24% 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) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$89,777,860.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. BASIC BALANCED FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------------------------
JANUARY 24, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------- DECEMBER 31,
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.91 $10.53 $9.95 $8.73 $ 10.70
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12 0.15(a) 0.10(a) 0.12(a) 0.14(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01) 0.37 0.62 1.29 (1.86)
=============================================================================================================================
Total from investment operations 0.11 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 $11.02 $10.91 $10.53 $9.95 $ 8.73
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 1.01% 4.91% 7.24% 16.15% (16.12)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,573 $5,870 $5,642 $4,133 $ 733
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%(c) 1.20% 1.37% 1.36% 1.42%(d)
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.40%(c) 1.40% 1.37% 1.36% 1.42%(d)
=============================================================================================================================
Ratio of net investment income to average net assets 1.92%(c) 1.43% 0.99% 1.22% 1.65%(d)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 24% 44% 51% 131% 90%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$5,809,437.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
AIM V.I. BASIC BALANCED FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
President and Principal Suite 100
Frank S. Bayley Executive Officer Houston, TX 77046-1173
James T. Bunch Mark H. Williamson INVESTMENT ADVISOR
Executive Vice President A I M Advisors, Inc.
Bruce L. Crockett 11 Greenway Plaza
Chair Todd L. Spillane Suite 100
Chief Compliance Officer Houston, TX 77046-1173
Albert R. Dowden
Russell C. Burk TRANSFER AGENT
Jack M. Fields Senior Vice President and Senior Officer AIM Investment Services, Inc.
P.O. Box 4739
Carl Frischling John M. Zerr Houston, TX 77210-4739
Senior Vice President, Secretary and Chief
Robert H. Graham Legal Officer CUSTODIAN
Vice Chair State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Prema Mathai-Davis Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
Lewis F. Pennock COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Ruth H. Quigley Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Larry Soll Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
Raymond Stickel, Jr. COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Mark H. Williamson Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. BASIC BALANCED FUND
AIM V.I. BASIC VALUE FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. BASIC VALUE FUND seeks to provide long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 Since our application of this
strategy is highly disciplined and
===================================================================================== relatively unique, it is important to
understand the benefits and limitations
PERFORMANCE SUMMARY of our process. First, the investment
=========================================== strategy is intended to preserve your
For the six months ended June 30, 2006, FUND VS. INDEXES capital while growing it at above-market
and excluding variable product issuer rates over the long term. Second, we
charges, AIM V.I. Basic Value Fund CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, have little portfolio commonality with
underperformed the S&P 500 Index, the EXCLUDING VARIABLE PRODUCT ISSUER popular benchmark indexes and most of
Russell 1000 Value Index and the Lipper CHARGES. our peers. And third, the Fund's
Large-Cap Value Fund Index. IF VARIABLE PRODUCT ISSUER CHARGES WERE short-term relative performance will
INCLUDED, RETURNS WOULD BE LOWER. differ from that of its indexes and have
Although there were no major issues little information value simply because
during the reporting period, the Fund's Series I Shares 0.97% we don't own the exact same stocks (low
underperformance was attributable to an commonality).
unusual number of relatively Series II Shares 0.90
underperforming investments. The largest MARKET CONDITIONS AND YOUR FUND
detractors from Fund performance were Standard & Poor's Composite Index
the result of negative short-term of 500 Stocks (S&P 500 Index) Equity markets were mixed during the
sentiment or weak interim results that, (Broad Market Index) 2.71 first half of 2006 amid continued
in our opinion, had no impact on their investor concerns regarding rising
estimated intrinsic values. The Fund Russell 1000 Value Index interest rates and oil prices, and their
received below-market returns from (Style-Specific Index) 6.56 potential negative effects on economic
selected investments in the health care, growth, inflation, consumer spending and
information technology and consumer Lipper Large-Cap Value Fund Index corporate profits. In general,
discretionary sectors. Above-market (Peer Group Index) 4.46 telecommunication services and energy
contributors to performance emanated stocks performed strongly for the period
from SOURCE: LIPPER INC. while information technology and health
care stocks were weak.
===========================================
The Fund's energy stocks were the
selected energy, industrials and consumer largest contributors to Fund
discretionary holdings. performance. Higher energy prices and
improved earnings prospects led to
Your Fund's long-term performance significant stock price increases in our
appears on page 4. three oil service industry investments,
WEATHERFORD, HALLIBURTON and TRANSOCEAN.
=====================================================================================
Waste services company WASTE
HOW WE INVEST that we believe have extensive empirical MANAGEMENT and diversified entertainment
evidence: company WALT DISNEY were also among the
We seek to create wealth by maintaining biggest contributors to Fund performance
a long-term investment horizon and o Companies have a measurable estimated during the period. Continued robust U.S.
investing in companies that are selling intrinsic value. Importantly, this economic expansion led to strong pricing
at a significant discount to their estimated fair value is independent of and volume trends across virtually all
estimated intrinsic value--a value that the company's stock price. of Waste Management's business lines.
is based on the estimated future cash
flows generated by the business. The o Market prices are more volatile than
Fund's philosophy is based on two business values, partly because
elements investors regularly overreact to
negative news.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.4% 1. Cardinal Health, Inc. 3.9%
Financials 21.4% 2. Industrial Conglomerates 6.2 2. Tyco International Ltd. 3.8
Health Care 18.7 3. Other Diversified Financial 3. First Data Corp. 3.6
Services 6.1
Consumer Discretionary 13.6 4. JPMorgan Chase & Co. 3.4
4. Oil & Gas Equipment & Services 5.5
Industrials 13.2 5. Sanofi-Aventis (France) 3.0
5. Thrifts & Mortgage Finance 5.0
Information Technology 11.6 6. Halliburton Co. 3.0
Energy 8.4 TOTAL NET ASSETS $825.1 MILLION 7. Transocean Inc. 3.0
TOTAL NUMBER OF HOLDINGS* 45
Consumer Staples 5.9 8. Fannie Mae 2.9
Materials 2.6 9. UnitedHealth Group Inc. 2.9
Money Market Funds Plus 10. Omnicom Group Inc. 2.7
Other Assets Less Liabilities 4.6
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. BASIC VALUE FUND
Customer service and cost containment portfolio was above our estimate of the BRET W. STANLEY, Chartered
initiatives appear to be producing Fund's historical average. Moreover, we [STANLEY Financial Analyst, senior
favorable results, and the company is believed our estimate of the Fund's PHOTO] portfolio manager, is lead
pressing its competitive advantage by intrinsic value content was manager of AIM V.I. Basic
implementing new industry-leading significantly greater than what we Value Fund. Mr. Stanley is also the head
pricing and fuel surcharge programs. believe was available in the broad of AIM's Value Investment Management
market. While there is no assurance that Unit. Before joining AIM in 1998, Mr.
The Fund's largest detractors from market value will ever reflect our Stanley served as a vice president and
performance were health care service estimate of the portfolio's intrinsic portfolio manager and managed growth and
company UNITEDHEALTH GROUP, enterprise value, we believe this provides the best income, equity income and value
software firm CA, advertising and indication that your Fund is positioned portfolios. He began his investment
marketing conglomerate INTERPUBLIC to potentially achieve its objective of career in 1988. Mr. Stanley earned a
GROUP, personal computer company DELL long-term growth of capital. B.B.A. in finance from The University of
and pharmaceutical wholesaler CARDINAL Texas at Austin and an M.S. in finance
HEALTH. UnitedHealth's stock price IN CLOSING from the University of Houston.
declined during the period as a result
of investor's general avoidance of We know a long-term investment horizon R. CANON COLEMAN II,
health care stocks combined with issues and attractive portfolio estimated [COLEMAN II Chartered Financial Analyst,
concerning the company's employee stock intrinsic value content are critical to PHOTO] portfolio manager, is
option program. Our long-term investment creating wealth. But we understand manager of AIM V.I. Basic
case for UnitedHealth remains unchanged maintaining a long-term investment Value Fund. He joined AMVESCAP in 1999
and we increased our position in the horizon is a challenge. Empirical and worked with fund managers throughout
stock during the reporting period. evidence reveals short-term behavior by the company before joining AIM in
both portfolio managers and fund 2000. He previously worked as a
CA's stock declined during the shareholders can often dilute investors' certified public accountant. Mr. Coleman
reporting period as a result of investor actual returns. earned a B.S. and an M.S. in accounting
concerns regarding high level management from the University of Florida. He also
turnover, a weaker than expected One recent study estimated the earned an M.B.A. from the Wharton School
operating quarter and a stock options combined effects of short-term activity at the University of Pennsylvania.
issue. Nonetheless, our intrinsic value and expenses have caused investors to
estimate for CA remained unchanged. underperform the broad market by 5% per MATTHEW W. SEINSHEIMER,
year over a 20-year period. Over the [SEINSHEIMER Chartered Financial Analyst,
During the reporting period, we past 25 years, the average holding PHOTO] senior portfolio manager, is
reduced the Fund's exposure to the period for a typical stock declined from manager of AIM V.I. Basic
energy sector. While we continued to more than three years to less than 12 Value Fund. He began his investment
believe this energy cycle is based on months. Considering this market career in 1991 as a fixed-income
sound fundamentals, we believed equity backdrop, your Fund is doing something trader. He later served as a portfolio
valuations warranted less exposure to different and old fashioned--investing manager on both fixed-income and equity
the sector. In addition, we sold the for the long term. Our strategy of portfolios. Mr. Seinsheimer joined AIM
Fund's remaining shares in LEXMARK buying stocks that we consider to be in 1998. He earned a B.B.A. from
INTERNATIONAL, MASCO and PARKER HANNIFIN undervalued and avoiding the rest is Southern Methodist University and an
based on valuation and other portfolio based on common sense. M.B.A. from The University of Texas at
considerations. Austin.
We remain optimistic about AIM V.I.
During the reporting period, we Basic Value Fund's portfolio. As always, MICHAEL J. SIMON, Chartered
initiated new positions in Dell and we are continually searching for [SIMON Financial Analyst, senior
MICROSOFT. While Dell's and Microsoft's opportunities to increase our estimate PHOTO] portfolio manager, is
growth and business models are in the of the portfolio's intrinsic value. In manager of AIM V.I. Basic
early stages of a transition, we the meantime, we thank you for your Value Fund. He began his investment
believed their market valuations did not investment and for sharing our long-term career in 1989 and joined AIM in 2001.
reflect the long-term potential horizon. Before joining AIM, he worked as a vice
positives of their dominant market president, equity analyst and portfolio
positions and the compelling economics THE VIEWS AND OPINIONS EXPRESSED IN manager. Mr. Simon earned a B.B.A. in
of their businesses. MANAGEMENT'S DISCUSSION OF FUND finance from Texas Christian University
PERFORMANCE ARE THOSE OF A I M ADVISORS, and an M.B.A. from the University of
PORTFOLIO ASSESSMENT INC. THESE VIEWS AND OPINIONS ARE Chicago. Mr. Simon has served as
SUBJECT TO CHANGE AT ANY TIME BASED ON occasional faculty in the Finance and
We believe the single most important FACTORS SUCH AS MARKET AND ECONOMIC Decision Sciences Department of Texas
indicator of the way AIM V.I. Basic CONDITIONS. THESE VIEWS AND OPINIONS MAY Christian University's M.J. Neely School
Value Fund is positioned for potential NOT BE RELIED UPON AS INVESTMENT ADVICE of Business.
success is not our historical investment OR RECOMMENDATIONS, OR AS AN OFFER FOR A
results or popular statistical measures, PARTICULAR SECURITY. THE INFORMATION IS Assisted by the Basic Value Team
but the portfolio's estimated intrinsic NOT A COMPLETE ANALYSIS OF EVERY ASPECT
value. Our unique valuation model allows OF ANY MARKET, COUNTRY, INDUSTRY,
us to regularly estimate the intrinsic SECURITY OR THE FUND. STATEMENTS OF FACT
value of each holding in the ARE FROM SOURCES CONSIDERED RELIABLE,
portfolio--and to estimate the intrinsic BUT A I M ADVISORS, INC. MAKES NO
value of the entire Fund. REPRESENTATION OR WARRANTY AS TO THEIR [RIGHT ARROW GRAPHIC]
COMPLETENESS OR ACCURACY. ALTHOUGH
At the close of the reporting period HISTORICAL PERFORMANCE IS NO GUARANTEE FOR A DISCUSSION OF THE RISKS OF
and in our opinion the difference OF FUTURE RESULTS, THESE INSIGHTS MAY INVESTING IN YOUR FUND, INDEXES USED IN
between the market price and the HELP YOU UNDERSTAND OUR INVESTMENT THIS REPORT AND YOUR FUND'S LONG-TERM
estimated intrinsic value of the MANAGEMENT PHILOSOPHY. PERFORMANCE, PLEASE TURN TO PAGE 4.
3
AIM V.I. BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
========================================
AVERAGE ANNUAL TOTAL RETURNS DISTRIBUTIONS AND CHANGES IN NET ASSET AT THE FUND LEVEL, EXCLUDING VARIABLE
As of 6/30/06 VALUE. INVESTMENT RETURN AND PRINCIPAL PRODUCT CHARGES, IS AVAILABLE ON THIS
VALUE WILL FLUCTUATE SO THAT YOU MAY AIM AUTOMATED INFORMATION LINE,
SERIES I SHARES HAVE A GAIN OR LOSS WHEN YOU SELL 866-702-4402. AS MENTIONED ABOVE, FOR
Inception (9/10/01) 5.03% SHARES. THE MOST RECENT MONTH-END PERFORMANCE
1 Year 6.94 INCLUDING VARIABLE PRODUCT CHARGES,
AIM V.I. BASIC VALUE FUND, A SERIES PLEASE CONTACT YOUR VARIABLE PRODUCT
SERIES II SHARES PORTFOLIO OF AIM VARIABLE INSURANCE ISSUER OR FINANCIAL ADVISOR.
Inception (9/10/01) 4.79% FUNDS, IS CURRENTLY OFFERED THROUGH
1 Year 6.65 INSURANCE COMPANIES ISSUING VARIABLE
PRODUCTS. YOU CANNOT PURCHASE SHARES OF
======================================== THE FUND DIRECTLY. PERFORMANCE FIGURES
GIVEN REPRESENT THE FUND AND ARE NOT
THE PERFORMANCE OF THE FUND'S SERIES I INTENDED TO REFLECT ACTUAL VARIABLE
AND SERIES II SHARE CLASSES WILL DIFFER PRODUCT VALUES. THEY DO NOT REFLECT
PRIMARILY DUE TO DIFFERENT CLASS SALES CHARGES, EXPENSES AND FEES
EXPENSES. 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 PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA
RECENT MONTH-END VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT
FUND EXPENSES, REINVESTED
PRINCIPAL RISKS OF INVESTING IN THE FUND companies; the Value subset measures the transactions. Generally accepted
performance of Russell 1000 companies accounting principles require
The Fund can invest up to 25% of its with lower price/book ratios and lower adjustments to be made to the net assets
assets in foreign securities that forecasted growth values. of the Fund at period end for financial
involve risks not associated with reporting purposes, and as such, the net
investing solely in the United States. The unmanaged STANDARD & POOR'S asset values for shareholder
These include risks relating to COMPOSITE INDEX OF 500 STOCKS (the S&P transactions and the returns based on
fluctuations in the value of the U.S. 500--Registered Trademark-- Index) is an those net asset values may differ from
dollar relative to the values of other index of common stocks frequently used the net asset values and returns
currencies, the custody arrangements as a general measure of U.S. stock reported in the Financial Highlights.
made for the Fund's foreign holdings, market performance. Additionally, the returns and net asset
differences in accounting, political values shown throughout this report are
risks and the lesser degree of public The Fund is not managed to track the at the Fund level only and do not
information required to be provided by performance of any particular index, include variable product issuer charges.
non-U.S. companies. including the indexes defined here, and If such charges were included, the total
consequently, the performance of the returns would be lower.
Investing in smaller companies Fund may deviate significantly from the
involves greater risk than investing in performance of the indexes. Industry classifications used in this
more established companies, such as report are generally according to the
business risk, significant stock price A direct investment cannot be made in Global Industry Classification Standard,
fluctuations and illiquidity. an index. Unless otherwise indicated, which was developed by and is the
index results include reinvested exclusive property and a service mark of
ABOUT INDEXES USED IN THIS REPORT dividends, and they do not reflect sales Morgan Stanley Capital International
charges. Performance of an index of Inc. and Standard & Poor's.
The unmanaged LIPPER LARGE-CAP VALUE FUND funds reflects fund expenses;
INDEX represents an average of the performance of a market index does not. Commonality measures the similarity
performance of the 30 largest of holdings between two portfolios using
large-capitalization value funds tracked OTHER INFORMATION the lowest common percentage method.
by Lipper Inc., an independent mutual This method compares each security's
fund performance monitor. The returns shown in the management's percentage of total net assets in both
discussion of Fund performance are based portfolios and adds the lower
The unmanaged RUSSELL on net asset values calculated for percentages of the two portfolios to
1000--Registered Trademark-- VALUE INDEX shareholder determine commonality.
is a subset of the unmanaged RUSSELL
1000--Registered Trademark-- INDEX,
which represents the performance of the
stocks of large-capitalization
</Table>
4
AIM V.I. BASIC VALUE 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. expenses you paid on your account during 5% HYPOTHETICAL EXAMPLE WITH THE 5%
The actual and hypothetical expenses in this period. HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
the examples below do not represent the SHAREHOLDER REPORTS OF THE OTHER FUNDS.
effect of any fees or other expenses HYPOTHETICAL EXAMPLE FOR COMPARISON
assessed in connection with a variable PURPOSES Please note that the expenses shown
product; if they did, the expenses shown in the table are meant to highlight your
would be higher while the ending account The table below also provides ongoing costs. Therefore, the
values shown would be lower. information about hypothetical account hypothetical information is useful in
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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,009.70 $4.88 $1,019.93 $4.91 0.98%
Series II 1,000.00 1,009.00 6.13 1,018.70 6.16 1.23
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory Fund's Senior Officer (discussed below)
Insurance Funds (the "Board") oversees services to be provided by AIM. The only considered Fund performance through
the management of AIM V.I. Basic Value Board reviewed the services to be the most recent calendar year, the Board
Fund (the "Fund") and, as required by provided by AIM under the Advisory also reviewed more recent Fund
law, determines annually whether to Agreement. Based on such review, the performance, which did not change their
approve the continuance of the Fund's Board concluded that the range of conclusions.
advisory agreement with A I M Advisors, services to be provided by AIM under the
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and o Meetings with the Fund's portfolio
recommendation of the Investments that AIM currently is providing services managers and investment personnel. With
Committee of the Board, at a meeting in accordance with the terms of the respect to the Fund, the Board is
held on June 27, 2006, the Board, Advisory Agreement. meeting periodically with such Fund's
including all of the independent portfolio managers and/or other
trustees, approved the continuance of o The quality of services to be provided investment personnel and believes that
the advisory agreement (the "Advisory by AIM. The Board reviewed the such individuals are competent and able
Agreement") between the Fund and AIM for credentials and experience of the to continue to carry out their
another year, effective July 1, 2006. officers and employees of AIM who will responsibilities under the Advisory
provide investment advisory services to Agreement.
The Board considered the factors the Fund. In reviewing the
discussed below in evaluating the qualifications of AIM to provide o Overall performance of AIM. The Board
fairness and reasonableness of the investment advisory services, the Board considered the overall performance of
Advisory Agreement at the meeting on considered such issues as AIM's AIM in providing investment advisory and
June 27, 2006 and as part of the Board's portfolio and product review process, portfolio administrative services to the
ongoing oversight of the Fund. In their various back office support functions Fund and concluded that such performance
deliberations, the Board and the provided by AIM and AIM's equity and was satisfactory.
independent trustees did not identify fixed income trading operations. Based
any particular factor that was on the review of these and other o Fees relative to those of clients of
controlling, and each trustee attributed factors, the Board concluded that the AIM with comparable investment
different weights to the various quality of services to be provided by strategies. The Board reviewed the
factors. AIM was appropriate and that AIM effective advisory fee rate (before
currently is providing satisfactory waivers) for the Fund under the Advisory
One responsibility of the independent services in accordance with the terms of Agreement. The Board noted that this
Senior Officer of the Fund is to manage the Advisory Agreement. rate was (i) above the effective
the process by which the Fund's proposed advisory fee rates (before waivers) for
management fees are negotiated to ensure o The performance of the Fund relative three mutual funds advised by AIM with
that they are negotiated in a manner to comparable funds. The Board reviewed investment strategies comparable to
which is at arms' length and reasonable. the performance of the Fund during the those of the Fund; (ii) above the
To that end, the Senior Officer must past one and three calendar years effective sub-advisory fee rate for one
either supervise a competitive bidding against the performance of funds advised offshore fund advised and sub-advised by
process or prepare an independent by other advisors with investment AIM affiliates with investment
written evaluation. The Senior Officer strategies comparable to those of the strategies comparable to those of the
has recommended an independent written Fund. The Board noted that the Fund's Fund, although the total advisory fees
evaluation in lieu of a competitive performance in such periods was above for such offshore fund were above those
bidding process and, upon the direction the median performance of such for the Fund; (iii) above the effective
of the Board, has prepared such an comparable funds. Based on this review sub-advisory fee rate for one variable
independent written evaluation. Such and after taking account of all of the insurance fund sub-advised by an AIM
written evaluation also considered other factors that the Board considered affiliate and offered to insurance
certain of the factors discussed below. in determining whether to continue the company separate accounts with
In addition, as discussed below, the Advisory Agreement for the Fund, the investment strategies comparable to
Senior Officer made a recommendation to Board concluded that no changes should those of the Fund, although the total
the Board in connection with such be made to the Fund and that it was not advisory fees for such variable
written evaluation. necessary to change the Fund's portfolio insurance fund were above those for the
management team at this time. Although Fund; and (iv) comparable to or below
The discussion below serves as a the independent written evaluation of the total advisory fee rates for three
summary of the Senior Officer's the Fund's Senior Officer (discussed separately managed accounts/wrap
independent written evaluation and below) only considered Fund performance accounts managed by an AIM affiliate
recommendation to the Board in through the most recent calendar year, with investment strategies comparable to
connection therewith, as well as a the Board also reviewed more recent Fund those of the Fund and above the total
discussion of the material factors and performance, which did not change their advisory fee rates for 39 separately
the conclusions with respect thereto conclusions. managed accounts/wrap accounts managed
that formed the basis for the Board's by an AIM affiliate with investment
approval of the Advisory Agreement. o The performance of the Fund relative strategies comparable to those of the
After consideration of all of the to indices. The Board reviewed the Fund. The Board noted that AIM has
factors below and based on its informed performance of the Fund during the past agreed to waive advisory fees of the
business judgment, the Board determined one and three calendar years against the Fund and to limit the Fund's total
that the Advisory Agreement is in the performance of the Lipper Variable operating expenses, as discussed below.
best interests of the Fund and its Underlying Fund Large-Cap Value Index. Based on this review, the Board
shareholders and that the compensation The Board noted that the Fund's concluded that the advisory fee rate for
to AIM under the Advisory Agreement is performance in such periods was the Fund under the Advisory Agreement
fair and reasonable and would have been comparable to the performance of such was fair and reasonable.
obtained through arm's length Index. Based on this review and after
negotiations. taking account of all of the other o Fees relative to those of comparable
factors that the Board considered in funds with other advisors. The Board
Unless otherwise stated, information determining whether to continue the reviewed the advisory fee rate for the
presented below is as of June 27, 2006 Advisory Agreement for the Fund, the Fund under the Advisory Agreement. The
and does not reflect any changes that Board concluded that no changes should Board compared effective contractual
may have occurred since June 27, 2006, be made to the Fund and that it was not advisory fee rates at a common asset
including but not limited to changes to necessary to change the Fund's portfolio level at the end of the past calendar
the Fund's performance, advisory fees, management team at this time. Although year and noted that the Fund's rate was
expense limitations and/or fee waivers. the independent written evaluation of comparable to the median rate of the
the funds advised by other advisors
(continued)
6
AIM V.I. BASIC VALUE FUND
with investment strategies comparable to exemptive order. The Board found that o Benefits of soft dollars to AIM. The
those of the Fund that the Board the Fund may realize certain benefits Board considered the benefits realized
reviewed. The Board noted that AIM has upon investing cash balances in AIM by AIM as a result of brokerage
agreed to waive advisory fees of the advised money market funds, including a transactions executed through "soft
Fund and to limit the Fund's total higher net return, increased liquidity, dollar" arrangements. Under these
operating expenses, as discussed below. increased diversification or decreased arrangements, brokerage commissions paid
Based on this review, the Board transaction costs. The Board also found by the Fund and/or other funds advised
concluded that the advisory fee rate for that the Fund will not receive reduced by AIM are used to pay for research and
the Fund under the Advisory Agreement services if it invests its cash balances execution services. This research may be
was fair and reasonable. in such money market funds. The Board used by AIM in making investment
noted that, to the extent the Fund decisions for the Fund. The Board
o Expense limitations and fee waivers. invests uninvested cash in affiliated concluded that such arrangements were
The Board noted that AIM has money market funds, AIM has voluntarily appropriate.
contractually agreed to waive advisory agreed to waive a portion of the
fees of the Fund through December 31, advisory fees it receives from the Fund o AIM's financial soundness in light of
2009 to the extent necessary so that the attributable to such investment. The the Fund's needs. The Board considered
advisory fees payable by the Fund do not Board further determined that the whether AIM is financially sound and has
exceed a specified maximum advisory fee proposed securities lending program and the resources necessary to perform its
rate, which maximum rate includes related procedures with respect to the obligations under the Advisory
breakpoints and is based on net asset lending Fund is in the best interests of Agreement, and concluded that AIM has
levels. The Board considered the the lending Fund and its respective the financial resources necessary to
contractual nature of this fee waiver shareholders. The Board therefore fulfill its obligations under the
and noted that it remains in effect concluded that the investment of cash Advisory Agreement.
until December 31, 2009. The Board also collateral received in connection with
noted that AIM has contractually agreed the securities lending program in the o Historical relationship between the
to waive fees and/or limit expenses of money market funds according to the Fund and AIM. In determining whether to
the Fund through April 30, 2008 so that procedures is in the best interests of continue the Advisory Agreement for the
total annual operating expenses are the lending Fund and its respective Fund, the Board also considered the
limited to a specified percentage of shareholders. prior relationship between AIM and the
average daily net assets for each class Fund, as well as the Board's knowledge
of the Fund. The Board considered the o Independent written evaluation and of AIM's operations, and concluded that
contractual nature of this fee waiver recommendations of the Fund's Senior it was beneficial to maintain the
and noted that it remains in effect Officer. The Board noted that, upon current relationship, in part, because
until April 30, 2008. The Board their direction, the Senior Officer of of such knowledge. The Board also
considered the effect these fee the Fund, who is independent of AIM and reviewed the general nature of the
waivers/expense limitations would have AIM's affiliates, had prepared an non-investment advisory services
on the Fund's estimated expenses and independent written evaluation in order currently performed by AIM and its
concluded that the levels of fee to assist the Board in determining the affiliates, such as administrative,
waivers/expense limitations for the Fund reasonableness of the proposed transfer agency and distribution
were fair and reasonable. management fees of the AIM Funds, services, and the fees received by AIM
including the Fund. The Board noted that and its affiliates for performing such
o Breakpoints and economies of scale. the Senior Officer's written evaluation services. In addition to reviewing such
The Board reviewed the structure of the had been relied upon by the Board in services, the trustees also considered
Fund's advisory fee under the Advisory this regard in lieu of a competitive the organizational structure employed by
Agreement, noting that it includes three bidding process. In determining whether AIM and its affiliates to provide those
breakpoints. The Board reviewed the to continue the Advisory Agreement for services. Based on the review of these
level of the Fund's advisory fees, and the Fund, the Board considered the and other factors, the Board concluded
noted that such fees, as a percentage of Senior Officer's written evaluation and that AIM and its affiliates were
the Fund's net assets, have decreased as the recommendation made by the Senior qualified to continue to provide
net assets increased because the Officer to the Board that the Board non-investment advisory services to the
Advisory Agreement includes breakpoints. consider whether the advisory fee Fund, including administrative, transfer
The Board noted that, due to the Fund's waivers for certain equity AIM Funds, agency and distribution services, and
asset levels at the end of the past including the Fund, should be that AIM and its affiliates currently
calendar year and the way in which the simplified. The Board concluded that it are providing satisfactory
advisory fee breakpoints have been would be advisable to consider this non-investment advisory services.
structured, the Fund has yet to fully issue and reach a decision prior to the
benefit from the breakpoints. The Board expiration date of such advisory fee o Other factors and current trends. The
noted that AIM has contractually agreed waivers. Board considered the steps that AIM and
to waive advisory fees of the Fund its affiliates have taken over the last
through December 31, 2009 to the extent o Profitability of AIM and its several years, and continue to take, in
necessary so that the advisory fees affiliates. The Board reviewed order to improve the quality and
payable by the Fund do not exceed a information concerning the profitability efficiency of the services they provide
specified maximum advisory fee rate, of AIM's (and its affiliates') to the Funds in the areas of investment
which maximum rate includes breakpoints investment advisory and other activities performance, product line
and is based on net asset levels. The and its financial condition. The Board diversification, distribution, fund
Board concluded that the Fund's fee considered the overall profitability of operations, shareholder services and
levels under the Advisory Agreement AIM, as well as the profitability of AIM compliance. The Board concluded that
therefore reflect economies of scale and in connection with managing the Fund. these steps taken by AIM have improved,
that it was not necessary to change the The Board noted that AIM's operations and are likely to continue to improve,
advisory fee breakpoints in the Fund's remain profitable, although increased the quality and efficiency of the
advisory fee schedule. expenses in recent years have reduced services AIM and its affiliates provide
AIM's profitability. Based on the review to the Fund in each of these areas, and
o Investments in affiliated money market of the profitability of AIM's and its support the Board's approval of the
funds. The Board also took into account affiliates' investment advisory and continuance of the Advisory Agreement
the fact that uninvested cash and cash other activities and its financial for the Fund.
collateral from securities lending condition, the Board concluded that the
arrangements, if any (collectively, compensation to be paid by the Fund to
"cash balances") of the Fund may be AIM under its Advisory Agreement was not
invested in money market funds advised excessive.
by AIM pursuant to the terms of an SEC
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.40%
ADVERTISING-4.57%
Interpublic Group of Cos., Inc. (The)(a) 1,865,953 $ 15,580,708
- ------------------------------------------------------------------------
Omnicom Group Inc. 248,516 22,140,290
========================================================================
37,720,998
========================================================================
APPAREL RETAIL-1.87%
Gap, Inc. (The) 888,550 15,460,770
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.87%
Bank of New York Co., Inc. (The) 479,366 15,435,585
========================================================================
BREWERS-2.01%
Molson Coors Brewing Co.-Class B 244,670 16,608,200
========================================================================
BUILDING PRODUCTS-2.49%
American Standard Cos. Inc. 474,150 20,516,470
========================================================================
COMPUTER HARDWARE-1.66%
Dell Inc.(a) 562,257 13,724,693
========================================================================
CONSTRUCTION MATERIALS-2.61%
Cemex S.A. de C.V.-ADR (Mexico)(a) 377,856 21,526,456
========================================================================
CONSUMER ELECTRONICS-1.47%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 388,732 12,105,114
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.60%
Ceridian Corp.(a) 332,983 8,138,105
- ------------------------------------------------------------------------
First Data Corp. 662,450 29,836,748
========================================================================
37,974,853
========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.87%
Cendant Corp.(a) 949,080 15,460,513
========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.64%
Waste Management, Inc. 606,769 21,770,872
========================================================================
FOOD RETAIL-2.47%
Kroger Co. (The) 410,142 8,965,704
- ------------------------------------------------------------------------
Safeway Inc. 440,275 11,447,150
========================================================================
20,412,854
========================================================================
GENERAL MERCHANDISE STORES-2.00%
Target Corp. 337,519 16,494,554
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-4.85%
Cardinal Health, Inc. 499,889 $ 32,157,859
- ------------------------------------------------------------------------
McKesson Corp. 166,692 7,881,198
========================================================================
40,039,057
========================================================================
HEALTH CARE FACILITIES-1.40%
HCA, Inc. 267,938 11,561,525
========================================================================
INDUSTRIAL CONGLOMERATES-6.20%
General Electric Co. 598,764 19,735,261
- ------------------------------------------------------------------------
Tyco International Ltd. 1,142,163 31,409,483
========================================================================
51,144,744
========================================================================
INSURANCE BROKERS-0.41%
Marsh & McLennan Cos., Inc. 126,474 3,400,886
========================================================================
INVESTMENT BANKING & BROKERAGE-4.38%
Merrill Lynch & Co., Inc. 255,756 17,790,387
- ------------------------------------------------------------------------
Morgan Stanley 290,571 18,366,993
========================================================================
36,157,380
========================================================================
LIFE SCIENCES TOOLS & SERVICES-2.10%
Waters Corp.(a) 390,400 17,333,760
========================================================================
MANAGED HEALTH CARE-2.88%
UnitedHealth Group Inc. 530,094 23,737,609
========================================================================
MOVIES & ENTERTAINMENT-2.43%
Walt Disney Co. (The) 667,745 20,032,350
========================================================================
MULTI-LINE INSURANCE-1.58%
Genworth Financial Inc.-Class A 373,337 13,007,061
========================================================================
OIL & GAS DRILLING-2.97%
Transocean Inc.(a) 304,759 24,478,243
========================================================================
OIL & GAS EQUIPMENT & SERVICES-5.47%
Halliburton Co. 333,473 24,747,031
- ------------------------------------------------------------------------
Weatherford International Ltd.(a) 410,112 20,349,758
========================================================================
45,096,789
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-6.06%
Citigroup Inc. 456,006 21,997,729
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 665,975 27,970,950
========================================================================
49,968,679
========================================================================
PACKAGED FOODS & MEATS-1.47%
Unilever N.V. (Netherlands)(b) 536,838 12,165,411
========================================================================
</Table>
AIM V.I. BASIC VALUE FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-7.43%
Pfizer Inc. 659,903 $ 15,487,923
- ------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 256,478 25,033,365
- ------------------------------------------------------------------------
Wyeth 467,253 20,750,706
========================================================================
61,271,994
========================================================================
PROPERTY & CASUALTY INSURANCE-2.07%
ACE Ltd. 337,868 17,092,742
========================================================================
SEMICONDUCTOR EQUIPMENT-1.71%
Novellus Systems, Inc.(a) 571,210 14,108,887
========================================================================
SPECIALIZED CONSUMER SERVICES-1.25%
H&R Block, Inc. 433,600 10,345,696
========================================================================
SYSTEMS SOFTWARE-3.61%
CA Inc. 931,876 19,150,052
- ------------------------------------------------------------------------
Microsoft Corp. 455,913 10,622,773
========================================================================
29,772,825
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-5.00%
Fannie Mae 505,295 $ 24,304,690
- ------------------------------------------------------------------------
MGIC Investment Corp. 128,517 8,353,605
- ------------------------------------------------------------------------
Radian Group Inc. 138,459 8,553,997
========================================================================
41,212,292
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $623,191,398) 787,139,862
========================================================================
MONEY MARKET FUNDS-4.63%
Liquid Assets Portfolio-Institutional
Class(c) 19,078,964 19,078,964
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 19,078,964 19,078,964
========================================================================
Total Money Market Funds (Cost
$38,157,928) 38,157,928
========================================================================
TOTAL INVESTMENTS-100.03% (Cost $661,349,326) 825,297,790
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.03)% (232,098)
========================================================================
NET ASSETS-100.00% $825,065,692
________________________________________________________________________
========================================================================
</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 June 30, 2006 was $37,198,776, which
represented 4.51% 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $623,191,398) $787,139,862
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $38,157,928) 38,157,928
=============================================================
Total investments (cost $661,349,326) 825,297,790
=============================================================
Receivables for:
Investments sold 1,650,920
- -------------------------------------------------------------
Fund shares sold 533,031
- -------------------------------------------------------------
Dividends 785,378
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 25,615
=============================================================
Total assets 828,292,734
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 2,179,212
- -------------------------------------------------------------
Fund shares reacquired 207,858
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 57,149
- -------------------------------------------------------------
Accrued administrative services fees 508,391
- -------------------------------------------------------------
Accrued distribution fees -- Series II 215,338
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 294
- -------------------------------------------------------------
Accrued transfer agent fees 2,408
- -------------------------------------------------------------
Accrued operating expenses 56,392
=============================================================
Total liabilities 3,227,042
=============================================================
Net assets applicable to shares outstanding $825,065,692
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $604,740,823
- -------------------------------------------------------------
Undistributed net investment income 4,408,451
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 51,967,854
- -------------------------------------------------------------
Unrealized appreciation from investment
securities and foreign currencies 163,948,564
=============================================================
$825,065,692
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $467,953,713
_____________________________________________________________
=============================================================
Series II $357,111,979
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 37,455,966
_____________________________________________________________
=============================================================
Series II 28,864,311
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.49
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.37
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$153,482) $ 6,339,021
- -------------------------------------------------------------
Dividends from affiliated money market funds 388,458
=============================================================
Total investment income 6,727,479
=============================================================
EXPENSES:
Advisory fees 2,975,319
- -------------------------------------------------------------
Administrative services fees 1,124,630
- -------------------------------------------------------------
Custodian fees 51,870
- -------------------------------------------------------------
Distribution fees -- Series II 432,858
- -------------------------------------------------------------
Transfer agent fees 20,160
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 18,755
- -------------------------------------------------------------
Other 70,724
=============================================================
Total expenses 4,694,316
=============================================================
Less: Fees waived (199,510)
=============================================================
Net expenses 4,494,806
=============================================================
Net investment income 2,232,673
=============================================================
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 $203,896) 18,885,332
- -------------------------------------------------------------
Foreign currencies 14,383
=============================================================
18,899,715
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (11,211,537)
- -------------------------------------------------------------
Foreign currencies (133)
=============================================================
(11,211,670)
=============================================================
Net gain from investment securities and foreign
currencies 7,688,045
=============================================================
Net increase in net assets resulting from
operations $ 9,920,718
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,232,673 $ 2,343,966
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 18,899,715 34,203,699
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (11,211,670) 9,606,598
==========================================================================================
Net increase in net assets resulting from operations 9,920,718 46,154,263
==========================================================================================
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 (24,833,886) (30,575,554)
- ------------------------------------------------------------------------------------------
Series II (10,746,468) (5,292,288)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (35,580,354) (35,867,842)
==========================================================================================
Net increase (decrease) in net assets (25,659,636) 283,237
==========================================================================================
NET ASSETS:
Beginning of period 850,725,328 850,442,091
==========================================================================================
End of period (including undistributed net investment
income of $4,408,451 and $2,175,778, respectively) $825,065,692 $850,725,328
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic Value Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices
AIM V.I. BASIC VALUE FUND
furnished by independent pricing services, in which case the securities may
be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. BASIC VALUE FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $500 million 0.725%
- --------------------------------------------------------------------
Next $500 million 0.70%
- --------------------------------------------------------------------
Next $500 million 0.675%
- --------------------------------------------------------------------
Over $1.5 billion 0.65%
___________________________________________________________________
====================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund
(based on the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.695%
- ----------------------------------------------------------------------
Next $250 million 0.67%
- ----------------------------------------------------------------------
Next $500 million 0.645%
- ----------------------------------------------------------------------
Next $1.5 billion 0.62%
- ----------------------------------------------------------------------
Next $2.5 billion 0.595%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
_____________________________________________________________________
======================================================================
</Table>
AIM has 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, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds. AIM is also
voluntarily waiving a portion of the advisory fee payable by the Fund equal to
the difference between the income earned from investing in the affiliated money
market fund and the hypothetical income earned from investing in an appropriate
comparative benchmark. Voluntary fee waivers or reimbursements may be modified
or discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $199,510.
AIM V.I. BASIC VALUE FUND
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $100,683 for
accounting and fund administrative services and reimbursed $1,023,947 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $20,160.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $432,858.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the six months ended June 30, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,971,140 $ 63,028,642 $(47,920,818) $ -- $19,078,964 $193,775 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 20,071,627 (992,663) -- 19,078,964 8,143 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,971,140 62,646,682 (66,617,822) -- -- 186,540 --
==================================================================================================================================
Total $7,942,280 $145,746,951 $115,531,303 $ -- $38,157,928 $388,458 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $1,246,834, which resulted in net realized gains
of $203,896 and securities purchases of $8,027,233.
NOTE 5--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$3,197 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 VALUE FUND
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 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 six months
ended June 30, 2006 was $75,215,998 and $126,874,226, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 190,199,550
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (28,123,331)
===============================================================================
Net unrealized appreciation of investment securities $ 162,076,219
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $663,221,571.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,072,039 $ 13,622,895 8,650,711 $ 102,288,763
- ------------------------------------------------------------------------------------------------------------------------
Series II 3,229,417 39,834,840 5,591,052 65,583,748
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 470,853 5,857,415
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 335,752 4,139,818
========================================================================================================================
Reacquired:
Series I (3,019,032) (38,456,781) (11,690,247) (138,721,732)
- ------------------------------------------------------------------------------------------------------------------------
Series II (3,998,617) (50,581,308) (6,368,816) (75,015,854)
========================================================================================================================
(2,716,193) $(35,580,354) (3,010,695) $ (35,867,842)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are six entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in aggregate they own 68% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
AIM V.I. BASIC VALUE FUND
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.37 $ 11.84 $ 10.66 $ 7.98 $ 10.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.05 0.02 0.00 0.02(a) 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.08 0.63 1.16 2.68 (2.29) 0.25
=================================================================================================================================
Total from investment operations 0.12 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 $ 12.49 $ 12.37 $ 11.84 $ 10.66 $ 7.98 $ 10.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.97% 5.74% 11.07% 33.63% (22.15)% 2.63%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $467,954 $487,332 $496,837 $309,384 $97,916 $19,638
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.98%(c) 0.97% 1.02% 1.04% 1.16% 1.27%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.02%(c) 1.02% 1.02% 1.04% 1.16% 2.61%(d)
=================================================================================================================================
Ratio of net investment income to average net
assets 0.64%(c) 0.38% 0.17% 0.01% 0.18% 0.28%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 9% 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 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
$490,122,617.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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
SIX MONTHS (DATE OPERATIONS
ENDED, YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.26 $ 11.76 $ 10.61 $ 7.96 $ 10.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.02 (0.01) (0.02) (0.01)(a) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.09 0.62 1.16 2.67 (2.28) 0.26
=================================================================================================================================
Total from investment operations 0.11 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 $ 12.37 $ 12.26 $ 11.76 $ 10.61 $ 7.96 $ 10.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.90% 5.43% 10.84% 33.29% (22.34)% 2.58%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $357,112 $363,393 $353,605 $253,877 $104,597 $ 513
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.23%(c) 1.22% 1.27% 1.29% 1.41% 1.44%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.27%(c) 1.27% 1.27% 1.29% 1.41% 2.88%(d)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.39%(c) 0.13% (0.08)% (0.24)% (0.07)% 0.12%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 9% 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 financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$349,156,289.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting
AIM V.I. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
market timing of the AIM Funds, including those formerly advised by IFG, and
failed to disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected
investors, disgorgement of fees, reimbursement of investigatory, administrative
and legal costs and an "administrative assessment," to be determined by the
Commissioner. Initial research indicates that these damages could be limited or
capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. BASIC VALUE FUND
AIM V.I. CAPITAL APPRECIATION FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. CAPITAL APPRECIATION FUND seeks to provide growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,
2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 pany's earnings drivers. Our team meets
with company management to evaluate
proprietary products and the quality of
======================================================================================== management. We also analyze trends and
the competitive landscape. We believe
PERFORMANCE SUMMARY stocks that pass our quantitative and
=========================================== fundamental screens are more likely to
For the six months ended June 30, 2006, outperform.
AIM V.I. Capital Appreciation Fund had FUND VS. INDEXES
negative returns but outperformed the We construct the portfolio using a
Fund's style-specific index, the Russell CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, bottom-up strategy, which focuses on
1000 Growth Index, by a narrow margin. EXCLUDING VARIABLE PRODUCT ISSUER stocks rather than on industries or
CHARGES. sectors. While there are no formal
The Fund underperformed the broad IF VARIABLE PRODUCT ISSUER CHARGES WERE sector guidelines or constraints,
market as represented by the S&P 500 INCLUDED, RETURNS WOULD BE LOWER. internal controls and proprietary
Index largely due to an overweight software help us monitor risk levels and
position and stock selection in the Series I Shares -0.36% sector concentration.
health care sector. An overweight
position versus the benchmark in the Series II Shares -0.49 Our sell process is designed to avoid
information technology sector, the high risk situations we believe may lead
weakest-performing sector in the broad Standard & Poor's Composite Index to underperformance, including:
market during the period, also detracted of 500 Stocks (S&P 500 Index)
from performance. However, exposure to (Broad Market Index) 2.71 o Deteriorating business prospects.
mid- and small-cap holdings, which
generally outperformed large-cap stocks Russell 1000 Growth Index o Extended valuation.
during the reporting period, some-what (Style-Specific Index) -0.93
offset the Fund's relative o Slowing earnings growth.
underperformance. Both the S&P 500 Index Lipper Multi-Cap Growth Fund Index
and the (Peer Group Index) 0.13 o A weakened balance sheet.
SOURCE: LIPPER INC. MARKET CONDITIONS AND YOUR FUND
===========================================
After posting strong performance during
Russell 1000 Growth Index consist the first four months of 2006, domestic
primarily of large-cap stocks. equities retreated over the last two
months of the reporting period largely
Your Fund's long-term performance due to fears that inflation might lead
appears on page 4. the U.S. Federal Reserve Board to
continue raising interest rates, which
======================================================================================== could challenge continued economic
expansion. During the reporting period,
HOW WE INVEST Our quantitative model ranks small- and mid-cap stocks generally
companies based on factors we have found outperformed large caps. Positive
We believe a growth investment strategy to be highly correlated with performance was broad among S&P 500
is an essential component of a outperformance in the growth universe, sectors with energy, telecommunication
diversified portfolio. Our investment including earnings, quality, valuation services, industrials and materials
process combines quantitative and and risk assessment. delivering the highest returns.
fundamental analysis to find companies
exhibiting long-term, sustainable Stocks ranked highest by our In this environment, the Fund
earnings and cash flow growth that is quantitative model are the focus of our outperformed the Russell 1000 Growth
not yet reflected in investor research. Our fundamental analysis seeks Index by a narrow
expectations or equity valuations. to determine a com-
======================================== ======================================== ===========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.3% 1. Cisco Systems, Inc. 2.6%
Information Technology 25.7% 2. Communications Equipment 7.0 2. Amdocs Ltd. 2.3
Industrials 17.4 3. Semiconductors 6.1 3. Google Inc.--Class A 2.1
Health Care 15.6 4. Investment Banking & Brokerage 5.3 4. QUALCOMM Inc. 1.9
Consumer Discretionary 13.9 5. Aerospace & Defense 4.6 5. Analog Devices, Inc. 1.8
Financials 11.2 6. Goldman Sachs Group, Inc. (The) 1.8
Energy 6.0 TOTAL NET ASSETS $1.6 BILLION 7. Roche Holding A.G. Switzerland) 1.8
TOTAL NUMBER OF HOLDINGS* 111
Materials 4.1 8. JPMorgan Chase & Co. 1.8
Consumer Staples 3.9 9. Boeing Co. (The) 1.6
Telecommunication Services 0.6 10. Burlington Northern Santa Fe Corp. 1.6
Money Market Funds
Plus Other Assets Less Liabilities 1.6
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. CAPITAL APPRECIATION FUND
margin. The Fund outperformed the ment supplier Alcon. An overweight LANNY H. SACHNOWITZ,
benchmark by the widest margin in the position in health care providers versus [SACHNOWITZ senior portfolio manager,
industrials, energy, consumer the style-specific benchmark also PHOTO] is lead manager of AIM V.I.
discretionary and materials sectors but detracted from performance, and holdings Capital Appreciation Fund.
underperformed in the health care and CIGNA, AETNA and UNITEDHEALTH GROUP He joined AIM in 1987 as a
consumer staples sectors. negatively affected Fund returns. While money market trader and research analyst.
we sold Alcon, Cigna and UnitedHealth Mr. Sachnowitz earned a B.S. in finance
The industrials sector benefited from Group, we continued to own Aetna at from the University of Southern California
a broad-based rally during the first the close of the reporting period. and an M.B.A. from the University of
quarter of 2006. Electrical equipment Houston.
holdings that performed well for the Several notable detractors from Fund
Fund included ABB LTD. and ROCKWELL performance in the information KIRK L. ANDERSON, portfolio
AUTOMATION. The Fund no longer owned technology sector included YAHOO!, APPLE [ANDERSON manager, is manager of AIM
Rockwell Automation stock at the end of COMPUTER and EBAY. While these companies PHOTO] V.I. Capital Appreciation
the reporting period. Aerospace and reported quarterly earnings generally in Fund. He joined AIM in 1994.
defense holdings BOEING and GENERAL line with expectations, they did not Mr. Anderson earned a B.A. in
DYNAMICS also performed well. Machinery deliver the earnings upside many political science from Texas A&M
holdings that contributed to Fund investors have come to expect. We owned University and an M.S. in finance from the
performance included CATERPILLAR and Apple Computer and eBay at the close of University of Houston.
KOMATSU. We sold the Caterpillar holding the reporting period, but we sold Yahoo!
during the reporting period. Railroad JAMES G. BIRDSALL, portfolio
holding BURLINGTON NORTHERN SANTA FE was During the reporting period, our [BIRDSALL manager, is manager of AIM
another key contributor as the company investment process led us to reduce PHOTO] V.I. Capital Appreciation
continued to exceed expectations due to exposure to the health care, energy and Fund. He joined AIM
strong demand growth and pricing gains. materials sectors. Proceeds from these Investments in 1995. Mr.
sales were invested primarily in Birdsall earned a B.B.A. with
Outperformance in the energy sector industrials and information technology a concentration in finance from Stephen F.
was driven largely by the Fund's stocks that we believed possessed Austin State University. He also earned an
overweight position relative to the attractive fundamentals and higher M.B.A. with a concentration in finance and
style-specific benchmark, as energy was upside to earnings estimates. international business from the University
one of the top-performing sectors in the of St. Thomas.
broad market. Several holdings made key IN CLOSING
contributions, including OCCIDENTAL ROBERT J. LLOYD, Chartered
PETROLEUM, VALERO ENERGY and BAKER During the reporting period, we [LLOYD Financial Analyst, portfolio
HUGHES. considered the fundamentals of growth PHOTO] manager, is manager of AIM
stocks to be generally attractive. As a V.I. Capital Appreciation
Solid stock selection in the consumer group, growth companies boasted healthy Fund. He joined AIM in 2000.
discretionary sector resulted in cash flows, strong balance sheets and He served eight years in the U.S. Navy as
positive returns for the reporting positive earnings growth. Additionally, a Naval Flight Officer flying the S-3B
period, while the benchmark index posted growth stocks were generally Viking. Mr. Lloyd earned a B.B.A. from the
negative returns in that sector. Many attractively priced relative to other University of Notre Dame and an M.B.A.
consumer-related stocks struggled during stocks with less attractive from the University of Chicago.
the reporting period due to concerns fundamentals. While growth stocks have
that higher interest rates would crimp generally lagged the broad market in Assisted by the Large/Multi-Cap Growth
consumer spending and slow the economy. recent years, investors have started to Team
Despite these concerns, we were able to recognize and reward these
find some stocks that held up, including characteristics. As always, we thank you
specialty retail holdings OFFICE DEPOT, for your continued investment in AIM [RIGHT ARROW GRAPHIC]
ANN TAYLOR STORES and BEST BUY. Each of V.I. Capital Appreciation Fund.
these stocks made key contributions to FOR A DISCUSSION OF THE RISKS OF
performance. THE VIEWS AND OPINIONS EXPRESSED IN INVESTING IN YOUR FUND, INDEXES USED IN
MANAGEMENT'S DISCUSSION OF FUND THIS REPORT AND YOUR FUND'S LONG-TERM
In the materials sector, solid stock PERFORMANCE ARE THOSE OF A I M ADVISORS, PERFORMANCE, PLEASE TURN TO PAGE 4.
selection in the metals and mining INC. THESE VIEWS AND OPINIONS ARE
industry contributed positively to Fund SUBJECT TO CHANGE AT ANY TIME BASED ON
performance. Holdings that performed FACTORS SUCH AS MARKET AND ECONOMIC
well included copper producer PHELPS CONDITIONS. THESE VIEWS AND OPINIONS MAY
DODGE and iron ore and coal producer BHP NOT BE RELIED UPON AS INVESTMENT ADVICE
BILLITON. Both stocks benefited from OR RECOMMENDATIONS, OR AS AN OFFER FOR A
high commodity prices during much of the PARTICULAR SECURITY. THE INFORMATION IS
reporting period. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
The fund underperformed its SECURITY OR THE FUND. STATEMENTS OF FACT
style-specific benchmark by the widest ARE FROM SOURCES CONSIDERED RELIABLE,
margin in the health care sector, due BUT A I M ADVISORS, INC. MAKES NO
primarily to weak performance by a REPRESENTATION OR WARRANTY AS TO THEIR
number of the Fund's health care COMPLETENESS OR ACCURACY. ALTHOUGH
equipment and supplies holdings, HISTORICAL PERFORMANCE IS NO GUARANTEE
including equip- OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY
3
AIM V.I. CAPITAL APPRECIATION FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE OF THE FUND'S SERIES FIGURES GIVEN REPRESENT THE FUND AND ARE
As of 6/30/06 I AND SERIES II SHARE CLASSES WILL NOT INTENDED TO REFLECT ACTUAL VARIABLE
DIFFER PRIMARILY DUE TO DIFFERENT CLASS PRODUCT VALUES. THEY DO NOT REFLECT
SERIES I SHARES EXPENSES. SALES CHARGES, EXPENSES AND FEES
Inception (5/5/93) 8.61% ASSESSED IN CONNECTION WITH A VARIABLE
10 Years 4.77 THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT. SALES CHARGES, EXPENSES AND
5 Years 0.62 PAST PERFORMANCE AND CANNOT GUARANTEE FEES, WHICH ARE DETERMINED BY THE
1 Year 10.93 COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
SERIES II SHARES PLEASE CONTACT YOUR VARIABLE PRODUCT
10 Years 4.51% ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST
5 Years 0.37 RECENT MONTH-END VARIABLE PRODUCT RECENT MONTH-END PERFORMANCE DATA AT THE
1 Year 10.65 PERFORMANCE. PERFORMANCE FIGURES REFLECT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
======================================== FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON THIS AIM
AND CHANGES IN NET ASSET VALUE. AUTOMATED INFORMATION LINE,
SERIES II SHARES' INCEPTION DATE IS INVESTMENT RETURN AND PRINCIPAL VALUE 866-702-4402. AS MENTIONED ABOVE, FOR
AUGUST 21, 2001. RETURNS SINCE THAT DATE WILL FLUCTUATE SO THAT YOU MAY HAVE A THE MOST RECENT MONTH-END PERFORMANCE
ARE HISTORICAL. ALL OTHER RETURNS ARE GAIN OR LOSS WHEN YOU SELL SHARES. INCLUDING VARIABLE PRODUCT CHARGES,
THE BLENDED RETURNS OF THE HISTORICAL PLEASE CONTACT YOUR VARIABLE PRODUCT
PERFORMANCE OF SERIES II SHARES SINCE AIM V.I. CAPITAL APPRECIATION FUND, A ISSUER OR FINANCIAL ADVISOR.
THEIR INCEPTION AND THE RESTATED SERIES PORTFOLIO OF AIM VARIABLE
HISTORICAL PERFORMANCE OF SERIES I INSURANCE FUNDS, IS CURRENTLY OFFERED
SHARES (FOR PERIODS PRIOR TO INCEPTION THROUGH INSURANCE COMPANIES ISSUING
OF SERIES II SHARES) ADJUSTED TO REFLECT VARIABLE PRODUCTS. YOU CANNOT PURCHASE
THE RULE 12b-1 FEES APPLICABLE TO SERIES SHARES OF THE FUND DIRECTLY. PERFORMANCE
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS MAY 5, 1993.
PRINCIPAL RISKS OF INVESTING IN THE FUND formance of the 30 largest OTHER INFORMATION
multi-capitalization growth funds
Investing in smaller companies involves tracked by Lipper Inc., an independent The returns shown in the management's
greater risk than investing in more mutual fund performance monitor. discussion of Fund performance are based
established companies, such as business on net asset values calculated for
risk, significant stock price The unmanaged RUSSELL shareholder transactions. Generally
fluctuations and illiquidity. 1000--Registered Trademark-- GROWTH accepted accounting principles require
INDEX is a subset of the unmanaged adjustments to be made to the net assets
The Fund can invest up to 25% of its RUSSELL 1000--Registered Trademark-- of the Fund at period end for financial
assets in foreign securities that INDEX, which represents the performance reporting purposes, and as such, the net
involve risks not associated with of the stocks of large-capitalization asset values for shareholder
investing solely in the United States. companies; the Growth subset measures transactions and the returns based on
These include risks relating to the performance of Russell 1000 those net asset values may differ from
fluctuations in the value of the U.S. companies with higher price/book ratios the net asset values and returns
dollar relative to the values of other and higher forecasted growth values. reported in the Financial Highlights.
currencies, the custody arrangements Additionally, the returns and net asset
made for the Fund's foreign holdings, The Fund is not managed to track the values shown throughout this report are
differences in accounting, political performance of any particular index, at the Fund level only and do not
risks and the lesser degree of public including the indexes defined here, and include variable product issuer charges.
information required to be provided consequently, the performance of the If such charges were included, the total
by non-U.S. companies. Fund may deviate significantly from the returns would be lower.
performance of the indexes.
ABOUT INDEXES USED IN THIS REPORT Industry classifications used in
A direct investment cannot be made in this report are generally according to
The unmanaged STANDARD & POOR'S an index. Unless otherwise indicated, the Global Industry Classification
COMPOSITE INDEX OF 500 STOCKS (the S&P index results include reinvested Standard, which was developed by and is
500--Registered Trademark-- Index) is dividends, and they do not reflect sales the exclusive property and a service
an index of common stocks frequently charges. Performance of an index of mark of Morgan Stanley Capital
used as a general measure of U.S. stock funds reflects fund expenses; International Inc. and Standard &
market performance. performance of a market index does not. Poor's.
The unmanaged LIPPER MULTI-CAP GROWTH
FUND INDEX represents an average of the
per-
4
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
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 ONGOING COSTS OF INVESTING IN THE FUND
example is intended to help you divided by $1,000 = 8.6), then multiply AND OTHER FUNDS. TO DO SO, COMPARE THIS
understand your ongoing costs (in the result by the number in the table 5% HYPOTHETICAL EXAMPLE WITH THE 5%
dollars) of investing in the Fund and to under the heading entitled "Actual HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
compare these costs with ongoing costs Expenses Paid During Period" to estimate SHAREHOLDER REPORTS OF THE OTHER FUNDS.
of investing in other mutual funds. The the expenses you paid on your account
example is based on an investment of during this period. Please note that the expenses shown
$1,000 invested at the beginning of the in the table are meant to highlight your
period and held for the entire period HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
January 1, 2006, through June 30, 2006. PURPOSES hypothetical information is useful in
comparing ongoing costs only, and will
The table below also provides not help you determine the relative
The actual and hypothetical expenses information about hypothetical account total costs of owning different funds.
in the examples below do not represent values and hypothetical expenses based
the effect of any fees or other expenses on the Fund's actual expense ratio and
assessed in connection with a variable an assumed rate of return of 5% per year
product; if they did, the expenses shown before expenses, which is not the Fund's
would be higher while the ending account actual return. The Fund's actual
values shown would be lower. cumulative total returns at net asset
value after expenses for the six months
ACTUAL EXPENSES ended June 30, 2006, appear in the table
"Fund vs. Indexes" on page 2.
The table below provides information
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $996.40 $4.45 $1, 020.33 $4.51 0.90%
Series II 1,000.00 995.10 5.69 1, 019.09 5.76 1.15
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. CAPITAL APPRECIATION FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable provided by AIM. The Board reviewed the essary to change the Fund's portfolio
Insurance Funds (the "Board") oversees services to be provided by AIM under the management team at this time. Although
the management of AIM V.I. Capital Advisory Agreement. Based on such the independent written evaluation of
Appreciation Fund (the "Fund") and, as review, the Board concluded that the the Fund's Senior Officer (discussed
required by law, determines annually range of services to be provided by AIM below) only considered Fund performance
whether to approve the continuance of under the Advisory Agreement was through the most recent calendar year,
the Fund's advisory agreement with A I M appropriate and that AIM currently is the Board also reviewed more recent Fund
Advisors, Inc. ("AIM"). Based upon the providing services in accordance with performance, which did not change their
recommendation of the Investments the terms of the Advisory Agreement. conclusions.
Committee of the Board, at a meeting
held on June 27, 2006, the Board, o The quality of services to be provided o Meetings with the Fund's portfolio
including all of the independent by AIM. The Board reviewed the managers and investment personnel. With
trustees, approved the continuance of credentials and experience of the respect to the Fund, the Board is
the advisory agreement (the "Advisory officers and employees of AIM who will meeting periodically with such Fund's
Agreement") between the Fund and AIM for provide investment advisory services to portfolio managers and/or other
another year, effective July 1, 2006. the Fund. In reviewing the investment personnel and believes that
qualifications of AIM to provide such individuals are competent and able
The Board considered the factors investment advisory services, the Board to continue to carry out their
discussed below in evaluating the considered such issues as AIM's responsibilities under the Advisory
fairness and reasonableness of the portfolio and product review process, Agreement.
Advisory Agreement at the meeting on various back office support functions
June 27, 2006 and as part of the Board's provided by AIM and AIM's equity and o Overall performance of AIM. The Board
ongoing oversight of the Fund. In their fixed income trading operations. Based considered the overall performance of
deliberations, the Board and the on the review of these and other AIM in providing investment advisory and
independent trustees did not identify factors, the Board concluded that the portfolio administrative services to the
any particular factor that was quality of services to be provided by Fund and concluded that such performance
controlling, and each trustee attributed AIM was appropriate and that AIM was satisfactory.
different weights to the various currently is providing satisfactory
factors. services in accordance with the terms of o Fees relative to those of clients of
the Advisory Agreement. AIM with comparable investment
One responsibility of the independent strategies. The Board reviewed the
Senior Officer of the Fund is to manage o The performance of the Fund relative effective advisory fee rate (before
the process by which the Fund's proposed to comparable funds. The Board reviewed waivers) for the Fund under the Advisory
management fees are negotiated to ensure the performance of the Fund during the Agreement. The Board noted that this
that they are negotiated in a manner past one, three and five calendar years rate was (i) comparable to the effective
which is at arms' length and reasonable. against the performance of funds advised advisory fee rates (before waivers) for
To that end, the Senior Officer must by other advisors with investment two mutual funds advised by AIM with
either supervise a competitive bidding strategies comparable to those of the investment strategies comparable to
process or prepare an independent Fund. The Board noted that the Fund's those of the Fund; (ii) below the
written evaluation. The Senior Officer performance was above the median effective advisory fee rate (before
has recommended an independent written performance of such comparable funds for waivers) for a variable insurance fund
evaluation in lieu of a competitive the one and five year periods and below advised by AIM and offered to insurance
bidding process and, upon the direction such median performance for the three company separate accounts with
of the Board, has prepared such an year period. Based on this review and investment strategies comparable to
independent written evaluation. Such after taking account of all of the other those of the Fund; (iii) above the
written evaluation also considered factors that the Board considered in effective sub-advisory fee rate for one
certain of the factors discussed below. determining whether to continue the offshore fund advised and sub-advised by
In addition, as discussed below, the Advisory Agreement for the Fund, the AIM affiliates with investment
Senior Officer made a recommendation to Board concluded that no changes should strategies comparable to those of the
the Board in connection with such be made to the Fund and that it was not Fund, although the total advisory fees
written evaluation. necessary to change the Fund's portfolio for such offshore fund were above those
management team at this time. Although for the Fund; (iv) above the effective
The discussion below serves as a the independent written evaluation of sub-advisory fee rates for five variable
summary of the Senior Officer's the Fund's Senior Officer (discussed insurance funds sub-advised by an AIM
independent written evaluation and below) only considered Fund performance affiliate and offered to insurance
recommendation to the Board in through the most recent calendar year, company separate accounts with
connection therewith, as well as a the Board also reviewed more recent Fund investment strategies comparable to
discussion of the material factors and performance, which did not change their those of the Fund, although the total
the conclusions with respect thereto conclusions. advisory fees for such variable
that formed the basis for the Board's insurance funds were above those for the
approval of the Advisory Agreement. o The performance of the Fund relative Fund; and (v) above the total advisory
After consideration of all of the to indices. The Board reviewed the fee rate for a separately managed
factors below and based on its informed performance of the Fund during the past account/wrap account managed by an AIM
business judgment, the Board determined one, three and five calendar years affiliate with investment strategies
that the Advisory Agreement is in the against the performance of the Lipper comparable to those of the Fund. The
best interests of the Fund and its Variable Underlying Fund Multi Cap Board noted that AIM has agreed to waive
shareholders and that the compensation Growth Index. The Board noted that the advisory fees of the Fund and to limit
to AIM under the Advisory Agreement is Fund's performance was below the the Fund's total operating expenses, as
fair and reasonable and would have been performance of such Index for the one discussed below. Based on this review,
obtained through arm's length and three year periods and comparable to the Board concluded that the advisory
negotiations. such Index for the five year period. fee rate for the Fund under the Advisory
Based on this review and after taking Agreement was fair and reasonable.
Unless otherwise stated, information account of all of the other factors that
presented below is as of June 27, 2006 the Board considered in determining o Fees relative to those of comparable
and does not reflect any changes that whether to continue the Advisory funds with other advisors. The Board
may have occurred since June 27, 2006, Agreement for the Fund, the Board reviewed the advisory fee rate for the
including but not limited to changes to concluded that no changes should be made Fund under the Advisory Agreement. The
the Fund's performance, advisory fees, to the Fund and that it was not nec- Board compared effective contractual
expense limitations and/or fee waivers. advisory fee rates at a common asset
level at the end of the past calendar
o The nature and extent of the advisory
services to be
(continued)
6
AIM V.I. CAPITAL APPRECIATION FUND
year and noted that the Fund's rate was realize certain benefits upon investing o Benefits of soft dollars to AIM. The
below the median rate of the funds cash balances in AIM advised money Board considered the benefits realized
advised by other advisors with market funds, including a higher net by AIM as a result of brokerage
investment strategies comparable to return, increased liquidity, increased transactions executed through "soft
those of the Fund that the Board diversification or decreased transaction dollar" arrangements. Under these
reviewed. The Board noted that AIM has costs. The Board also found that the arrangements, brokerage commissions paid
agreed to waive advisory fees of the Fund will not receive reduced services by the Fund and/or other funds advised
Fund and to limit the Fund's total if it invests its cash balances in such by AIM are used to pay for research and
operating expenses, as discussed below. money market funds. The Board noted execution services. This research may be
Based on this review, the Board that, to the extent the Fund invests used by AIM in making investment
concluded that the advisory fee rate for uninvested cash in affiliated money decisions for the Fund. The Board
the Fund under the Advisory Agreement market funds, AIM has voluntarily agreed concluded that such arrangements were
was fair and reasonable. to waive a portion of the advisory fees appropriate.
it receives from the Fund attributable
o Expense limitations and fee waivers. to such investment. The Board further o AIM's financial soundness in light of
The Board noted that AIM has determined that the proposed securities the Fund's needs. The Board considered
contractually agreed to waive advisory lending program and related procedures whether AIM is financially sound and has
fees of the Fund through December 31, with respect to the lending Fund is in the resources necessary to perform its
2009 to the extent necessary so that the the best interests of the lending Fund obligations under the Advisory
advisory fees payable by the Fund do not and its respective shareholders. The Agreement, and concluded that AIM has
exceed a specified maximum advisory fee Board therefore concluded that the the financial resources necessary to
rate, which maximum rate includes investment of cash collateral received fulfill its obligations under the
breakpoints and is based on net asset in connection with the securities Advisory Agreement.
levels. The Board considered the lending program in the money market
contractual nature of this fee waiver funds according to the procedures is in o Historical relationship between the
and noted that it remains in effect the best interests of the lending Fund Fund and AIM. In determining whether to
until December 31, 2009. The Board noted and its respective shareholders. continue the Advisory Agreement for the
that AIM has contractually agreed to Fund, the Board also considered the
waive fees and/or limit expenses of the o Independent written evaluation and prior relationship between AIM and the
Fund through April 30, 2008 in an amount recommendations of the Fund's Senior Fund, as well as the Board's knowledge
necessary to limit total annual Officer. The Board noted that, upon of AIM's operations, and concluded that
operating expenses to a specified their direction, the Senior Officer of it was beneficial to maintain the
percentage of average daily net assets the Fund, who is independent of AIM and current relationship, in part, because
for each class of the Fund. The Board AIM's affiliates, had prepared an of such knowledge. The Board also
considered the contractual nature of independent written evaluation in order reviewed the general nature of the
this fee waiver/expense limitation and to assist the Board in determining the non-investment advisory services
noted that it remains in effect until reasonableness of the proposed currently performed by AIM and its
April 30, 2008. The Board considered the management fees of the AIM Funds, affiliates, such as administrative,
effect these fee waivers/expense including the Fund. The Board noted that transfer agency and distribution
limitations would have on the Fund's the Senior Officer's written evaluation services, and the fees received by AIM
estimated expenses and concluded that had been relied upon by the Board in and its affiliates for performing such
the levels of fee waivers/expense this regard in lieu of a competitive services. In addition to reviewing such
limitations for the Fund were fair and bidding process. In determining whether services, the trustees also considered
reasonable. to continue the Advisory Agreement for the organizational structure employed by
the Fund, the Board considered the AIM and its affiliates to provide those
o Breakpoints and economies of scale. Senior Officer's written evaluation and services. Based on the review of these
The Board reviewed the structure of the the recommendation made by the Senior and other factors, the Board concluded
Fund's advisory fee under the Advisory Officer to the Board that the Board that AIM and its affiliates were
Agreement, noting that it includes one consider whether the advisory fee qualified to continue to provide
breakpoint. The Board reviewed the level waivers for certain equity AIM Funds, non-investment advisory services to the
of the Fund's advisory fees, and noted including the Fund, should be Fund, including administrative, transfer
that such fees, as a percentage of the simplified. The Board concluded that it agency and distribution services, and
Fund's net assets, have decreased as net would be advisable to consider this that AIM and its affiliates currently
assets increased because the Advisory issue and reach a decision prior to the are providing satisfactory
Agreement includes a breakpoint. The expiration date of such advisory fee non-investment advisory services.
Board noted that AIM has contractually waivers.
agreed to waive advisory fees of the o Other factors and current trends. The
Fund through December 31, 2009 to the o Profitability of AIM and its Board considered the steps that AIM and
extent necessary so that the advisory affiliates. The Board reviewed its affiliates have taken over the last
fees payable by the Fund do not exceed a information concerning the profitability several years, and continue to take, in
specified maximum advisory fee rate, of AIM's (and its affiliates') order to improve the quality and
which maximum rate includes breakpoints investment advisory and other activities efficiency of the services they provide
and is based on net asset levels. The and its financial condition. The Board to the Funds in the areas of investment
Board concluded that the Fund's fee considered the overall profitability of performance, product line
levels under the Advisory Agreement AIM, as well as the profitability of AIM diversification, distribution, fund
therefore reflect economies of scale and in connection with managing the Fund. operations, shareholder services and
that it was not necessary to change the The Board noted that AIM's operations compliance. The Board concluded that
advisory fee breakpoints in the Fund's remain profitable, although increased these steps taken by AIM have improved,
advisory fee schedule. expenses in recent years have reduced and are likely to continue to improve,
AIM's profitability. Based on the review the quality and efficiency of the
o Investments in affiliated money market of the profitability of AIM's and its services AIM and its affiliates provide
funds. The Board also took into account affiliates' investment advisory and to the Fund in each of these areas, and
the fact that uninvested cash and cash other activities and its financial support the Board's approval of the
collateral from securities lending condition, the Board concluded that the continuance of the Advisory Agreement
arrangements, if any (collectively, compensation to be paid by the Fund to for the Fund.
"cash balances") of the Fund may be AIM under its Advisory Agreement was not
invested in money market funds advised excessive.
by AIM pursuant to the terms of an SEC
exemptive order. The Board found that
the Fund may
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.32%
AEROSPACE & DEFENSE-4.55%
Boeing Co. (The) 309,842 $ 25,379,158
- --------------------------------------------------------------------------
General Dynamics Corp. 265,026 17,348,602
- --------------------------------------------------------------------------
Precision Castparts Corp. 139,956 8,363,771
- --------------------------------------------------------------------------
Rockwell Collins, Inc. 158,513 8,856,121
- --------------------------------------------------------------------------
United Technologies Corp. 188,776 11,972,174
==========================================================================
71,919,826
==========================================================================
AGRICULTURAL PRODUCTS-0.47%
Archer-Daniels-Midland Co. 177,766 7,338,180
==========================================================================
APPAREL RETAIL-2.49%
Aeropostale, Inc.(a) 470,904 13,604,416
- --------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 276,150 11,979,387
- --------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 203,265 7,402,911
- --------------------------------------------------------------------------
Limited Brands, Inc. 248,196 6,351,336
==========================================================================
39,338,050
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.30%
Carter's, Inc.(a) 181,330 4,792,552
==========================================================================
APPLICATION SOFTWARE-4.16%
Amdocs Ltd.(a) 996,164 36,459,603
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 1,257,502 16,460,701
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 319,317 12,817,384
==========================================================================
65,737,688
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.06%
Janus Capital Group Inc. 932,331 16,688,725
==========================================================================
BIOTECHNOLOGY-1.49%
Gilead Sciences, Inc.(a) 398,513 23,576,029
==========================================================================
COMMUNICATIONS EQUIPMENT-5.93%
Cisco Systems, Inc.(a) 2,084,688 40,713,956
- --------------------------------------------------------------------------
Harris Corp. 211,302 8,771,146
- --------------------------------------------------------------------------
QUALCOMM Inc. 735,870 29,486,311
- --------------------------------------------------------------------------
Redback Networks Inc.(a) 218,505 4,007,382
- --------------------------------------------------------------------------
Tellabs, Inc.(a) 800,958 10,660,751
==========================================================================
93,639,546
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.78%
Best Buy Co., Inc. 288,398 15,815,746
- --------------------------------------------------------------------------
Circuit City Stores, Inc. 453,477 12,343,644
==========================================================================
28,159,390
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTER HARDWARE-1.72%
Apple Computer, Inc.(a) 272,228 $ 15,549,663
- --------------------------------------------------------------------------
Hewlett-Packard Co. 368,564 11,676,108
==========================================================================
27,225,771
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.21%
EMC Corp.(a) 510,680 5,602,159
- --------------------------------------------------------------------------
Seagate Technology(a) 288,439 6,530,259
- --------------------------------------------------------------------------
Western Digital Corp.(a) 350,943 6,952,181
==========================================================================
19,084,599
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.01%
Joy Global Inc. 300,798 15,668,568
- --------------------------------------------------------------------------
Oshkosh Truck Corp. 137,119 6,515,895
- --------------------------------------------------------------------------
Terex Corp.(a) 97,293 9,602,819
==========================================================================
31,787,282
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.23%
VeriFone Holdings, Inc.(a) 119,264 3,635,167
==========================================================================
DEPARTMENT STORES-2.40%
Federated Department Stores, Inc. 420,784 15,400,694
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 332,305 22,433,911
==========================================================================
37,834,605
==========================================================================
DIVERSIFIED METALS & MINING-0.56%
Phelps Dodge Corp. 107,934 8,867,857
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.59%
Cooper Industries, Ltd.-Class A 90,355 8,395,787
- --------------------------------------------------------------------------
Emerson Electric Co. 199,860 16,750,266
==========================================================================
25,146,053
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.76%
Amphenol Corp.-Class A 213,537 11,949,531
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.50%
Waste Management, Inc. 219,704 7,882,980
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.75%
Monsanto Co. 140,378 11,818,424
==========================================================================
GENERAL MERCHANDISE STORES-1.46%
Family Dollar Stores, Inc.(b) 609,993 14,902,129
- --------------------------------------------------------------------------
Target Corp. 165,938 8,109,390
==========================================================================
23,011,519
==========================================================================
HEALTH CARE DISTRIBUTORS-1.18%
Cardinal Health, Inc. 289,931 18,651,261
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-1.93%
Becton, Dickinson and Co. 264,408 $ 16,163,261
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 302,283 14,313,100
==========================================================================
30,476,361
==========================================================================
HEALTH CARE FACILITIES-0.66%
Manor Care, Inc. 222,676 10,447,958
==========================================================================
HEALTH CARE SERVICES-1.23%
Caremark Rx, Inc. 234,539 11,696,460
- --------------------------------------------------------------------------
Omnicare, Inc. 161,619 7,663,973
==========================================================================
19,360,433
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.50%
Electronic Arts Inc.(a) 183,746 7,908,428
==========================================================================
HOUSEHOLD PRODUCTS-1.48%
Colgate-Palmolive Co. 246,682 14,776,252
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 153,002 8,506,911
==========================================================================
23,283,163
==========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.51%
Robert Half International Inc.(b) 191,762 8,054,004
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.79%
Costco Wholesale Corp. 216,878 12,390,240
==========================================================================
INDUSTRIAL CONGLOMERATES-1.88%
McDermott International, Inc.(a) 218,688 9,943,743
- --------------------------------------------------------------------------
Textron Inc. 214,649 19,786,345
==========================================================================
29,730,088
==========================================================================
INDUSTRIAL MACHINERY-0.55%
Parker Hannifin Corp. 112,777 8,751,495
==========================================================================
INTEGRATED OIL & GAS-1.38%
Occidental Petroleum Corp. 212,853 21,828,075
==========================================================================
INTERNET SOFTWARE & SERVICES-2.69%
eBay Inc.(a) 322,104 9,434,426
- --------------------------------------------------------------------------
Google Inc.-Class A(a) 78,611 32,963,951
==========================================================================
42,398,377
==========================================================================
INVESTMENT BANKING & BROKERAGE-5.31%
Goldman Sachs Group, Inc. (The) 187,778 28,247,445
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 329,092 22,891,639
- --------------------------------------------------------------------------
Morgan Stanley 135,000 8,533,350
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 1,514,058 24,194,647
==========================================================================
83,867,081
==========================================================================
MANAGED HEALTH CARE-1.79%
Aetna Inc. 374,837 14,967,242
- --------------------------------------------------------------------------
Health Net Inc.(a) 295,037 13,326,821
==========================================================================
28,294,063
==========================================================================
MOVIES & ENTERTAINMENT-0.74%
News Corp.-Class A 604,848 11,600,985
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
MULTI-LINE INSURANCE-1.68%
Assurant, Inc. 354,181 $ 17,142,360
- --------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 320,327 9,430,427
==========================================================================
26,572,787
==========================================================================
OIL & GAS DRILLING-1.45%
ENSCO International Inc. 262,764 12,092,400
- --------------------------------------------------------------------------
GlobalSantaFe Corp. 187,399 10,822,292
==========================================================================
22,914,692
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.16%
Baker Hughes Inc. 217,628 17,812,852
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 256,615 16,248,862
==========================================================================
34,061,714
==========================================================================
OIL & GAS REFINING & MARKETING-1.01%
Valero Energy Corp. 240,426 15,993,137
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.75%
JPMorgan Chase & Co. 659,116 27,682,872
==========================================================================
PHARMACEUTICALS-3.57%
Allergan, Inc. 178,814 19,179,590
- --------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 295,000 14,068,550
- --------------------------------------------------------------------------
Johnson & Johnson 126,500 7,579,880
- --------------------------------------------------------------------------
Wyeth 349,799 15,534,573
==========================================================================
56,362,593
==========================================================================
RAILROADS-2.63%
Burlington Northern Santa Fe Corp. 310,931 24,641,282
- --------------------------------------------------------------------------
CSX Corp. 239,212 16,850,093
==========================================================================
41,491,375
==========================================================================
RESTAURANTS-1.66%
Burger King Holdings Inc.(a)(b) 437,496 6,890,562
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 318,599 12,552,800
- --------------------------------------------------------------------------
Ruby Tuesday, Inc. 279,529 6,823,303
==========================================================================
26,266,665
==========================================================================
SEMICONDUCTORS-6.08%
Analog Devices, Inc. 889,131 28,576,670
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 765,118 22,494,469
- --------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 259,141 3,674,619
- --------------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 139,757 6,195,428
- --------------------------------------------------------------------------
Microchip Technology Inc. 676,596 22,699,796
- --------------------------------------------------------------------------
PMC-Sierra, Inc.(a) 1,320,744 12,414,994
==========================================================================
96,055,976
==========================================================================
SOFT DRINKS-1.16%
PepsiCo, Inc. 304,221 18,265,429
==========================================================================
SPECIALTY STORES-2.35%
Office Depot, Inc.(a) 639,785 24,311,830
- --------------------------------------------------------------------------
PetSmart, Inc. 500,000 12,800,000
==========================================================================
37,111,830
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-0.87%
Red Hat, Inc.(a)(b) 589,214 $ 13,787,608
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.34%
MGIC Investment Corp. 83,142 5,404,230
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.57%
WESCO International, Inc.(a) 129,905 8,963,445
==========================================================================
Total Domestic Common Stocks (Cost
$1,163,557,607) 1,347,410,139
==========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.08%
AUSTRALIA-0.97%
BHP Billiton Ltd. (Diversified Metals &
Mining)(c) 707,444 15,236,185
==========================================================================
BRAZIL-0.84%
Companhia Vale do Rio Doce-ADR (Steel)(b) 548,486 13,185,603
==========================================================================
FINLAND-1.02%
Nokia Oyj-ADR (Communications Equipment) 797,189 16,151,049
==========================================================================
JAPAN-3.65%
FANUC Ltd. (Industrial Machinery)(c) 88,700 8,006,068
- --------------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(c) 1,613 9,954,552
- --------------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 577,000 11,560,901
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(c) 514,500 10,888,547
- --------------------------------------------------------------------------
Millea Holdings, Inc. (Property & Casualty
Insurance)(c) 375 7,016,575
- --------------------------------------------------------------------------
Mitsui O.S.K. Lines, Ltd. (Marine)(b)(c) 1,500,000 10,234,108
==========================================================================
57,660,751
==========================================================================
NETHERLANDS-0.54%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 419,978 8,491,955
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SOUTH KOREA-0.65%
Kookmin Bank (Diversified Banks)(c) 124,650 $ 10,317,797
==========================================================================
SWITZERLAND-3.49%
ABB Ltd. (Heavy Electrical Equipment) 879,851 11,443,086
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 288,744 15,569,077
- --------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 170,381 28,165,950
==========================================================================
55,178,113
==========================================================================
UNITED KINGDOM-1.92%
AstraZeneca PLC-ADR (Pharmaceuticals) 259,683 15,534,237
- --------------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals &
Mining)(c) 281,784 14,783,875
==========================================================================
30,318,112
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $187,199,958) 206,539,565
==========================================================================
MONEY MARKET FUNDS-1.09%
Liquid Assets Portfolio-Institutional
Class(d) 8,578,434 8,578,434
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 8,578,434 8,578,434
==========================================================================
Total Money Market Funds (Cost
$17,156,868) 17,156,868
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.49% (Cost
$1,367,914,433) 1,571,106,572
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-2.15%
MONEY MARKET FUNDS-2.15%
Liquid Assets Portfolio-Institutional
Class(d)(e) 33,961,505 33,961,505
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $33,961,505) 33,961,505
==========================================================================
TOTAL INVESTMENTS-101.64% (Cost
$1,401,875,938) 1,605,068,077
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.64)% (25,831,571)
==========================================================================
NET ASSETS-100.00% $1,579,236,506
__________________________________________________________________________
==========================================================================
</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 was out on loan at June 30, 2006.
(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 June 30, 2006 was $97,998,608, which
represented 6.21% 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 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 APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $1,350,757,565)* $1,553,949,704
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $51,118,373) 51,118,373
=============================================================
Total investments (cost $1,401,875,938) 1,605,068,077
=============================================================
Foreign currencies, at value (cost
$3,759,648) 3,807,250
- -------------------------------------------------------------
Receivables for:
Investments sold 24,010,241
- -------------------------------------------------------------
Fund shares sold 860,932
- -------------------------------------------------------------
Dividends 749,223
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 169,219
- -------------------------------------------------------------
Other assets 387
=============================================================
Total assets 1,634,665,329
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 18,841,462
- -------------------------------------------------------------
Fund shares reacquired 822,850
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 271,753
- -------------------------------------------------------------
Collateral upon return of securities loaned 33,961,505
- -------------------------------------------------------------
Accrued administrative services fees 974,809
- -------------------------------------------------------------
Accrued distribution fees -- Series II 241,935
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,045
- -------------------------------------------------------------
Accrued operating expenses 311,464
=============================================================
Total liabilities 55,428,823
=============================================================
Net assets applicable to shares outstanding $1,579,236,506
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,596,777,609
- -------------------------------------------------------------
Undistributed net investment income 763,957
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (221,546,639)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 203,241,579
=============================================================
$1,579,236,506
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,187,260,963
_____________________________________________________________
=============================================================
Series II $ 391,975,543
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 48,283,042
_____________________________________________________________
=============================================================
Series II 16,121,845
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 24.59
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 24.31
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $33,049,981 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$223,809) $ 5,979,428
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$150,494, after compensation to
counterparties of $1,151,103) 689,190
=============================================================
Total investment income 6,668,618
=============================================================
EXPENSES:
Advisory fees 4,059,883
- -------------------------------------------------------------
Administrative services fees 1,707,940
- -------------------------------------------------------------
Custodian fees 97,020
- -------------------------------------------------------------
Distribution fees -- Series II 463,041
- -------------------------------------------------------------
Transfer agent fees 30,747
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 27,645
- -------------------------------------------------------------
Other 96,500
=============================================================
Total expenses 6,482,776
=============================================================
Less: Fees waived and expense offset
arrangement (3,682)
=============================================================
Net expenses 6,479,094
=============================================================
Net investment income 189,524
=============================================================
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 $(95,376)) 102,185,900
- -------------------------------------------------------------
Foreign currencies (98,845)
=============================================================
102,087,055
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (137,995,188)
- -------------------------------------------------------------
Foreign currencies 33,988
=============================================================
(137,961,200)
=============================================================
Net gain (loss) from investment securities and
foreign currencies (35,874,145)
=============================================================
Net increase (decrease) in net assets
resulting from operations $ (35,684,621)
_____________________________________________________________
=============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 189,524 $ 607,946
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 102,087,055 99,452,610
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (137,961,200) (5,854,578)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (35,684,621) 94,205,978
==============================================================================================
Distributions to shareholders from net investment
income-Series I -- (505,822)
==============================================================================================
Share transactions-net:
Series l 395,544,178 (131,492,019)
- ----------------------------------------------------------------------------------------------
Series ll 57,288,323 175,908,989
==============================================================================================
Net increase in net assets resulting from share
transactions 452,832,501 44,416,970
==============================================================================================
Net increase in net assets 417,147,880 138,117,126
==============================================================================================
NET ASSETS:
Beginning of period 1,162,088,626 1,023,971,500
==============================================================================================
End of period (including undistributed net investment
income of $763,957 and $574,433, respectively) $1,579,236,506 $1,162,088,626
______________________________________________________________________________________________
==============================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Appreciation Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. A risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. In addition, there can be
no assurance that a liquid secondary market will exist for any option
purchased or sold.
AIM V.I. CAPITAL APPRECIATION FUND
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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.65%
- -------------------------------------------------------------------
Over $250 million 0.60%
__________________________________________________________________
===================================================================
</Table>
Effective May 1, 2006 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 $750 million 0.625%
- ----------------------------------------------------------------------
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, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $2,516.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $158,212 for
accounting and fund administrative services and reimbursed $1,549,728 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $30,747.
The Trust has entered into a master distribution agreement with AIM
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 APPRECIATION FUND
ADI compensation at the annual rate of 0.25% of the Fund's average daily net
assets of Series II shares. Of the Rule 12b-1 payment, up to 0.25% of the
average daily net assets of the Series II shares may be paid to insurance
companies who furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. Pursuant to the Plan, for the six
months ended June 30, 2006, the Series II shares paid $463,041.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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 and
cash collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $14,102,149 $109,892,562 $(115,416,277) $ -- $ 8,578,434 $268,598 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 10,822,907 (2,244,473) -- 8,578,434 3,808 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 14,102,149 107,157,998 (121,260,147) -- -- 266,290 --
==================================================================================================================================
Subtotal $28,204,298 $227,873,467 $(238,920,897) $ -- $17,156,868 $538,696 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $66,155,830 $166,488,716 $(198,683,041) $ -- $33,961,505 $150,494 $ --
==================================================================================================================================
Total $94,360,128 $394,362,183 $(437,603,938) $ -- $51,118,373 $689,190 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $5,779,555, which resulted in net realized gains
(losses) of $(95,376) and securities purchases of $33,835,240.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,166.
NOTE 6--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$3,756 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 APPRECIATION 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 six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $33,049,981 were on
loan to brokers. The loans were secured by cash collateral of $33,961,505
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended June 30, 2006, the Fund received dividends on
cash collateral investments of $150,494 for securities lending transactions,
which are net of compensation to counterparties.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 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 has been reduced for
limitations in effect as of that date, if any, to the extent required by the
Internal Revenue Code. The amount does not include the effects on the capital
loss carryforward of the reorganization of AIM V.I. Aggressive Growth Fund and
AIM V.I. Growth Fund into the Fund on May 1, 2006, as it occurred after the
Fund's most recent fiscal year end. To the extent that unrealized gains as of
May 1, 2006, the date of the reorganization of AIM V.I. Aggressive Growth Fund
and AIM V.I. Growth Fund into the Fund are realized on securities held in each
fund at such date of reorganization, the capital loss carryforward may be
further limited for up to five years from the date of the reorganization.
AIM V.I. CAPITAL APPRECIATION 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 six months
ended June 30, 2006 was $954,960,052 and $793,427,011, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $233,905,545
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (36,593,720)
==============================================================================
Net unrealized appreciation of investment securities $197,311,825
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,407,756,252.
</Table>
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,175,171 $ 82,352,366 7,080,254 $158,159,074
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,594,842 40,202,276 8,650,154 194,868,060
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 17,427 439,171
========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 15,874,072 417,607,202 -- --
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,020,000 26,553,152 -- --
========================================================================================================================
Reacquired:
Series I (4,116,330) (104,415,390) (12,847,505) (290,090,264)
- ------------------------------------------------------------------------------------------------------------------------
Series II (379,592) (9,467,105) (851,863) (18,959,071)
========================================================================================================================
17,168,163 $ 452,832,501 2,048,467 $ 44,416,970
________________________________________________________________________________________________________________________
========================================================================================================================
</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 49% 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 open of business on May 1, 2006, the Fund acquired all the net
asset of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth Fund pursuant
to a plan of reorganization approved by the Trustees of the Fund on November
14, 2005 and by the shareholders of AIM V.I. Aggressive Growth Fund and AIM
V.I. Growth Fund on April 4, 2006. The acquisition was accomplished by a
tax-free exchange of 16,894,072 shares of the Fund for 11,361,885 shares
outstanding of AIM V.I. Aggressive Growth Fund and 15,600,092 shares
outstanding of AIM V.I. Growth Fund as of the close of business on April 28,
2006. AIM V.I. Aggressive Growth Fund's net assets at that date of
$155,800,373 including $27,776,076 of unrealized appreciation and AIM V.I.
Growth Fund's net assets at that date of $288,359,981 including $64,941,780
of unrealized appreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$1,269,556,120.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72 $ 30.84
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 0.02(a) (0.04)(b) (0.05)(b) (0.05)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.09) 1.97 1.39 4.89 (5.24) (7.17)
================================================================================================================================
Total from investment operations (0.08) 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 $ 24.59 $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (0.32)% 8.79% 6.62% 29.52% (24.35)% (23.28)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,187,261 $822,899 $886,990 $938,820 $763,038 $1,160,236
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 0.90%(d) 0.89% 0.91% 0.85% 0.85% 0.85%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.10%(d) 0.11% 0.09%(a) (0.23)% (0.27)% (0.22)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 66% 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 income (loss) to average net assets excluding the special
dividend are $(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$970,173,600.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 13 -- FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
AUGUST 21, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------ DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70 $ 23.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03) (0.02)(a) (0.09)(b) (0.09)(b) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.10) 1.96 1.36 4.87 (5.23) 0.45
=================================================================================================================================
Total from investment operations (0.12) 1.93 1.34 4.78 (5.32) 0.41
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- -- (1.90)
=================================================================================================================================
Net asset value, end of period $ 24.31 $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.49)% 8.58% 6.33% 29.18% (24.52)% 1.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $391,976 $339,190 $136,982 $70,466 $23,893 $ 3,527
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.15%(d) 1.14% 1.16% 1.10% 1.10% 1.09%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.15)%(d) (0.14)% (0.16)%(a) (0.48)% (0.52)% (0.46)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 66% 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 income (loss) to average net assets excluding the special
dividend are $(0.08) and (0.42)%, respectively.
(a) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$373,502,489.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 14 -- SUBSEQUENT EVENT
The Board of Trustees of the Trust unanimously approved, on August 1, 2006, a
Plan of Reorganization pursuant to which the Fund would acquire all of the
assets to AIM V.I. Demographic Trends Fund ("Buying Fund"), a series of the
Trust ("the Reorganization"). Upon closing of the Reorganization, shareholders
of the Selling Fund will receive a corresponding class of shares of the Fund in
exchange for their shares of the Selling Fund, and the Selling Fund will cease
operations.
The Plan of Reorganization requires approval of Selling Fund's 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
October 31, 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 Selling Fund and certain conditions required by the Plan of Reorganization
are satisfied, the Reorganization is expected to become effective on or around
November 6, 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.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 15 -- LEGAL PROCEEDINGS--(CONTINUED)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. CAPITAL DEVELOPMENT FUND seeks to provide long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,
2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 analysis focuses on identifying both
industries and companies with strong
===================================================================================== drivers of growth.
PERFORMANCE SUMMARY Risk management plays an important
======================================== role in portfolio construction, as our
For the six months ended June 30, 2006, target portfolio attempts to limit
and excluding variable product issuer FUND VS. INDEXES volatility and downside risk. We seek to
charges, AIM V.I. Capital Development accomplish this goal by investing in
Fund outperformed the broad market, as CUMULATIVE TOTAL RETURNS sectors, industries and companies with
measured by the S&P 500 Index, and the 12/31/05-6/30/06, EXCLUDING VARIABLE attractive fundamental prospects. We
Fund's style-specific index, the Russell PRODUCT ISSUER CHARGES. limit the Fund's sector exposure and
Midcap Growth Index. IF VARIABLE PRODUCT ISSUER CHARGES WERE also seek to minimize stock-specific
INCLUDED, RETURNS WOULD BE LOWER. risk by building a diversified portfolio
Solid stock selection and generally of approximately 100 holdings.
stronger performance by mid-cap stocks Series I Shares 8.58%
enabled the Fund to outperform the We consider selling a stock for any
large-cap oriented S&P 500 Index. Stock Series II Shares 8.48 of the following reasons:
selection across sectors also enabled
the Fund to outperform the Russell Standard & Poor's Composite Index of 500 o The stock is overvalued based on our
Midcap Growth Index. Stocks (S&P 500 Index) analysis.
(Broad Market Index) 2.71
Your Fund's long-term performance o A change in fundamental metrics
appears on page 4. Russell Midcap Growth Index indicates potential problems.
(Style-Specific Index) 2.56
o A change in market capitalization--if
Lipper Mid-Cap Growth Fund Index a stock grows and moves into the
(Peer Group Index) 4.40 large-cap range.
SOURCE: LIPPER INC. o A better stock candidate with higher
======================================== potential return is found.
===================================================================================== MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST o Earnings--focus on companies After posting strong performance during
exhibiting strong growth in earnings, the first four months of 2006, domestic
We believe a growth investment strategy revenue and cash flows equities retreated over the last two
is an essential component of a months of the reporting period largely
diversified portfolio. o Quality--focus on companies with due to concerns about the sustainability
sustainable earnings growth; focus on of corporate profits and fears that
Our investment process combines companies with management teams that inflation might lead the U.S. Federal
quantitative and fundamental analysis to profitably reinvest shareholder cash Reserve Board to continue raising
uncover companies exhibiting long-term, flow interest rates. While small- and mid-cap
sustainable earnings and cash flow stocks were the hardest hit in May and
growth that is not yet reflected by the o Valuation--focus on companies that are June, they outperformed large-cap stocks
stock's market price. attractively valued given their growth during the reporting period. Positive
potential performance was broad among the
Our quantitative model ranks companies
based on factors we have found to be Stocks that are ranked highest by our
highly correlated with outperformance in quantitative model are the focus of our
the mid-cap growth universe, including: fundamental research efforts. Our
fundamental
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Health Care Services 4.6% 1. Precision Castparts Corp. 1.7%
Information Technology 20.3% 2. Semiconductors 4.3 2. Alliance Data Systems Corp. 1.6
Health Care 18.6 3. Application Software 4.2 3. CB Richard Ellis Group, Inc.-
Class A 1.5
Consumer Discretionary 14.7 4. Wireless Telecommunication
Services 3.5 4. Qwest Communications
Industrials 12.3 International Inc. 1.4
5. Managed Health Care 3.2
Energy 10.8 5. AmeriCredit Corp. 1.4
TOTAL NET ASSETS $226.8 MILLION
Financials 9.4 TOTAL NUMBER OF HOLDINGS* 115 6. Charles Schwab Corp. (The) 1.4
Telecommunication Services 4.9 7. WESCO International, Inc. 1.3
Materials 2.6 8. C.H. Robinson Worldwide, Inc. 1.3
Consumer Staples 2.3 9. Corrections Corp. of America 1.3
Money Market Funds 10. Leap Wireless International, Inc. 1.3
Plus Other Assets Less Liabilities 4.1
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. CAPITAL DEVELOPMENT FUND
Russell Midcap Growth Index's economic weaker performance in other industries IN CLOSING
sectors, with telecommunication such as communications equipment. One of
services, materials, industrials and the largest contributions to Fund Although we are pleased to have provided
consumer staples recording solid performance came from IT services positive returns for our investors for
returns. holding ALLIANCE DATA SYSTEMS, a the reporting period, we are always
provider of services to private-label striving to improve performance and help
The Fund benefited from positive credit card companies, which rose after you meet your financial goals. We remain
absolute performance during the reporting earnings above analysts' committed to our investment process of
reporting period, with the highest expectations due to securing a number of focusing on the attractively priced
contributions coming from the new contracts. stocks of mid-cap companies with growing
industrials, energy, consumer staples cash flow and earnings.
and telecommunication services sectors. Two holdings in the consumer staples
On a relative basis, the Fund sector made a significant contribution We thank you for your commitment to
outperformed the Russell Midcap Growth to Fund performance--HANSEN NATURAL and AIM V.I. Capital Development Fund.
Index by the widest margin in the ARCHER-DANIELS-MIDLAND. Hansen Natural,
consumer discretionary, energy, a maker of alternative sodas, juices and THE VIEWS AND OPINIONS EXPRESSED IN
information technology and consumer teas, including the popular Monster MANAGEMENT'S DISCUSSION OF FUND
staples sectors. energy drink, saw its stock rise more PERFORMANCE ARE THOSE OF A I M ADVISORS,
than 100% during the reporting period INC. THESE VIEWS AND OPINIONS ARE
The Fund benefited from strong stock due to strong revenue and earnings SUBJECT TO CHANGE AT ANY TIME BASED ON
selection and an underweight position in growth. Archer-Daniels-Midland is one of FACTORS SUCH AS MARKET AND ECONOMIC
the consumer discretionary sector. Many the world's largest processors of corn, CONDITIONS. THESE VIEWS AND OPINIONS MAY
consumer-related stocks struggled during wheat and oilseeds, and is also one of NOT BE RELIED UPON AS INVESTMENT ADVICE
the reporting period due to concerns the largest producers of ethanol. OR RECOMMENDATIONS, OR AS AN OFFER FOR A
that higher interest rates would crimp PARTICULAR SECURITY. THE INFORMATION IS
consumer spending and slow the economy. The Fund underperformed relative to NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Despite these concerns, we were able to the Russell Midcap Growth Index in the OF ANY MARKET, COUNTRY, INDUSTRY,
find some stocks that held up, including utilities sector because its one holding SECURITY OR THE FUND. STATEMENTS OF FACT
HILTON HOTELS and STARWOOD HOTELS. These in that sector, natural gas utility ARE FROM SOURCES CONSIDERED RELIABLE,
hotel operators have benefited from company QUESTAR, faltered when natural BUT A I M ADVISORS, INC. MAKES NO
improving industry business fundamentals gas prices fell during the first quarter REPRESENTATION OR WARRANTY AS TO THEIR
such as stronger pricing power and of 2006 as a result of warmer than COMPLETENESS OR ACCURACY. ALTHOUGH
rising occupancy levels. Shares of expected temperatures in much of the HISTORICAL PERFORMANCE IS NO GUARANTEE
office products retailer OFFICE DEPOT U.S. We sold the stock before the close OF FUTURE RESULTS, THESE INSIGHTS MAY
rose after the company reported better of the reporting period. The Fund also HELP YOU UNDERSTAND OUR INVESTMENT
than expected earnings results due to underperformed in the financials and MANAGEMENT PHILOSOPHY.
improving profit margins and strong materials sectors by a narrow margin,
sales growth. largely due to stock selection and PAUL J. RASPLICKA,
underweight positions. [RASPLICKA Chartered Financial Analyst,
The energy sector experienced wide PHOTO] senior portfolio manager, is
swings but finished with gains for the Other significant detractors from lead manager of AIM V.I.
reporting period. In this volatile Fund performance during the reporting Capital Development Fund.
environment, the Fund benefited from period included BUSINESS OBJECTS SA, ADC Mr. Rasplicka began his investment
strong stock selection and an overweight TELECOMMUNICATIONS, SMURFIT-STONE career in 1982. A native of Denver, Mr.
position. The top contributor to Fund CONTAINER, TIBCO SOFTWARE and CV Rasplicka is a magna cum laude graduate
performance during the reporting period THERAPEUTICS. While we subsequently sold of the University of Colorado at Boulder
was AVENTINE RENEWABLE ENERGY HOLDINGS, Business Objects SA, ADC with a B.S. in business administration.
one of the leading producers and Telecommunications and CV Therapeutics He earned an M.B.A. from the University
marketers of ethanol, a grain alcohol due to deteriorating fundamentals, we of Chicago. He is also a Chartered
mainly used as a fuel additive in continued to own the other two stocks. Investment Counselor.
gasoline to reduce vehicle emissions and
enhance engine performance. Aventine's Overall positioning of the Fund was Assisted by the Mid Cap Growth/GARP Team
stock price was up close to 200% during little changed during the period.
the period due to strong demand and Exposure was added to the health care
rising prices for ethanol. Ethanol was sector and reduced in the consumer [RIGHT ARROW GRAPHIC]
in strong demand after many refiners discretionary and IT sectors. All
phased out the use of MTBE, a gasoline changes to the Fund were based on our FOR A DISCUSSION OF THE RISKS OF
additive, due to legal concerns. bottom-up stock selection process of INVESTING IN YOUR FUND, INDEXES USED IN
identifying what we consider to be high THIS REPORT AND YOUR FUND'S LONG-TERM
The Fund also benefited from solid quality growth companies trading at what PERFORMANCE, PLEASE TURN TO PAGE 4.
stock selection in the information we believe are attractive valuations.
technology (IT) sector, where the
performance of several holdings in the
computers and peripherals, IT services
and semiconductor areas offset
3
AIM V.I. CAPITAL DEVELOPMENT FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS PRIMARILY DUE TO DIFFERENT CLASS THE FUND AND ARE NOT INTENDED TO REFLECT
As of 6/30/06 EXPENSES. ACTUAL VARIABLE PRODUCT VALUES. THEY DO
NOT REFLECT SALES CHARGES, EXPENSES AND
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT FEES ASSESSED IN CONNECTION WITH A
Inception (5/1/98) 7.13% PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT. SALES CHARGES,
5 Years 6.35 COMPARABLE FUTURE RESULTS; CURRENT EXPENSES AND FEES, WHICH ARE DETERMINED
1 Year 18.12 PERFORMANCE MAY BE LOWER OR HIGHER. BY THE VARIABLE PRODUCT ISSUERS, WILL
PLEASE CONTACT YOUR VARIABLE PRODUCT VARY AND WILL LOWER THE TOTAL RETURN.
SERIES II SHARES ISSUER OR FINANCIAL ADVISOR FOR THE MOST
Inception 6.87% RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
5 Years 6.10 PERFORMANCE. PERFORMANCE FIGURES REFLECT RECENT MONTH-END PERFORMANCE DATA AT THE
1 Year 17.80 FUND EXPENSES, REINVESTED DISTRIBUTIONS FUND LEVEL, EXCLUDING VARIABLE PRODUCT
AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON THIS AIM
======================================== INVESTMENT RETURN AND PRINCIPAL VALUE AUTOMATED INFORMATION LINE,
WILL FLUCTUATE SO THAT YOU MAY HAVE A 866-702-4402. AS MENTIONED ABOVE, FOR
SERIES II SHARE'S INCEPTION DATE IS GAIN OR LOSS WHEN YOU SELL SHARES. THE MOST RECENT MONTH-END PERFORMANCE
AUGUST 21, 2001. RETURNS SINCE THAT DATE INCLUDING VARIABLE PRODUCT CHARGES,
ARE HISTORICAL. ALL OTHER RETURNS ARE AIM V.I. CAPITAL DEVELOPMENT FUND, A PLEASE CONTACT YOUR VARIABLE PRODUCT
THE BLENDED RETURNS OF THE HISTORICAL SERIES PORTFOLIO OF AIM VARIABLE ISSUER OR FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE FUNDS, IS CURRENTLY OFFERED
THEIR INCEPTION AND THE RESTATED THROUGH INSURANCE COMPANIES ISSUING
HISTORICAL PERFORMANCE OF SERIES I VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SHARES (FOR PERIODS PRIOR TO INCEPTION SHARES OF THE FUND DIRECTLY. PERFORMANCE
OF SERIES II SHARES) ADJUSTED TO REFLECT FIGURES GIVEN REPRESENT
THE RULE 12b-1 FEES APPLICABLE TO SERIES
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS MAY 1, 1998.
THE PERFORMANCE OF THE FUND'S SERIES
I AND SERIES II SHARE CLASSES WILL
DIFFER
PRINCIPAL RISKS OF INVESTING IN THE FUND set of the Russell Midcap Index, which OTHER INFORMATION
represents the performance of the stocks
Investing in smaller companies involves of domestic mid-capitalization The returns shown in management's
greater risk than investing in more companies; the Growth subset measures discussion of Fund performance are based
established companies, such as business the performance of Russell Midcap on net asset values calculated for
risk, significant stock price companies with higher price/book ratios shareholder transactions. Generally
fluctuations and illiquidity. and higher forecasted growth values. accepted accounting principles require
adjustments to be made to the net assets
The Fund may invest up to 25% of its The unmanaged LIPPER MID-CAP GROWTH of the Fund at period end for financial
assets in the securities of non-U.S. FUND INDEX represents an average of the reporting purposes, and as such, the net
issuers. International investing performance of the 30 largest asset values for shareholder
presents risks not associated with mid-capitalization growth funds tracked transactions and the returns based on
investing solely in the United States. by Lipper Inc., an independent mutual those net asset values may differ from
These include risks relating to the fund performance monitor. the net asset values and returns
fluctuation in the value of the U.S. reported in the Financial Highlights.
dollar relative to the values of the The Fund is not managed to track the Additionally, the returns and net asset
currencies, the custody arrangements performance of any particular index, values shown throughout this report are
made for the Fund's foreign holdings, including the indexes defined here, and at the Fund level only and do not
differences in accounting, political consequently, the performance of the include variable product issuer charges.
risks and the lesser degree of public Fund may deviate significantly from the If such charges were included, the total
information required to be provided by performance of the indexes. returns would be lower.
non-U.S. companies.
A direct investment cannot be made in Industry classifications used in this
an index. Unless otherwise indicated, report are generally according to the
ABOUT INDEXES USED IN THIS REPORT index results include reinvested Global Industry Classification Standard,
dividends, and they do not reflect sales which was developed by and is the
The unmanaged STANDARD & POOR'S charges. Performance of an index of exclusive property and a service mark of
COMPOSITE INDEX OF 500 STOCKS (the S&P funds reflects fund expenses; Morgan Stanley Capital International
500--Registered Trademark-- Index) is performance of a market index does not. Inc. and Standard & Poor's.
an index of common stocks frequently
used as a general measure of U.S. stock
market performance.
The unmanaged RUSSELL
MIDCAP--Registered Trademark-- GROWTH
INDEX is a sub-
4
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 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Fund vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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
the effect of any fees or other expenses HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
assessed in connection with a variable PURPOSES in the table are meant to highlight your
product; if they did, the expenses shown ongoing costs. Therefore, the
would be higher while the ending account The table below also provides hypothetical information is useful in
values shown would be lower. information about hypothetical account comparing ongoing costs only, and will
values and hypothetical expenses based not help you determine the relative
on the Fund's actual expense ratio and total costs of owning different funds.
an assumed rate of return of 5% per
====================================================================================================================================
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,085.80 $5.64 $1,019.39 $5.46 1.09%
Series II 1,000.00 1,084.80 6.93 1,018.15 6.71 1.34
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. CAPITAL DEVELOPMENT FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory for the Fund, the Board concluded that
Insurance Funds (the "Board") oversees services to be provided by AIM. The no changes should be made to the Fund
the management of AIM V.I. Capital Board reviewed the services to be and that it was not necessary to change
Development Fund (the "Fund") and, as provided by AIM under the Advisory the Fund's portfolio management team at
required by law, determines annually Agreement. Based on such review, the this time. Although the independent
whether to approve the continuance of Board concluded that the range of written evaluation of the Fund's Senior
the Fund's advisory agreement with A I M services to be provided by AIM under the Officer (discussed below) only
Advisors, Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and considered Fund performance through the
recommendation of the Investments that AIM currently is providing services most recent calendar year, the Board
Committee of the Board, at a meeting in accordance with the terms of the also reviewed more recent Fund
held on June 27, 2006, the Board, Advisory Agreement. performance, which did not change their
including all of the independent conclusions.
trustees, approved the continuance of o The quality of services to be provided
the advisory agreement (the "Advisory by AIM. The Board reviewed the o Meetings with the Fund's portfolio
Agreement") between the Fund and AIM for credentials and experience of the managers and investment personnel. With
another year, effective July 1, 2006. officers and employees of AIM who will respect to the Fund, the Board is
provide investment advisory services to meeting periodically with such Fund's
The Board considered the factors the Fund. In reviewing the portfolio managers and/or other
discussed below in evaluating the qualifications of AIM to provide investment personnel and believes that
fairness and reasonableness of the investment advisory services, the Board such individuals are competent and able
Advisory Agreement at the meeting on considered such issues as AIM's to continue to carry out their
June 27, 2006 and as part of the Board's portfolio and product review process, responsibilities under the Advisory
ongoing oversight of the Fund. In their various back office support functions Agreement.
deliberations, the Board and the provided by AIM and AIM's equity and
independent trustees did not identify fixed income trading operations. Based o Overall performance of AIM. The Board
any particular factor that was on the review of these and other considered the overall performance of
controlling, and each trustee attributed factors, the Board concluded that the AIM in providing investment advisory and
different weights to the various quality of services to be provided by portfolio administrative services to the
factors. AIM was appropriate and that AIM Fund and concluded that such performance
currently is providing satisfactory was satisfactory.
One responsibility of the independent services in accordance with the terms of
Senior Officer of the Fund is to manage the Advisory Agreement. o Fees relative to those of clients of
the process by which the Fund's proposed AIM with comparable investment
management fees are negotiated to ensure o The performance of the Fund relative strategies. The Board reviewed the
that they are negotiated in a manner to comparable funds. The Board reviewed effective advisory fee rate (before
which is at arms' length and reasonable. the performance of the Fund during the waivers) for the Fund under the Advisory
To that end, the Senior Officer must past one, three and five calendar years Agreement. The Board noted that this
either supervise a competitive bidding against the performance of funds advised rate was (i) above the effective
process or prepare an independent by other advisors with investment advisory fee rates (before waivers) for
written evaluation. The Senior Officer strategies comparable to those of the two mutual funds advised by AIM with
has recommended an independent written Fund. The Board noted that the Fund's investment strategies comparable to
evaluation in lieu of a competitive performance was below the median those of the Fund; (ii) the same as the
bidding process and, upon the direction performance of such comparable funds for effective advisory fee rate (before
of the Board, has prepared such an the one year period and above such waivers) for a variable insurance fund
independent written evaluation. Such median performance for the three and advised by AIM and offered to insurance
written evaluation also considered five year periods. Based on this review company separate accounts with
certain of the factors discussed below. and after taking account of all of the investment strategies comparable to
In addition, as discussed below, the other factors that the Board considered those of the Fund; (iii) above the
Senior Officer made a recommendation to in determining whether to continue the effective sub-advisory fee rate for one
the Board in connection with such Advisory Agreement for the Fund, the offshore fund advised and sub-advised by
written evaluation. Board concluded that no changes should AIM affiliates with investment
be made to the Fund and that it was not strategies comparable to those of the
The discussion below serves as a necessary to change the Fund's portfolio Fund, although the total advisory fees
summary of the Senior Officer's management team at this time. Although for such offshore fund were above those
independent written evaluation and the independent written evaluation of for the Fund; and (iv) above the
recommendation to the Board in the Fund's Senior Officer (discussed effective sub-advisory fee rates for two
connection therewith, as well as a below) only considered Fund performance variable insurance funds sub-advised by
discussion of the material factors and through the most recent calendar year, an AIM affiliate and offered to
the conclusions with respect thereto the Board also reviewed more recent Fund insurance company separate accounts with
that formed the basis for the Board's performance, which did not change their investment strategies comparable to
approval of the Advisory Agreement. conclusions. those of the Fund, although the total
After consideration of all of the advisory fees for such variable
factors below and based on its informed o The performance of the Fund relative insurance funds were the same as or
business judgment, the Board determined to indices. The Board reviewed the above those for the Fund. The Board
that the Advisory Agreement is in the performance of the Fund during the past noted that AIM has agreed to waive
best interests of the Fund and its one, three and five calendar years advisory fees of the Fund and to limit
shareholders and that the compensation against the performance of the Lipper the Fund's total operating expenses, as
to AIM under the Advisory Agreement is Variable Underlying Fund Mid-Cap Growth discussed below. Based on this review,
fair and reasonable and would have been Index. The Board noted that the Fund's the Board concluded that the advisory
obtained through arm's length performance was comparable to the fee rate for the Fund under the Advisory
negotiations. performance of such Index for the one Agreement was fair and reasonable.
and three year periods and above such
Unless otherwise stated, information Index for the five year period. Based on o Fees relative to those of comparable
presented below is as of June 27, 2006 this review and after taking account of funds with other advisors. The Board
and does not reflect any changes that all of the other factors that the Board reviewed the advisory fee rate for the
may have occurred since June 27, 2006, considered in determining whether to Fund under the Advisory Agreement. The
including but not limited to changes to continue the Advisory Agreement Board compared effective contractual
the Fund's performance, advisory fees, advisory fee rates at a common asset
expense limitations and/or fee waivers. level at the end of the past calendar
(continued)
6
AIM V.I. CAPITAL DEVELOPMENT FUND
year and noted that the Fund's rate was the Fund may be invested in money market Advisory Agreement was not excessive.
comparable to the median rate of the funds advised by AIM pursuant to the
funds advised by other advisors with terms of an SEC exemptive order. The o Benefits of soft dollars to AIM. The
investment strategies comparable to Board found that the Fund may realize Board considered the benefits realized
those of the Fund that the Board certain benefits upon investing cash by AIM as a result of brokerage
reviewed. The Board noted that AIM has balances in AIM advised money market transactions executed through "soft
agreed to waive advisory fees of the funds, including a higher net return, dollar" arrangements. Under these
Fund and to limit the Fund's total increased liquidity, increased arrangements, brokerage commissions paid
operating expenses, as discussed below. diversification or decreased transaction by the Fund and/or other funds advised
Based on this review, the Board costs. The Board also found that the by AIM are used to pay for research and
concluded that the advisory fee rate for Fund will not receive reduced services execution services. This research may be
the Fund under the Advisory Agreement if it invests its cash balances in such used by AIM in making investment
was fair and reasonable. money market funds. The Board noted decisions for the Fund. The Board
that, to the extent the Fund invests concluded that such arrangements were
o Expense limitations and fee waivers. uninvested cash in affiliated money appropriate.
The Board noted that AIM has market funds, AIM has voluntarily agreed
contractually agreed to waive advisory to waive a portion of the advisory fees o AIM's financial soundness in light of
fees of the Fund through April 30, 2008 it receives from the Fund attributable the Fund's needs. The Board considered
to the extent necessary so that the to such investment. The Board further whether AIM is financially sound and has
advisory fees payable by the Fund do not determined that the proposed securities the resources necessary to perform its
exceed a specified maximum advisory fee lending program and related procedures obligations under the Advisory
rate, which maximum rate includes with respect to the lending Fund is in Agreement, and concluded that AIM has
breakpoints and is based on net asset the best interests of the lending Fund the financial resources necessary to
levels. The Board considered the and its respective shareholders. The fulfill its obligations under the
contractual nature of this fee waiver Board therefore concluded that the Advisory Agreement.
and noted that it remains in effect investment of cash collateral received
until April 30, 2008. The Board noted in connection with the securities o Historical relationship between the
that AIM has contractually agreed to lending program in the money market Fund and AIM. In determining whether to
waive fees and/or limit expenses of the funds according to the procedures is in continue the Advisory Agreement for the
Fund through April 30, 2008 in an amount the best interests of the lending Fund Fund, the Board also considered the
necessary to limit total annual and its respective shareholders. prior relationship between AIM and the
operating expenses to a specified Fund, as well as the Board's knowledge
percentage of average daily net assets o Independent written evaluation and of AIM's operations, and concluded that
for each class of the Fund. The Board recommendations of the Fund's Senior it was beneficial to maintain the
considered the contractual nature of Officer. The Board noted that, upon current relationship, in part, because
this fee waiver/expense limitation and their direction, the Senior Officer of of such knowledge. The Board also
noted that it remains in effect through the Fund, who is independent of AIM and reviewed the general nature of the
April 30, 2008. The Board considered the AIM's affiliates, had prepared an non-investment advisory services
effect these fee waivers/expense independent written evaluation in order currently performed by AIM and its
limitations would have on the Fund's to assist the Board in determining the affiliates, such as administrative,
estimated expenses and concluded that reasonableness of the proposed transfer agency and distribution
the levels of fee waivers/expense management fees of the AIM Funds, services, and the fees received by AIM
limitations for the Fund were fair and including the Fund. The Board noted that and its affiliates for performing such
reasonable. the Senior Officer's written evaluation services. In addition to reviewing such
had been relied upon by the Board in services, the trustees also considered
o Breakpoints and economies of scale. this regard in lieu of a competitive the organizational structure employed by
The Board reviewed the structure of the bidding process. In determining whether AIM and its affiliates to provide those
Fund's advisory fee under the Advisory to continue the Advisory Agreement for services. Based on the review of these
Agreement, noting that it includes one the Fund, the Board considered the and other factors, the Board concluded
breakpoint. The Board reviewed the level Senior Officer's written evaluation and that AIM and its affiliates were
of the Fund's advisory fees, and noted the recommendation made by the Senior qualified to continue to provide
that such fees, as a percentage of the Officer to the Board that the Board non-investment advisory services to the
Fund's net assets, would decrease as net consider whether the advisory fee Fund, including administrative, transfer
assets increase because the Advisory waivers for certain equity AIM Funds, agency and distribution services, and
Agreement includes a breakpoint. The including the Fund, should be that AIM and its affiliates currently
Board noted that, due to the Fund's simplified. The Board concluded that it are providing satisfactory
asset levels at the end of the past would be advisable to consider this non-investment advisory services.
calendar year and the way in which the issue and reach a decision prior to the
advisory fee breakpoint has been expiration date of such advisory fee o Other factors and current trends. The
structured, the Fund has yet to benefit waivers. Board considered the steps that AIM and
from the breakpoint. The Board noted its affiliates have taken over the last
that AIM has contractually agreed to o Profitability of AIM and its several years, and continue to take, in
waive advisory fees of the Fund through affiliates. The Board reviewed order to improve the quality and
April 30, 2008 to the extent necessary information concerning the profitability efficiency of the services they provide
so that the advisory fees payable by the of AIM's (and its affiliates') to the Funds in the areas of investment
Fund do not exceed a specified maximum investment advisory and other activities performance, product line
advisory fee rate, which maximum rate and its financial condition. The Board diversification, distribution, fund
includes breakpoints and is based on net considered the overall profitability of operations, shareholder services and
asset levels. The Board concluded that AIM, as well as the profitability of AIM compliance. The Board concluded that
the Fund's fee levels under the Advisory in connection with managing the Fund. these steps taken by AIM have improved,
Agreement therefore would reflect The Board noted that AIM's operations and are likely to continue to improve,
economies of scale at higher asset remain profitable, although increased the quality and efficiency of the
levels and that it was not necessary to expenses in recent years have reduced services AIM and its affiliates provide
change the advisory fee breakpoints in AIM's profitability. Based on the review to the Fund in each of these areas, and
the Fund's advisory fee schedule. of the profitability of AIM's and its support the Board's approval of the
affiliates' investment advisory and continuance of the Advisory Agreement
o Investments in affiliated money market other activities and its financial for the Fund.
funds. The Board also took into account condition, the Board concluded that the
the fact that uninvested cash and cash compensation to be paid by the Fund to
collateral from securities lending AIM under its
arrangements, if any (collectively,
"cash balances") of
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.80%
ADVERTISING-0.93%
Clear Channel Outdoor Holdings, Inc.-Class
A(a) 101,051 $ 2,118,029
=====================================================================
AEROSPACE & DEFENSE-2.16%
L-3 Communications Holdings, Inc. 15,190 1,145,630
- ---------------------------------------------------------------------
Precision Castparts Corp. 62,710 3,747,549
=====================================================================
4,893,179
=====================================================================
AGRICULTURAL PRODUCTS-0.78%
Archer-Daniels-Midland Co. 42,719 1,763,440
=====================================================================
AIR FREIGHT & LOGISTICS-1.30%
Robinson (C.H.) Worldwide, Inc. 55,200 2,942,160
=====================================================================
APPAREL RETAIL-1.60%
AnnTaylor Stores Corp.(a) 60,625 2,629,913
- ---------------------------------------------------------------------
DSW Inc.-Class A(a) 27,539 1,002,970
=====================================================================
3,632,883
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.61%
Coach, Inc.(a) 27,300 816,270
- ---------------------------------------------------------------------
Polo Ralph Lauren Corp. 51,645 2,835,310
=====================================================================
3,651,580
=====================================================================
APPLICATION SOFTWARE-4.22%
Amdocs Ltd.(a) 77,771 2,846,419
- ---------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 123,301 2,114,612
- ---------------------------------------------------------------------
Citrix Systems, Inc.(a) 59,589 2,391,903
- ---------------------------------------------------------------------
TIBCO Software Inc.(a) 313,429 2,209,674
=====================================================================
9,562,608
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.45%
Legg Mason, Inc. 10,324 1,027,444
=====================================================================
BIOTECHNOLOGY-1.91%
Celgene Corp.(a)(b) 42,000 1,992,060
- ---------------------------------------------------------------------
Genzyme Corp.(a) 38,360 2,341,878
=====================================================================
4,333,938
=====================================================================
BROADCASTING & CABLE TV-0.49%
Univision Communications Inc.-Class A(a) 33,075 1,108,013
=====================================================================
CASINOS & GAMING-2.08%
Harrah's Entertainment, Inc. 30,561 2,175,332
- ---------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 71,228 2,537,141
=====================================================================
4,712,473
=====================================================================
COAL & CONSUMABLE FUELS-1.79%
Aventine Renewable Energy Holdings,
Inc.(a)(c)(d) 73,937 2,588,535
- ---------------------------------------------------------------------
CONSOL Energy Inc. 31,506 1,471,960
=====================================================================
4,060,495
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-1.99%
Harris Corp. 55,594 $ 2,307,707
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 166,146 2,211,403
=====================================================================
4,519,110
=====================================================================
COMPUTER STORAGE & PERIPHERALS-1.11%
Network Appliance, Inc.(a) 71,064 2,508,559
=====================================================================
CONSTRUCTION & ENGINEERING-1.54%
Foster Wheeler Ltd.(a) 29,664 1,281,485
- ---------------------------------------------------------------------
Washington Group International, Inc.(a) 41,629 2,220,491
=====================================================================
3,501,976
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.07%
Joy Global Inc. 46,796 2,437,604
=====================================================================
CONSUMER ELECTRONICS-0.87%
Harman International Industries, Inc. 23,059 1,968,547
=====================================================================
CONSUMER FINANCE-1.39%
AmeriCredit Corp.(a) 112,606 3,143,960
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.59%
Alliance Data Systems Corp.(a) 63,210 3,718,012
- ---------------------------------------------------------------------
Fidelity National Information Services, Inc. 60,700 2,148,780
=====================================================================
5,866,792
=====================================================================
DEPARTMENT STORES-1.02%
Nordstrom, Inc. 63,318 2,311,107
=====================================================================
DIVERSIFIED CHEMICALS-0.79%
Ashland Inc. 26,786 1,786,626
=====================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.52%
Corrections Corp. of America(a) 54,800 2,901,112
- ---------------------------------------------------------------------
IHS Inc.- Class A(a) 95,289 2,823,413
=====================================================================
5,724,525
=====================================================================
DRUG RETAIL-0.95%
Shoppers Drug Mart Corp. (Canada) 59,600 2,164,458
=====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.14%
Cooper Industries, Ltd.-Class A 27,700 2,573,884
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.08%
Amphenol Corp.-Class A 43,944 2,459,106
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.72%
Molex Inc. 28,993 973,295
- ---------------------------------------------------------------------
Molex Inc.-Class A 22,780 654,469
=====================================================================
1,627,764
=====================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.96%
Schein (Henry), Inc.(a) 46,643 $ 2,179,627
=====================================================================
HEALTH CARE EQUIPMENT-0.86%
Hologic, Inc.(a) 30,000 1,480,800
- ---------------------------------------------------------------------
Mentor Corp. 10,770 468,495
=====================================================================
1,949,295
=====================================================================
HEALTH CARE FACILITIES-0.99%
Psychiatric Solutions, Inc.(a) 78,191 2,240,954
=====================================================================
HEALTH CARE SERVICES-4.55%
DaVita, Inc.(a) 46,500 2,311,050
- ---------------------------------------------------------------------
Express Scripts, Inc.(a) 32,300 2,317,202
- ---------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 21,000 1,202,880
- ---------------------------------------------------------------------
Omnicare, Inc. 48,000 2,276,160
- ---------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 49,000 2,219,700
=====================================================================
10,326,992
=====================================================================
HEALTH CARE TECHNOLOGY-0.96%
Cerner Corp.(a)(e) 58,961 2,188,043
=====================================================================
HOTELS, RESORTS & CRUISE LINES-2.21%
Hilton Hotels Corp. 87,700 2,480,156
- ---------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 41,974 2,532,711
=====================================================================
5,012,867
=====================================================================
HOUSEWARES & SPECIALTIES-1.09%
Jarden Corp.(a) 81,389 2,478,295
=====================================================================
INDUSTRIAL CONGLOMERATES-0.42%
Walter Industries, Inc.(e) 16,661 960,507
=====================================================================
INDUSTRIAL MACHINERY-0.49%
Mueller Water Products, Inc.-Class A(a) 63,227 1,100,782
=====================================================================
INSURANCE BROKERS-1.05%
National Financial Partners Corp. 53,808 2,384,232
=====================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.44%
Qwest Communications International Inc.(a) 402,394 3,255,367
=====================================================================
INVESTMENT BANKING & BROKERAGE-1.35%
Schwab (Charles) Corp. (The) 191,550 3,060,969
=====================================================================
INVESTMENT COMPANIES -- EXCHANGE TRADED
FUNDS-1.00%
iShares Nasdaq Biotechnology Index Fund(a)(e) 31,128 2,263,006
=====================================================================
IT CONSULTING & OTHER SERVICES-1.15%
Cognizant Technology Solutions Corp.-Class
A(a) 38,778 2,612,474
=====================================================================
LIFE SCIENCES TOOLS & SERVICES-1.03%
PerkinElmer, Inc. 111,646 2,333,401
=====================================================================
MANAGED HEALTH CARE-3.18%
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost
$2,162,718)(a)(f) 157,251 2,516,016
- ---------------------------------------------------------------------
Coventry Health Care, Inc.(a) 42,800 2,351,432
- ---------------------------------------------------------------------
Humana Inc.(a) 43,800 $ 2,352,060
=====================================================================
7,219,508
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
OFFICE SERVICES & SUPPLIES-0.35%
Knoll, Inc. 42,693 783,843
=====================================================================
OIL & GAS DRILLING-1.83%
ENSCO International Inc. 36,400 1,675,128
- ---------------------------------------------------------------------
GlobalSantaFe Corp. 21,000 1,212,750
- ---------------------------------------------------------------------
Todco-Class A 31,000 1,266,350
=====================================================================
4,154,228
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-2.56%
Grant Prideco, Inc.(a) 43,000 1,924,250
- ---------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 34,000 2,152,880
- ---------------------------------------------------------------------
Weatherford International Ltd.(a) 35,000 1,736,700
=====================================================================
5,813,830
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.08%
Rosetta Resources, Inc.(a)(c) 116,100 1,929,582
- ---------------------------------------------------------------------
Southwestern Energy Co.(a) 76,000 2,368,160
- ---------------------------------------------------------------------
VeraSun Energy Corp.(a) 16,299 427,686
=====================================================================
4,725,428
=====================================================================
OIL & GAS REFINING & MARKETING-1.55%
Frontier Oil Corp. 38,000 1,231,200
- ---------------------------------------------------------------------
Tesoro Corp. 30,600 2,275,416
=====================================================================
3,506,616
=====================================================================
OIL & GAS STORAGE & TRANSPORTATION-0.95%
Williams Cos., Inc. (The) 92,500 2,160,800
=====================================================================
PAPER PACKAGING-0.74%
Smurfit-Stone Container Corp.(a) 153,639 1,680,811
=====================================================================
PHARMACEUTICALS-3.06%
Adams Respiratory Therapeutics, Inc.(a) 36,185 1,614,575
- ---------------------------------------------------------------------
Allergan, Inc. 10,700 1,147,682
- ---------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 25,000 1,192,250
- ---------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc.(a) 23,000 758,540
- ---------------------------------------------------------------------
Forest Laboratories, Inc.(a) 57,400 2,220,806
=====================================================================
6,933,853
=====================================================================
PUBLISHING-0.50%
R.H. Donnelley Corp.(a) 21,025 1,136,822
=====================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.51%
CB Richard Ellis Group, Inc.-Class A(a) 137,400 3,421,260
=====================================================================
REGIONAL BANKS-2.12%
Centennial Bank Holdings Inc.(a)(c) 129,400 1,337,996
- ---------------------------------------------------------------------
Commerce Bancorp, Inc.(e) 63,019 2,247,888
- ---------------------------------------------------------------------
Signature Bank(a) 37,800 1,223,964
=====================================================================
4,809,848
=====================================================================
RESTAURANTS-1.28%
Burger King Holdings Inc.(a) 119,666 $ 1,884,739
- ---------------------------------------------------------------------
Ruby Tuesday, Inc. 41,956 1,024,146
=====================================================================
2,908,885
=====================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.03%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 112,262 $ 2,269,938
- ---------------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 62,414 2,340,525
=====================================================================
4,610,463
=====================================================================
SEMICONDUCTORS-4.34%
Analog Devices, Inc. 32,483 1,044,004
- ---------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 156,622 2,220,900
- ---------------------------------------------------------------------
Microchip Technology Inc. 22,023 738,872
- ---------------------------------------------------------------------
Microsemi Corp.(a) 94,104 2,294,255
- ---------------------------------------------------------------------
National Semiconductor Corp. 92,285 2,200,997
- ---------------------------------------------------------------------
OmniVision Technologies, Inc.(a) 20,806 439,423
- ---------------------------------------------------------------------
Spansion Inc.-Class A(a)(e) 56,881 906,683
=====================================================================
9,845,134
=====================================================================
SOFT DRINKS-0.56%
Hansen Natural Corp.(a)(e) 6,726 1,280,429
=====================================================================
SPECIALIZED FINANCE-1.25%
Chicago Mercantile Exchange Holdings Inc. 5,784 2,840,812
=====================================================================
SPECIALTY STORES-1.01%
Office Depot, Inc.(a) 60,410 2,295,580
=====================================================================
STEEL-1.10%
Allegheny Technologies, Inc. 36,125 2,501,295
=====================================================================
SYSTEMS SOFTWARE-0.66%
Red Hat, Inc.(a) 63,637 1,489,106
=====================================================================
TECHNOLOGY DISTRIBUTORS-0.37%
Avnet, Inc.(a) 41,847 837,777
=====================================================================
THRIFTS & MORTGAGE FINANCE-0.29%
People's Choice Financial Corp. (Acquired
12/21/04-06/09/06; Cost $1,869,515)(a)(f) 220,654 661,962
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.34%
WESCO International, Inc.(a) 43,975 3,034,275
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.49%
American Tower Corp.-Class A(a) 35,555 1,106,472
- ---------------------------------------------------------------------
Crown Castle International Corp.(a) 34,154 1,179,679
- ---------------------------------------------------------------------
Leap Wireless International, Inc.(a) 60,310 2,861,709
- ---------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
NII Holdings Inc.(a) 49,000 $ 2,762,620
=====================================================================
7,910,480
=====================================================================
</Table>
<Table>
<Caption>
VALUE
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $177,234,138) $217,310,116
_______________________________________________________________________
=======================================================================
</Table>
<Table>
<Caption>
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS PURCHASED-0.06%
BIOTECHNOLOGY-0.00%
Celgene Corp. 420 $40 July-06 7,350
==========================================================================================
PHARMACEUTICALS-0.06%
Forest Laboratories, Inc. 162 $35 July-06 19,845
- ------------------------------------------------------------------------------------------
Forest Laboratories, Inc. 34 $40 July-06 9,265
- ------------------------------------------------------------------------------------------
Forest Laboratories, Inc. 378 $35 Aug-06 91,665
==========================================================================================
120,775
==========================================================================================
Total Put Options Purchased (Cost $223,161) 128,125
==========================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-4.29%
Liquid Assets Portfolio-Institutional
Class(g) 4,868,375 4,868,375
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 4,868,375 4,868,375
=======================================================================
Total Money Market Funds (Cost $9,736,750) 9,736,750
=======================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-100.15% (Cost
$187,194,049) 227,174,991
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.85%
Liquid Assets Portfolio-Institutional
Class(g)(h) 3,226,566 3,226,566
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 3,226,566 3,226,566
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,453,132) 6,453,132
=======================================================================
TOTAL INVESTMENTS-103.00%
(Cost $193,647,181) 233,628,123
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.00)% (6,802,227)
=======================================================================
NET ASSETS-100.00% $226,825,896
_______________________________________________________________________
=======================================================================
</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 9.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at June 30, 2006 was $5,856,113, which represented 2.58% of the
Fund's Net Assets. See Note 1A.
(d) As a result of an initial public offering, the security is subject to a
contractual lockup period until August 28, 2006 and therefore considered to
be illiquid. The value of this security at June 30, 2006 represented 1.14%
of the Fund's Net Assets. The Fund is limited to investing 15% of net assets
in illiquid securities at the time of purchase.
(e) All or a portion of this security was out on loan at June 30, 2006.
(f) 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 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 June 30, 2006 was $3,177,978,
which represented 1.40% 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.
(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 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $177,457,299)* $217,438,241
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $16,189,882) 16,189,882
=============================================================
Total investments (cost $193,647,181) 233,628,123
=============================================================
Receivables for:
Fund shares sold 123,213
- -------------------------------------------------------------
Dividends 106,211
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 35,789
=============================================================
Total assets 233,893,336
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 14,814
- -------------------------------------------------------------
Fund shares reacquired 257,980
- -------------------------------------------------------------
Options written, at value (premiums received
$31,810) 60,900
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 43,553
- -------------------------------------------------------------
Collateral upon return of securities loaned 6,453,132
- -------------------------------------------------------------
Accrued administrative services fees 137,080
- -------------------------------------------------------------
Accrued distribution fees--Series II 61,883
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,517
- -------------------------------------------------------------
Accrued transfer agent fees 2,389
- -------------------------------------------------------------
Accrued operating expenses 34,192
=============================================================
Total liabilities 7,067,440
=============================================================
Net assets applicable to shares outstanding $226,825,896
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $166,026,773
- -------------------------------------------------------------
Undistributed net investment income (loss) (599,951)
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 21,447,190
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 39,951,884
=============================================================
$226,825,896
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $125,905,140
_____________________________________________________________
=============================================================
Series II $100,920,756
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,206,110
_____________________________________________________________
=============================================================
Series II 5,844,345
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 17.47
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 17.27
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$2,559) $ 501,752
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$9,342, after compensation to counterparties
of $77,864) 245,949
============================================================
Total investment income 747,701
============================================================
EXPENSES:
Advisory fees 825,032
- ------------------------------------------------------------
Administrative services fees 295,331
- ------------------------------------------------------------
Custodian fees 20,643
- ------------------------------------------------------------
Distribution fees-Series II 117,596
- ------------------------------------------------------------
Transfer agent fees 12,627
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 11,234
- ------------------------------------------------------------
Other 36,551
============================================================
Total expenses 1,319,014
============================================================
Less: Fees waived and expense offset
arrangement (6,654)
============================================================
Net expenses 1,312,360
============================================================
Net investment income (loss) (564,659)
============================================================
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 $392,138) 17,426,043
- ------------------------------------------------------------
Foreign currencies 349
============================================================
17,426,392
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 280,718
- ------------------------------------------------------------
Foreign currencies (10)
- ------------------------------------------------------------
Option contracts written (29,090)
============================================================
251,618
============================================================
Net gain from investment securities, foreign
currencies and option contracts 17,678,010
============================================================
Net increase in net assets resulting from
operations $17,113,351
____________________________________________________________
============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $6,428,441 were on
loan to brokers.
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (564,659) $ (615,055)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 17,426,392 15,864,577
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 251,618 2,049,753
=============================================================================================
Net increase in net assets resulting from operations 17,113,351 17,299,275
=============================================================================================
Share transactions-net:
Series I (1,987,400) (5,082,619)
- ---------------------------------------------------------------------------------------------
Series II 10,637,283 5,478,755
=============================================================================================
Net increase in net assets resulting from share
transactions 8,649,883 396,136
=============================================================================================
Net increase in net assets 25,763,234 17,695,411
=============================================================================================
NET ASSETS:
Beginning of period 201,062,662 183,367,251
=============================================================================================
End of period (including undistributed net investment income
(loss) of $(599,951) and $(35,292), respectively) $226,825,896 $201,062,662
_____________________________________________________________________________________________
=============================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Development Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. CAPITAL DEVELOPMENT FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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 $350 million 0.75%
- --------------------------------------------------------------------
Over $350 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Through April 30, 2008, AIM had contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.745%
- ----------------------------------------------------------------------
Next $250 million 0.73%
- ----------------------------------------------------------------------
Next $500 million 0.715%
- ----------------------------------------------------------------------
Next $1.5 billion 0.70%
- ----------------------------------------------------------------------
Next $2.5 billion 0.685%
- ----------------------------------------------------------------------
Next $2.5 billion 0.67%
- ----------------------------------------------------------------------
Next $2.5 billion 0.655%
- ----------------------------------------------------------------------
Over $10 billion 0.64%
_____________________________________________________________________
======================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through April 30, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $6,416.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, AMVESCAP did not
reimburse any expenses.
AIM V.I. CAPITAL DEVELOPMENT 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 six months ended June 30, 2006, AIM was paid $30,260 for
accounting and fund administrative services and reimbursed $265,071 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $12,627.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $117,596.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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 and
cash collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES AT PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 COST FROM SALES (DEPRECIATION) 06/30/06 INCOME (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,131,393 $28,113,288 $(25,376,306) $ -- $4,868,375 $117,978 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 5,153,053 (284,678) -- 4,868,375 1,882 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,131,393 27,613,809 (29,745,202) -- -- 116,747 --
==================================================================================================================================
Subtotal $4,262,786 $60,880,150 $(55,406,186) $ -- $9,736,750 $236,607 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES AT PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,628,362 $ 9,731,790 $ (9,133,586) $ -- $ 3,226,566 $ 4,661 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,628,362 9,731,790 (9,133,586) -- 3,226,566 4,681 --
==================================================================================================================================
Subtotal $5,256,724 $19,463,580 $(18,267,172) $ -- $ 6,453,132 $ 9,342 $ --
==================================================================================================================================
Total $9,519,510 $80,343,730 $(73,673,358) $ -- $16,189,882 $245,949 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $2,511,179, which resulted in net realized gains
of $392,138 and securities purchases of $4,380,942.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $238.
NOTE 6--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$2,118 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $6,428,441 were on
loan to brokers. The loans were secured by cash collateral of $6,453,132
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2006, the Fund received dividends on cash
collateral investments of $9,342 for securities lending transactions, which are
net of compensation to counterparties.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of period -- $ --
- -----------------------------------------------------------------------------------
Written 420 31,810
===================================================================================
End of period 420 $31,810
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 06/30/06 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
Celgene Corp. July-06 $47.50 420 $31,810 $60,900 $(29,090)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2005.
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 six months
ended June 30, 2006 was $140,316,321 and $137,301,755, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $45,786,687
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,820,008)
===============================================================================
Net unrealized appreciation of investment securities $39,966,679
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $193,661,444.
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Series I 715,880 $ 12,474,408 2,974,458 $ 42,960,820
- --------------------------------------------------------------------------------------------------------------------
Series II 941,141 16,422,223 1,426,079 20,815,915
====================================================================================================================
Reacquired:
Series I (825,030) (14,461,808) (3,289,224) (48,043,439)
- --------------------------------------------------------------------------------------------------------------------
Series II (335,394) (5,784,940) (1,085,094) (15,337,160)
====================================================================================================================
496,597 $ 8,649,883 26,219 $ 396,136
____________________________________________________________________________________________________________________
====================================================================================================================
</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 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, 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 entities are
also owned beneficially.
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.09 $ 14.68 $ 12.71 $ 9.39 $ 11.94 $ 12.99
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.04) (0.03)(a) (0.01) (0.01)(a) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.42 1.45 2.00 3.33 (2.54) (1.03)
=================================================================================================================================
Total from investment operations 1.38 1.41 1.97 3.32 (2.55) (1.05)
=================================================================================================================================
Net asset value, end of period $ 17.47 $ 16.09 $ 14.68 $ 12.71 $ 9.39 $ 11.94
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.58% 9.61% 15.50% 35.36% (21.36)% (8.08)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $125,905 $117,674 $112,028 $93,813 $70,018 $92,732
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.09%(c) 1.09% 1.10% 1.13% 1.14% 1.16%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.41)%(c) (0.22)% (0.21)% (0.13)% (0.08)% (0.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 65% 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, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$126,975,521.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
AUGUST 21, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------ DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.92 $ 14.57 $ 12.64 $ 9.36 $ 11.94 $11.88
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.07) (0.06)(a) (0.03) (0.03)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.40 1.42 1.99 3.31 (2.55) 0.07
=================================================================================================================================
Total from investment operations 1.35 1.35 1.93 3.28 (2.58) 0.06
=================================================================================================================================
Net asset value, end of period $ 17.27 $ 15.92 $ 14.57 $ 12.64 $ 9.36 $11.94
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.48% 9.27% 15.27% 35.04% (21.61)% 0.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $100,921 $83,388 $71,339 $33,550 $14,969 $2,767
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.34%(c) 1.34% 1.35% 1.38% 1.39% 1.41%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.66)%(c) (0.47)% (0.46)% (0.38)% (0.33)% (0.41)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 65% 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, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$94,856,315.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. CORE EQUITY FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. CORE EQUITY FUND seeks to provide growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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.]
--Registered Trademark--
[AIM INVESTMENTS LOGO]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark--
AIM V.I. CORE EQUITY FUND
MANAGEMENT'S DISCUSSION challenges and evaluate the
OF FUND PERFORMANCE sustainability of competitive
advantages. Capital analysis provides
===================================================================================== vital insight into historical and
potential returns on invested capital, a
PERFORMANCE SUMMARY ======================================== key indicator of business quality and
the caliber of management. Both the
For the six months ended June 30, 2006, FUND VS. INDEXES business and capital analyses serve as a
the Fund posted positive returns, basis to construct valuation models that
outperforming the S&P 500 Index, its CUMULATIVE TOTAL RETURNS, help us estimate a company's value. We
broad market benchmark, and the Russell 12/31/05-6/30/06, EXCLUDING VARIABLE use three primary valuation techniques,
1000 Index, its style-specific PRODUCT ISSUER CHARGES. IF VARIABLE including discounted cash flow,
benchmark. PRODUCT ISSUER CHARGES WERE INCLUDED, traditional valuation multiples and net
RETURNS WOULD BE LOWER. asset value.
The Fund outperformed these indexes
largely due to effective stock selection Series I Shares 4.05% Our risk management strategy includes
in consumer staples and health care, fundamental research, as well as
traditionally defensive sectors that are Series II Shares 3.94 diversifying Fund holdings across
less affected by market volatility industries and sectors and generally
because demand for these products tends Standard & Poor's Composite Index limiting the size of individual holdings
to remain relatively stable. Although of 500 Stocks (S&P 500 Index) to less than 5% of the portfolio.
the information technology sector was (Broad Market Index) 2.71
one of the few sectors posting negative We consider selling a stock when:
returns for the reporting period, the Russell 1000 Index
Fund outperformed its style-specific (Style-Specific Index) 2.76 o It exceeds our target price.
benchmark in that sector.
Lipper Large-Cap Core Fund Index o We have not seen a demonstrable
(Peer Group Index) 2.17 improvement in fundamentals.
SOURCE: LIPPER INC. o More compelling investments
opportunities exist.
========================================
MARKET CONDITIONS AND YOUR FUND
Your fund's long-term performance
appears on page 4. The first half of 2006 was the tale of
two markets, but the same macroeconomic
===================================================================================== themes defined them. The year started
off on a positive note with most major
HOW WE INVEST and return on invested capital (ROIC). market indexes posting respectable
The process we use to identify potential gains. But the market turned as
We manage your Fund as a core fund, investments for the Fund includes three investors became concerned over the
seeking to provide upside potential as phases: effects of higher interest rates and
well as a measure of protection in inflation pressures. During the
difficult markets. As part of an overall o Business analysis to determine reporting period, the U.S. Federal
well-diversified asset allocation competitive positioning Reserve Board (the Fed) continued its
strategy, the Fund can serve as a tightening policy, raising the key
cornerstone of large-cap core o Capital analysis to determine ROIC and federal funds rate to
investments to complement more capital allocation
aggressive value and growth investments.
o Valuation to identify attractively
We conduct fundamental research of valued companies
companies to gain a thorough
understanding of their business Business analysis allows us to
prospects, appreciation potential identify key drivers of the company,
understand industry
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 9.4% 1. Tyco International Ltd. 2.7%
Information Technology 15.7% 2. Packaged Foods & Meats 4.6 2. ExxonMobil Corp. 2.4
Consumer Staples 13.6 3. Property & Casualty Insurance 4.4 3. Berkshire Hathaway Inc. 2.3
Industrials 12.5 4. Industrial Conglomerates 4.3 4. Cadbury Schweppes PLC 2.2
Health Care 12.2 5. Integrated Oil & Gas 3.6 (United Kingdom)
Financials 9.7 5. Waste Management Inc. 2.1
Consumer Discretionary 9.6 TOTAL NET ASSETS $2.7 BILLION 6. Estee Lauder Cos. Inc. (The) 2.1
Energy 6.6 TOTAL NUMBER OF HOLDINGS* 67 7. Xerox Corp. 2.1
Telecommunication Services 3.1 8. GlaxoSmithKline PLC-ADR 2.0
Utilities 2.3 (United Kingdom)
Money Market Funds 9. AT&T Inc. 2.0
Plus Other Assets Less Liabilities 14.7 10. Microsoft Corp. 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. CORE EQUITY FUND
5.25% as Ben Bernanke settled into his increased competition and loss of market The views and opinions expressed in
new role as Fed chairman. During the share in the personal computer and server management's discussion of Fund
first five months of 2006, the consumer markets, leading to reduced revenues and performance are those of A I M Advisors,
price index rose 5.2% at a seasonally a resulting decline in gross margins that Inc. These views and opinions are subject
adjusted annual rate, compared with a has investors questioning the firm's to change at any time based on factors
3.4% rise for all of 2005. Higher future prospects. Analog Devices has been such as market and economic conditions.
interest rates also affected home sales, under pressure due in part to the These views and opinions may not be
which showed signs of weakening during slower-than-expected restructuring relied upon as investment advice or
the reporting period. initiatives to divest underperforming recommendations, or as an offer for a
businesses. However, we retained holdings particular security. The information is
During the first half of 2006, Fund in both companies at the end of the not a complete analysis of every aspect
performance benefited from strong stock reporting period. of any market, country, industry,
selection in consumer staples as the security or the Fund. Statements of fact
markets tended to favor traditionally During the reporting period, we took are from sources considered reliable, but
defensive sectors toward the end of the advantage of the strength in various A I M Advisors, Inc. makes no
reporting period. Fund holding HEINEKEN energy names by trimming the Fund's representation or warranty as to their
NV, one of the largest beer producers in exposure to the sector based on valuation completeness or accuracy. Although
the world, has been successful in concerns. Some of these profits were used historical performance is no guarantee of
purchasing smaller regional brewers in to purchase select consumer staples future results, these insights may help
Europe. In February, the company holdings that offered a better you understand our investment management
announced that revenues for 2005 risk/reward profile. We also reduced philosophy.
increased by 7.3% and profit growth exposure to the financials sector as the
increased by 18.5%. Additionally, management team's fundamental research RONALD S. SLOAN,
Heineken announced a cost-cutting plan raised concerns over the prospects of [SLOAN Chartered Financial
that will extend through 2008, which may various holdings in an increasing PHOTO] Analyst, senior
help to preserve operating margins if interest rate environment. portfolio manager, is
beer consumption rates decline. lead manager of AIM V.I.
At the end of the reporting period, Core Equity Fund. Mr. Sloan has been in
Energy was one of the best-performing the impact of market movements and the investment industry since 1971. He
sectors during the first half of 2006 as allocation decisions resulted in an joined AIM in 1998. Mr. Sloan attended
demand across the world continued to be overweight position primarily in consumer the University of Missouri, where he
strong. The Fund benefited from strong staples and industrials, while the earned both a B.S. in business
stock selection in the energy sector, financials and materials sectors administration and an M.B.A.
which trailed only the telecommunication represented the most significant
services sector for outperformance during underweight positions versus the Assisted by the Mid/Large Cap Core Team
the reporting period. A top contributor style-specific benchmark. Additionally,
to Fund performance was TENARIS S.A., a consistent with our mandate and process,
producer of tubular steel products used the Fund has gained exposure to foreign
in offshore deep well oil and gas stocks both through direct ownership of
drilling. The company has become the shares and American Depositary Receipts,
premier supplier of drilling pipe to the where we believe the investment merits of
international exploration and production the individual names presented a
community, partly due to having compelling risk/reward tradeoff. The
integrated steel production facilities level of ownership in foreign stocks was
that allow for greater quality control below the 25% limitation mandated in the
and customization. This in-house Fund's prospectus.
capability, which supports one of the
fastest growing areas in energy IN CLOSING
production, has allowed the company to
grow its revenues and margins. Thank you for investing in AIM V.I. Core
Equity Fund. We continuously strive to
Information technology (IT) was the provide a Fund that can serve as the core
worst-performing sector during the of an investor's portfolio by adding
period, but strong stock selection and an stability and consistency to more
underweight position relative to its aggressive equity investments. We believe
style-specific benchmark helped the Fund we can provide that core investment to
outperform within in the sector. The shareholders by identifying stocks that
sector's strong performance during the are temporarily undervalued but have
fourth quarter of 2005 and early 2006 strong cash flow, clean balance sheets [RIGHT ARROW GRAPHIC]
weakened over concerns of slowing IT and management teams with successful
spending and overall valuations. Fund capital allocation practices. FOR A DISCUSSION OF THE RISKS OF
performance was negatively affected by INVESTING IN YOUR FUND, INDEXES USED IN
semiconductor makers INTEL and ANALOG THIS REPORT AND YOUR FUND'S LONG-TERM
DEVICES. Intel has suffered as a result PERFORMANCE, PLEASE TURN TO PAGE 4.
of
3
AIM V.I. CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE OF THE FUND'S SERIES I URES GIVEN REPRESENT THE FUND AND ARE NOT
AND SERIES II SHARE CLASSES WILL DIFFER INTENDED TO REFLECT ACTUAL VARIABLE
As of 6/30/06 PRIMARILY DUE TO DIFFERENT CLASS PRODUCT VALUES. THEY DO NOT REFLECT SALES
EXPENSES. CHARGES, EXPENSES AND FEES ASSESSED IN
SERIES I SHARES CONNECTION WITH A VARIABLE PRODUCT. SALES
Inception (5/2/94) 9.03% THE PERFORMANCE DATA QUOTED REPRESENT CHARGES, EXPENSES AND FEES, WHICH ARE
10 Years 6.93 PAST PERFORMANCE AND CANNOT GUARANTEE DETERMINED BY THE VARIABLE PRODUCT
5 Years 2.39 COMPARABLE FUTURE RESULTS; CURRENT ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 10.66 PERFORMANCE MAY BE LOWER OR HIGHER. TOTAL RETURN.
PLEASE CONTACT YOUR VARIABLE PRODUCT
SERIES II SHARES ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST RECENT
10 Years 6.67% RECENT MONTH-END VARIABLE PRODUCT MONTH-END PERFORMANCE DATA AT THE FUND
5 Years 2.15 PERFORMANCE. PERFORMANCE FIGURES REFLECT LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 10.40 FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON THIS AIM
AND CHANGES IN NET ASSET VALUE. AUTOMATED INFORMATION LINE, 866-702-4402.
========================================= INVESTMENT RETURN AND PRINCIPAL VALUE AS MENTIONED ABOVE, FOR THE MOST RECENT
WILL FLUCTUATE SO THAT YOU MAY HAVE A MONTH-END PERFORMANCE INCLUDING VARIABLE
SERIES II SHARES' INCEPTION DATE IS GAIN OR LOSS WHEN YOU SELL SHARES. PRODUCT CHARGES, PLEASE CONTACT YOUR
OCTOBER 24, 2001. RETURNS SINCE THAT DATE VARIABLE PRODUCT ISSUER OR FINANCIAL
ARE HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. CORE EQUITY FUND, A SERIES ADVISOR.
BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE
PERFORMANCE OF THE FUND'S SERIES II FUNDS, IS CURRENTLY OFFERED THROUGH
SHARES SINCE THEIR INCEPTION AND THE INSURANCE COMPANIES ISSUING VARIABLE
RESTATED HISTORICAL PERFORMANCE OF SERIES PRODUCTS. YOU CANNOT PURCHASE SHARES OF
I SHARES (FOR PERIODS PRIOR TO INCEPTION THE FUND DIRECTLY. PERFORMANCE FIG-
OF THE SERIES II SHARES) ADJUSTED TO
REFLECT THE RULE 12b-1 FEES APPLICABLE TO
THE SERIES II SHARES.
PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER LARGE-CAP CORE actions. Generally accepted accounting
FUND INDEX represents an average of the principles require adjustments to be made
The Fund can invest up to 25% of its performance of the 30 largest to the net assets of the Fund at period
assets in foreign securities that involve large-capitalization core equity funds end for financial reporting purposes, and
risks not associated with investing tracked by Lipper Inc., an independent as such, the net asset values for
solely in the United States. These mutual fund performance monitor. shareholder transactions and the returns
include risks relating to fluctuations in based on those net asset values may
the value of the U.S. dollar relative to The Fund is not managed to track the differ from the net asset values and
the values of other currencies, the performance of any particular index, returns reported in the Financial
custody arrangements made for the Fund's including the indexes defined here, and Highlights. Additionally, the returns and
foreign holdings, differences in consequently, the performance of the Fund net asset values shown throughout this
accounting, political risks and the may deviate significantly from the report are at the Fund level only and do
lesser degree of public information performance of the indexes. not include variable product issuer
required to be provided by non-U.S. charges. If such charges were included,
companies. A direct investment cannot be made in the total returns would be lower.
an index. Unless otherwise indicated,
ABOUT INDEXES USED IN THIS REPORT index results include reinvested Industry classifications used in this
dividends, and they do not reflect sales report are generally according to the
The unmanaged STANDARD & POOR'S COMPOSITE charges. Performance of an index of funds Global Industry Classification Standard,
INDEX OF 500 STOCKS (the S&P reflects fund expenses; performance of a which was developed by and is the
500--Registered Trademark-- Index) is an market index does not. exclusive property and a service mark of
index of common stocks frequently used as Morgan Stanley Capital International Inc.
a general measure of U.S. stock market OTHER INFORMATION and Standard & Poor's.
performance.
The returns shown in management's
The unmanaged RUSSELL 1000--Registered discussion of Fund performance are based
Trademark-- INDEX represents the on net asset values calculated for
performance of the stocks of shareholder trans-
large-capitalization companies.
4
AIM V.I. CORE 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 expenses
ongoing costs, including management fees; you paid over the period. Simply divide you paid for the period. You may use this
distribution and/or service fees (12b-1); your account value by $1,000 (for information to compare the ongoing costs
and other Fund expenses. This example is example, an $8,600 account value divided of investing in the Fund and other funds.
intended to help you understand your by $1,000 = 8.6), then multiply the To do so, compare this 5% hypothetical
ongoing costs (in dollars) of investing result by the number in the table under example with the 5% hypothetical examples
in the Fund and to compare these costs the heading entitled "Actual Expenses that appear in the shareholder reports of
with ongoing costs of investing in other Paid During Period" to estimate the the other funds.
mutual funds. The example is based on an expenses you paid on your account during
investment of $1,000 invested at the this period. Please note that the expenses shown in
beginning of the period and held for the the table are meant to highlight your
entire period January 1, 2006, through HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
June 30, 2006. PURPOSES hypothetical information is useful in
comparing ongoing costs, and will not
The actual and hypothetical expenses The table below also provides information help you determine the relative total
in the examples below do not represent about hypothetical account values and costs of owning different funds.
the effect of any fees or other expenses hypothetical expenses based on the Fund's
assessed in connection with a variable actual expense ratio and an assumed rate
product; if they did, the expenses shown of return of 5% per year before expenses,
would be higher while the ending account which is not the Fund's actual return.
values shown would be lower. The Fund's actual cumulative total
returns at net asset value after expenses
ACTUAL EXPENSES for the six months ended June 30, 2006,
appear in the table "Funds vs. Indexes"
The table below provides information on page 2.
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,040.50 $4.50 $1,020.38 $4.46 0.89%
Series II 1,000.00 1,039.40 5.76 1,019.14 5.71 1.14
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. CORE EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable provided by AIM. The Board reviewed the performance through the most recent
Insurance Funds (the "Board") oversees services to be provided by AIM under the calendar year, the Board also reviewed
the management of AIM V.I. Core Equity Advisory Agreement. Based on such review, more recent Fund performance, which did
Fund (the "Fund") and, as required by the Board concluded that the range of not change their conclusions.
law, determines annually whether to services to be provided by AIM under the
approve the continuance of the Fund's Advisory Agreement was appropriate and o Meetings with the Fund's portfolio
advisory agreement with A I M Advisors, that AIM currently is providing services managers and investment personnel. With
Inc. ("AIM"). Based upon the in accordance with the terms of the respect to the Fund, the Board is meeting
recommendation of the Investments Advisory Agreement. periodically with such Fund's portfolio
Committee of the Board, at a meeting held managers and/or other investment
on June 27, 2006, the Board, including o The quality of services to be provided personnel and believes that such
all of the independent trustees, approved by AIM. The Board reviewed the individuals are competent and able to
the continuance of the advisory agreement credentials and experience of the continue to carry out their
(the "Advisory Agreement") between the officers and employees of AIM who will responsibilities under the Advisory
Fund and AIM for another year, effective provide investment advisory services to Agreement.
July 1, 2006. the Fund. In reviewing the qualifications
of AIM to provide investment advisory o Overall performance of AIM. The Board
The Board considered the factors services, the Board considered such considered the overall performance of AIM
discussed below in evaluating the issues as AIM's portfolio and product in providing investment advisory and
fairness and reasonableness of the review process, various back office portfolio administrative services to the
Advisory Agreement at the meeting on June support functions provided by AIM and Fund and concluded that such performance
27, 2006 and as part of the Board's AIM's equity and fixed income trading was satisfactory.
ongoing oversight of the Fund. In their operations. Based on the review of these
deliberations, the Board and the and other factors, the Board concluded o Fees relative to those of clients of
independent trustees did not identify any that the quality of services to be AIM with comparable investment
particular factor that was controlling, provided by AIM was appropriate and that strategies. The Board reviewed the
and each trustee attributed different AIM currently is providing satisfactory effective advisory fee rate (before
weights to the various factors. services in accordance with the terms of waivers) for the Fund under the Advisory
the Advisory Agreement. Agreement. The Board noted that this rate
One responsibility of the independent was (i) above the effective advisory fee
Senior Officer of the Fund is to manage o The performance of the Fund relative to rate (before waivers) for a mutual fund
the process by which the Fund's proposed comparable funds. The Board reviewed the advised by AIM with investment strategies
management fees are negotiated to ensure performance of the Fund during the past comparable to those of the Fund, below
that they are negotiated in a manner one, three and five calendar years the effective advisory fee rate (before
which is at arms' length and reasonable. against the performance of funds advised waivers) for a second mutual fund advised
To that end, the Senior Officer must by other advisors with investment by AIM with investment strategies
either supervise a competitive bidding strategies comparable to those of the comparable to those of the Fund, and
process or prepare an independent written Fund. The Board noted that the Fund's comparable to the effective advisory fee
evaluation. The Senior Officer has performance in such periods was below the rates (before waivers) for two other
recommended an independent written median performance of such comparable mutual funds advised by AIM with
evaluation in lieu of a competitive funds. Based on this review and after investment strategies comparable to those
bidding process and, upon the direction taking account of all of the other of the Fund; (ii) above the effective
of the Board, has prepared such an factors that the Board considered in sub-advisory fee rate for one variable
independent written evaluation. Such determining whether to continue the insurance fund sub-advised by an AIM
written evaluation also considered Advisory Agreement for the Fund, the affiliate and offered to insurance
certain of the factors discussed below. Board concluded that no changes should be company separate accounts with investment
In addition, as discussed below, the made to the Fund and that it was not strategies comparable to those of the
Senior Officer made a recommendation to necessary to change the Fund's portfolio Fund, although the total advisory fees
the Board in connection with such written management team at this time. Although for such variable insurance fund were
evaluation. the independent written evaluation of the above those for the Fund; and (iii) above
Fund's Senior Officer (discussed below) the total advisory fee rates for 78
The discussion below serves as a only considered Fund performance through separately managed accounts/wrap accounts
summary of the Senior Officer's the most recent calendar year, the Board managed by an AIM affiliate with
independent written evaluation and also reviewed more recent Fund investment strategies comparable to those
recommendation to the Board in connection performance, which did not change their of the Fund and comparable to or below
therewith, as well as a discussion of the conclusions. the total advisory fee rates for 10
material factors and the conclusions with separately managed accounts/wrap accounts
respect thereto that formed the basis for o The performance of the Fund relative to managed by an AIM affiliate with
the Board's approval of the Advisory indices. The Board reviewed the investment strategies comparable to those
Agreement. After consideration of all of performance of the Fund during the past of the Fund. The Board noted that AIM has
the factors below and based on its one, three and five calendar years agreed to waive advisory fees of the Fund
informed business judgment, the Board against the performance of the Lipper and to limit the Fund's total operating
determined that the Advisory Agreement is Variable Underlying Fund Large-Cap Core expenses, as discussed below. Based on
in the best interests of the Fund and its Index. The Board noted that the Fund's this review, the Board concluded that the
shareholders and that the compensation to performance in such periods was below the advisory fee rate for the Fund under the
AIM under the Advisory Agreement is fair performance of such Index. Based on this Advisory Agreement was fair and
and reasonable and would have been review and after taking account of all of reasonable.
obtained through arm's length the other factors that the Board
negotiations. considered in determining whether to o Fees relative to those of comparable
continue the Advisory Agreement for the funds with other advisors. The Board
Unless otherwise stated, information Fund, the Board concluded that no changes reviewed the advisory fee rate for the
presented below is as of June 27, 2006 should be made to the Fund and that it Fund under the Advisory Agreement. The
and does not reflect any changes that may was not necessary to change the Fund's Board compared effective contractual
have occurred since June 27, 2006, portfolio management team at this time. advisory fee rates at a common asset
including but not limited to changes to Although the independent written level at the end of the past calendar
the Fund's performance, advisory fees, evaluation of the Fund's Senior Officer year and noted that the Fund's rate was
expense limitations and/or fee waivers. (discussed below) only considered Fund comparable to the median rate of the
funds advised by other advisors with
o The nature and extent of the advisory investment strategies comparable to those
services to be of the
(continued)
6
AIM V.I. CORE EQUITY FUND
Fund that the Board reviewed. The Board higher net return, increased liquidity, o Benefits of soft dollars to AIM. The
noted that AIM has agreed to waive increased diversification or decreased Board considered the benefits realized by
advisory fees of the Fund and to limit transaction costs. The Board also found AIM as a result of brokerage transactions
the Fund's total operating expenses, as that the Fund will not receive reduced executed through "soft dollar"
discussed below. Based on this review, services if it invests its cash balances arrangements. Under these arrangements,
the Board concluded that the advisory fee in such money market funds. The Board brokerage commissions paid by the Fund
rate for the Fund under the Advisory noted that, to the extent the Fund and/or other funds advised by AIM are
Agreement was fair and reasonable. invests uninvested cash in affiliated used to pay for research and execution
money market funds, AIM has voluntarily services. This research may be used by
o Expense limitations and fee waives. The agreed to waive a portion of the advisory AIM in making investment decisions for
Board noted that AIM has contractually fees it receives from the Fund the Fund. The Board concluded that such
agreed to waive advisory fees of the Fund attributable to such investment. The arrangements were appropriate.
through December 31, 2009 to the extent Board further determined that the
necessary so that the advisory fees proposed securities lending program and o AIM's financial soundness in light of
payable by the Fund do not exceed a related procedures with respect to the the Fund's needs. The Board considered
specified maximum advisory fee rate, lending Fund is in the best interests of whether AIM is financially sound and has
which maximum rate includes breakpoints the lending Fund and its respective the resources necessary to perform its
and is based on net asset levels. The shareholders. The Board therefore obligations under the Advisory Agreement,
Board considered the contractual nature concluded that the investment of cash and concluded that AIM has the financial
of this fee waiver and noted that it collateral received in connection with resources necessary to fulfill its
remains in effect until December 31, the securities lending program in the obligations under the Advisory Agreement.
2009. The Board noted that AIM has money market funds according to the
contractually agreed to waive fees and/or procedures is in the best interests of o Historical relationship between the
limit expenses of the Fund through April the lending Fund and its respective Fund and AIM. In determining whether to
30, 2008 in an amount necessary to limit shareholders. continue the Advisory Agreement for the
total annual operating expenses to a Fund, the Board also considered the prior
specified percentage of average daily net o Independent written evaluation and relationship between AIM and the Fund, as
assets for each class of the Fund. The recommendations of the Fund's Senior well as the Board's knowledge of AIM's
Board considered the contractual nature Officer. The Board noted that, upon their operations, and concluded that it was
of this fee waiver/expense limitation and direction, the Senior Officer of the beneficial to maintain the current
noted that it remains in effect through Fund, who is independent of AIM and AIM's relationship, in part, because of such
April 30, 2008. The Board considered the affiliates, had prepared an independent knowledge. The Board also reviewed the
effect these fee waivers/expense written evaluation in order to assist the general nature of the non-investment
limitations would have on the Fund's Board in determining the reasonableness advisory services currently performed by
estimated expenses and concluded that the of the proposed management fees of the AIM and its affiliates, such as
levels of fee waivers/expense limitations AIM Funds, including the Fund. The Board administrative, transfer agency and
for the Fund were fair and reasonable. noted that the Senior Officer's written distribution services, and the fees
evaluation had been relied upon by the received by AIM and its affiliates for
o Breakpoints and economies of scale. The Board in this regard in lieu of a performing such services. In addition to
Board reviewed the structure of the competitive bidding process. In reviewing such services, the trustees
Fund's advisory fee under the Advisory determining whether to continue the also considered the organizational
Agreement, noting that it includes one Advisory Agreement for the Fund, the structure employed by AIM and its
breakpoint. The Board reviewed the level Board considered the Senior Officer's affiliates to provide those services.
of the Fund's advisory fees, and noted written evaluation and the recommendation Based on the review of these and other
that such fees, as a percentage of the made by the Senior Officer to the Board factors, the Board concluded that AIM and
Fund's net assets, have decreased as net that the Board consider whether the its affiliates were qualified to continue
assets increased because the Advisory advisory fee waivers for certain equity to provide non-investment advisory
Agreement includes a breakpoint. The AIM Funds, including the Fund, should be services to the Fund, including
Board noted that AIM has contractually simplified. The Board concluded that it administrative, transfer agency and
agreed to waive advisory fees of the Fund would be advisable to consider this issue distribution services, and that AIM and
through December 31, 2009 to the extent and reach a decision prior to the its affiliates currently are providing
necessary so that the advisory fees expiration date of such advisory fee satisfactory non-investment advisory
payable by the Fund do not exceed a waivers. services.
specified maximum advisory fee rate,
which maximum rate includes breakpoints o Profitability of AIM and its o Other factors and current trends. The
and is based on net asset levels. The affiliates. The Board reviewed Board considered the steps that AIM and
Board concluded that the Fund's fee information concerning the profitability its affiliates have taken over the last
levels under the Advisory Agreement of AIM's (and its affiliates') investment several years, and continue to take, in
therefore reflect economies of scale and advisory and other activities and its order to improve the quality and
that it was not necessary to change the financial condition. The Board considered efficiency of the services they provide
advisory fee breakpoints in the Fund's the overall profitability of AIM, as well to the Funds in the areas of investment
advisory fee schedule. as the profitability of AIM in connection performance, product line
with managing the Fund. The Board noted diversification, distribution, fund
o Investments in affiliated money market that AIM's operations remain profitable, operations, shareholder services and
funds. The Board also took into account although increased expenses in recent compliance. The Board concluded that
the fact that uninvested cash and cash years have reduced AIM's profitability. these steps taken by AIM have improved,
collateral from securities lending Based on the review of the profitability and are likely to continue to improve,
arrangements, if any (collectively, "cash of AIM's and its affiliates' investment the quality and efficiency of the
balances") of the Fund may be invested in advisory and other activities and its services AIM and its affiliates provide
money market funds advised by AIM financial condition, the Board concluded to the Fund in each of these areas, and
pursuant to the terms of an SEC exemptive that the compensation to be paid by the support the Board's approval of the
order. The Board found that the Fund may Fund to AIM under its Advisory Agreement continuance of the Advisory Agreement for
realize certain benefits upon investing was not excessive. the Fund.
cash balances in AIM advised money market
funds, including a
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-66.69%
AEROSPACE & DEFENSE-2.37%
Lockheed Martin Corp. 100,000 $ 7,174,000
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 440,732 28,233,292
- ---------------------------------------------------------------------------
United Technologies Corp. 450,000 28,539,000
===========================================================================
63,946,292
===========================================================================
APPAREL RETAIL-0.93%
Gap, Inc. (The) 1,439,177 25,041,680
===========================================================================
BIOTECHNOLOGY-1.83%
Amgen Inc.(a) 757,322 49,400,114
===========================================================================
BUILDING PRODUCTS-1.39%
Masco Corp. 1,267,414 37,566,151
===========================================================================
COMMUNICATIONS EQUIPMENT-1.85%
Cisco Systems, Inc.(a) 2,549,086 49,783,650
===========================================================================
COMPUTER HARDWARE-1.20%
International Business Machines Corp. 421,808 32,403,291
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.12%
EMC Corp.(a) 295,000 3,236,150
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.97%
Automatic Data Processing, Inc. 574,700 26,062,645
===========================================================================
DEPARTMENT STORES-0.95%
Kohl's Corp.(a) 431,628 25,517,847
===========================================================================
ELECTRIC UTILITIES-1.40%
FPL Group, Inc. 915,170 37,869,735
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.10%
Waste Management, Inc. 1,575,218 56,518,822
===========================================================================
FOOD DISTRIBUTORS-1.06%
Sysco Corp. 931,630 28,470,613
===========================================================================
FOOD RETAIL-1.24%
Kroger Co. (The) 1,530,186 33,449,866
===========================================================================
HEALTH CARE EQUIPMENT-0.98%
Medtronic, Inc. 564,857 26,503,091
===========================================================================
HOMEFURNISHING RETAIL-0.91%
Bed Bath & Beyond Inc.(a) 736,577 24,432,259
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
HYPERMARKETS & SUPER CENTERS-1.65%
Wal-Mart Stores, Inc. 926,264 $ 44,618,137
===========================================================================
INDUSTRIAL CONGLOMERATES-4.28%
General Electric Co. 1,299,094 42,818,138
- ---------------------------------------------------------------------------
Tyco International Ltd. 2,641,762 72,648,455
===========================================================================
115,466,593
===========================================================================
INDUSTRIAL MACHINERY-1.03%
Dover Corp. 561,733 27,766,462
===========================================================================
INSURANCE BROKERS-0.84%
Marsh & McLennan Cos., Inc. 838,646 22,551,191
===========================================================================
INTEGRATED OIL & GAS-2.37%
Exxon Mobil Corp. 1,039,869 63,795,963
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.01%
AT&T Inc. 1,941,329 54,143,666
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.09%
Morgan Stanley 464,087 29,334,939
===========================================================================
MOVIES & ENTERTAINMENT-2.32%
News Corp.-Class A 2,050,160 39,322,069
- ---------------------------------------------------------------------------
Walt Disney Co. (The) 773,911 23,217,330
===========================================================================
62,539,399
===========================================================================
MULTI-LINE INSURANCE-0.88%
Genworth Financial Inc.-Class A 677,858 23,616,573
===========================================================================
OFFICE ELECTRONICS-2.05%
Xerox Corp.(a) 3,983,210 55,406,451
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.90%
Schlumberger Ltd. 424,454 27,636,200
- ---------------------------------------------------------------------------
Smith International, Inc. 532,024 23,659,107
===========================================================================
51,295,307
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.24%
Citigroup Inc. 694,401 33,497,904
===========================================================================
PACKAGED FOODS & MEATS-0.83%
General Mills, Inc. 431,197 22,275,637
===========================================================================
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
PERSONAL PRODUCTS-3.55%
Avon Products, Inc. 1,301,335 $ 40,341,385
- ---------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 1,434,114 55,457,188
===========================================================================
95,798,573
===========================================================================
PHARMACEUTICALS-6.04%
Bristol-Myers Squibb Co. 1,476,697 38,187,385
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 963,745 37,287,294
- ---------------------------------------------------------------------------
Johnson & Johnson 494,113 29,607,251
- ---------------------------------------------------------------------------
Merck & Co. Inc. 831,147 30,278,685
- ---------------------------------------------------------------------------
Pfizer Inc. 1,169,437 27,446,686
===========================================================================
162,807,301
===========================================================================
PROPERTY & CASUALTY INSURANCE-4.42%
Berkshire Hathaway Inc.-Class A(a) 681 62,419,779
- ---------------------------------------------------------------------------
Chubb Corp. (The) 474,478 23,676,452
- ---------------------------------------------------------------------------
XL Capital Ltd.-Class A 538,500 33,010,050
===========================================================================
119,106,281
===========================================================================
PUBLISHING-1.39%
Gannett Co., Inc. 343,862 19,232,201
- ---------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 360,651 18,115,500
===========================================================================
37,347,701
===========================================================================
RAILROADS-1.25%
Union Pacific Corp. 362,840 33,729,606
===========================================================================
RESTAURANTS-0.68%
Yum! Brands, Inc. 362,766 18,236,247
===========================================================================
SEMICONDUCTORS-2.65%
Analog Devices, Inc. 820,305 26,364,603
- ---------------------------------------------------------------------------
Intel Corp. 1,202,816 22,793,363
- ---------------------------------------------------------------------------
Xilinx, Inc. 987,817 22,374,055
===========================================================================
71,532,021
===========================================================================
SOFT DRINKS-1.56%
Coca-Cola Co. (The) 978,724 42,104,707
===========================================================================
SYSTEMS SOFTWARE-3.36%
Microsoft Corp. 2,241,616 52,229,653
- ---------------------------------------------------------------------------
Symantec Corp.(a) 2,467,798 38,349,581
===========================================================================
90,579,234
===========================================================================
Total Domestic Common Stocks (Cost
$1,642,962,694) 1,797,752,099
===========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-18.59%
ARGENTINA-1.08%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 719,280 29,123,647
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
FINLAND-1.38%
Nokia Oyj-ADR (Communications Equipment)(b) 1,831,976 $ 37,115,834
===========================================================================
FRANCE-2.19%
Renault S.A. (Automobile Manufacturers) 243,920 26,210,912
- ---------------------------------------------------------------------------
Total S.A. (Integrated Oil & Gas)(c) 500,460 32,829,493
===========================================================================
59,040,405
===========================================================================
ISRAEL-1.31%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 1,117,025 35,286,820
===========================================================================
JAPAN-0.59%
Nintendo Co., Ltd. (Home Entertainment
Software)(c) 95,000 15,995,583
===========================================================================
NETHERLANDS-4.57%
Heineken N.V. (Brewers)(c) 951,094 40,301,311
- ---------------------------------------------------------------------------
Koninklijke (Royal) Phillips Electronics N.V.
(Consumer Electronics)(c) 1,300,887 40,677,903
- ---------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(c) 1,860,576 42,162,948
===========================================================================
123,142,162
===========================================================================
SOUTH KOREA-1.08%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 1,250,631 29,289,778
===========================================================================
SWITZERLAND-1.07%
UBS A.G. (Diversified Capital Markets)(c) 263,034 28,768,379
===========================================================================
UNITED KINGDOM-5.32%
Barclays PLC (Diversified Banks)(c) 2,538,870 28,806,176
- ---------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats)(c) 6,265,464 60,325,782
- ---------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 973,453 54,318,677
===========================================================================
143,450,635
===========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $437,426,198) 501,213,243
===========================================================================
MONEY MARKET FUNDS-15.33%
Liquid Assets Portfolio-Institutional
Class(d) 206,683,246 206,683,246
- ---------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 206,683,246 206,683,246
===========================================================================
Total Money Market Funds (Cost
$413,366,492) 413,366,492
===========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.61% (Cost
$2,493,755,384) 2,712,331,834
===========================================================================
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-1.43%
MONEY MARKET FUNDS-1.43%
Liquid Assets Portfolio-Institutional
Class(d)(e) 38,570,600 $ 38,570,600
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $38,570,600) 38,570,600
===========================================================================
TOTAL INVESTMENTS-102.04% (Cost
$2,532,325,984) 2,750,902,434
===========================================================================
OTHER ASSETS LESS LIABILITIES-(2.04)% (54,991,315)
===========================================================================
NET ASSETS-100.00% $2,695,911,119
___________________________________________________________________________
===========================================================================
</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 was out on loan at June 30, 2006.
(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 June 30, 2006 was $289,867,575, which
represented 10.75% 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 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. CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $2,080,388,892)* $2,298,965,342
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $451,937,092) 451,937,092
=============================================================
Total investments (cost $2,532,325,984) 2,750,902,434
=============================================================
Foreign currencies, at value (cost $484,573) 490,206
- -------------------------------------------------------------
Receivables for:
Investments sold 49,258
- -------------------------------------------------------------
Fund shares sold 416,482
- -------------------------------------------------------------
Dividends 4,630,309
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 190,766
- -------------------------------------------------------------
Other assets 99,299
=============================================================
Total assets 2,756,778,754
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 7,121,997
- -------------------------------------------------------------
Fund shares reacquired 12,763,739
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 394,552
- -------------------------------------------------------------
Collateral upon return of securities loaned 38,570,600
- -------------------------------------------------------------
Accrued administrative services fees 1,348,050
- -------------------------------------------------------------
Accrued distribution fees--Series II 14,032
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,268
- -------------------------------------------------------------
Accrued transfer agent fees 6,047
- -------------------------------------------------------------
Accrued operating expenses 647,350
=============================================================
Total liabilities 60,867,635
=============================================================
Net assets applicable to shares outstanding $2,695,911,119
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,541,964,964
- -------------------------------------------------------------
Undistributed net investment income 20,048,865
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (84,791,949)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 218,689,239
=============================================================
$2,695,911,119
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $2,663,618,891
_____________________________________________________________
=============================================================
Series II $ 32,292,228
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 109,165,966
_____________________________________________________________
=============================================================
Series II 1,331,799
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 24.40
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 24.25
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $37,785,956 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$654,192) $ 16,455,233
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$185,449 after compensation to
counterparties of $130,125) 4,018,768
=============================================================
Total investment income 20,474,001
=============================================================
EXPENSES:
Advisory fees 5,310,791
- -------------------------------------------------------------
Administrative services fees 2,274,689
- -------------------------------------------------------------
Custodian fees 87,730
- -------------------------------------------------------------
Distribution fees--Series II 16,480
- -------------------------------------------------------------
Transfer agent fees 18,889
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 35,917
- -------------------------------------------------------------
Other 105,468
=============================================================
Total expenses 7,849,964
=============================================================
Less: Fees waived and expense offset
arrangement (14,286)
=============================================================
Net expenses 7,835,678
=============================================================
Net investment income 12,638,323
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized (loss) from:
Investment securities (includes gains
(losses) from securities sold to
affiliates of $(30,817)) 117,497,135
- -------------------------------------------------------------
Foreign currencies (55,619)
=============================================================
117,441,516
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (123,088,582)
- -------------------------------------------------------------
Foreign currencies (10,699)
- -------------------------------------------------------------
Option contracts written 1,241,093
=============================================================
(121,858,188)
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (4,416,672)
=============================================================
Net increase in net assets resulting from
operations $ 8,221,651
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 12,638,323 $ 14,628,715
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 117,441,516 109,888,305
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (121,858,188) (58,233,272)
==============================================================================================
Net increase in net assets resulting from operations 8,221,651 66,283,748
==============================================================================================
Distributions to shareholders from net investment income:
Series I -- (18,751,304)
- ----------------------------------------------------------------------------------------------
Series II -- (48,282)
==============================================================================================
Decrease in net assets resulting from distributions -- (18,799,586)
==============================================================================================
Share transactions-net:
Series I 1,408,095,284 (288,279,283)
- ----------------------------------------------------------------------------------------------
Series II 29,207,305 (453,871)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 1,437,302,589 (288,733,154)
==============================================================================================
Net increase (decrease) in net assets 1,445,524,240 (241,248,992)
==============================================================================================
NET ASSETS:
Beginning of period 1,250,386,879 1,491,635,871
==============================================================================================
End of period (including undistributed net investment
income of $20,048,865 and $7,410,542, respectively) $2,695,911,119 $1,250,386,879
______________________________________________________________________________________________
==============================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Core Equity Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. CORE EQUITY FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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, 2008. 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 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $13,735.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $193,067 for
accounting and fund administrative services and reimbursed $2,081,622 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $18,889.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $16,480.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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 and
procedures approved by the Board of Trustees, to invest daily available cash
balances and cash collateral from securities lending transactions in affiliated
money market funds. The Fund and the money market funds below have the same
investment advisor and therefore, are considered to be affiliated. The tables
below show the transactions in and earnings from investments in affiliated money
market funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,200,588 $331,417,294 $(134,934,636) $ -- $206,683,246 $1,911,251 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,200,588 331,417,294 (341,617,882) -- -- 1,835,010 --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 214,286,226 (7,602,980) -- 206,683,246 87,058 --
===================================================================================================================================
Subtotal $20,401,176 $877,120,814 $(484,155,498) $ -- $413,366,492 $3,833,319 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 154,486,270 $(115,915,670) $ -- $ 38,570,600 $ 185,449 $ --
===================================================================================================================================
Total $20,401,176 $1,031,607,084 $(600,071,168) $ -- $451,937,092 $4,018,768 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $1,628,734, which resulted in net realized gains
(losses) of $(30,817) and securities purchases of $9,045,462.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30 ,2006 the Fund received credits from this arrangement, which resulted in
the reduction of the Fund's total expenses of $551.
NOTE 6--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$3,901 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. CORE EQUITY FUND
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $37,785,956 were on
loan to brokers. The loans were secured by cash collateral of $38,570,600
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2006, the Fund received dividends on cash
collateral investments of $185,449 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of period 6,610 $703,775
- -----------------------------------------------------------------------------------
Exercised 6,610 703,775
===================================================================================
End of period -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. CORE EQUITY FUND
The Fund had 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 has been reduced for
limitations in effect as of that date, if any, to the extent required by the
Internal Revenue Code. The amount does not include the effects on the capital
loss carryforward of the reorganizations of the AIM V.I. Core Stock Fund and
the AIM V.I. Premier Equity Fund into the Fund on May 1, 2006, as it occurred
after the Fund's most recent fiscal year end. To the extent that unrealized
gains as of May 1, 2006, the date of the reorganizations of AIM V.I. Core
Stock Fund and the AIM V.I. Premier Equity Fund into the Fund are realized on
securities held in each fund at such date of reorganizations, the capital loss
carryforward may be further limited for up to five years from the date of the
reorganizations.
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 six months
ended June 30, 2006 was $422,056,437 and $441,861,665, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $242,012,504
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (50,612,452)
==============================================================================
Net unrealized appreciation of investment securities $191,400,052
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,559,502,382.
</Table>
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(a) DECEMBER 31, 2005
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,464,032 $ 85,091,832 5,782,887 $ 128,067,074
- ---------------------------------------------------------------------------------------------------------------------------
Series II 129,460 3,334,622 46,605 1,038,635
===========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 791,528 18,751,304
- ---------------------------------------------------------------------------------------------------------------------------
Series II -- -- 2,048 48,282
===========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 64,659,654 1,621,011,995 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Series II 1,126,308 28,069,390 -- --
===========================================================================================================================
Reacquired:
Series I (12,115,755) (298,008,544) (19,247,047) (435,097,661)
- ---------------------------------------------------------------------------------------------------------------------------
Series II (89,352) (2,196,707) (68,927) (1,540,788)
===========================================================================================================================
57,174,347 $1,437,302,588 (12,692,906) $(288,733,154)
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 51% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
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 May 1, 2006, the Fund acquired all the
net assets of AIM VI Core Stock Fund and AIM VI Premier Equity Fund
pursuant to a plan of reorganization approved by the Trustees of the
Fund on February 13, 2006 and by the shareholders of AIM VI Core Stock
Fund and AIM VI Premier Equity Fund on April 14, 2006. The acquisition
was accomplished by a tax-free exchange of 65,785,962 shares of the Fund
for 4,265,009 shares outstanding of AIM VI Core Stock Fund and
67,047,704 shares outstanding of AIM VI Premier Equity Fund as of the
close of business on April 28, 2006. AIM VI Core Stock Fund's net assets
at that date of $85,632,841 including $5,569,111 of unrealized
appreciation and AIM VI Premier Equity Fund's net assets at that date of
$1,563,448,544 including $199,249,945 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $1,233,787,778.
AIM V.I. CORE EQUITY FUND
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 23.45 $ 22.60 $ 20.94 $ 16.99 $ 20.20 $ 26.19
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18(a) 0.24(a) 0.30(b) 0.17(a) 0.12(a) 0.03(c)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and unrealized) 0.77 0.96 1.58 3.97 (3.27) (6.01)
==============================================================================================================================
Total from investment
operations 0.95 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 $ 24.40 $ 23.45 $ 22.60 $ 20.94 $ 16.99 $ 20.20
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(d) 4.05% 5.31% 8.97% 24.42% (15.58)% (22.83)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $2,663,619 $1,246,529 $1,487,462 $1,555,475 $1,385,050 $1,916,875
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average
net assets 0.90%(e) 0.89% 0.91% 0.81%(f) 0.78% 0.82%
==============================================================================================================================
Ratio of net investment
income to average net
assets 1.45%(e) 1.08% 1.25%(b) 0.91% 0.67% 0.12%(c)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(g) 35% 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 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 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 are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(e) Ratios are annualized and based on average daily net assets of
$1,750,808,153.
(f) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.82% for the year ended December 31, 2003.
(g) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CORE EQUITY FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------------------------------
OCTOBER 24, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------------------ DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 23.33 $22.48 $ 20.85 $ 16.94 $20.19 $ 18.97
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.14(a) 0.18(a) 0.21(b) 0.12(a) 0.07(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.78 0.96 1.60 3.96 (3.26) 1.23
=================================================================================================================================
Total from investment
operations 0.92 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 $ 24.25 $23.33 $ 22.48 $ 20.85 $16.94 $ 20.19
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.94% 5.08% 8.67% 24.15% (15.79)% 6.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $ 32,292 $3,858 $ 4,173 $ 3,808 $1,949 $ 400
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets 1.15%(d) 1.14% 1.16% 1.06%(e) 1.03% 1.03%(f)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 1.20%(d) 0.83% 1.00%(b) 0.66% 0.42% (0.10)%(f)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(g) 35% 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 $0.14 and 0.67%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$13,292,868.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.07% for the year ended December 31, 2003.
(f) Annualized.
(g) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements
AIM V.I. CORE EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
permitting market timing of the AIM Funds, including those formerly advised by
IFG, and failed to disclose these arrangements in the prospectuses for such
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. CORE EQUITY FUND
AIM V.I. DEMOGRAPHIC TRENDS FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. DEMOGRAPHIC TRENDS FUND seeks to provide
long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 revenue and cash flow, ranking
investment candidates on absolute and
========================================================================================= relative attractiveness. Fundamental
analysis seeks to define a company's key
PERFORMANCE SUMMARY drivers of success and to assess their
============================================ durability. We review financial
For the six months ended June 30, 2006, statements and earnings reports, the
and excluding variable product issuer FUND VS. INDEXES company's structure, business model and
charges, AIM V.I. Demographic Trends management team, the competitive
Fund produced positive returns and CUMULATIVE TOTAL RETURNS,12/31/05-6/30/06, environment and market opportunities.
outperformed its style-specific index, EXCLUDING VARIABLE PRODUCT ISSUER
the Russell 3000 Growth Index. CHARGES. Conditions that may cause us to
reduce or sell a position include:
The Fund underperformed the S&P 500 IF VARIABLE PRODUCT ISSUER CHARGES WERE
Index, the Fund's broad market index, INCLUDED, RETURNS WOULD BE LOWER. o Deteriorating business prospects.
largely due to an overweight position
and weak stock selection in the health Series I Shares 0.67% o Worsening competitive position.
care sector, which was the second
weakest performing sector in the broad Series II Shares 0.50 o Slowing earnings growth.
market during the reporting period. An
overweight position in the information Standard & Poor's Composite Index o Extended valuation.
technology sector and an underweight of 500 Stocks (S&P 500 Index)
position in the energy sector also (Broad Market Index) 2.71 o Identifying more attractive investment
detracted from the Fund's relative opportunities.
performance. The Fund outperformed the Russell 3000 Growth Index
Russell 3000 Growth Index due to good (Style-Specific Index) -0.32 MARKET CONDITIONS AND YOUR FUND
stock selection in the consumer
discretionary, information technology Lipper Multi-Cap Growth Fund Index After performing strongly during the
and (Peer Group Index) 0.13 first four months of 2006, the U.S.
stock market retreated over the last two
SOURCE: LIPPER INC. months of the reporting period largely
============================================ due to fears that inflation might lead
the U.S. Federal Reserve Board to
industrials sectors, offset somewhat by continue raising interest rates, and
relatively weaker stock selection in the concerns that rising interest rates
health care sector. might undercut continued economic
expansion. Small- and medium-cap stocks
Your Fund's long-term performance generally outperformed large-cap stocks
appears on page 4. during the reporting period. Positive
performance was broad-based among S&P
========================================================================================= 500 sectors with the strongest returns
found in the energy, telecommunication
HOW WE INVEST quantitative and fundamental analysis to services, industrials and materials
uncover companies exhibiting long-term, sectors.
We believe growth investors can sustainable earnings and cash flow
potentially succeed when the market growth that is not yet reflected in In this environment, the Fund
underestimates the pace, persistence and investor expectations or equity outperformed the Russell 3000 Growth
implications of positive change. In the valuations. AIM V.I. Demographic Trends Index in three of the four sectors in
case of AIM V.I. Demographic Trends Fund focuses on companies likely to which the Fund invests the bulk
Fund, we believe changing demographics benefit from long-term demographic
creates investment opportunity. Our trends.
investment process combines
Quantitative analysis focuses on the
level, growth rate and sustainability of
earnings,
========================================= ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.9% 1. Cisco Systems, Inc. 2.6%
Information Technology 26.1% 2. Communications Equipment 7.0 2. Amdocs Ltd. 2.4
Health Care 16.7 3. Semiconductors 6.1 3. Google Inc.-Class A 2.1
Industrials 15.7 4. Investment Banking & Brokerage 5.6 4. Analog Devices, Inc. 2.1
Consumer Discretionary 14.6 5. Application Software 4.4 5. Roche Holding A.G.
(Switzerland) 2.0
Financials 11.4 TOTAL NET ASSETS $56.3 MILLION
TOTAL NUMBER OF HOLDINGS* 103 6. QUALCOMM Inc. 1.9
Energy 4.7
7. JPMorgan Chase & Co. 1.8
Materials 4.4
8. Goldman Sachs Group Inc. (The) 1.8
Consumer Staples 3.9
9. Merrill Lynch & Co., Inc. 1.7
Telecommunication Services 0.6
10. Burlington Northern
Money Market Funds Plus Santa Fe Corp. 1.6
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. DEMOGRAPHIC TRENDS FUND
of its assets: information technology, and road and rail industries, each of THE VIEWS AND OPINIONS EXPRESSED IN
consumer discretionary and financials. which continued to benefit from global MANAGEMENT'S DISCUSSION OF FUND
As a group, our industrials and economic expansion. PERFORMANCE ARE THOSE OF A I M ADVISORS,
materials holdings made key INC. THESE VIEWS AND OPINIONS ARE
contributions to Fund performance during Within the materials sector, the Fund SUBJECT TO CHANGE AT ANY TIME BASED ON
the reporting period, while our health benefited from an overweight position in FACTORS SUCH AS MARKET AND ECONOMIC
care and consumer staples holdings the metals and mining industry. Many CONDITIONS. THESE VIEWS AND OPINIONS MAY
generally underperformed those of the companies in this area were helped by NOT BE RELIED UPON AS INVESTMENT ADVICE
Russell 3000 Growth Index. high commodity prices. Holdings that OR RECOMMENDATIONS, OR AS AN OFFER FOR A
drove Fund performance included copper PARTICULAR SECURITY. THE INFORMATION IS
While the Fund's information producer PHELPS DODGE and mining and oil NOT A COMPLETE ANALYSIS OF EVERY ASPECT
technology holdings as a group delivered company BHP BILLITON. OF ANY MARKET, COUNTRY, INDUSTRY,
negative returns for the reporting SECURITY OR THE FUND. STATEMENTS OF FACT
period, they held up better than those On the other hand, the Fund ARE FROM SOURCES CONSIDERED RELIABLE,
of the Russell 3000 Growth underperformed the Russell 3000 Growth BUT A I M ADVISORS, INC. MAKES NO
Index--largely due to strong stock Index by the widest margin in the health REPRESENTATION OR WARRANTY AS TO THEIR
selection in the software and care sector. The Fund's underperformance COMPLETENESS OR ACCURACY. ALTHOUGH
semiconductor industries. One holding in this sector was driven primarily by HISTORICAL PERFORMANCE IS NO GUARANTEE
that performed well was graphics chip three holdings: ALCON, CIGNA and AETNA. OF FUTURE RESULTS, THESE INSIGHTS MAY
supplier NVIDIA. The company reported Our overweight position also hurt HELP YOU UNDERSTAND OUR INVESTMENT
higher than expected earnings due to performance as investors appeared to MANAGEMENT PHILOSOPHY.
strong sales and profit margin rotate out of last year's strong
expansion. We subsequently sold the performers in the health care sector to LANNY H. SACHNOWITZ,
stock as it had reached our price invest in other opportunities. While we
target. Software holding Amdocs also sold Alcon and Cigna, we continued to senior portfolio manager, is
performed well during the reporting own Aetna at the close of the reporting [SACHNOWITZ lead manager of AIM V.I.
period. period. PHOTO] Demographic Trends Fund. He
joined AIM in 1987 as a
There were several notable detractors The Fund also underperformed its money market trader and research
from Fund performance in the information style-specific index in the consumer analyst. In 1990, Mr. Sachnowitz's
technology sector, including APPLE staples sector, primarily due to a large trading responsibilities were expanded
COMPUTER and YAHOO! We reduced Apple underweight position. to include head of equity trading. Mr.
Computer due to less upside-to-earnings Sachnowitz earned a B.S. in finance from
estimates, and we sold Yahoo! Our investment process led us to the University of Southern California
reduce our exposure to the health care and an M.B.A. from the University of
In the financials sector, investment sector. Proceeds from these sales were Houston.
banking and brokerage stocks generally spread across opportunities in a number
performed well during the reporting of other sectors, including industrials, KIRK L. ANDERSON,
period. Our investment process led us to consumer discretionary and consumer
an overweight position in this area, and staples. All changes to the Fund's portfolio manager, is
several Fund holdings contributed to holdings were based on our bottom-up [ANDERSON manager of AIM V.I.
performance, including GOLDMAN SACHS and stock selection process of identifying PHOTO] Demographic Trends Fund. He
LEHMAN BROTHERS. Favorable capital high quality growth companies trading at joined AIM in 1994. Mr.
markets and solid merger and acquisition what we believe are attractive Anderson earned a B.A. in political
activity continued to drive these stocks valuations. science from Texas A&M University and an
during the reporting period. Prior to M.S. in finance from the University of
the close of the reporting period, we IN CLOSING Houston.
eliminated Lehman Brothers from the
Fund. During the reporting period, we JAMES G. BIRDSALL,
considered the fundamentals of growth
Many consumer-related stocks stocks to be attractive. As a group, portfolio manager, is
struggled during the reporting period large-cap growth companies generally [BIRDSALL manager of AIM V.I.
due to concerns that higher interest boasted healthy cash flows, strong PHOTO] Demographic Trends Fund. He
rates would crimp consumer spending and balance sheets and positive earnings has been associated with AIM
slow the economy. Despite these growth. Additionally, we believed that since 1997. Mr. Birdsall earned his
concerns, we were able to find some many large-cap growth stocks were B.B.A. with a concentration in finance
stocks that held up, including J.C. attractively priced relative to other from Stephen F. Austin State University
PENNEY, OFFICE DEPOT, ANN TAYLOR and stocks with less attractive before earning his M.B.A. with a
BEST BUY. Each of these holdings made fundamentals. While growth stocks have concentration in finance and
significant contributions to Fund generally lagged the broad market in international business from the
performance during the reporting period. recent years, investors have started to University of St. Thomas.
recognize and reward these
Industrials stocks were broadly characteristics. Assisted by the Large/Multi-Cap Growth
higher during the first half of 2006, Team
and the Fund outperformed the Russell As always, we thank you for your
3000 Growth Index due to strong stock continued investment in AIM V.I.
selection within the sector. Specific Demographic Trends Fund.
areas of strength for the Fund included
the aerospace and defense, electrical
equipment, [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 PAGE 4.
3
AIM V.I. DEMOGRAPHIC TRENDS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================= PERFORMANCE OF THE FUND'S SERIES I AND SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES II SHARE CLASSES WILL DIFFER FIGURES GIVEN REPRESENT THE FUND AND ARE
AVERAGE ANNUAL TOTAL RETURNS PRIMARILY DUE TO DIFFERENT CLASS NOT INTENDED TO REFLECT ACTUAL VARIABLE
EXPENSES. PRODUCT VALUES. THEY DO NOT REFLECT
As of 6/30/06 SALES CHARGES, EXPENSES AND FEES
THE PERFORMANCE DATA QUOTED REPRESENT ASSESSED IN CONNECTION WITH A VARIABLE
SERIES I SHARES PAST PERFORMANCE AND CANNOT GUARANTEE PRODUCT. SALES CHARGES, EXPENSES AND
Inception (12/29/99) -7.48% COMPARABLE FUTURE RESULTS; CURRENT FEES, WHICH ARE DETERMINED BY THE
5 Years -1.31 PERFORMANCE MAY BE LOWER OR HIGHER. VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 7.10 PLEASE CONTACT YOUR VARIABLE PRODUCT WILL LOWER THE TOTAL RETURN.
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
SERIES II SHARES RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
Inception -7.69% PERFORMANCE. PERFORMANCE FIGURES REFLECT RECENT MONTH-END PERFORMANCE DATA AT THE
5 Years -1.52 FUND EXPENSES, REINVESTED DISTRIBUTIONS FUND LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 6.99 AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON THIS AIM
INVESTMENT RETURN AND PRINCIPAL VALUE AUTOMATED INFORMATION LINE,
========================================= WILL FLUCTUATE SO THAT YOU MAY HAVE A 866-702-4402. AS MENTIONED ABOVE, FOR
GAIN OR LOSS WHEN YOU SELL SHARES. THE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES' INCEPTION DATE IS INCLUDING VARIABLE PRODUCT CHARGES,
NOVEMBER 7, 2001. RETURNS SINCE THAT AIM V.I. DEMOGRAPHIC TRENDS FUND, A PLEASE CONTACT YOUR VARIABLE PRODUCT
DATE ARE HISTORICAL. ALL OTHER RETURNS SERIES PORTFOLIO OF AIM VARIABLE ISSUER OR FINANCIAL ADVISOR.
ARE THE BLENDED RETURNS OF THE INSURANCE FUNDS, IS CURRENTLY OFFERED
HISTORICAL PERFORMANCE OF SERIES II THROUGH INSURANCE COMPANIES ISSUING
SHARES SINCE THEIR INCEPTION AND THE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
RESTATED HISTORICAL PERFORMANCE OF
SERIES I SHARES (FOR PERIODS PRIOR TO
INCEPTION OF SERIES II SHARES) ADJUSTED
TO REFLECT THE RULE 12b-1 FEES
APPLICABLE TO SERIES II SHARES. THE
INCEPTION DATE OF SERIES I SHARES IS
DECEMBER 29, 1999. THE
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT index. Unless otherwise indicated, index
results include reinvested dividends,
The Fund can invest up to 25% of its The unmanaged LIPPER MULTI-CAP GROWTH and they do not reflect sales charges.
assets in foreign securities that FUND INDEX represents an average of the Performance of an index of funds
involve risks not associated with performance of the 30 largest reflects fund expenses; performance of a
investing solely in the United States. multi-capitalization growth funds market index does not.
These include risks relating to tracked by Lipper Inc., an independent
fluctuations in the value of the U.S. mutual fund performance monitor. OTHER INFORMATION
dollar relative to the values of other
currencies, the custody arrangements The unmanaged RUSSELL The returns shown in the management's
made for the Fund's foreign holdings, 3000--Registered Trademark-- GROWTH discussion of Fund performance are based
differences in accounting, political INDEX is a subset of the RUSSELL on net asset values calculated for
risks and the lesser degree of public 3000--Registered Trademark-- INDEX, an shareholder transactions. Generally
information required to be provided by index of common stocks that measures accepted accounting principles require
non-U.S. companies. performance of the largest 3,000 U.S. adjustments to be made to the net assets
companies based on market of the Fund at period end for financial
Investing in smaller companies capitalization; the Growth subset reporting purposes, and as such, the net
involves greater risk than investing in measures the performance of Russell 3000 asset values for shareholder
more established companies, such as companies with higher price/book ratios transactions and the returns based on
business risk, significant stock price and higher forecasted growth values. those net asset values may differ from
fluctuations and illiquidity. the net asset values and returns
The unmanaged STANDARD & POOR'S reported in the Financial Highlights.
The values of the convertible COMPOSITE INDEX OF 500 STOCKS (the S&P Additionally, the returns and net asset
securities in which the Fund may invest 500--Registered Trademark-- Index) is an values shown throughout this report are
will be affected by market interest index of common stocks frequently used at the Fund level only and do not
rates, the risk that the issuer may as a general measure of U.S. stock include variable product issuer charges.
default on interest or principal market performance. If such charges were included, the total
payments and the value of the underlying returns would be lower.
common stock into which these securities The Fund is not managed to track the
may be converted. Since these types of performance of any particular index, Industry classifications used in this
convertible securities pay fixed including the indexes defined here, and report are generally according to the
interest and dividends, their values may consequently, the performance of the Global Industry Classification Standard,
fall if interest rates rise and rise if Fund may deviate significantly from the which was developed by and is the
interest rates fall. Additionally, an performance of the indexes. exclusive property and a service mark of
issuer may have the right to buy back Morgan Stanley Capital International
certain of the convertible securities at A direct investment cannot be made in Inc. and Standard & Poor's.
a time and at a price that is an
unfavorable to the Fund.
4
AIM V.I. DEMOGRAPHIC TRENDS 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,006.70 $5.03 $1,019.79 $5.06 1.01%
Series II 1,000.00 1,005.00 6.26 1,018.55 6.31 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
===================================================================================================================================
5
AIM V.I. DEMOGRAPHIC TRENDS FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the Fund's portfolio management team at this
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and time. However, due to the Fund's
the management of AIM V.I. Demographic that AIM currently is providing services under-performance, the Board also
Trends Fund (the "Fund") and, as in accordance with the terms of the concluded that it would be appropriate
required by law, determines annually Advisory Agreement. for the Board to continue to closely
whether to approve the continuance of monitor and review the performance of
the Fund's advisory agreement with A I M o The quality of services to be provided the Fund. Although the independent
Advisors, Inc. ("AIM"). Based upon the by AIM. The Board reviewed the written evaluation of the Fund's Senior
recommendation of the Investments credentials and experience of the Officer (discussed below) only
Committee of the Board, at a meeting officers and employees of AIM who will considered Fund performance through the
held on June 27, 2006, the Board, provide investment advisory services to most recent calendar year, the Board
including all of the independent the Fund. In reviewing the also reviewed more recent Fund
trustees, approved the continuance of qualifications of AIM to provide performance, which did not change their
the advisory agreement (the "Advisory investment advisory services, the Board conclusions.
Agreement") between the Fund and AIM for considered such issues as AIM's
another year, effective July 1, 2006. portfolio and product review process, o Meetings with the Fund's portfolio
various back office support functions managers and investment personnel. With
The Board considered the factors provided by AIM and AIM's equity and respect to the Fund, the Board is
discussed below in evaluating the fixed income trading operations. Based meeting periodically with such Fund's
fairness and reasonableness of the on the review of these and other portfolio managers and/or other
Advisory Agreement at the meeting on factors, the Board concluded that the investment personnel and believes that
June 27, 2006 and as part of the Board's quality of services to be provided by such individuals are competent and able
ongoing oversight of the Fund. In their AIM was appropriate and that AIM to continue to carry out their
deliberations, the Board and the currently is providing satisfactory responsibilities under the Advisory
independent trustees did not identify services in accordance with the terms of Agreement.
any particular factor that was the Advisory Agreement.
controlling, and each trustee attributed o Overall performance of AIM. The Board
different weights to the various o The performance of the Fund relative considered the overall performance of
factors. to comparable funds. The Board reviewed AIM in providing investment advisory and
the performance of the Fund during the portfolio administrative services to the
One responsibility of the independent past one, three and five calendar years Fund and concluded that such performance
Senior Officer of the Fund is to manage against the performance of funds advised was satisfactory.
the process by which the Fund's proposed by other advisors with investment
management fees are negotiated to ensure strategies comparable to those of the o Fees relative to those of clients of
that they are negotiated in a manner Fund. The Board noted that the Fund's AIM with comparable investment
which is at arms' length and reasonable. performance in such periods was below strategies. The Board reviewed the
To that end, the Senior Officer must the median performance of such effective advisory fee rate (before
either supervise a competitive bidding comparable funds. The Board considered waivers) for the Fund under the Advisory
process or prepare an independent steps being proposed by AIM to address Agreement. The Board noted that this
written evaluation. The Senior Officer the Fund's under-performance. Based on rate was (i) above the effective
has recommended an independent written this review and after taking account of advisory fee rates (before waivers) for
evaluation in lieu of a competitive all of the other factors that the Board two mutual funds advised by AIM with
bidding process and, upon the direction considered in determining whether to investment strategies comparable to
of the Board, has prepared such an continue the Advisory Agreement for the those of the Fund; (ii) above the
independent written evaluation. Such Fund, the Board concluded that no effective advisory fee rate (before
written evaluation also considered changes should be made to the Fund and waivers) for a variable insurance fund
certain of the factors discussed below. that it was not necessary to change the advised by AIM and offered to insurance
In addition, as discussed below, the Fund's portfolio management team at this company separate accounts with
Senior Officer made a recommendation to time. However, due to the Fund's investment strategies comparable to
the Board in connection with such under-performance, the Board also those of the Fund; (iii) above the
written evaluation. concluded that it would be appropriate effective sub-advisory fee rate for one
for the Board to continue to closely offshore fund advised and sub-advised by
The discussion below serves as a monitor and review the performance of AIM affiliates with investment
summary of the Senior Officer's the Fund. Although the independent strategies comparable to those of the
independent written evaluation and written evaluation of the Fund's Senior Fund, although the total advisory fees
recommendation to the Board in Officer (discussed below) only for such offshore fund were above those
connection therewith, as well as a considered Fund performance through the of the Fund; (iv) above the effective
discussion of the material factors and most recent calendar year, the Board sub-advisory fee rates for five variable
the conclusions with respect thereto also reviewed more recent Fund insurance funds sub-advised by an AIM
that formed the basis for the Board's performance, which did not change their affiliate and offered to insurance
approval of the Advisory Agreement. conclusions. company separate accounts with
After consideration of all of the investment strategies comparable to
factors below and based on its informed o The performance of the Fund relative those of the Fund, although the total
business judgment, the Board determined to indices. The Board reviewed the advisory fees for such variable
that the Advisory Agreement is in the performance of the Fund during the past insurance funds were the same as or
best interests of the Fund and its one, three and five calendar years above those for the Fund; and (v) above
shareholders and that the compensation against the performance of the Lipper the total advisory fee rate for a
to AIM under the Advisory Agreement is Variable Underlying Fund Multi-Cap separately managed account/wrap account
fair and reasonable and would have been Growth Index. The Board noted that the managed by an AIM affiliate with
obtained through arm's length Fund's performance was below the investment strategies comparable to
negotiations. performance of such Index for the one those of the Fund. The Board noted that
and five year periods and comparable to AIM has agreed to waive advisory fees of
Unless otherwise stated, information such Index for the three year period. the Fund and to limit the Fund's total
presented below is as of June 27, 2006 The Board considered steps being operating expenses, as discussed below.
and does not reflect any changes that proposed by AIM to address the Fund's Based on this review, the Board
may have occurred since June 27, 2006, under-performance. Based on this review concluded that the advisory fee rate for
including but not limited to changes to and after taking account of all of the the Fund under the Advisory Agreement
the Fund's performance, advisory fees, other factors that the Board considered was fair and reasonable.
expense limitations and/or fee waivers. in determining whether to continue the
Advisory Agreement for the Fund, the o Fees relative to those of comparable
o The nature and extent of the advisory Board concluded that no changes should funds with other advisors. The Board
services to be provided by AIM. The be made to the Fund and that it was not reviewed the advisory fee rate for the
Board reviewed the services to be necessary to change the Fund under the Advisory Agreement. The
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
6
AIM V.I. DEMOGRAPHIC TRENDS FUND
Board compared effective contractual o Investments in affiliated money market ates' investment advisory and other
advisory fee rates at a common asset funds. The Board also took into account activities and its financial condition,
level at the end of the past calendar the fact that uninvested cash and cash the Board concluded that the
year and noted that the Fund's rate was collateral from securities lending compensation to be paid by the Fund to
comparable to the median rate of the arrangements, if any (collectively, AIM under its Advisory Agreement was not
funds advised by other advisors with "cash balances") of the Fund may be excessive.
investment strategies comparable to invested in money market funds advised
those of the Fund that the Board by AIM pursuant to the terms of an SEC o Benefits of soft dollars to AIM. The
reviewed. The Board noted that AIM has exemptive order. The Board found that Board considered the benefits realized
agreed to waive advisory fees of the the Fund may realize certain benefits by AIM as a result of brokerage
Fund and to limit the Fund's total upon investing cash balances in AIM transactions executed through "soft
operating expenses, as discussed below. advised money market funds, including a dollar" arrangements. Under these
Based on this review, the Board higher net return, increased liquidity, arrangements, brokerage commissions paid
concluded that the advisory fee rate for increased diversification or decreased by the Fund and/or other funds advised
the Fund under the Advisory Agreement transaction costs. The Board also found by AIM are used to pay for research and
was fair and reasonable. that the Fund will not receive reduced execution services. This research may be
services if it invests its cash balances used by AIM in making investment
o Expense limitations and fee waivers. in such money market funds. The Board decisions for the Fund. The Board
The Board noted that AIM has noted that, to the extent the Fund concluded that such arrangements were
contractually agreed to waive advisory invests uninvested cash in affiliated appropriate.
fees of the Fund through December 31, money market funds, AIM has voluntarily
2009 to the extent necessary so that the agreed to waive a portion of the o AIM's financial soundness in light of
advisory fees payable by the Fund do not advisory fees it receives from the Fund the Fund's needs. The Board considered
exceed a specified maximum advisory fee attributable to such investment. The whether AIM is financially sound and has
rate, which maximum rate includes Board further determined that the the resources necessary to perform its
breakpoints and is based on net asset proposed securities lending program and obligations under the Advisory
levels. The Board considered the related procedures with respect to the Agreement, and concluded that AIM has
contractual nature of this fee waiver lending Fund is in the best interests of the financial resources necessary to
and noted that it remains in effect the lending Fund and its respective fulfill its obligations under the
until December 31, 2009. The Board noted shareholders. The Board therefore Advisory Agreement.
that AIM has contractually agreed to concluded that the investment of cash
waive fees and/or limit expenses of the collateral received in connection with o Historical relationship between the
Fund through April 30, 2008 in an amount the securities lending program in the Fund and AIM. In determining whether to
necessary to limit total annual money market funds according to the continue the Advisory Agreement for the
operating expenses to a specified procedures is in the best interests of Fund, the Board also considered the
percentage of average daily net assets the lending Fund and its respective prior relationship between AIM and the
for each class of the Fund. The Board shareholders. Fund, as well as the Board's knowledge
considered the contractual nature of of AIM's operations, and concluded that
this fee waiver/expense limitation and o Independent written evaluation and it was beneficial to maintain the
noted that it remains in effect until recommendations of the Fund's Senior current relationship, in part, because
April 30, 2008. The Board considered the Officer. The Board noted that, upon of such knowledge. The Board also
effect these fee waivers/expense their direction, the Senior Officer of reviewed the general nature of the
limitations would have on the Fund's the Fund, who is independent of AIM and non-investment advisory services
estimated expenses and concluded that AIM's affiliates, had prepared an currently performed by AIM and its
the levels of fee waivers/expense independent written evaluation in order affiliates, such as administrative,
limitations for the Fund were fair and to assist the Board in determining the transfer agency and distribution
reasonable. reasonableness of the proposed services, and the fees received by AIM
management fees of the AIM Funds, and its affiliates for performing such
o Breakpoints and economies of scale. including the Fund. The Board noted that services. In addition to reviewing such
The Board reviewed the structure of the the Senior Officer's written evaluation services, the trustees also considered
Fund's advisory fee under the Advisory had been relied upon by the Board in the organizational structure employed by
Agreement, noting that it includes one this regard in lieu of a competitive AIM and its affiliates to provide those
breakpoint. The Board reviewed the level bidding process. In determining whether services. Based on the review of these
of the Fund's advisory fees, and noted to continue the Advisory Agreement for and other factors, the Board concluded
that such fees, as a percentage of the the Fund, the Board considered the that AIM and its affiliates were
Fund's net assets, would decrease as net Senior Officer's written evaluation and qualified to continue to provide
assets increase because the Advisory the recommendation made by the Senior non-investment advisory services to the
Agreement includes a breakpoint. The Officer to the Board that the Board Fund, including administrative, transfer
Board noted that, due to the Fund's consider whether the advisory fee agency and distribution services, and
current asset level and the way in which waivers for certain equity AIM Funds, that AIM and its affiliates currently
the advisory fee breakpoint has been including the Fund, should be are providing satisfactory
structured, the Fund has yet to benefit simplified. The Board concluded that it non-investment advisory services.
from the breakpoint. The Board noted would be advisable to consider this
that AIM has contractually agreed to issue and reach a decision prior to the o Other factors and current trends. The
waive advisory fees of the Fund through expiration date of such advisory fee Board considered the steps that AIM and
December 31, 2009 to the extent waivers. its affiliates have taken over the last
necessary so that the advisory fees several years, and continue to take, in
payable by the Fund do not exceed a o Profitability of AIM and its order to improve the quality and
specified maximum advisory fee rate, affiliates. The Board reviewed efficiency of the services they provide
which maximum rate includes breakpoints information concerning the profitability to the Funds in the areas of investment
and is based on net asset levels. The of AIM's (and its affiliates') performance, product line
Board concluded that the Fund's fee investment advisory and other activities diversification, distribution, fund
levels under the Advisory Agreement and its financial condition. The Board operations, shareholder services and
therefore would reflect economies of considered the overall profitability of compliance. The Board concluded that
scale at higher asset levels and that it AIM, as well as the profitability of AIM these steps taken by AIM have improved,
was not necessary to change the advisory in connection with managing the Fund. and are likely to continue to improve,
fee breakpoints in the Fund's advisory The Board noted that AIM's operations the quality and efficiency of the
fee schedule. remain profitable, although increased services AIM and its affiliates provide
expenses in recent years have reduced to the Fund in each of these areas, and
AIM's profitability. Based on the review support the Board's approval of the
of the profitability of AIM's and its continuance of the Advisory Agreement
affili- for the Fund.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.37%
AEROSPACE & DEFENSE-3.87%
Boeing Co. (The) 10,128 $ 829,584
- --------------------------------------------------------------------
General Dynamics Corp. 9,445 618,270
- --------------------------------------------------------------------
Precision Castparts Corp. 5,019 299,935
- --------------------------------------------------------------------
United Technologies Corp. 6,773 429,544
====================================================================
2,177,333
====================================================================
AGRICULTURAL PRODUCTS-0.47%
Archer-Daniels-Midland Co. 6,398 264,109
====================================================================
APPAREL RETAIL-2.99%
Aeropostale, Inc.(a) 18,059 521,724
- --------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 9,758 423,302
- --------------------------------------------------------------------
DSW Inc.-Class A(a) 14,000 509,880
- --------------------------------------------------------------------
Limited Brands, Inc. 8,900 227,751
====================================================================
1,682,657
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.31%
Carter's, Inc.(a) 6,627 175,152
====================================================================
APPLICATION SOFTWARE-4.39%
Amdocs Ltd.(a) 37,012 1,354,639
- --------------------------------------------------------------------
BEA Systems, Inc.(a) 48,397 633,517
- --------------------------------------------------------------------
Citrix Systems, Inc.(a) 11,948 479,593
====================================================================
2,467,749
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.11%
Janus Capital Group Inc. 34,842 623,672
====================================================================
BIOTECHNOLOGY-1.57%
Gilead Sciences, Inc.(a) 14,961 885,093
====================================================================
COMMUNICATIONS EQUIPMENT-6.00%
Cisco Systems, Inc.(a) 74,955 1,463,871
- --------------------------------------------------------------------
Harris Corp. 7,525 312,363
- --------------------------------------------------------------------
QUALCOMM Inc. 26,544 1,063,618
- --------------------------------------------------------------------
Redback Networks Inc.(a) 7,370 135,166
- --------------------------------------------------------------------
Tellabs, Inc.(a) 30,119 400,884
====================================================================
3,375,902
====================================================================
COMPUTER & ELECTRONICS RETAIL-1.86%
Best Buy Co., Inc. 10,430 571,981
- --------------------------------------------------------------------
Circuit City Stores, Inc. 17,434 474,554
====================================================================
1,046,535
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
COMPUTER HARDWARE-1.73%
Apple Computer, Inc.(a) 9,753 $ 557,091
- --------------------------------------------------------------------
Hewlett-Packard Co. 13,135 416,117
====================================================================
973,208
====================================================================
COMPUTER STORAGE & PERIPHERALS-1.21%
EMC Corp.(a) 18,199 199,643
- --------------------------------------------------------------------
Seagate Technology(a) 10,363 234,619
- --------------------------------------------------------------------
Western Digital Corp.(a) 12,430 246,238
====================================================================
680,500
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.36%
Joy Global Inc. 10,786 561,843
- --------------------------------------------------------------------
Oshkosh Truck Corp. 5,600 266,112
- --------------------------------------------------------------------
Terex Corp.(a) 5,088 502,185
====================================================================
1,330,140
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.23%
VeriFone Holdings, Inc.(a) 4,280 130,454
====================================================================
DEPARTMENT STORES-2.45%
Federated Department Stores, Inc. 15,075 551,745
- --------------------------------------------------------------------
J.C. Penney Co., Inc. 12,251 827,065
====================================================================
1,378,810
====================================================================
DIVERSIFIED METALS & MINING-0.56%
Phelps Dodge Corp. 3,867 317,713
====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.78%
Cooper Industries, Ltd.-Class A 4,240 393,981
- --------------------------------------------------------------------
Emerson Electric Co. 7,218 604,940
====================================================================
998,921
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.76%
Amphenol Corp.-Class A 7,661 428,709
====================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.50%
Waste Management, Inc. 7,878 282,663
====================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.77%
Monsanto Co. 5,147 433,326
====================================================================
GENERAL MERCHANDISE STORES-1.50%
Family Dollar Stores, Inc. 22,801 557,029
- --------------------------------------------------------------------
Target Corp. 5,867 286,720
====================================================================
843,749
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.20%
Cardinal Health, Inc. 10,458 $ 672,763
====================================================================
HEALTH CARE EQUIPMENT-2.02%
Becton, Dickinson and Co. 10,002 611,422
- --------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 11,117 526,390
====================================================================
1,137,812
====================================================================
HEALTH CARE FACILITIES-0.72%
Manor Care, Inc. 8,579 402,527
====================================================================
HEALTH CARE SERVICES-1.30%
Caremark Rx, Inc. 8,482 422,997
- --------------------------------------------------------------------
Omnicare, Inc. 6,513 308,847
====================================================================
731,844
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.50%
Electronic Arts Inc.(a) 6,595 283,849
====================================================================
HOUSEHOLD PRODUCTS-1.51%
Colgate-Palmolive Co. 8,921 534,368
- --------------------------------------------------------------------
Procter & Gamble Co. (The) 5,693 316,531
====================================================================
850,899
====================================================================
HYPERMARKETS & SUPER CENTERS-0.80%
Costco Wholesale Corp. 7,843 448,070
====================================================================
INDUSTRIAL CONGLOMERATES-1.90%
McDermott International, Inc.(a) 7,953 361,623
- --------------------------------------------------------------------
Textron Inc. 7,660 706,099
====================================================================
1,067,722
====================================================================
INDUSTRIAL MACHINERY-0.56%
Parker Hannifin Corp. 4,044 313,814
====================================================================
INTEGRATED OIL & GAS-1.43%
Occidental Petroleum Corp. 7,832 803,172
====================================================================
INTERNET SOFTWARE & SERVICES-2.70%
eBay Inc.(a) 11,479 336,220
- --------------------------------------------------------------------
Google Inc.-Class A(a) 2,822 1,183,349
====================================================================
1,519,569
====================================================================
INVESTMENT BANKING & BROKERAGE-5.59%
Goldman Sachs Group, Inc. (The) 6,791 1,021,570
- --------------------------------------------------------------------
Merrill Lynch & Co., Inc. 13,571 943,999
- --------------------------------------------------------------------
Morgan Stanley 4,790 302,776
- --------------------------------------------------------------------
Schwab (Charles) Corp. (The) 54,837 876,295
====================================================================
3,144,640
====================================================================
MANAGED HEALTH CARE-1.98%
Aetna Inc. 13,556 541,291
- --------------------------------------------------------------------
Health Net Inc.(a) 12,722 574,653
====================================================================
1,115,944
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
MOVIES & ENTERTAINMENT-0.74%
News Corp.-Class A 21,669 $ 415,611
====================================================================
MULTI-LINE INSURANCE-1.80%
Assurant, Inc. 12,775 618,310
- --------------------------------------------------------------------
HCC Insurance Holdings, Inc. 13,449 395,938
====================================================================
1,014,248
====================================================================
OIL & GAS EQUIPMENT & SERVICES-2.25%
Baker Hughes Inc. 8,393 686,967
- --------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 9,158 579,885
====================================================================
1,266,852
====================================================================
OIL & GAS REFINING & MARKETING-1.02%
Valero Energy Corp. 8,614 573,003
====================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.83%
JPMorgan Chase & Co. 24,454 1,027,068
====================================================================
PHARMACEUTICALS-3.76%
Allergan, Inc. 6,589 706,736
- --------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 12,073 575,761
- --------------------------------------------------------------------
Johnson & Johnson 4,506 270,000
- --------------------------------------------------------------------
Wyeth 12,618 560,365
====================================================================
2,112,862
====================================================================
RAILROADS-2.74%
Burlington Northern Santa Fe Corp. 11,313 896,555
- --------------------------------------------------------------------
CSX Corp. 9,126 642,836
====================================================================
1,539,391
====================================================================
RESTAURANTS-1.80%
Burger King Holdings Inc.(a) 15,591 245,558
- --------------------------------------------------------------------
Darden Restaurants, Inc. 11,541 454,716
- --------------------------------------------------------------------
Ruby Tuesday, Inc. 12,720 310,495
====================================================================
1,010,769
====================================================================
SEMICONDUCTORS-6.07%
Analog Devices, Inc. 36,127 1,161,122
- --------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 25,952 762,989
- --------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 4,981 220,808
- --------------------------------------------------------------------
Microchip Technology Inc. 24,373 817,714
- --------------------------------------------------------------------
PMC-Sierra, Inc.(a) 48,269 453,728
====================================================================
3,416,361
====================================================================
SOFT DRINKS-1.16%
PepsiCo, Inc. 10,842 650,954
====================================================================
SPECIALTY STORES-2.35%
Office Depot, Inc.(a) 22,921 870,998
- --------------------------------------------------------------------
PetSmart, Inc. 17,722 453,683
====================================================================
1,324,681
====================================================================
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
SYSTEMS SOFTWARE-0.88%
Red Hat, Inc.(a) 21,109 $ 493,951
====================================================================
THRIFTS & MORTGAGE FINANCE-0.34%
MGIC Investment Corp. 2,987 194,155
====================================================================
Total Domestic Common Stocks (Cost
$45,285,614) 48,028,926
====================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-12.78%
AUSTRALIA-1.36%
BHP Billiton Ltd. (Diversified Metals &
Mining)(b) 35,616 767,060
====================================================================
BRAZIL-1.05%
Companhia Vale do Rio Doce-ADR (Steel) 24,592 591,192
====================================================================
FINLAND-1.03%
Nokia Oyj-ADR (Communications Equipment) 28,560 578,625
====================================================================
JAPAN-2.53%
Fanuc Ltd. (Industrial Machinery)(b) 2,969 267,982
- --------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(b) 57 351,773
- --------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(b) 22,352 447,850
- --------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(b) 17,000 359,777
====================================================================
1,427,382
====================================================================
NETHERLANDS-0.54%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 14,987 303,037
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
SOUTH KOREA-0.75%
Kookmin Bank (Diversified Banks)(b) 5,080 $ 420,493
====================================================================
SWITZERLAND-3.77%
ABB Ltd. (Heavy Electrical Equipment) 31,550 410,330
- --------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 10,415 561,577
- --------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 6,955 1,149,742
====================================================================
2,121,649
====================================================================
UNITED KINGDOM-1.75%
AstraZeneca PLC-ADR (Pharmaceuticals) 9,971 596,465
- --------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals &
Mining)(b) 7,379 387,141
====================================================================
983,606
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $6,493,316) 7,193,044
====================================================================
MONEY MARKET FUNDS-2.02%
Liquid Assets Portfolio-Institutional
Class(c) 567,668 567,668
- --------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 567,668 567,668
====================================================================
Total Money Market Funds (Cost
$1,135,336) 1,135,336
====================================================================
TOTAL INVESTMENTS-100.17% (Cost $52,914,266) 56,357,306
====================================================================
OTHER ASSETS LESS LIABILITIES-(0.17)% (95,982)
====================================================================
NET ASSETS-100.00% $56,261,324
____________________________________________________________________
====================================================================
</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 June 30, 2006 was $3,002,076, which
represented 5.34% 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $51,778,930) $55,221,970
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,135,336) 1,135,336
============================================================
Total investments (cost $52,914,266) 56,357,306
============================================================
Foreign currencies, at value (cost $101,123) 101,796
- ------------------------------------------------------------
Receivables for:
Investments sold 933,535
- ------------------------------------------------------------
Fund shares sold 10,347
- ------------------------------------------------------------
Dividends 34,403
- ------------------------------------------------------------
Fund expenses absorbed 4,023
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,908
============================================================
Total assets 57,466,318
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,090,356
- ------------------------------------------------------------
Fund shares reacquired 4,834
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 29,736
- ------------------------------------------------------------
Accrued administrative services fees 36,042
- ------------------------------------------------------------
Accrued distribution fees -- Series II 6,436
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 174
- ------------------------------------------------------------
Accrued transfer agent fees 1,140
- ------------------------------------------------------------
Accrued operating expenses 36,276
============================================================
Total liabilities 1,204,994
============================================================
Net assets applicable to shares outstanding $56,261,324
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $57,792,581
- ------------------------------------------------------------
Undistributed net investment income (loss) (55,570)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (4,919,639)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 3,443,952
============================================================
$56,261,324
____________________________________________________________
============================================================
NET ASSETS:
Series I $54,136,130
____________________________________________________________
============================================================
Series II $ 2,125,194
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,970,799
____________________________________________________________
============================================================
Series II 355,764
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 6.03
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 5.97
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$12,251) $ 265,149
- -------------------------------------------------------------
Dividends from affiliated money market funds 30,319
=============================================================
Total investment income 295,468
=============================================================
EXPENSES:
Advisory fees 246,536
- -------------------------------------------------------------
Administrative services fees 101,678
- -------------------------------------------------------------
Custodian fees 13,925
- -------------------------------------------------------------
Distribution fees -- Series II 2,701
- -------------------------------------------------------------
Transfer agent fees 6,650
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 8,135
- -------------------------------------------------------------
Professional services fees 22,102
- -------------------------------------------------------------
Other 12,534
=============================================================
Total expenses 414,261
=============================================================
Less: Fees waived (88,294)
=============================================================
Net expenses 325,967
=============================================================
Net investment income (loss) (30,499)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized (loss) from:
Investment securities (includes gains from
securities sold to affiliates of $20,214) 8,344,018
- -------------------------------------------------------------
Foreign currencies (5,365)
=============================================================
8,338,653
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (6,951,987)
- -------------------------------------------------------------
Foreign currencies 1,534
=============================================================
(6,950,453)
=============================================================
Net gain from investment securities and foreign
currencies 1,388,200
=============================================================
Net increase in net assets resulting from
operations $ 1,357,701
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (30,499) $ (536,433)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 8,338,653 21,400,058
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (6,950,453) (16,311,733)
=============================================================================================
Net increase in net assets resulting from operations 1,357,701 4,551,892
=============================================================================================
Share transactions-net:
Series I (12,869,443) (14,201,030)
- ---------------------------------------------------------------------------------------------
Series II (3,850) (67,782,840)
=============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (12,873,293) (81,983,870)
=============================================================================================
Net increase (decrease) in net assets (11,515,592) (77,431,978)
=============================================================================================
NET ASSETS:
Beginning of period 67,776,916 145,208,894
=============================================================================================
End of period (including undistributed net investment
income (loss) of $(55,570) and $(25,071), respectively) $ 56,261,324 $ 67,776,916
_____________________________________________________________________________________________
=============================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Demographic Trends, (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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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, A I M 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. DEMOGRAPHIC TRENDS FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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 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 $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>
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 April 30, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $88,294.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $76,883 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $6,650.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $2,701.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $329,174 $10,223,342 $ (9,984,848) $ -- $ 567,668 $15,118 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 700,483 (132,815) -- 567,668 250 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 329,174 10,223,342 (10,552,516) -- -- 14,951 --
===================================================================================================================================
Total $658,348 $21,147,167 $(20,670,179) $ -- $1,135,336 $30,319 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $217,476, which resulted in net realized gains of
$20,214 and securities purchases of $3,137,823.
NOTE 5--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$1,885 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by
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 six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $2,838,512 of capital loss carryforward in the fiscal year
ended December 31, 2006.
The Fund had 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 April 28, 2006, 242,808 Series I shares valued at $10,126,974 were
redeemed by a significant shareholder and settled through a redemption-in-kind
transaction, which resulted in a realized gain of $1,544,649 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 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six month
ended June 30, 2006 was $43,901,636 and $56,992,347, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 5,178,541
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,892,002)
===============================================================================
Net unrealized appreciation of investment securities $ 3,286,539
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $53,070,767.
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
Changes in Shares Outstanding
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year ended
JUNE 30, 2006(a) December 31, 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 895,056 $ 5,396,941 3,629,070 $ 20,081,064
- -----------------------------------------------------------------------------------------------------------------------
Series II 48,993 302,090 483,710 2,637,149
=======================================================================================================================
Reacquired:
Series I (2,887,620) (18,266,384) (6,149,473) (34,282,094)
- -----------------------------------------------------------------------------------------------------------------------
Series II (49,652) (305,940) (12,475,751) (70,419,989)
=======================================================================================================================
(1,993,223) $(12,873,293) (14,512,444) $(81,983,870)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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
account 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, 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 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.99 $ 5.64 $ 5.21 $ 3.79 $ 5.59 $ 8.21
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (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) 0.04 0.37 0.45 1.45 (1.77) (2.57)
=================================================================================================================================
Total from investment operations 0.04 0.35 0.43 1.42 (1.80) (2.62)
=================================================================================================================================
Net asset value, end of period $ 6.03 $ 5.99 $ 5.64 $ 5.21 $ 3.79 $ 5.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.67% 6.21% 8.25% 37.47% (32.20)% (31.91)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,136 $65,661 $76,040 $65,162 $26,747 $39,226
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.01%(d) 1.02% 1.18% 1.30% 1.30% 1.38%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(d) 1.15% 1.19% 1.30% 1.43% 1.44%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.09)%(d) (0.36)% (0.42)%(b) (0.61)% (0.67)% (0.79)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 69% 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
(c)dividend are $(0.03) and (0.52)%, respectively.
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
(d)with a variable product, which if included would reduce total returns.
Ratios are annualized and based on average daily net assets of
(e)$62,387,246.
Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------------------
NOVEMBER 7, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.94 $ 5.60 $ 5.19 $ 3.78 $ 5.58 $ 5.33
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (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) 0.04 0.37 0.44 1.44 (1.76) 0.26
=================================================================================================================================
Total from investment operations 0.03 0.34 0.41 1.41 (1.80) 0.25
=================================================================================================================================
Net asset value, end of period $ 5.97 $ 5.94 $ 5.60 $ 5.19 $ 3.78 $ 5.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.50% 6.07% 7.90% 37.30% (32.26)% 4.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,125 $2,116 $69,169 $59,358 $11,498 $3,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.26%(d) 1.27% 1.43% 1.45% 1.45% 1.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.54%(d) 1.40% 1.44% 1.55% 1.68% 1.61%(e)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.34)%(d) (0.61)% (0.67)%(b) (0.76)% (0.82)% (0.85)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 69% 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 those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$2,178,834.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 12--SUBSEQUENT EVENT
The Board of Trustees of the Trust unanimously approved, on August 1, 2006, 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 October 31, 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 November 6, 2006.
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.
AIM V.I. DEMOGRAPHIC TRENDS FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds, including those formerly advised by
IFG, and failed to disclose these arrangements in the prospectuses for such
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. DEMOGRAPHIC TRENDS FUND
AIM V.I. DIVERSIFIED DIVIDEND FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. DIVERSIFIED DIVIDEND FUND seeks to provide growth of
capital and secondarily, current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE We consider selling or trimming a
stock when it no longer meets our
====================================================================================== investment criteria, including when:
PERFORMANCE SUMMARY
============================================ o A stock reaches its target price.
The inception date for your Fund was
May 1, 2006. For the reporting period FUND VS. INDEXES o The company's fundamental business
ending June 30, 2006, AIM V.I. prospects deteriorate.
Diversified Dividend Fund Series I CUMULATIVE TOTAL RETURNS, 5/1/06-6/30/06,
shares excluding variable issuer charges EXCLUDING VARIABLE PRODUCT ISSUER o A more attractive opportunity presents
returned -2.30, while the Fund's CHARGES. IF VARIABLE PRODUCT ISSUER itself.
style-specific benchmark, the Russell CHARGES WERE INCLUDED, RETURNS WOULD BE
1000 Index, posted -2.41%. Primary LOWER. MARKET CONDITIONS AND YOUR FUND
contributors to relative performance
were telecommunication services and Series I Shares -2.30% The first half of 2006 was the tale of
information technology. two markets, but the same macroeconomic
Series II Shares -2.40 themes defined them. The year started
off on a positive note with most major
Standard & Poor's Composite Index market indexes posting respectable
of 500 Stocks (S&P 500 Index) gains. But the market turned as
(Broad Market index) -2.34 investors became concerned over the
effects of higher interest rates and
Russell 1000 Index inflation pressures. Unfortunately, the
(Style-Specific Index) -2.41 market downturn coincided with the
inception of your fund.
Lipper Large-Cap Core Fund Index
(Peer Group Index) -2.67 Also during the reporting period, the
U.S. Federal Reserve Board (the Fed)
SOURCE: LIPPER INC. continued its tightening policy, raising
the key federal funds rate to 5.25% as
============================================ Ben Bernanke settled into his new role
====================================================================================== Fed chairman. During the first five
months of 2006, the consumer price index
HOW WE INVEST and a rigorous buy-and-sell discipline. rose 5.2% at a seasonally adjusted
annual rate, compared with a 3.4% rise
We focus on balancing long-term capital We look for dividend-paying companies for all of 2005. Higher interest rates
appreciation, dividend income and with strong profitability, solid balance also affected home sales, which showed
capital preservation. As part of an sheets and capital allocation policies signs of weakening during the first half
overall well-diversified asset that support sustained or increasing of the year.
allocation strategy, the Fund can serve dividends and share repurchases. We then
as a cornerstone of large-cap core apply fundamental research, including The Fund benefited from positive
investments to complement more financial statement analysis and stock selection in telecommunication
aggressive value and growth investments. meetings with companies' management to services. The sector performed well,
determine a fair valuation with an returning to more stable growth.
We seek undervalued companies that estimated two-year price target for each Performance was driven by the Fund's
are returning capital to shareholders stock. Finally, we select companies we
via dividends and share repurchases. All believe will provide the best
stocks in the portfolio pay a dividend. combination of dividend income, price
We manage risk through a valuation appreciation and the potential for lower
framework, careful stock selection risk.
======================================== ============================================ ============================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES TOP 10 EQUITY HOLDINGS
By sector 1. Pharmaceuticals 10.2% 1. AT&T 2.8%
Financials 18.8% 2. Aerospace & Defense 4.7 2. United Technologies Corp. 2.5
Consumer Discretionary 13.6 3. Integrated Oil & Gas 4.5 3. General Electric Co. 2.5
Health Care 13.2 4. Regional Banks 4.1 4. Emerson Electric Co. 2.5
Industrials 12.1 5. Apparel Retail 3.3 5. Johnson & Johnson 2.3
Consumer Staples 10.0 6. Limited Brands, Inc. 2.1
Information Technology 9.7 TOTAL NET ASSETS $1.0 MILLION 7. Pfizer Inc. 1.9
TOTAL NUMBER OF HOLDINGS 78
Energy 5.0 8. Illinois Tool Works Inc. 1.8
Utilities 4.6 9. International Business
Machines Corp. 1.7
Materials 4.1
10. Altria Group, Inc. 1.7
Telecommunication Services 2.8
Other Assets Less Liabilities 6.1
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. DIVERSIFIED DIVIDEND FUND
investment in AT&T, which is in the underweight position in the sector MEGGAN M. WALSH,
process of merging with BellSouth. Using relative to the style-specific benchmark Chartered Financial
its strong balance sheet, AT&T announced helped Fund performance, TEXAS [WALSH Analyst, senior
plans for large share repurchases over INSTRUMENTS was a detractor. Although no PHOTO] portfolio manager, is
the next few years and projects a company-specific events led to share manager of AIM V.I.
positive earnings growth outlook. price decline during the reporting Diversified Dividend
period, the stock sold off in sympathy Fund. She has been in
The Fund's holdings in specialty with the semiconductor industry over the investment industry since 1987, and
retail performed well, despite weakness fears of a slowdown in the wireless she joined AIM in 1991. Ms. Walsh earned
in the industry. One of the key vertical, the company's largest end a B.S. in finance from the University of
contributors to performance was VF market. Maryland and an M.B.A. from Loyola.
CORPORATION (VFC), which enjoyed strong
results during the second quarter. At the end of the reporting period, Assisted by the Diversified Dividend Team
Earnings were reported at the high end the impact of market movements and
of their guidance, revenues were up more allocation decisions resulted in slight
than 5% and operating margins were 40 overweight positions in consumer
basis points higher due to reductions of discretionary and consumer staples
expenses. VFC's most profitable relative to the fund's style-specific
division, Jeanswear, has strengthened benchmark. The Fund had underweight
market share through sales of its exposures to the energy and IT sectors
Lee--Registered Trademark-- and relative to the benchmark.
Wrangler--Registered Trademark-- brands.
As part of an ongoing effort to return IN CLOSING
value to shareholders, the company
recently announced a 90% increase to its It is important to note that we
quarterly dividend. continually strive to provide a fund
that offers dividend income, capital
The Fund can serve as appreciation and capital preservation
a cornerstone of large- for long-term investors. We also seek to
cap core investments to manage a core equity fund that
complement more complements more aggressive growth and
aggressive value and value allocations within your overall
growth investments. portfolio. Thank you for investing in
AIM V.I. Diversified Dividend Fund.
The consumer discretionary sector did
not perform well during the reporting THE VIEWS AND OPINIONS EXPRESSED IN
period due to continued investor concern MANAGEMENT'S DISCUSSION OF FUND
about the sustainability of consumer PERFORMANCE ARE THOSE OF A I M ADVISORS,
spending and inflation pressures. A INC. THESE VIEWS AND OPINIONS ARE
detractor from Fund performance was OSI SUBJECT TO CHANGE AT ANY TIME BASED ON
RESTAURANT PARTNERS INC., whose FACTORS SUCH AS MARKET AND ECONOMIC
approximately 1,300 locations include CONDITIONS. THESE VIEWS AND OPINIONS MAY
its core Outback Steakhouse and other NOT BE RELIED UPON AS INVESTMENT ADVICE
smaller concept chains Carrabba's, OR RECOMMENDATIONS, OR AS AN OFFER FOR A
Bonefish and Flemings. The company PARTICULAR SECURITY. THE INFORMATION IS
reported disappointing same-store sales NOT A COMPLETE ANALYSIS OF EVERY ASPECT
for the Outback locations, while the OF ANY MARKET, COUNTRY, INDUSTRY,
other chains remained stronger during SECURITY OR THE FUND. STATEMENTS OF FACT
the period. Management acknowledged ARE FROM SOURCES CONSIDERED RELIABLE,
problems at Outback restaurants and BUT A I M ADVISORS, INC. MAKES NO
focused on improving sales. Small signs REPRESENTATION OR WARRANTY AS TO THEIR
of success have been offset by slowing COMPLETENESS OR ACCURACY. ALTHOUGH
customer spending due to rising energy HISTORICAL PERFORMANCE IS NO GUARANTEE
prices and a weaker economy in the OF FUTURE RESULTS, THESE INSIGHTS MAY [RIGHT ARROW GRAPHIC]
Midwest. HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY. FOR A DISCUSSION OF THE RISKS OF
Information technology (IT) was the INVESTING IN YOUR FUND, INDEXES USED IN
worst-performing sector for the period. THIS REPORT AND YOUR FUND'S PERFORMANCE,
While our PLEASE TURN TO PAGE 4.
3
AIM V.I. DIVERSIFIED DIVIDEND FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS AND FEES, WHICH ARE DETERMINED BY THE
AND CHANGES IN NET ASSET VALUE. VARIABLE PRODUCT ISSUERS, WILL VARY AND
As of 6/30/06 INVESTMENT RETURN AND PRINCIPAL VALUE WILL LOWER THE TOTAL RETURN.
WILL FLUCTUATE SO THAT YOU MAY HAVE A
SERIES I SHARES GAIN OR LOSS WHEN YOU SELL SHARES. PER NASD REQUIREMENTS, THE MOST
RECENT MONTH-END PERFORMANCE DATA AT THE
Inception (5/1/06) -2.30% AIM V.I. DIVERSIFIED DIVIDEND FUND, A FUND LEVEL, EXCLUDING VARIABLE PRODUCT
SERIES PORTFOLIO OF AIM VARIABLE CHARGES, IS AVAILABLE ON THIS AIM
SERIES II SHARES INSURANCE FUNDS, IS CURRENTLY OFFERED AUTOMATED INFORMATION LINE,
THROUGH INSURANCE COMPANIES ISSUING 866-702-4402. AS MENTIONED ABOVE, FOR
Inception (5/1/06) -2.40% VARIABLE PRODUCTS. YOU CANNOT PURCHASE THE MOST RECENT MONTH-END PERFORMANCE
SHARES OF THE FUND DIRECTLY. INCLUDING VARIABLE PRODUCT CHARGES,
======================================== PLEASE CONTACT YOUR VARIABLE PRODUCT
PERFORMANCE FIGURES GIVEN REPRESENT ISSUER OR FINANCIAL ADVISOR.
THE PERFORMANCE OF THE FUND'S SERIES I THE FUND AND ARE NOT INTENDED TO REFLECT
AND SERIES II SHARE CLASSES WILL DIFFER ACTUAL VARIABLE PRODUCT VALUES. THEY DO HAD THE ADVISOR NOT WAIVED FEES
PRIMARILY DUE TO DIFFERENT CLASS NOT REFLECT SALES CHARGES, EXPENSES AND AND/OR REIMBURSED EXPENSES, PERFORMANCE
EXPENSES. FEES ASSESSED IN CONNECTION WITH A WOULD HAVE BEEN LOWER.
VARIABLE PRODUCT. SALES CHARGES,
THE PERFORMANCE DATA QUOTED REPRESENT EXPENSES
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER.
PLEASE CONTACT YOUR VARIABLE PRODUCT
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
RECENT MONTH-END VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT
PRINCIPAL RISKS OF INVESTING IN THE FUND The Fund can invest up to 20% of its OTHER INFORMATION
assets in master limited partnerships
The Fund may invest up to 25% of its which are generally less liquid than The returns shown in the management's
assets in the securities of non-U.S. other types of equity securities. discussion of Fund performance are based
issuers that involve risks not on net asset values calculated for
associated with investing solely in the ABOUT INDEXES USED IN THIS REPORT shareholder transactions. Generally
United States. These include risks accepted accounting principles require
relating to fluctuations in the value of The unmanaged STANDARD & POOR'S adjustments to be made to the net assets
the U.S. dollar relative to the values COMPOSITE INDEX OF 500 STOCKS (the of the Fund at period end for financial
of other currencies, the custody S&P 500--Registered Trademark-- Index) reporting purposes, and as such, the net
arrangements made for the Fund's foreign is an index of common stocks frequently asset values for shareholder
holdings, differences in accounting, used as a general measure of U.S. stock transactions and the returns based on
political risks and the lesser degree of market performance. those net asset values may differ from
public information required to be the net asset values and returns
provided by non-U.S. companies. The unmanaged LIPPER LARGE-CAP CORE reported in the Financial Highlights.
FUND INDEX represents an average of the Additionally, the returns and net asset
Rising interest rates will affect the performance of the 30 largest values shown throughout this report are
performance of the Fund's investments in large-capitalization core equity funds at the Fund level only and do not
debt securities. tracked by Lipper Inc., an independent include variable product issuer charges.
mutual fund performance monitor. If such charges were included, the total
The Fund invests in synthetic returns would be lower.
instruments, the value of which may not The unmanaged RUSSELL
correlate perfectly with the overall 1000--Registered Trademark-- INDEX Industry classifications used in this
securities markets. Rising interest represents the performance of the stocks report are generally according to the
rates and market price fluctuations will of large-capitalization companies. Global Industry Classification Standard,
affect the performance of the Fund's which was developed by and is the
investments in synthetic instruments. The Fund is not managed to track the exclusive property and a service mark of
performance of any particular index, Morgan Stanley Capital International
The Fund invests in repurchase including the indexes defined here, and Inc. and Standard & Poor's.
agreements which are subject to the risk consequently, the performance of the
that the seller of such agreements may Fund may deviate significantly from the
default or declare bankruptcy, which may performance of the indexes.
result in a decline in security values,
reduced income levels and additional A direct investment cannot be made in
expenses. an index. Unless otherwise indicated,
index results include reinvested
The values of the convertible dividends, and they do not reflect sales
securities will be affected by market charges. Performance of an index of
interest rates, and the value of the funds reflects fund expenses;
underlying common stock into which these performance of a market index does not.
securities may be converted.
4
AIM V.I. DIVERSIFIED DIVIDEND 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. The Fund's
ongoing costs, including management about actual account values and actual actual cumulative total returns at net
fees; distribution and/or service fees expenses. You may use the information in asset value after expenses for the
(12b-1); and other Fund expenses. This this table, together with the amount you period ended June 30, 2006, appear in
example is intended to help you invested, to estimate the expenses that the table "Fund vs. Indexes" on page 2.
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
actual ending account value and expenses result by the number in the table under EXPENSES YOU PAID FOR THE PERIOD. YOU
of Series I and Series II shares in the the heading entitled "Actual Expenses MAY USE THIS INFORMATION TO COMPARE THE
below example are based on an investment Paid During Period" to estimate the ONGOING COSTS OF INVESTING IN THE FUND
of $1,000 invested on May 1, 2006, (the expenses you paid on your account during AND OTHER FUNDS. TO DO SO, COMPARE THIS
date the share classes commenced this period (May 1, 2006, through June 5% HYPOTHETICAL EXAMPLE WITH THE 5%
operations) and held through June 30, 30, 2006 for Series I and II). Because HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
2006. The hypothetical ending account the actual ending account value and SHAREHOLDER REPORTS OF THE OTHER FUNDS.
value and expenses of Series I and expense information in the example is
Series II shares in the below example not based upon a six month period, the Please note that the expenses shown
are based on an investment of $1,000 ending account value and expense in the table are meant to highlight your
invested at the beginning of the period information may not provide a meaningful ongoing costs. Therefore, the
and held for the entire six month period comparison to mutual funds that provide hypothetical information is useful in
January 1, 2006, through June 30, 2006. such information for a full six month comparing ongoing costs, and will not
period. help you determine the relative total
The actual and hypothetical expenses costs of owning different funds.
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR
the effect of any fees or other expenses COMPARISON PURPOSES
assessed in connection with a variable
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the Fund's actual expense
====================================================================================================================================
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(3) RATIO
Series I $1,000.00 $977.00 $1.65 $1,019.84 $5.01 1.00%
Series II 1,000.00 976.00 2.06 1,018.60 6.26 1.25
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, (date operations
commenced) through June 30, 2006, 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 period ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 61 (May 1, 2006 (date operations commenced) through June 30, 2006)/365. Because the shares have not been
in existence for a full six month period, the actual ending account value and expense information shown may not provide a
meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the
actual ending account value and expense information in the expense example covers a short time period, return and expense data
may not be indicative of return and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the
period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used
to compare ongoing costs of investing in the Series I and Series II shares of the Fund and other funds because such data is
based on a full six month period.
====================================================================================================================================
5
AIM V.I. DIVERSIFIED DIVIDEND FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory o Fees relative to those of comparable
Insurance Funds (the "Board") oversees services to be provided by AIM. The funds with other advisors. The Board
the management of AIM V.I. Diversified Board reviewed the services to be reviewed the advisory fee rate for the
Dividend Fund (the "Fund") and, as provided by AIM under the Advisory Fund under the Advisory Agreement. The
required by law, determines annually Agreement. Based on such review, the Board compared effective contractual
whether to approve the continuance of Board concluded that the range of advisory fee rates at a common asset
the Fund's advisory agreement with A I M services to be provided by AIM under the level at the end of the past calendar
Advisors, Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and year and noted that the Fund's rate was
recommendation of the Investments that AIM currently is providing services above the median rate of the funds
Committee of the Board, at a meeting in accordance with the terms of the advised by other advisors with
held on June 27, 2006, the Board, Advisory Agreement. investment strategies comparable to
including all of the independent those of the Fund that the Board
trustees, approved the continuance of o The quality of services to be provided reviewed. The Board noted that AIM has
the advisory agreement (the "Advisory by AIM. The Board reviewed the agreed to limit the Fund's total annual
Agreement") between the Fund and AIM for credentials and experience of the operating expenses, as discussed below.
another year, effective July 1, 2006. officers and employees of AIM who will The Board also considered the fact that
provide investment advisory services to AIM set the proposed advisory fees for
The Board considered the factors the Fund. In reviewing the the Fund based upon the median effective
discussed below in evaluating the qualifications of AIM to provide management fee rate (comprised of
fairness and reasonableness of the investment advisory services, the Board advisory fees plus, in some cases,
Advisory Agreement at the meeting on considered such issues as AIM's administrative fees) at various asset
June 27, 2006 and as part of the Board's portfolio and product review process, levels of competitor mutual funds with
ongoing oversight of the Fund. In their various back office support functions investment strategies comparable to
deliberations, the Board and the provided by AIM and AIM's equity and those of the Fund. In addition, the
independent trustees did not identify fixed income trading operations. Based Board noted that the proposed advisory
any particular factor that was on the review of these and other fees for the Fund are equal to the
controlling, and each trustee attributed factors, the Board concluded that the uniform fee schedule that applies to
different weights to the various quality of services to be provided by other mutual funds advised by AIM with
factors. AIM was appropriate and that AIM investment strategies comparable to
currently is providing satisfactory those of the Fund, which uniform fee
One responsibility of the independent services in accordance with the terms of schedule includes breakpoints and is
Senior Officer of the Fund is to manage the Advisory Agreement. based on net asset levels. Based on this
the process by which the Fund's proposed review, the Board concluded that the
management fees are negotiated to ensure o The performance of the Fund relative advisory fee rate for the Fund under the
that they are negotiated in a manner to comparable funds. Not applicable Advisory Agreement was fair and
which is at arms' length and reasonable. because the Fund has not been in reasonable.
To that end, the Senior Officer must operation for a full calendar year.
either supervise a competitive bidding o Expense limitations and fee waivers.
process or prepare an independent o The performance of the Fund relative The Board noted that AIM has
written evaluation. The Senior Officer to indices. Not applicable because the contractually agreed to waive fees
has recommended an independent written Fund has not been in operation for a and/or limit expenses of the Fund
evaluation in lieu of a competitive full calendar year. through April 30, 2008 in an amount
bidding process and, upon the direction necessary to limit total annual
of the Board, has prepared such an o Meetings with the Fund's portfolio operating expenses to a specified
independent written evaluation. Such managers and investment personnel. With percentage of average daily net assets
written evaluation also considered respect to the Fund, the Board is for each class of the Fund. The Board
certain of the factors discussed below. meeting periodically with such Fund's considered the contractual nature of
In addition, as discussed below, the portfolio managers and/or other this fee waiver/expense limitation and
Senior Officer made a recommendation to investment personnel and believes that noted that it remains in effect until
the Board in connection with such such individuals are competent and able April 30, 2008. The Board considered the
written evaluation. to continue to carry out their effect these fee waivers/expense
responsibilities under the Sub-Advisory limitations would have on the Fund's
The discussion below serves as a Agreement. estimated expenses and concluded that
summary of the Senior Officer's the levels of fee waivers/expense
independent written evaluation and o Overall performance of AIM. Not limitations for the Fund were fair and
recommendation to the Board in applicable because the Fund has not been reasonable.
connection therewith, as well as a in operation for a full calendar year.
discussion of the material factors and o Breakpoints and economies of scale.
the conclusions with respect thereto o Fees relative to those of clients of The Board reviewed the structure of the
that formed the basis for the Board's AIM with comparable investment Fund's advisory fee under the Advisory
approval of the Advisory Agreement. strategies. The Board reviewed the Agreement, noting that it contains seven
After consideration of all of the effective advisory fee rate (before breakpoints. The Board reviewed the
factors below and based on its informed waivers) for the Fund under the Advisory level of the Fund's advisory fees, and
business judgment, the Board determined Agreement. The Board noted that this noted that such fees, as a percentage of
that the Advisory Agreement is in the rate was comparable to the effective the Fund's net assets, would decrease as
best interests of the Fund and its advisory fee rates (before waivers) for net assets increase because the Advisory
shareholders and that the compensation two mutual funds advised by AIM with Agreement includes breakpoints. The
to AIM under the Advisory Agreement is investment strategies comparable to Board noted that, due to the Fund's
fair and reasonable and would have been those of the Fund. The Board noted that current asset levels and the way in
obtained through arm's length AIM has agreed to limit the Fund's total which the advisory fee breakpoints have
negotiations. annual operating expenses, as discussed been structured, the Fund has yet to
below. Based on this review, the Board benefit from the breakpoints. The Board
Unless otherwise stated, information concluded that the advisory fee rate for concluded that the Fund's fee levels
presented below is as of June 27, 2006 the Fund under the Advisory Agreement under the Advisory Agreement therefore
and does not reflect any changes that was fair and reasonable. would reflect economies of scale at
may have occurred since June 27, 2006, higher asset levels and that it was not
including but not limited to changes to necessary to change the advisory fee
the Fund's performance, advisory fees, breakpoints in the Fund's advisory fee
expense limitations and/or fee waivers. schedule.
(continued)
6
AIM V.I. DIVERSIFIED DIVIDEND 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, if any (collectively, dollar" arrangements. Under these
"cash balances") of the Fund may be arrangements, brokerage commissions paid
invested in money market funds advised by the Fund and/or other funds advised
by AIM 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 may be
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 uninvested cash in affiliated Agreement, and concluded that AIM has
money market funds, AIM has voluntarily the financial resources necessary to
agreed to waive a portion of the fulfill its obligations under the
advisory fees it receives from the Fund Advisory Agreement.
attributable to such investment. The
Board further determined that the o Historical relationship between the
proposed securities lending program and Fund and AIM. In determining whether to
related procedures with respect to the approve the Advisory Agreement for the
lending Fund is in the best interests of Fund, the Board also considered the
the lending Fund and its respective prior relationship between AIM and the
shareholders. The Board therefore Fund, as well as the Board's knowledge
concluded that the investment of cash of AIM's operations, and concluded that
collateral received in connection with it was beneficial to maintain the
the securities lending program in the current relationship, in part, because
money market funds according to the of such knowledge. The Board also
procedures is in the best interests of reviewed the general nature of the
the lending Fund and its respective non-investment advisory services
shareholders. currently performed by AIM and its
affiliates, such as administrative,
o Independent written evaluation and transfer agency and distribution
recommendations of the Fund's Senior services, and the fees received by AIM
Officer. The Board noted that, upon and its affiliates for performing such
their direction, the Senior Officer of services. In addition to reviewing such
the Fund, who is independent of AIM and services, the trustees also considered
AIM's affiliates, had prepared an the organizational structure employed by
independent written evaluation in order AIM and its affiliates to provide those
to assist the Board in determining the services. Based on the review of these
reasonableness of the proposed and other factors, the Board concluded
management fees of the AIM Funds, that AIM and its affiliates were
including the Fund. The Board noted that qualified to continue to provide
the Senior Officer's written evaluation non-investment advisory services to the
had been relied upon by the Board in Fund, including administrative, transfer
this regard in lieu of a competitive agency and distribution services, and
bidding process. In determining whether that AIM and its affiliates currently
to continue the Advisory Agreement for are providing satisfactory
the Fund, the Board considered the non-investment advisory services.
Senior Officer's written evaluation.
o Other factors and current trends. The
o Profitability of AIM and its Board considered the steps that AIM and
affiliates. The Board reviewed its affiliates have taken over the last
information concerning the profitability several years, and continue to take, in
of AIM's (and its affiliates') order to improve the quality and
investment advisory and other activities efficiency of the services they provide
and its financial condition. The Board to the Funds in the areas of investment
considered the overall profitability of performance, product line
AIM. The Board noted that AIM's diversification, distribution, fund
operations remain profitable, although operations, shareholder services and
increased expenses in recent years have compliance. The Board concluded that
reduced AIM's profitability. Based on these steps taken by AIM have improved,
the review of the profitability of AIM's and are likely to continue to improve,
and its affiliates' investment advisory the quality and efficiency of the
and other activities and its financial services AIM and its affiliates provide
condition, the Board concluded that the to the Fund in each of these areas, and
compensation to be paid by the Fund to support the Board's approval of the
AIM under its Advisory Agreement was not continuance of the Advisory Agreement
excessive. for the Fund.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-93.86%
AEROSPACE & DEFENSE-4.69%
Honeywell International Inc. 180 $ 7,254
- ----------------------------------------------------------------
Raytheon Co. 310 13,816
- ----------------------------------------------------------------
United Technologies Corp. 390 24,734
================================================================
45,804
================================================================
APPAREL RETAIL-3.27%
Limited Brands, Inc. 810 20,728
- ----------------------------------------------------------------
TJX Cos., Inc. (The) 490 11,201
================================================================
31,929
================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.11%
V.F. Corp. 160 10,867
================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.70%
Bank of New York Co., Inc. (The) 250 8,050
- ----------------------------------------------------------------
Federated Investors, Inc.-Class B 230 7,245
- ----------------------------------------------------------------
State Street Corp. 190 11,037
================================================================
26,332
================================================================
AUTO PARTS & EQUIPMENT-1.18%
Johnson Controls, Inc. 140 11,511
================================================================
BREWERS-1.45%
Anheuser-Busch Cos., Inc. 310 14,133
================================================================
CASINOS & GAMING-1.05%
International Game Technology 270 10,244
================================================================
COMPUTER HARDWARE-3.26%
Hewlett-Packard Co. 470 14,890
- ----------------------------------------------------------------
International Business Machines Corp. 220 16,900
================================================================
31,790
================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.13%
Automatic Data Processing, Inc. 250 11,338
- ----------------------------------------------------------------
First Data Corp. 211 9,503
================================================================
20,841
================================================================
DISTRIBUTORS-0.68%
Genuine Parts Co. 160 6,666
================================================================
DIVERSIFIED BANKS-1.25%
U.S. Bancorp 220 6,794
- ----------------------------------------------------------------
Wachovia Corp. 100 5,408
================================================================
12,202
================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------
<Caption>
DIVERSIFIED CHEMICALS-1.48%
E. I. du Pont de Nemours and Co. 220 $ 9,152
- ----------------------------------------------------------------
PPG Industries, Inc. 80 5,280
================================================================
14,432
================================================================
DRUG RETAIL-0.83%
Walgreen Co. 180 8,071
================================================================
ELECTRIC UTILITIES-2.61%
American Electric Power Co., Inc. 380 13,015
- ----------------------------------------------------------------
Exelon Corp. 220 12,503
================================================================
25,518
================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.49%
Emerson Electric Co. 290 24,305
================================================================
FOREST PRODUCTS-1.02%
Weyerhaeuser Co. 160 9,960
================================================================
GENERAL MERCHANDISE STORES-1.15%
Target Corp. 230 11,240
================================================================
HEALTH CARE EQUIPMENT-3.02%
Baxter International Inc. 260 9,558
- ----------------------------------------------------------------
Medtronic, Inc. 300 14,076
- ----------------------------------------------------------------
Stryker Corp. 140 5,895
================================================================
29,529
================================================================
HOME IMPROVEMENT RETAIL-1.10%
Home Depot, Inc. (The) 300 10,737
================================================================
HOUSEHOLD APPLIANCES-0.75%
Snap-on Inc. 180 7,276
================================================================
HOUSEHOLD PRODUCTS-2.19%
Colgate-Palmolive Co. 120 7,188
- ----------------------------------------------------------------
Kimberly-Clark Corp. 230 14,191
================================================================
21,379
================================================================
HYPERMARKETS & SUPER CENTERS-0.94%
Wal-Mart Stores, Inc. 190 9,152
================================================================
INDUSTRIAL CONGLOMERATES-2.50%
General Electric Co. 740 24,390
================================================================
INDUSTRIAL GASES-0.77%
Praxair, Inc. 140 7,560
================================================================
INDUSTRIAL MACHINERY-2.42%
Illinois Tool Works Inc. 360 17,100
- ----------------------------------------------------------------
Pentair, Inc. 190 6,496
================================================================
23,596
================================================================
</Table>
AIM V.I. DIVERSIFIED DIVIDEND FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
INSURANCE BROKERS-1.16%
Marsh & McLennan Cos., Inc. 420 $ 11,294
================================================================
INTEGRATED OIL & GAS-4.50%
Eni S.p.A. (Italy)(a) 200 5,884
- ----------------------------------------------------------------
Exxon Mobil Corp. 230 14,111
- ----------------------------------------------------------------
Occidental Petroleum Corp. 150 15,382
- ----------------------------------------------------------------
Total S.A.-ADR (France) 130 8,518
================================================================
43,895
================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.80%
AT&T Inc. 980 27,332
================================================================
INVESTMENT BANKING & BROKERAGE-2.16%
Merrill Lynch & Co., Inc. 130 9,043
- ----------------------------------------------------------------
Morgan Stanley 190 12,010
================================================================
21,053
================================================================
MULTI-LINE INSURANCE-0.82%
Genworth Financial Inc.-Class A 230 8,013
================================================================
MULTI-UTILITIES-2.00%
Dominion Resources, Inc. 170 12,714
- ----------------------------------------------------------------
Wisconsin Energy Corp. 170 6,851
================================================================
19,565
================================================================
OIL & GAS DRILLING-0.53%
GlobalSantaFe Corp. 90 5,197
================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.47%
Bank of America Corp. 220 10,582
- ----------------------------------------------------------------
Citigroup Inc. 280 13,507
================================================================
24,089
================================================================
PACKAGED FOODS & MEATS-2.18%
General Mills, Inc. 300 15,498
- ----------------------------------------------------------------
Sara Lee Corp. 360 5,767
================================================================
21,265
================================================================
PHARMACEUTICALS-10.15%
Abbott Laboratories 360 15,700
- ----------------------------------------------------------------
Bristol-Myers Squibb Co. 300 7,758
- ----------------------------------------------------------------
Johnson & Johnson 370 22,170
- ----------------------------------------------------------------
Lilly (Eli) and Co. 290 16,028
- ----------------------------------------------------------------
Merck & Co. Inc. 190 6,922
- ----------------------------------------------------------------
Pfizer Inc. 770 18,072
- ----------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------
<Caption>
PHARMACEUTICALS-(CONTINUED)
Wyeth 280 $ 12,435
================================================================
99,085
================================================================
PROPERTY & CASUALTY INSURANCE-2.31%
MBIA Inc. 180 10,539
- ----------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 270 12,037
================================================================
22,576
================================================================
PUBLISHING-1.26%
Gannett Co., Inc. 220 12,305
================================================================
REGIONAL BANKS-4.11%
Fifth Third Bancorp 450 16,627
- ----------------------------------------------------------------
North Fork Bancorp., Inc. 350 10,560
- ----------------------------------------------------------------
SunTrust Banks, Inc. 170 12,964
================================================================
40,151
================================================================
RESTAURANTS-0.92%
OSI Restaurant Partners, Inc. 260 8,996
================================================================
SEMICONDUCTORS-2.69%
Linear Technology Corp. 440 14,736
- ----------------------------------------------------------------
Texas Instruments Inc. 380 11,510
================================================================
26,246
================================================================
SOFT DRINKS-0.66%
Coca-Cola Co. (The) 150 6,453
================================================================
SPECIALIZED CONSUMER SERVICES-1.08%
H&R Block, Inc. 440 10,498
================================================================
SPECIALTY CHEMICALS-0.87%
Ecolab Inc. 210 8,522
================================================================
SYSTEMS SOFTWARE-1.62%
Microsoft Corp. 680 15,844
================================================================
THRIFTS & MORTGAGE FINANCE-1.80%
Fannie Mae 210 10,101
- ----------------------------------------------------------------
Hudson City Bancorp, Inc. 560 7,465
================================================================
17,566
================================================================
TOBACCO-1.73%
Altria Group, Inc. 230 16,889
================================================================
TOTAL INVESTMENTS-93.86%
(Cost $940,482) 916,298
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-6.14% 59,993
- ----------------------------------------------------------------
NET ASSETS-100.00% $976,291
________________________________________________________________
================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
value of this security at June 30, 2006 represented 0.60% 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. DIVERSIFIED DIVIDEND FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $940,482) $ 916,298
- ------------------------------------------------------------
Foreign currencies, at value (cost $120) 121
- ------------------------------------------------------------
Cash 54,303
- ------------------------------------------------------------
Receivables for:
Investments sold 6,831
- ------------------------------------------------------------
Dividends 1,488
- ------------------------------------------------------------
Fund expenses absorbed 26,274
============================================================
Total assets 1,005,315
____________________________________________________________
============================================================
LIABILITIES:
Payables for Investments purchased 909
- ------------------------------------------------------------
Accrued administrative services fees 409
- ------------------------------------------------------------
Accrued distribution fees -- Series II 205
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 360
- ------------------------------------------------------------
Accrued transfer agent fees 32
- ------------------------------------------------------------
Accrued operating expenses 27,109
============================================================
Total liabilities 29,024
============================================================
Net assets applicable to shares outstanding $ 976,291
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,000,020
- ------------------------------------------------------------
Undistributed net investment income 3,040
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (2,586)
- ------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities and foreign currencies (24,183)
============================================================
$ 976,291
____________________________________________________________
============================================================
NET ASSETS:
Series I $ 488,277
____________________________________________________________
============================================================
Series II $ 488,014
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 50,001
____________________________________________________________
============================================================
Series II 50,001
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 9.77
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 9.76
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $65) $ 4,491
- -----------------------------------------------------------
Interest 390
===========================================================
Total investment income 4,881
===========================================================
EXPENSES:
Advisory fees 1,138
- -----------------------------------------------------------
Administrative services fees 8,765
- -----------------------------------------------------------
Custodian fees 2,550
- -----------------------------------------------------------
Distribution fees -- Series II 205
- -----------------------------------------------------------
Transfer agent fees 40
- -----------------------------------------------------------
Trustees' and officer's fees and benefits 3,065
- -----------------------------------------------------------
Reports to shareholders 7,500
- -----------------------------------------------------------
Professional services fees 21,774
- -----------------------------------------------------------
Other 667
===========================================================
Total expenses 45,704
===========================================================
Less: Fees waived and expenses reimbursed (43,863)
===========================================================
Net expenses 1,841
===========================================================
Net investment income 3,040
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities (2,565)
- -----------------------------------------------------------
Foreign currencies (21)
===========================================================
(2,586)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (24,184)
- -----------------------------------------------------------
Foreign currencies 1
===========================================================
(24,183)
===========================================================
Net gain (loss) from investment securities and
foreign currencies (26,769)
===========================================================
Net increase (decrease) in net assets resulting
from operations $(23,729)
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED DIVIDEND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,040
- --------------------------------------------------------------------------
Net realized gain (loss) on investment securities and
foreign currencies (2,586)
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (24,183)
==========================================================================
Net increase (decrease) in net assets resulting from
operations (23,729)
==========================================================================
Share transactions-net:
Series I 500,010
- --------------------------------------------------------------------------
Series II 500,010
==========================================================================
Net increase in net assets resulting from share
transactions 1,000,020
==========================================================================
Net increase in net assets 976,291
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income of $3,040) $ 976,291
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED DIVIDEND FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Diversified Dividend (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-five 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 commenced operations on May 1, 2006.
The Fund's primary investment objective is growth of capital with a
secondary objective 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. DIVERSIFIED DIVIDEND 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, A I M 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
AIM V.I. DIVERSIFIED DIVIDEND FUND
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 0.695%
- ----------------------------------------------------------------------
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 1.00% and Series
II shares to 1.25% of average daily net assets, through April 30, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
For the period May 1, 2006 (date operations commenced) to June 30, 2006, AIM
waived fees of $1,138 and reimbursed expenses of $42,725.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection to market timing matters in the AIM
Funds, which may include legal, audit, shareholder reporting, communications and
trustee expenses. For the period May 1, 2006 (date operations commenced) through
June 30, 2006, 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 period May 1, 2006 (date operations commenced) to June 30,
2006, AIM was paid $8,356 for accounting and fund administrative services and
reimbursed $409 for services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the period May 1,
2006 (date operations commenced) to June 30, 2006, the Fund paid AIS $40.
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 the Rule 12b-1 payment, 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 period May 1,
2006 (date operations commenced) to June 30, 2006, the Series II shares paid
$205.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. DIVERSIFIED DIVIDEND FUND
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.
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 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 period May 1, 2006 (date operations commenced) to June 30, 2006,
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 5--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
NOTE 6--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the period May 1,
2006 (date operations commenced) to June 30, 2006 was $985,571 and $42,524,
respectively. In a fund's initial year of operations, the cost of investments
for tax purposes will not reflect any tax adjustments until its fiscal year end
reporting period.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 10,586
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (34,771)
==============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(24,185)
______________________________________________________________________________
==============================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
AIM V.I. DIVERSIFIED DIVIDEND FUND
NOTE 7--SHARE INFORMATION
<Table>
<Caption>
{CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------
MAY 1, 2006
(DATE OPERATIONS
COMMENCED) TO
JUNE 30, 2006(a)
----------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------------
Sold:
Series I 50,001 $ 500,010
- ------------------------------------------------------------------------------------
Series II 50,001 500,010
====================================================================================
100,002 1,000,020
____________________________________________________________________________________
====================================================================================
</Table>
(a) 100% of the outstanding shares are owned by AIM.
NOTE 8--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I SERIES II
MAY 1, 2006 MAY 1, 2006
(DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO
JUNE 30, JUNE 30,
2006 2006
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $10.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.03
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.26) (0.27)
=====================================================================================================
Total from investment operations (0.23) (0.24)
=====================================================================================================
Net asset value, end of period $ 9.77 $ 9.76
_____________________________________________________________________________________________________
=====================================================================================================
Total return(a) (2.30)% (2.40)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 488 $ 488
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(b) 1.25%(b)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 27.80%(b) 28.05%(b)
=====================================================================================================
Ratio of net investment income to average net assets 1.98%(b) 1.73%(b)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(c) 5% 5%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $489,770
and $489,658 for Series I and Series II shares, respectively.
(c) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DIVERSIFIED DIVIDEND FUND
NOTE 10--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues have been transferred or conditionally 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.
AIM V.I. DIVERSIFIED DIVIDEND FUND
NOTE 10--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 security
holders. IFG, AIM and ADI have advised the Fund that they 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 DIVIDEND FUND
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. DIVERSIFIED DIVIDEND FUND
AIM V.I. DIVERSIFIED INCOME FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. DIVERSIFIED INCOME FUND seeks to achieve a high level of
current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 In evaluating the credit quality of a
security, we conduct our own internal
===================================================================================== credit analysis using research from
various rating agencies, Wall Street
PERFORMANCE SUMMARY analysts and other third-party vendors.
========================================
Excluding variable product issuer We consider selling a bond when:
charges, AIM V.I. Diversified Income Fund FUND VS. INDEXES
performed in line with its broad market o It becomes fully valued according to
index but held up better than its CUMULATIVE TOTAL RETURNS, our analysis.
style-specific index for the six months 12/31/05-6/30/06, EXCLUDING VARIABLE
ended June 30, 2006. Your Fund held up PRODUCT ISSUER CHARGES. IF VARIABLE o Overall market and economic trends
better than its style-specific index PRODUCT ISSUER CHARGES WERE INCLUDED, indicate that sector emphasis should be
because of the Fund's broad RETURNS WOULD BE LOWER. changed.
diversification. Investments in
mortgage-backed bonds and high yield Series I Shares -0.71% o Fundamentals, such as credit quality
corporate bonds helped the Fund to ratings, or technicals, such as
outpace its style-specific index despite Series II Shares -0.84 supply/demand, deteriorate for an
its relative underweight position in individual issuer or a sector.
investment-grade corporate bonds. Lehman Brothers U.S. Aggregate
Bond Index (the Lehman Aggregate) MARKET CONDITIONS AND YOUR FUND
Your Fund's long-term performance (Broad Market Index) -0.72
appears on page 4. June marked the U.S. Federal Reserve
Lehman Brothers U.S. Credit Index Board's (the Fed) 24th month of interest
(Style-Specific Index) -1.55 rate tightening, and many observers
believed its campaign might be nearing
Lipper BBB-Rated Fund Index completion. While inflation--particularly
(Peer Group Index) -0.57 the headline figures--looked like a real
problem during the reporting period, most
SOURCE: LIPPER INC. economists believed that the
======================================== oil-price-surge-induced inflation bubble
could prove transitory because labor costs
===================================================================================== are contained due to global competition
HOW WE INVEST We look for potential investments and the record strong productivity gains.
primarily in U.S. dollar denominated
Our goal is to provide investors with an corporate bonds with the potential to Ten-year U.S. Treasury bond yields
actively managed portfolio that is, add value beyond corporate bonds in rose three-quarters of a percent during
overall, of investment grade quality and other sectors of the bond market the first half of 2006, closing at
that has the risk characteristics of the including: U.S. Treasury bonds, U.S. 5.14%--a level last seen four years ago.
Lehman Brothers U.S. Credit Index. Our government agency bonds, mortgages, Bond prices move inversely to interest
investment process involves both asset-backed securities, high yield debt rates and, hence, generally declined
top-down analysis, which takes account and non-dollar securities. We make during the reporting period. With the
of overall economic and market trends, allocation decisions based on our total fed funds target rate at 5.25% at the
and bottom-up analysis, which includes return outlook among the different areas end of the reporting
an evaluation of individual bond of the bond market. We currently
issuers. Our approach focuses on total restrict the allocation to high yield
return, both income and capital and non-dollar securities to 10% each.
appreciation.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 FIXED INCOME ISSUERS*
Based on total investments 1. Other Diversified Financial 1. Federal National Mortgage
Services 15.2% Association (FNMA) 6.8%
U.S. Dollar Denominated Bonds
& Notes 76.2% 2. U.S. Mortgage-Backed Securities 9.5 2. Patrons' Legacy 2.9
U.S. Mortgage-Backed Securities 9.0 3. Diversified Banks 7.5 3. Federal Home Loan Mortgage Corp.
(FHLMC) 2.7
Asset-Backed Securities 6.1 4. Broadcasting & Cable TV 5.7
4. Pemex Project Funding
Municipal Obligations 3.9 5. Integrated Telecommunication Master Trust (Mexico) 2.1
Services 5.6
Preferred Stocks 2.6 5. Oil Insurance Ltd. (Bermuda) 2.0
Non-U.S. Dollar Denominated 6. Regional Diversified Funding
Bonds & Notes 0.8 TOTAL NET ASSETS $50.6 MILLION (Caymand Islands) 1.9
TOTAL NUMBER OF HOLDINGS* 224
U.S. Treasury Securities 0.7 7. Ford Motor Credit Co. 1.9
U.S. Government Agency Securities 0.5 8. Husky Oil Ltd. (Canada) 1.7
Money Market Funds 0.2
9. First American Capital Trust I 1.6
The Fund's holdings are subject to change, and there is no assurance that the Fund will
continue to hold any particular security. 10. DaimlerChrysler North America
Holding Corp. 1.6
* Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I.DIVERSIFIED INCOME FUND
period, the difference between Additionally, Treasury Inflation JAN H. FRIEDLI, senior
short-term and long-term rates--the Protected Securities (TIPs) contributed [FRIEDLI portfolio manager, is lead
so-called yield curve--was slightly to the Fund's performance. TIPs are PHOTO] manager of AIM V.I. Diversified
inverted, meaning that yields of shorter identical to Treasury bonds except the Income Fund. He joined AIM
term securities were generally higher principal and coupon (interest) payments Investments in 1999. Mr. Friedli
than yields of longer term bonds. are adjusted depending on the rate of graduated cum laude from Villanova
Historically, an inverted yield curve inflation. TIPs generally outperformed University with a B.S. in computer
has been a precursor of substantial Treasuries during the reporting period science before earning an M.B.A. with
economic slowing. due to rising inflation expectations. honors from the University of Chicago.
Compared to Treasuries on a Factors that detracted from Fund
comparable duration basis, high yield performance included: PETER EHRET, Chartered
bonds, mortgage-backed securities, Financial Analyst, senior
agencies and credit sectors fared better o Maintaining a slight overweight [EHRET portfolio manager, is manager
than Treasuries during the reporting position in U.S. Treasury bonds relative PHOTO] of AIM V.I. Diversified Income
period. to our style-specific index slightly Fund. Mr. Ehret joined AIM in
affected performance negatively, as 2001. He graduated cum laude with a B.S.
We believe the Fund held up better Treasuries generally underperformed in economics from the University of
than its style-specific index because of corporate bonds. Minnesota. He also earned an M.S. in
its diversified investments of varying real estate appraisal and investment
durations in a variety of sectors. o Allocating a smaller percentage of analysis from the University of
Strategies that produced positive assets to investment-grade corporate Wisconsin-Madison.
results for your Fund during the bonds than our style-specific index
six-month reporting period included: maintained. Despite the fact that our BRENDAN D. GAU, Chartered
corporate bond portfolio had a shorter Financial Analyst, portfolio
o Keeping the Fund's duration shorter duration than did our style-specific [GAU manager, is manager of AIM V.I.
than or about the same as our index, our smaller allocation had a PHOTO] Diversified Income Fund.
style-specific index for most of the negative impact on the Fund's Mr. Gau joined AIM in 1996.
reporting period. That benefited Fund performance as corporate bonds He graduated magna cum laude with a B.A.
performance because shorter term bonds outperformed Treasuries over the in economics, mathematics and physics
generally outperformed longer dated reporting period. from Rice University.
bonds for the reporting period as a
whole. Duration measures a portfolio's IN CLOSING CAROLYN L. GIBBS,
price sensitivity to interest rate Chartered Financial Analyst,
movements. A longer duration means more We continue to believe that bond funds [GIBBS senior portfolio manager, is
sensitivity to rate changes; a shorter are an important part of a PHOTO] manager of AIM V.I. Diversified
duration means less sensitivity. well-diversified investment portfolio. Income Fund. Ms. Gibbs is a
Phi Beta Kappa graduate of Texas
o Reducing our exposure to corporate Thank you for investing in AIM V.I. Christian University, where she earned a
bonds--although corporate bonds Diversified Income Fund and for sharing B.A. in English. She also earned an
continued to make up the majority of our long-term investment horizon. M.B.A. in finance from the Wharton
Fund holdings. We did this because, in School of the University of
our opinion, their valuations became too THE VIEWS AND OPINIONS EXPRESSED IN Pennsylvania.
high. MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS, DARREN HUGHES, Chartered
o Reducing our exposure to non-U.S. INC. THESE VIEWS AND OPINIONS ARE Financial Analyst, portfolio
dollar denominated bonds--bonds issued SUBJECT TO CHANGE AT ANY TIME BASED ON [HUGHES manager, is manager of AIM V.I.
in foreign currencies. We hedged these FACTORS SUCH AS MARKET AND ECONOMIC PHOTO] Diversified Income Fund. He
bonds' foreign currency risk back to CONDITIONS. THESE VIEWS AND OPINIONS MAY joined AIM in 1992. Mr. Hughes
U.S. dollars, which helped Fund NOT BE RELIED UPON AS INVESTMENT ADVICE earned a B.B.A. in finance and economics
performance as the U.S. dollar weakened OR RECOMMENDATIONS, OR AS AN OFFER FOR A from Baylor University.
during the reporting period. Our PARTICULAR SECURITY. THE INFORMATION IS
position in mortgage-backed securities NOT A COMPLETE ANALYSIS OF EVERY ASPECT SCOT W. JOHNSON,
had a positive effect on Fund OF ANY MARKET, COUNTRY, INDUSTRY, Chartered Financial Analyst,
performance. Mortgage-backed securities SECURITY OR THE FUND. STATEMENTS OF FACT [JOHNSON senior portfolio manager, is
had a strong start during the first half ARE FROM SOURCES CONSIDERED RELIABLE, PHOTO] manager of AIM V.I. Diversified
of the reporting period, but they BUT A I M ADVISORS, INC. MAKES NO Income Fund. He joined AIM
retreated in the second half due to lack REPRESENTATION OR WARRANTY AS TO THEIR Investments in 1994. Mr.
of demand and gave back a part of their COMPLETENESS OR ACCURACY. ALTHOUGH Johnson earned both a bachelor's degree
earlier gains. Overall, mortgage-backed HISTORICAL PERFORMANCE IS NO GUARANTEE in economics and an M.B.A. in finance
securities finished the first half of OF FUTURE RESULTS, THESE INSIGHTS MAY from Vanderbilt University.
the year ahead of comparable-dated HELP YOU UNDERSTAND OUR INVESTMENT
Treasuries. Our mortgage-backed MANAGEMENT PHILOSOPHY. Assisted by the Taxable Investment Grade
investments helped to diversify the Bond Team
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 PAGE 4.
3
AIM V.I. DIVERSIFIED INCOME FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S SERIES I AND SERIES II PERFORMANCE FIGURES GIVEN REPRESENT THE
SHARE CLASSES WILL DIFFER PRIMARILY DUE FUND AND ARE NOT INTENDED TO REFLECT
As of 6/30/06 TO DIFFERENT CLASS EXPENSES. ACTUAL VARIABLE PRODUCT VALUES. THEY DO
NOT REFLECT SALES CHARGES, EXPENSES AND
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT FEES ASSESSED IN CONNECTION WITH A
Inception (5/5/93) 4.73% PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT. SALES CHARGES,
10 Years 4.14 COMPARABLE FUTURE RESULTS; CURRENT EXPENSES AND FEES, WHICH ARE DETERMINED
5 Years 4.15 PERFORMANCE MAY BE LOWER OR HIGHER. BY THE VARIABLE PRODUCT ISSUERS, WILL
1 Year -0.67 PLEASE CONTACT YOUR VARIABLE PRODUCT VARY AND WILL LOWER THE TOTAL RETURN.
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
SERIES II SHARES RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
Inception 4.46% PERFORMANCE. PERFORMANCE FIGURES REFLECT RECENT MONTH-END PERFORMANCE DATA AT THE
10 Years 3.88 FUND EXPENSES, REINVESTED DISTRIBUTIONS FUND LEVEL, EXCLUDING VARIABLE PRODUCT
5 Years 3.89 AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON THIS AIM
1 Year -0.93 INVESTMENT RETURN AND PRINCIPAL VALUE AUTOMATED INFORMATION LINE,
======================================== WILL FLUCTUATE SO THAT YOU MAY HAVE A 866-702-4402. AS MENTIONED ABOVE, FOR
GAIN OR LOSS WHEN YOU SELL SHARES. THE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES' INCEPTION DATE IS INCLUDING VARIABLE PRODUCT CHARGES,
MARCH 14, 2002. RETURNS SINCE THAT DATE AIM V.I. DIVERSIFIED INCOME FUND, A PLEASE CONTACT YOUR VARIABLE PRODUCT
ARE HISTORICAL. ALL OTHER RETURNS ARE SERIES PORTFOLIO OF AIM VARIABLE ISSUER OR FINANCIAL ADVISOR.
THE BLENDED RETURNS OF THE HISTORICAL INSURANCE FUNDS, IS CURRENTLY OFFERED
PERFORMANCE OF SERIES II SHARES SINCE THROUGH INSURANCE COMPANIES ISSUING HAD THE ADVISOR NOT WAIVED FEES
THEIR INCEPTION AND THE RESTATED VARIABLE PRODUCTS. YOU CANNOT PURCHASE AND/OR REIMBURSED EXPENSES, PERFORMANCE
HISTORICAL PERFORMANCE OF SERIES I SHARES OF THE FUND DIRECTLY. WOULD HAVE BEEN LOWER.
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE RULE 12b-1 FEES APPLICABLE TO SERIES
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS MAY 5, 1993. THE PERFORMANCE
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT include reinvested dividends, and they
do not reflect sales charges.
Foreign securities have additional The unmanaged LEHMAN BROTHERS U.S. Performance of an index of funds
risks, including exchange rate changes, AGGREGATE BOND INDEX (the Lehman reflects fund expenses; performance of a
political and economic developments, the Aggregate), which represents the U.S. market index does not.
relative lack of information about these investment-grade fixed-rate bond market
companies, relatively low market (including government and corporate OTHER INFORMATION
liquidity and the potential lack of securities, mortgage pass-through
strict financial and accounting controls securities and asset-backed securities), The returns shown in the management's
and standards. is compiled by Lehman Brothers, a global discussion of Fund performance are based
investment bank. on net asset values calculated for
Investing in higher-yielding, shareholder transactions. Generally
lower-rated corporate bonds, commonly The LEHMAN BROTHERS U.S. CREDIT INDEX accepted accounting principles require
known as junk bonds, has a greater risk consists of publicly issued U.S. adjustments to be made to the net assets
of price fluctuation and loss of corporate and specified foreign of the Fund at period end for financial
principal and income than U.S. debentures and secured notes that meet reporting purposes, and as such, the net
government securities such as U.S. the specified maturity, liquidity, and asset values for shareholder
Treasury bills, notes and bonds. quality requirements. It is compiled by transactions and the returns based on
Treasuries are guaranteed by the Lehman Brothers, a global investment those net asset values may differ from
government for repayment of principal bank. To qualify, bonds must be the net asset values and returns
and interest if held to maturity. Fund SEC-registered. reported in the Financial Highlights.
shares are not insured, and their value Additionally, the returns and net asset
and yield will vary with market The unmanaged LIPPER BBB-RATED FUND values shown throughout this report are
conditions. Investors should carefully INDEX represents an average of the 30 at the Fund level only and do not
assess the risk associated with largest BBB-rated bond funds tracked by include variable product issuer charges.
investing in the Fund. Lipper Inc., an independent mutual fund If such charges were included, the total
performance monitor. returns would be lower.
U.S. Treasury securities such as
bills, notes and bonds offer a high The Fund is not managed to track the Industry classifications used in this
degree of safety, and they guarantee the performance of any particular index, report are generally according to the
payment of principal and any applicable including the indexes defined here, and Global Industry Classification Standard,
interest if held to maturity. Fund consequently, the performance of the which was developed by and is the
shares are not insured, and their value Fund may deviate significantly from the exclusive property and a service mark of
and yield will vary with market performance of the indexes. Morgan Stanley Capital International
conditions. Inc. and Standard & Poor's.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results
4
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 June 30, 2006, appear in the table
fees; distribution and/or service fees expenses. You may use the information in "Funds vs. Indexes" on page 2.
(12b-1); and other Fund expenses. This this table, together with the amount you
example is intended to help you invested, to estimate the expenses that THE HYPOTHETICAL ACCOUNT VALUES AND
understand your ongoing costs (in you paid over the period. Simply divide EXPENSES MAY NOT BE USED TO ESTIMATE THE
dollars) of investing in the Fund and to your account value by $1,000 (for ACTUAL ENDING ACCOUNT BALANCE OR
compare these costs with ongoing costs example, an $8,600 account value EXPENSES YOU PAID FOR THE PERIOD. YOU
of investing in other mutual funds. The divided by $1,000 = 8.6), then multiply MAY USE THIS INFORMATION TO COMPARE THE
example is based on an investment of the result by the number in the table ONGOING COSTS OF INVESTING IN THE FUND
$1,000 invested at the beginning of the under the heading entitled "Actual AND OTHER FUNDS. TO DO SO, COMPARE THIS
period and held for the entire period Expenses Paid During Period" to estimate 5% HYPOTHETICAL EXAMPLE WITH THE 5%
January 1, 2006, through June 30, 2006. the expenses you paid on your account HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
The actual and hypothetical expenses in during this period. SHAREHOLDER REPORTS OF THE OTHER FUNDS.
the examples below do not represent the
effect of any fees or other expenses HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
assessed in connection with a variable PURPOSES in the table are meant to highlight your
product; if they did, the expenses shown ongoing costs. Therefore, the
would be higher while the ending account The table below also provides hypothetical information is useful in
values shown would be lower. information about hypothetical account comparing ongoing costs, and will not
values and hypothetical expenses based help you determine the relative total
on the Fund's actual expense ratio and costs of owning different funds.
an assumed rate of return of 5% per year
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $992.90 $3.71 $1,021.08 $3.76 0.75%
Series II 1,000.00 991.60 4.94 1,019.84 5.01 1.00
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. DIVERSIFIED INCOME FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory concluded that no changes should be made
Insurance Funds (the "Board") oversees services to be provided by AIM. The to the Fund and that it was not
the management of AIM V.I. Diversified Board reviewed the services to be necessary to change the Fund's portfolio
Income Fund (the "Fund") and, as provided by AIM under the Advisory management team at this time. Although
required by law, determines annually Agreement. Based on such review, the the independent written evaluation of
whether to approve the continuance of Board concluded that the range of the Fund's Senior Officer (discussed
the Fund's advisory agreement with A I M services to be provided by AIM under the below) only considered Fund performance
Advisors, Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and through the most recent calendar year,
recommendation of the Investments that AIM currently is providing services the Board also reviewed more recent Fund
Committee of the Board, at a meeting in accordance with the terms of the performance, which did not change their
held on June 27, 2006, the Board, Advisory Agreement. conclusions.
including all of the independent
trustees, approved the continuance of o The quality of services to be provided o Meetings with the Fund's portfolio
the advisory agreement (the "Advisory by AIM. The Board reviewed the managers and investment personnel. With
Agreement") between the Fund and AIM for credentials and experience of the respect to the Fund, the Board is
another year, effective July 1, 2006. officers and employees of AIM who will meeting periodically with such Fund's
provide investment advisory services to portfolio managers and/or other
The Board considered the factors the Fund. In reviewing the investment personnel and believes that
discussed below in evaluating the qualifications of AIM to provide such individuals are competent and able
fairness and reasonableness of the investment advisory services, the Board to continue to carry out their
Advisory Agreement at the meeting on considered such issues as AIM's responsibilities under the Advisory
June 27, 2006 and as part of the Board's portfolio and product review process, Agreement.
ongoing oversight of the Fund. In their various back office support functions
deliberations, the Board and the provided by AIM and AIM's equity and o Overall performance of AIM. The Board
independent trustees did not identify fixed income trading operations. Based considered the overall performance of
any particular factor that was on the review of these and other AIM in providing investment advisory and
controlling, and each trustee attributed factors, the Board concluded that the portfolio administrative services to the
different weights to the various quality of services to be provided by Fund and concluded that such performance
factors. AIM was appropriate and that AIM was satisfactory.
currently is providing satisfactory
One responsibility of the independent services in accordance with the terms of o Fees relative to those of clients of
Senior Officer of the Fund is to manage the Advisory Agreement. AIM with comparable investment
the process by which the Fund's proposed strategies. The Board reviewed the
management fees are negotiated to ensure o The performance of the Fund relative effective advisory fee rate (before
that they are negotiated in a manner to comparable funds. The Board reviewed waivers) for the Fund under the Advisory
which is at arms' length and reasonable. the performance of the Fund during the Agreement. The Board noted that this
To that end, the Senior Officer must past one, three and five calendar years rate was (i) above the effective
either supervise a competitive bidding against the performance of funds advised advisory fee rate (before waivers) for a
process or prepare an independent by other advisors with investment mutual fund advised by AIM with
written evaluation. The Senior Officer strategies comparable to those of the investment strategies comparable to
has recommended an independent written Fund. The Board noted that the Fund's those of the Fund; and (ii) above the
evaluation in lieu of a competitive performance was above the median effective advisory fee rate (before
bidding process and, upon the direction performance of such comparable funds for waivers) for a mutual fund advised by
of the Board, has prepared such an the one and three year periods and below AIM and used exclusively for separately
independent written evaluation. Such such median performance for the five managed accounts/wrap accounts managed
written evaluation also considered year period. Based on this review and by AIM affiliates with investment
certain of the factors discussed below. after taking account of all of the other strategies comparable to those of the
In addition, as discussed below, the factors that the Board considered in Fund. The Board noted that AIM has
Senior Officer made a recommendation to determining whether to continue the agreed to limit the Fund's total
the Board in connection with such Advisory Agreement for the Fund, the operating expenses, as discussed below.
written evaluation. Board concluded that no changes should Based on this review, the Board
be made to the Fund and that it was not concluded that the advisory fee rate for
The discussion below serves as a necessary to change the Fund's portfolio the Fund under the Advisory Agreement
summary of the Senior Officer's management team at this time. Although was fair and reasonable.
independent written evaluation and the independent written evaluation of
recommendation to the Board in the Fund's Senior Officer (discussed o Fees relative to those of comparable
connection therewith, as well as a below) only considered Fund performance funds with other advisors. The Board
discussion of the material factors and through the most recent calendar year, reviewed the advisory fee rate for the
the conclusions with respect thereto the Board also reviewed more recent Fund Fund under the Advisory Agreement. The
that formed the basis for the Board's performance, which did not change their Board compared effective contractual
approval of the Advisory Agreement. conclusions. advisory fee rates at a common asset
After consideration of all of the level at the end of the past calendar
factors below and based on its informed o The performance of the Fund relative year and noted that the Fund's rate was
business judgment, the Board determined to indices. The Board reviewed the comparable to the median rate of the
that the Advisory Agreement is in the performance of the Fund during the past funds advised by other advisors with
best interests of the Fund and its one, three and five calendar years investment strategies comparable to
shareholders and that the compensation against the performance of the Lipper those of the Fund that the Board
to AIM under the Advisory Agreement is Variable Underlying Fund Corporate - BBB reviewed. The Board noted that AIM has
fair and reasonable and would have been Index. The Board noted that the Fund's agreed to limit the Fund's total
obtained through arm's length performance was above the performance of operating expenses, as discussed below.
negotiations. such Index for the one and three year Based on this review, the Board
periods and below such Index for the concluded that the advisory fee rate for
Unless otherwise stated, information five year period. Based on this review the Fund under the Advisory Agreement
presented below is as of June 27, 2006 and after taking account of all of the was fair and reasonable.
and does not reflect any changes that other factors that the Board considered
may have occurred since June 27, 2006, in determining whether to continue the
including but not limited to changes to Advisory Agreement for the Fund, the
the Fund's performance, advisory fees, Board
expense limitations and/or fee waivers.
(continued)
6
AIM V.I. DIVERSIFIED INCOME FUND
o Expense limitations and fee waivers. o Independent written evaluation and trustees also considered the
The Board noted that AIM has recommendations of the Fund's Senior organizational structure employed by AIM
contractually agreed to waive fees Officer. The Board noted that, upon and its affiliates to provide those
and/or limit expenses of the Fund their direction, the Senior Officer of services. Based on the review of these
through April 30, 2008 so that total the Fund, who is independent of AIM and and other factors, the Board concluded
annual operating expenses are limited to AIM's affiliates, had prepared an that AIM and its affiliates were
a specified percentage of average daily independent written evaluation in order qualified to continue to provide
net assets for each class of the Fund. to assist the Board in determining the non-investment advisory services to the
The Board considered the contractual reasonableness of the proposed Fund, including administrative, transfer
nature of this fee waiver and noted that management fees of the AIM Funds, agency and distribution services, and
it remains in effect until April 30, including the Fund. The Board noted that that AIM and its affiliates currently
2008. The Board considered the effect the Senior Officer's written evaluation are providing satisfactory
this fee waiver/expense limitation would had been relied upon by the Board in non-investment advisory services.
have on the Fund's estimated expenses this regard in lieu of a competitive
and concluded that the levels of fee bidding process. In determining whether o Other factors and current trends. The
waivers/expense limitations for the Fund to continue the Advisory Agreement for Board considered the steps that AIM and
were fair and reasonable. the Fund, the Board considered the its affiliates have taken over the last
Senior Officer's written evaluation. several years, and continue to take, in
o Breakpoints and economies of scale. order to improve the quality and
The Board reviewed the structure of the o Profitability of AIM and its efficiency of the services they provide
Fund's advisory fee under the Advisory affiliates. The Board reviewed to the Funds in the areas of investment
Agreement, noting that it includes one information concerning the profitability performance, product line
breakpoint. The Board reviewed the level of AIM's (and its affiliates') diversification, distribution, fund
of the Fund's advisory fees, and noted investment advisory and other activities operations, shareholder services and
that such fees, as a percentage of the and its financial condition. The Board compliance. The Board concluded that
Fund's net assets, would decrease as net considered the overall profitability of these steps taken by AIM have improved,
assets increase because the Advisory AIM, as well as the profitability of AIM and are likely to continue to improve,
Agreement includes a breakpoint. The in connection with managing the Fund. the quality and efficiency of the
Board noted that, due to the Fund's The Board noted that AIM's operations services AIM and its affiliates provide
asset levels at the end of the past remain profitable, although increased to the Fund in each of these areas, and
calendar year and the way in which the expenses in recent years have reduced support the Board's approval of the
advisory fee breakpoint has been AIM's profitability. Based on the review continuance of the Advisory Agreement
structured, the Fund has yet to benefit of the profitability of AIM's and its for the Fund.
from the breakpoint. The Board concluded affiliates' investment advisory and
that the Fund's fee levels under the other activities and its financial
Advisory Agreement therefore would condition, the Board concluded that the
reflect economies of scale at higher compensation to be paid by the Fund to
asset levels and that it was not AIM under its Advisory Agreement was not
necessary to change the advisory fee excessive.
breakpoints in the Fund's advisory fee
schedule. o Benefits of soft dollars to AIM. The
Board considered the benefits realized
o Investments in affiliated money market by AIM as a result of brokerage
funds. The Board also took into account transactions executed through "soft
the fact that uninvested cash and cash dollar" arrangements. Under these
collateral from securities lending arrangements, brokerage commissions paid
arrangements, if any (collectively, by the Fund and/or other funds advised
"cash balances") of the Fund may be by AIM are used to pay for research and
invested in money market funds advised execution services. This research may be
by AIM 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 uninvested cash in affiliated fulfill its obligations under the
money market funds, AIM has voluntarily Advisory Agreement.
agreed to waive a portion of the
advisory fees it receives from the Fund o Historical relationship between the
attributable to such investment. The Fund and AIM. In determining whether to
Board further determined that the continue the Advisory Agreement for the
proposed securities lending program and Fund, the Board also considered the
related procedures with respect to the prior relationship between AIM and the
lending Fund is in the best interests of Fund, as well as the Board's knowledge
the lending Fund and its respective of AIM's operations, and concluded that
shareholders. The Board therefore it was beneficial to maintain the
concluded that the investment of cash current relationship, in part, because
collateral received in connection with of such knowledge. The Board also
the securities lending program in the reviewed the general nature of the
money market funds according to the non-investment advisory services
procedures is in the best interests of currently performed by AIM and its
the lending Fund and its respective affiliates, such as administrative,
shareholders. transfer agency and distribution
services, and the fees received by AIM
and its affiliates for performing such
services. In addition to reviewing such
services, the
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-80.42%
ASSET MANAGEMENT & CUSTODY BANKS-1.53%
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 $ 261,745
- -------------------------------------------------------------------------
GAMCO Investors, Inc., Sr. Unsec. Unsub.
Notes, 5.22%, 02/17/07(b) 155,000 154,261
- -------------------------------------------------------------------------
Janus Capital Group Inc., Sr. Unsec. Notes,
7.00%, 11/01/06(b) 50,000 50,173
- -------------------------------------------------------------------------
Mellon Capital II-Series B, Jr. Unsec. Gtd.
Sub. Trust Pfd. Bonds, 8.00%, 01/15/27(b) 180,000 189,140
- -------------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes, 5.50%, 09/15/15(b) 125,000 117,689
=========================================================================
773,008
=========================================================================
AUTOMOBILE MANUFACTURERS-1.62%
DaimlerChrysler North America Holding Corp.,
Gtd. Floating Rate Global Notes,
5.49%, 03/07/07(b)(c) 205,000 205,116
- -------------------------------------------------------------------------
Notes,
4.13%, 03/07/07(b) 305,000 301,630
- -------------------------------------------------------------------------
Series A, Gtd. Medium Term Notes,
7.38%, 09/15/06(b) 310,000 310,958
=========================================================================
817,704
=========================================================================
BROADCASTING & CABLE TV-5.70%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(b)(d) 90,000 49,500
- -------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06(b) 140,000 140,470
- -------------------------------------------------------------------------
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) 160,000 159,600
- -------------------------------------------------------------------------
Clear Channel Communications, Inc.,
Sr. Unsec. Global Notes,
6.00%, 11/01/06(b) 350,000 350,371
- -------------------------------------------------------------------------
Sr. Unsec. Notes,
3.13%, 02/01/07(b) 180,000 177,457
- -------------------------------------------------------------------------
Comcast Cable Communications Holdings Inc.,
Unsec. Gtd. Global Notes,
9.46%, 11/15/22(b) 440,000 542,881
- -------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(b) 325,000 388,411
- -------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
7.75%, 08/15/06(b) 170,000 170,396
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-(CONTINUED)
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 01/27/06-02/24/06; Cost
$533,412)(a)(b) $ 520,000 $ 526,063
- -------------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes, 7.88%,
12/15/07(b) 155,000 157,712
- -------------------------------------------------------------------------
CSC Holdings, Inc.-Series B, Sr. Unsec.
Unsub. Notes, 7.63%, 04/01/11(b) 55,000 55,275
- -------------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(b) 150,000 166,095
=========================================================================
2,884,231
=========================================================================
CASINOS & GAMING-1.47%
Caesars Entertainment, Inc., Sr. Unsec.
Notes, 8.50%, 11/15/06(b) 590,000 594,572
- -------------------------------------------------------------------------
Harrah's Operating Co., Inc., Unsec. Gtd.
Global Notes, 7.13%, 06/01/07(b) 150,000 151,338
=========================================================================
745,910
=========================================================================
COMMERCIAL PRINTING-0.30%
Deluxe Corp., Medium Term Notes, 2.75%,
09/15/06(b) 155,000 154,168
=========================================================================
CONSUMER FINANCE-2.83%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 6.70%, 02/01/27 (Acquired
09/15/04-04/12/06; Cost $486,249)(a)(b)(c) 480,000 483,845
- -------------------------------------------------------------------------
Ford Motor Credit Co., Sr. Unsec. Notes,
4.95%, 01/15/08(b) 1,000,000 948,290
=========================================================================
1,432,135
=========================================================================
DISTILLERS & VINTNERS-0.15%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12(b) 75,000 77,719
=========================================================================
DIVERSIFIED BANKS-7.52%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $334,806)(a)(b)(e) 300,000 300,758
- -------------------------------------------------------------------------
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%(b)(e) 250,000 252,182
- -------------------------------------------------------------------------
Bangkok Bank PCL (Hong Kong), Unsec. Sub.
Notes, 9.03%, 03/15/29 (Acquired 04/21/05-
05/11/06; Cost $493,483)(a)(b) 400,000 461,260
- -------------------------------------------------------------------------
BankAmerica Institutional-Series A, Gtd.
Trust Pfd. Bonds, 8.07%, 12/31/26 (Acquired
02/15/06; Cost $42,422)(a)(b) 40,000 41,979
- -------------------------------------------------------------------------
BankBoston Capital Trust II-Series B, Gtd.
Bonds, 7.75%, 12/15/26(b) 180,000 188,298
- -------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Floating
Rate Global Notes, 4.87%, 08/08/07
(Acquired 04/06/06; Cost $99,481)(a)(b)(f) 100,000 100,047
- -------------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Centura Capital Trust I, Gtd. Trust Pfd.
Notes, 8.85%, 06/01/27 (Acquired 05/22/03;
Cost $632,715)(a)(b) $ 500,000 $ 533,395
- -------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Trust Pfd.
Notes, 8.23%, 02/01/27(b) 260,000 273,445
- -------------------------------------------------------------------------
Golden State Bancorp Inc., Sub. Deb., 10.00%,
10/01/06(b) 10,000 10,096
- -------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
5.75%(b)(e)(g) 180,000 161,046
- -------------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands), Gtd. Sub. Second Tier Euro Bonds,
8.38%(b)(e) 100,000 104,873
- -------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 5.13%, 08/29/87(b)(g) 200,000 164,469
- -------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 5.19%(b)(e)(g) 280,000 248,195
- -------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(b) 140,000 166,902
- -------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(b)(e) 120,000 111,918
- -------------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan), Sub.
Second Tier Euro Notes, 8.15%(b)(e) 180,000 186,492
- -------------------------------------------------------------------------
US Trust Capital Trust-Series A, Trust Pfd.
Bonds, 8.41%, 02/01/27 (Acquired 02/15/06;
Cost $277,014)(a)(b) 260,000 274,326
- -------------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 6.17%, 09/21/07 (Acquired 12/14/05;
Cost $230,000)(a)(b)(c) 230,000 230,173
=========================================================================
3,809,854
=========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.14%
Cendant Corp., Sr. Unsec. Global Notes,
6.88%, 08/15/06(b) 579,000 579,654
=========================================================================
ELECTRIC UTILITIES-3.10%
Indiana Michigan Power Co.-Series C, Sr.
Unsec. Notes, 6.13%, 12/15/06(b) 300,000 300,642
- -------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(b) 160,000 179,600
- -------------------------------------------------------------------------
Potomac Electric Power Co.-Series A, Medium
Term Notes, 7.64%, 01/17/07(b) 100,000 100,777
- -------------------------------------------------------------------------
Sierra Pacific Power Co.-Series C, Medium
Term Notes, 6.62%, 11/29/06(b) 650,000 653,250
- -------------------------------------------------------------------------
Southern Co. Capital Trust I, Gtd. Trust Pfd.
Notes, 8.19%, 02/01/37(b) 320,000 337,418
=========================================================================
1,571,687
=========================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
ENVIRONMENTAL & FACILITIES SERVICES-0.08%
Waste Management, Inc., Unsec. Notes, 7.00%,
10/15/06(b) $ 40,000 $ 40,141
=========================================================================
FOOD RETAIL-1.92%
ARAMARK Services Inc., Unsec. Gtd. Notes,
7.00%, 07/15/06(b) 190,000 190,038
- -------------------------------------------------------------------------
Kroger Co. (The),
Notes, 7.80%, 08/15/07(b) 240,000 245,191
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes,
7.63%, 09/15/06(b) 183,000 183,608
- -------------------------------------------------------------------------
Sr. Unsec. Notes,
7.65%, 04/15/07(b) 260,000 263,645
- -------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 7.00%,
09/15/07(b) 88,000 89,167
=========================================================================
971,649
=========================================================================
GAS UTILITIES-0.97%
Consolidated Natural Gas Co.-Series B, Sr.
Unsec. Unsub. Notes, 5.38%, 11/01/06(b) 490,000 489,368
=========================================================================
GENERAL MERCHANDISE STORES-0.16%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(b) 80,000 79,600
=========================================================================
HEALTH CARE DISTRIBUTORS-0.43%
Cardinal Health, Inc., Sr. Unsec. Notes,
7.30%, 10/15/06(b) 215,000 215,877
=========================================================================
HEALTH CARE SERVICES-1.31%
Caremark Rx, Inc., Sr. Unsec. Notes, 7.38%,
10/01/06(b) 510,000 511,683
- -------------------------------------------------------------------------
Orlando Lutheran Towers Inc., Bonds, 7.75%,
07/01/11(b) 155,000 152,869
=========================================================================
664,552
=========================================================================
HOME IMPROVEMENT RETAIL-0.16%
Sherwin-Williams Co. (The), Sr. Notes, 6.85%,
02/01/07(b) 80,000 80,336
=========================================================================
HOMEBUILDING-1.34%
D.R. Horton, Inc.,
Sr. Unsec. Gtd. Notes,
8.00%, 02/01/09(b) 200,000 208,802
- -------------------------------------------------------------------------
Sr. Unsec. Notes,
7.88%, 08/15/11(b) 400,000 419,888
- -------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 8.00%, 08/15/06(b) 50,000 50,102
=========================================================================
678,792
=========================================================================
HOTELS, RESORTS & CRUISE LINES-0.36%
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(b) 180,000 180,000
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.05%
Newell Rubbermaid Inc., Unsec. Notes, 6.00%,
03/15/07(b) $ 25,000 $ 25,026
=========================================================================
INDUSTRIAL CONGLOMERATES-0.85%
Tyco International Group S.A. (Luxembourg),
Unsec. Gtd. Unsub. Yankee Notes, 5.80%,
08/01/06(b) 430,000 430,052
=========================================================================
INSURANCE BROKERS-0.82%
Aon Corp., Unsec. Notes, 6.95%, 01/15/07(b) 20,000 20,127
- -------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., Sr. Unsec.
Global Notes, 5.38%, 03/15/07(b) 395,000 393,921
=========================================================================
414,048
=========================================================================
INTEGRATED OIL & GAS-2.32%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(b) 300,000 303,672
- -------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes,
7.13%, 11/15/06(b) 300,000 301,452
- -------------------------------------------------------------------------
Yankee Bonds,
8.90%, 08/15/28(b) 540,000 567,675
=========================================================================
1,172,799
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.56%
Embarq Corp.,
Sr. Unsec. Notes, 6.74%, 06/01/13(b) 240,000 240,336
- -------------------------------------------------------------------------
7.08%, 06/01/16(b) 400,000 398,308
- -------------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 6.68%, 11/28/07(b) 290,000 292,697
- -------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(b) 250,000 253,677
- -------------------------------------------------------------------------
Verizon California Inc.-Series G, Unsec.
Deb., 5.50%, 01/15/09(b) 160,000 158,312
- -------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(b) 460,000 536,043
- -------------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb., 6.13%, 01/15/13(b) 120,000 117,508
- -------------------------------------------------------------------------
Verizon Maryland Inc.-Series A, Unsec. Global
Notes, 6.13%, 03/01/12(b) 65,000 64,239
- -------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(b) 180,000 172,242
- -------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(b) 648,000 582,870
=========================================================================
2,816,232
=========================================================================
INVESTMENT BANKING & BROKERAGE-0.17%
Dryden Investor Trust, Bonds, 7.16%, 07/23/08
(Acquired 04/10/06; Cost $36,705)(a)(b) 36,058 36,433
- -------------------------------------------------------------------------
Jefferies Group, Inc.-Series B, Sr. Unsec.
Notes, 7.50%, 08/15/07(b) 50,000 50,847
=========================================================================
87,280
=========================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
LEISURE PRODUCTS-0.85%
Brunswick Corp., Unsec. Unsub. Notes, 6.75%,
12/15/06(b) $ 430,000 $ 431,926
=========================================================================
LIFE & HEALTH INSURANCE-2.30%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $93,875)(a)(b) 95,000 94,366
- -------------------------------------------------------------------------
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)(h) 500,000 548,405
- -------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(b) 150,000 151,043
- -------------------------------------------------------------------------
Sun Life Canada (U.S.) Capital Trust, Gtd.
Trust Pfd. Notes, 8.53% (Acquired 02/13/06;
Cost $375,519)(a)(b)(e) 350,000 371,700
=========================================================================
1,165,514
=========================================================================
MANAGED HEALTH CARE-0.78%
Humana Inc., Sr. Unsec. Notes, 7.25%,
08/01/06(b) 395,000 395,466
=========================================================================
METAL & GLASS CONTAINERS-1.00%
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%,
05/15/13(b) 140,000 141,750
- -------------------------------------------------------------------------
Pactiv Corp., Unsec. Notes, 8.00%,
04/15/07(b) 360,000 365,630
=========================================================================
507,380
=========================================================================
MOVIES & ENTERTAINMENT-1.48%
News America Holdings Inc., Sr. Unsec. Gtd.
Deb., 7.75%, 12/01/45(b) 170,000 179,119
- -------------------------------------------------------------------------
Time Warner Cos., Inc., Unsec. Deb., 9.15%,
02/01/23(b) 480,000 568,373
=========================================================================
747,492
=========================================================================
MULTI-UTILITIES-0.65%
Ameren Corp., Bonds, 4.26%, 05/15/07(b) 195,000 192,531
- -------------------------------------------------------------------------
PSI Energy, Inc., Unsec. Deb., 7.85%,
10/15/07(b) 65,000 66,604
- -------------------------------------------------------------------------
Sempra Energy, Sr. Notes, 4.62%, 05/17/07(b) 70,000 69,322
=========================================================================
328,457
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.48%
Devon Energy Corp., Sr. Unsec. Notes, 2.75%,
08/01/06(b) 205,000 204,611
- -------------------------------------------------------------------------
Pemex Project Funding Master Trust (Mexico),
Sr. Unsec. Gtd. Notes,
5.75%, 12/15/15 (Acquired 01/26/06; Cost
$79,111)(a)(b) 80,000 73,500
- -------------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes,
5.75%, 12/15/15(b) 245,000 225,094
- -------------------------------------------------------------------------
8.63%, 02/01/22(b) 675,000 750,127
=========================================================================
1,253,332
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-9.47%
General Electric Capital Corp., Unsec.
Floating Rate Putable Deb., 5.10%,
09/01/07(b)(f) $ 50,000 $ 48,787
- -------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87% (Acquired 06/16/04-03/03/06;
Cost $787,636)(a)(b)(e) 700,000 750,855
- -------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico),
Sr. Unsec. Global Notes,
8.02%, 05/15/07(b) 170,000 170,983
- -------------------------------------------------------------------------
-Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(b) 435,500 459,853
- -------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $399,732)(a)(b) 400,000 376,580
- -------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 01/10/03-09/22/04; Cost
$525,327)(a)(b) 453,889 494,684
- -------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands)- Class A-1a, Sr. Floating Rate
Notes, 5.43%, 01/25/36 (Acquired 03/21/05;
Cost $499,929)(a)(b)(c) 499,929 489,383
- -------------------------------------------------------------------------
Residential Capital Corp., Sr. Unsec.
Floating Rate Global Notes, 6.88%,
06/29/07(b)(c) 250,000 250,900
- -------------------------------------------------------------------------
Southern Investments UK PLC (United Kingdom),
Gtd. Yankee Notes, 8.23%, 02/01/27(b) 270,000 285,749
- -------------------------------------------------------------------------
Toll Road Investors Partnership II,
L.P.-Series A, Disc. Bonds, (INS-MBIA
Insurance Corp.) 5.45%, 02/15/45 (Acquired
03/11/05-03/22/06; Cost
$582,017)(a)(b)(h)(i) 4,958,969 598,290
- -------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 6.17% (Acquired
12/07/04-04/03/06; Cost $500,332)(a)(b)(e) 500,000 500,022
- -------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(b)(e) 250,000 263,690
- -------------------------------------------------------------------------
Windsor Financing LLC, Sr. Gtd. Notes, 5.88%,
07/15/17 (Acquired 02/07/06; Cost
$110,000)(a)(b) 110,000 106,213
=========================================================================
4,795,989
=========================================================================
PACKAGED FOODS & MEATS-0.95%
Tyson Foods, Inc., Sr. Unsec. Global Notes,
7.25%, 10/01/06(b) 480,000 481,421
=========================================================================
PROPERTY & CASUALTY INSURANCE-4.82%
ACE INA Holdings Inc., Sr. Unsec. Gtd. Unsub.
Notes, 8.30%, 08/15/06(b) 130,000 130,313
- -------------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(b) 125,000 132,149
- -------------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(b) 790,000 826,427
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
Oil Casualty Insurance Ltd. (Bermuda), Unsec.
Sub. Deb., 8.00%, 09/15/34 (Acquired
04/29/05-06/09/05; Cost $352,536)(a)(b) $ 330,000 $ 316,651
- -------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Notes,
7.56% (Acquired 06/15/06; Cost
$870,000)(a)(b)(e) 870,000 872,714
- -------------------------------------------------------------------------
Sr. Unsec. Floating Rate Notes,
5.34%, 10/06/06 (Acquired 10/12/05; Cost
$158,800)(a)(b)(f) 160,000 159,953
=========================================================================
2,438,207
=========================================================================
PUBLISHING-1.39%
Pearson Inc., Medium Term Notes, 7.38%,
09/15/06 (Acquired 01/06/06-01/11/06; Cost
$710,746)(a)(b) 700,000 702,814
=========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.16%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(b) 80,000 80,280
=========================================================================
REGIONAL BANKS-2.62%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 6.78%, 03/01/34(b)(c) 600,000 601,884
- -------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 5.80%, 06/01/28(b)(c) 100,000 97,281
- -------------------------------------------------------------------------
Popular North America Inc.-Series F, Medium
Term Notes, 5.20%, 12/12/07(b) 140,000 138,669
- -------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(b) 175,000 169,475
- -------------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(b) 290,000 321,155
=========================================================================
1,328,464
=========================================================================
REINSURANCE-1.64%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.75%, 06/15/30(b) 175,000 199,162
- -------------------------------------------------------------------------
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(b) 165,000 152,340
- -------------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs., 5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $493,840)(a)(b) 500,000 479,700
=========================================================================
831,202
=========================================================================
SOVEREIGN DEBT-0.67%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04; Cost $364,406)(a)(b) 325,000 337,838
=========================================================================
SPECIALIZED REIT'S-0.66%
Health Care Property Investors, Inc., Notes,
5.63%, 05/01/17(b) 180,000 168,012
- -------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(b) 175,000 166,570
=========================================================================
334,582
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.57%
ICI North America, Unsec. Gtd. Deb., 8.88%,
11/15/06(b) $ 80,000 $ 80,826
- -------------------------------------------------------------------------
NewMarket Corp., Sr. Unsec. Gtd. Global
Notes, 8.88%, 05/01/10(b) 200,000 206,000
=========================================================================
286,826
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.09%
Countrywide Home Loans, Inc.-Series E, Gtd.
Medium Term Notes, 6.94%, 07/16/07(b) 150,000 151,932
- -------------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(b) 275,000 293,667
- -------------------------------------------------------------------------
Washington Mutual Capital I, Gtd. Sub. Trust
Pfd. Notes, 8.38%, 06/01/27(b) 100,000 105,682
=========================================================================
551,281
=========================================================================
TOBACCO-1.01%
Altria Group, Inc., Unsec. Notes, 7.20%,
02/01/07(b) 510,000 513,743
=========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.78%
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
7.38%, 12/15/28 (Acquired
01/25/05-03/03/05; Cost $428,237)(a)(b) 375,000 396,810
=========================================================================
TRUCKING-1.33%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(b) 650,000 675,525
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.86%
Sprint Capital Corp., Unsec. Gtd. Notes,
4.78%, 08/17/06(b) 70,000 69,938
- -------------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(b) 180,000 219,141
- -------------------------------------------------------------------------
Telephone & Data Systems, Inc., Series A,
Sr. Unsec. Notes,
7.60%, 12/01/41 12,000 296,040
- -------------------------------------------------------------------------
Unsec. Notes,
7.00%, 08/01/06(b) 355,000 355,316
=========================================================================
940,435
=========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $41,808,841) 40,716,806
=========================================================================
U.S. MORTGAGE-BACKED SECURITIES-9.49%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-2.68%
Federal Home Loan Mortgage Corp., Pass
Through Ctfs.,
8.50%, 03/01/10(b) 668 677
- -------------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32(b) 34,013 34,368
- -------------------------------------------------------------------------
6.00%, 05/01/17 to 11/01/33(b) 291,779 288,945
- -------------------------------------------------------------------------
5.50%, 09/01/17(b) 113,545 111,637
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
FEDERAL HOME LOAN MORTGAGE CORP.-(CONTINUED)
Pass Through Ctfs., TBA,
5.00%, 07/01/21 to 07/01/36(b)(j) $ 969,580 $ 921,846
=========================================================================
1,357,473
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.21%
Federal National Mortgage Association, Pass
Through Ctfs.,
7.00%, 02/01/16 to 09/01/32(b) 49,808 51,064
- -------------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/35(b) 209,007(k) 211,134
- -------------------------------------------------------------------------
5.00%, 11/01/18(b) 107,099 103,411
- -------------------------------------------------------------------------
7.50%, 04/01/29 to 10/01/29(b) 109,596 113,762
- -------------------------------------------------------------------------
8.00%, 04/01/32(b) 26,639 28,126
- -------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 07/01/21 to 07/01/36(b)(j) 1,900,000 1,837,750
- -------------------------------------------------------------------------
6.00%, 07/01/21 to 07/01/36(b)(j) 808,394 796,486
=========================================================================
3,141,733
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.60%
Government National Mortgage Association,
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32(b) 27,812 29,088
- -------------------------------------------------------------------------
8.50%, 11/15/24(b) 20,213 21,853
- -------------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31(b) 6,057 6,252
- -------------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32(b) 48,208 48,885
- -------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32(b) 69,238 68,807
- -------------------------------------------------------------------------
5.50%, 02/15/34(b) 132,574(k) 128,655
=========================================================================
303,540
=========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $4,845,653) 4,802,746
=========================================================================
ASSET-BACKED SECURITIES-6.40%
AEROSPACE & DEFENSE-0.69%
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 $372,957)(a)(b)(h) 339,591 351,612
=========================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS-0.25%
Federal Home Loan Bank (FHLB)-Series TQ-2015,
Class A, Pass Through Ctfs.,
5.07%, 10/20/15(b) 129,553 124,490
=========================================================================
MULTI-SECTOR HOLDINGS-0.40%
Longport Funding Ltd.-Series 2005-2A, Class
A1J, Floating Rate Bonds,
5.63%, 02/03/40 (Acquired 03/31/05; Cost
$200,000)(a)(c)(l) 200,000 200,000
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-4.39%
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 $ 759,799
- -------------------------------------------------------------------------
Patrons' Legacy 2003-III-Series A, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$512,705)(a)(l) 500,000 486,505
- -------------------------------------------------------------------------
Patrons' Legacy-2004-I-Series A, Ctfs.,
6.67%, 03/04/19 (Acquired 04/30/04; Cost
$1,000,000)(a)(l) 1,000,000 977,900
=========================================================================
2,224,204
=========================================================================
PROPERTY & CASUALTY INSURANCE-0.67%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$351,994)(a)(b) 350,000 338,002
=========================================================================
Total Asset-Backed Securities (Cost
$3,336,380) 3,238,308
=========================================================================
MUNICIPAL OBLIGATIONS-4.14%
Dallas (City of), Texas; Series 2005 A,
Taxable Pension Limited Tax GO,
4.61%, 02/15/14(b) 75,000 69,844
- -------------------------------------------------------------------------
Detroit (City of), Michigan; Series 2005 A-1,
Taxable Capital Improvement Limited Tax GO,
(INS-Ambac Assurance Corp.) 4.96%,
04/01/20(b)(h) 130,000 117,508
- -------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Series 2005 A,
Taxable RB,
4.87%, 07/15/16(b) 100,000 92,859
- -------------------------------------------------------------------------
5.22%, 07/15/20(b) 125,000 116,513
- -------------------------------------------------------------------------
5.28%, 01/15/22(b) 100,000 92,750
- -------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Series
2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.) 6.10%, 05/01/24(b)(h) 650,000 662,187
- -------------------------------------------------------------------------
Michigan (State of), Western Michigan
University; Series 2005, Taxable RB,
(INS-Ambac Assurance Corp.) 4.41%,
11/15/14(b)(h) 90,000 87,139
- -------------------------------------------------------------------------
New Hampshire (State of); Series 2005 B,
Taxable Unlimited Tax GO,
4.65%, 05/15/15(b) 125,000 116,563
- -------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Series 2004, Taxable Rental Car
Facility Charge RB
(INS-Financial Guaranty Insurance Co.),
3.69%, 07/01/07(b)(h) 225,000 221,119
- -------------------------------------------------------------------------
4.21%, 07/01/08(b)(h) 300,000 292,317
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
MUNICIPAL OBLIGATIONS-(CONTINUED)
Sacramento (County of), California; Series
2004 C-1, Taxable Pension Funding CARS RB,
(INS-MBIA Insurance Corp.) 3.42%,
07/10/30(b)(h)(m) $ 225,000 $ 224,860
=========================================================================
Total Municipal Obligations (Cost
$2,146,720) 2,093,659
=========================================================================
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
PREFERRED STOCKS-2.74%
LIFE & HEALTH INSURANCE-0.35%
Aegon N.V. 6.38% Pfd. (Netherlands) 7,500 $ 175,800
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.31%
Zurich RegCaPS Funding Trust IV, 5.70%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$244,120)(a)(b)(c) 250 253,047
- -------------------------------------------------------------------------
Zurich RegCaPS Funding Trust VI, 5.88%
Floating Rate Pfd. (Acquired 01/19/05; Cost
$388,587)(a)(b)(c) 400 408,750
=========================================================================
661,797
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.08%
Fannie Mae, Series J,
4.72% Floating Rate Pfd.(n) 5,550 276,945
- -------------------------------------------------------------------------
Series K,
5.40% Floating Rate Pfd.(n) 5,450 273,045
=========================================================================
549,990
=========================================================================
Total Preferred Stocks (Cost $1,373,794) 1,387,587
=========================================================================
<Caption>
PRINCIPAL
AMOUNT
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-0.87%(O)
JAPAN-0.87%
Takefuji Corp. (Consumer Finance), Sr. Unsec.
Medium Term Euro Notes, 1.02%, 03/01/34
(Cost $523,532) JPY 100,000,000 441,512
=========================================================================
U.S. TREASURY SECURITIES-0.73%
U.S. TREASURY NOTES-0.73%
3.00%, 12/31/06(b)(p) (Cost $371,007) $ 375,000 370,811
=========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-0.58%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.58%
Unsec. Floating Rate Global Notes, 4.50%,
02/17/09(b)(f) (Cost $300,000) 300,000 292,515
=========================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-0.00%
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(l)(q)(r) 275 0
=========================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
MONEY MARKET FUNDS-0.19%
Liquid Assets Portfolio-Institutional
Class(s) 48,468 $ 48,468
- -------------------------------------------------------------------------
Premier Portfolio-Institutional Class(s) 48,468 48,468
=========================================================================
Total Money Market Funds (Cost $96,936) 96,936
=========================================================================
TOTAL INVESTMENTS-105.56% (Cost $54,802,863) 53,440,880
=========================================================================
OTHER ASSETS LESS LIABILITIES-(5.56)% (2,810,682)
=========================================================================
NET ASSETS-100.00% $50,630,198
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
CARS - Convertible Auction Rate Security
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
JPY - Japanese Yen
Jr. - Junior
Pfd. - Preferred
RB - Revenue Bonds
RegCaPS - Regulatory Capital Preferred Securities
REGS - Regulation S
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold 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 June 30,
2006 was $14,855,717, which represented 29.34% of the Fund's Net Assets.
Unless otherwise indicated, these securities are not considered to be
illiquid.
(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
June 30, 2006 was $50,216,197, which represented 99.18% of the Fund's
Net Assets. See Note 1A.
(c) Interest or dividend rate is redetermined quarterly. Rate shown is the
rate in effect on June 30, 2006.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The value of this security at June 30, 2006
represented 0.10% of the Fund's Net Assets.
(e) Perpetual bond with no specified maturity date.
(f) Interest rate is redetermined monthly. Rate shown is the rate in effect
on June 30, 2006.
(g) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on June 30, 2006.
(h) Principal and/or interest payments are secured by the bond insurance
company listed.
(i) Zero coupon bond issued at a discount. The interest rate shown
represents the yield to maturity at issue.
(j) Security purchased on forward commitment basis. This security is subject
to dollar roll transactions. See Note 1G.
(k) A portion of the principal's balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1L and Note 9.
(l) 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 June 30, 2006
was $1,664,405, which represented 3.29% of the Fund's Net Assets.
(m) 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.
(n) Dividend rate is redetermined bi-annually. Rate shown is the rate in
effect on June 30, 2006.
(o) Foreign denominated security. Principal amount is denominated in
currency indicated.
(p) A portion of this security is subject to put options written. See Note
1K and Note 10.
(q) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(r) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2006 represented 0.00% of the Fund's Net Assets. See Note 1A.
(s) 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $54,705,927) $ 53,343,944
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $96,936) 96,936
=============================================================
Total investments (cost $54,802,863) 53,440,880
=============================================================
Receivables for:
Investments sold 1,685,347
- -------------------------------------------------------------
Variation margin 62,869
- -------------------------------------------------------------
Fund shares sold 41
- -------------------------------------------------------------
Dividends and interest 754,530
- -------------------------------------------------------------
Fund expenses absorbed 8,473
- -------------------------------------------------------------
Foreign currency contracts outstanding 10,261
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 47,214
- -------------------------------------------------------------
Other assets 3,644
=============================================================
Total assets 56,013,259
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 5,228,969
- -------------------------------------------------------------
Fund shares reacquired 34,051
- -------------------------------------------------------------
Options written, at value (premiums received
$1,710) 1,125
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 53,043
- -------------------------------------------------------------
Accrued administrative services fees 22,682
- -------------------------------------------------------------
Accrued distribution fees -- Series II 548
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 174
- -------------------------------------------------------------
Accrued transfer agent fees 701
- -------------------------------------------------------------
Accrued operating expenses 41,768
=============================================================
Total liabilities 5,383,061
=============================================================
Net assets applicable to shares outstanding $ 50,630,198
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 68,593,806
- -------------------------------------------------------------
Undistributed net investment income 4,286,192
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts, futures contracts
and option contracts (20,821,787)
- -------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities, foreign currencies,
foreign currency contracts, futures contracts
and option contracts (1,428,013)
=============================================================
$ 50,630,198
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 49,780,208
_____________________________________________________________
=============================================================
Series II $ 849,990
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,948,480
_____________________________________________________________
=============================================================
Series II 102,564
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 8.37
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 8.29
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $1,543,559
- ------------------------------------------------------------
Dividends (net of foreign withholding tax of
$836) 65,413
- ------------------------------------------------------------
Dividends from affiliated money market funds 8,713
============================================================
Total investment income 1,617,685
============================================================
EXPENSES:
Advisory fees 158,480
- ------------------------------------------------------------
Administrative services fees 71,274
- ------------------------------------------------------------
Custodian fees 9,616
- ------------------------------------------------------------
Distribution fees -- Series II 1,107
- ------------------------------------------------------------
Transfer agent fees 3,870
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 7,968
- ------------------------------------------------------------
Professional services fees 25,025
- ------------------------------------------------------------
Other 16,885
============================================================
Total expenses 294,225
============================================================
Less: Fees waived and expense offset arrangement (94,912)
============================================================
Net expenses 199,313
============================================================
Net investment income 1,418,372
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS, FUTURES CONTRACTS
AND OPTION CONTRACTS
Net realized gain (loss) from:
Investment securities (includes gains (losses)
from securities sold to affiliates of
$(3,070)) (118,850)
- ------------------------------------------------------------
Foreign currencies 3,980
- ------------------------------------------------------------
Foreign currency contracts (8,322)
- ------------------------------------------------------------
Futures contracts (534,687)
- ------------------------------------------------------------
Option contracts written 5,060
============================================================
(652,819)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,056,019)
- ------------------------------------------------------------
Foreign currencies 834
- ------------------------------------------------------------
Foreign currency contracts (15,464)
- ------------------------------------------------------------
Futures contracts (100,743)
- ------------------------------------------------------------
Option contracts written 585
============================================================
(1,170,807)
============================================================
Net gain (loss) from investment securities,
foreign currencies, foreign currency
contracts, futures contracts and option
contracts (1,823,626)
============================================================
Net increase (decrease) in net assets resulting
from operations $ (405,254)
____________________________________________________________
============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,418,372 $ 2,765,023
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investment securities, foreign
currencies, foreign currency contracts, futures
contracts and option contracts (652,819) 529,078
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts, futures contracts and option
contracts (1,170,807) (1,562,880)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations (405,254) 1,731,221
=========================================================================================
Distributions to shareholders from net investment income:
Series I -- (3,444,080)
- -----------------------------------------------------------------------------------------
Series II -- (56,114)
=========================================================================================
Decrease in net assets resulting from distributions -- (3,500,194)
=========================================================================================
Share transactions-net:
Series I (4,887,498) (8,266,475)
- -----------------------------------------------------------------------------------------
Series II (44,183) (46,419)
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (4,931,681) (8,312,894)
=========================================================================================
Net increase (decrease) in net assets (5,336,935) (10,081,867)
=========================================================================================
NET ASSETS:
Beginning of period 55,967,133 66,049,000
=========================================================================================
End of period (including undistributed net investment
income of $4,286,192 and $2,867,820, respectively) $50,630,198 $ 55,967,133
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Diversified Income Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. DIVERSIFIED INCOME 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 transactions
by the Fund, fee income is agreed upon amongst the parties at the
commencement of the dollar roll. This fee 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
AIM V.I. DIVERSIFIED INCOME FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. 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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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. 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.
M. 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.
N. 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 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 April 30, 2008. 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
net annual 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
AIM V.I. DIVERSIFIED INCOME FUND
more fully below, the expense offset arrangements from which the Fund may
benefit are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $94,570.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $46,479 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $3,870.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $1,107.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $124,432 $ 6,917,653 $ (6,993,617) $ -- $48,468 $4,346 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 62,774 (14,306) -- 48,468 11 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 124,432 6,863,019 (6,987,451) -- -- 4,356 --
==================================================================================================================================
Total $248,864 $13,843,446 $(13,995,374) $ -- $96,936 $8,713 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $84,322, which resulted in net realized gains
(losses) of $(3,070) and securities purchases of $515,936.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $342.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,863 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- --------------------------------------------------------------------------------------------------------------------------
CONTRACT TO
------------------------------ UNREALIZED
SETTLEMENT DATE DELIVER RECEIVE VALUE APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------
09/01/06 JPY 50,000,000 USD $451,264 $441,003 $10,261
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
<Table>
JPY -- Japanese Yen
USD -- U.S. Dollar
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 9--FUTURE CONTRACTS
On June 30, 2006, $260,037 principal amount of U.S. Government obligations were
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF VALUE APPRECIATION
CONTRACT CONTRACTS MONTH/ COMMITMENT 06/30/06 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 8 March-07/Long $1,888,800 $(18,977)
- ------------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 12 December-06/Long 2,832,150 (33,573)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 30 September-06/Long 6,083,437 (19,306)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 28 September-06/Long 2,895,375 (11,296)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 43 September-06/Long 4,508,953 3,816
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 32 September-06/Long 3,413,000 14,488
- ------------------------------------------------------------------------------------------------------------------------------
Long Gilt 10 September-06/Long 2,013,888 (15,191)
==============================================================================================================================
Subtotal 23,635,603 (80,039)
==============================================================================================================================
Japan 10 Year Bond 1 September-06/Short (1,150,535) 3,087
==============================================================================================================================
Total $22,485,068 $(76,952)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 10--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------------------------------
CALL OPTION CONTRACTS PUT OPTION CONTRACTS
--------------------- ---------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------------------------------
Beginning of period -- $ -- -- $ --
- ------------------------------------------------------------------------------------------------------------
Written 12 1,815 34 4,955
- ------------------------------------------------------------------------------------------------------------
Closed -- -- (18) (2,160)
- ------------------------------------------------------------------------------------------------------------
Exercised -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Expired (12) (1,815) (8) (1,085)
============================================================================================================
End of period -- $ -- 8 $ 1,710
____________________________________________________________________________________________________________
============================================================================================================
</Table>
<Table>
<Caption>
OPEN PUT OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE UNREALIZED
MONTH PRICE CONTRACTS RECEIVED 06/30/06 APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes Aug-06 $104 8 $1,710 $1,125 $585
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 11--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $20,121,003 of capital loss carryforward in the fiscal
year ended December 31, 2006.
The Fund had 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 12--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $24,530,420 and $28,553,570, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 104,060
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,463,693)
===============================================================================
Net unrealized appreciation of investment securities $(1,359,633)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $54,800,513.
</Table>
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
2006(A) 2005
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Series I 188,936 $ 1,582,791 4,117,347 $35,952,572
- ------------------------------------------------------------------------------------------------------------------
Series II 1,883 15,731 91,797 794,699
==================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 411,971 3,444,080
- ------------------------------------------------------------------------------------------------------------------
Series II -- -- 6,769 56,114
==================================================================================================================
Reacquired:
Series I (770,223) (6,470,289) (5,441,529) (47,663,127)
- ------------------------------------------------------------------------------------------------------------------
Series II (7,214) (59,914) (103,637) (897,232)
==================================================================================================================
(586,618) $(4,931,681) (917,282) $(8,312,894)
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
()(a)There are five entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 79% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 15--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.43 $ 8.74 $ 8.82 $ 8.60 $ 9.13 $ 9.49
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.22 0.40 0.36 0.42 0.55 0.67(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.28) (0.15) 0.08 0.37 (0.35) (0.35)
=================================================================================================================================
Total from investment operations (0.06) 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 $ 8.37 $ 8.43 $ 8.74 $ 8.82 $ 8.60 $ 9.13
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.71)% 2.90% 5.03% 9.24% 2.30% 3.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,780 $55,065 $65,069 $71,860 $70,642 $79,875
=================================================================================================================================
Ratio of expenses to average net assets 0.75%(d)(e) 0.89%(e) 1.01% 0.95% 0.94% 0.93%
=================================================================================================================================
Ratio of net investment income to average net assets 5.37%(d) 4.54% 4.01% 4.71% 6.15% 6.87%(b)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 47% 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 are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$52,371,104.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.11% and 1.08% for the six months ended June 30, 2006 and the year
ended December 31, 2005, respectively.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------
MARCH 14, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------- DECEMBER 31,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.36 $8.67 $8.78 $8.58 $ 8.97
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.21 0.38 0.33 0.40 0.42
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.28) (0.15) 0.08 0.37 (0.08)
===========================================================================================================================
Total from investment operations (0.07) 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 $ 8.29 $8.36 $8.67 $8.78 $ 8.58
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) (0.84)% 2.67% 4.69% 9.02% 3.90%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 850 $ 902 $ 980 $ 762 $ 124
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.00%(c)(d) 1.14%(d) 1.26% 1.20% 1.19%(e)
===========================================================================================================================
Ratio of net investment income to average net assets 5.12%(c) 4.29% 3.76% 4.46% 5.90%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 47% 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 annualized and based on average daily net assets of $893,247.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.36% and 1.33% for the six months ended June 30, 2006 and the year
ended December 31, 2005, respectively.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 16--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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. DYNAMICS FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. DYNAMICS FUND seeks to provide long-term capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 Stocks that are ranked highest by
===================================================================================== our quantitative model are the focus of
PERFORMANCE SUMMARY ======================================== our fundamental research efforts. Our
FUND VS. INDEXES fundamental analysis focuses on
For the six months ended June 30, 2006 CUMULATIVE TOTAL RETURNS identifying both industries and
and excluding variable products issuer 12/31/05-6/30/06, EXCLUDING VARIABLE companies with strong drivers of growth.
charges, AIM V.I. Dynamics Fund PRODUCT ISSUER CHARGES.
outperformed the broad market, as IF VARIABLE PRODUCT ISSUER CHARGES WERE Risk management plays an important
measured by the S&P 500 Index, and the INCLUDED, RETURNS WOULD BE LOWER. role in portfolio construction, as our
Fund's style-specific index, the Russell target portfolio attempts to limit
Midcap Growth Index. Series I Shares 7.38% volatility and downside risk. We seek to
accomplish this goal by investing in
Solid stock selection and generally Series II Shares 7.21 sectors, industries and companies with
stronger performance by mid-cap stocks attractive fundamental prospects. We
enabled the Fund to outperform the Standard & Poor's Composite Index limit the Fund's sector exposure and
large-cap oriented S&P 500 Index. Stock of 500 Stocks (S&P 500 Index) also seek to manage stock-specific risk
selection across sectors also enabled (Broad Market Index) 2.71 by building a diversified portfolio.
the Fund to outperform the Russell
Midcap Growth Index, with the widest Russell Midcap Growth Index We consider selling a stock for any
margin of outperformance in the (Style-Specific Index) 2.56 of the following reasons:
information technology (IT), energy,
consumer staples Lipper Mid-Cap Growth Fund Index o The stock is overvalued based on our
(Peer Group Index) 4.40 analysis.
SOURCE: LIPPER INC. o A change in fundamental metrics
======================================== indicates potential problems.
and consumer discretionary sectors.
o A change in market capitalization--if
Your Fund's long-term performance a stock grows and moves into the
appears on page 4. large-cap range.
=====================================================================================
o A better stock candidate with higher
HOW WE INVEST correlated with outperformance in the potential return is found.
midcap growth universe, including:
We believe a growth investment strategy MARKET CONDITIONS AND YOUR FUND
is an essential component of a o Earnings--focus on companies
diversified portfolio. exhibiting strong growth in earnings, After posting strong performance during
revenue and cash flows the first four months of 2006, domestic
Our investment process combines equities retreated over the last two
quantitative and fundamental analysis to o Quality--focus on companies with months of the reporting period largely
uncover companies exhibiting long-term, sustainable earnings growth and due to concerns about the sustainability
sustainable earnings and cash flow management teams that profitably of corporate profits and fears that
growth that is not yet reflected by the reinvest shareholder cash flow inflation might lead the U.S. Federal
stock's market price. Reserve Board to continue raising
o Valuation--focus on companies that are interest rates. While small- and mid-cap
Our quantitative model ranks attractively valued given their growth stocks were the hardest hit in May and
companies based on factors we have found potential June, they generally
to be highly
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Health Care Services 4.3% 1. Alliance Data Systems Corp. 1.8%
Information Technology 20.3% 2. Application Software 4.1 2. CB Richard Ellis Group, Inc.-
Class A 1.7
Health Care 18.1 3. Semiconductors 4.1
3. Precision Castparts Corp. 1.6
Consumer Discretionary 15.4 4. Wireless Telecommunication
Services 3.9 4. Corrections Corp. of America 1.5
Industrials 13.5
5. Managed Health Care 3.4 5. Polo Ralph Lauren Corp. 1.5
Energy 11.4
TOTAL NET ASSETS $140.7 MILLION 6. AmeriCredit Corp. 1.5
Financials 8.4 TOTAL NUMBER OF HOLDINGS* 112
7. Charles Schwab Corp. (The) 1.5
Telecommunication Services 5.3
8. Leap Wireless International,
Materials 2.8 Inc. 1.4
Consumer Staples 2.6 9. Qwest Communications
International Inc. 1.4
Money Market Funds
Plus Other Assets Less Liabilities 2.2 10. Chicago Mercantile Exchange
Holdings Inc. 1.4
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
2
AIM V.I. DYNAMICS FUND
outperformed large-cap stocks during the consumer discretionary sector, as many IN CLOSING
reporting period. Positive performance consumer-related stocks struggled during
was broad among the Russell Midcap the reporting period due to concerns Although we are pleased to have provided
Growth Index's economic sectors, with that higher interest rates would crimp positive returns for our investors for
the best returns found in the consumer spending and slow the economy. the reporting period, we are always
telecommunication services, materials, However, some holdings held up in this striving to improve performance and help
industrials and consumer staples environment, including SCIENTIFIC GAMES you meet your financial goals. We remain
sectors. and OFFICE DEPOT. Scientific Games made committed to our investment process of
a key contribution to Fund performance focusing on the attractively priced
The Fund outperformed the Russell as many gaming stocks enjoyed strong stocks of mid-cap companies with growing
Midcap Growth Index by a wide margin business fundamentals. Shares of office cash flow and earnings.
during the reporting period. Strong products retailer Office Depot rose
stock selection drove much of the Fund's after the company reported better than As always, we thank you for your
outperformance in the IT sector. Our expected earnings results due to continued investment in AIM V.I.
investment process led us to invest in a improving profit margins and strong Dynamics Fund.
number of stocks in the IT services sales growth.
industry that performed well during the THE VIEWS AND OPINIONS EXPRESSED IN
period. One example is ALLIANCE DATA The Fund underperformed in the MANAGEMENT'S DISCUSSION OF FUND
SYSTEMS, a provider of services to materials sector relative to the Russell PERFORMANCE ARE THOSE OF A I M ADVISORS,
private-label credit card companies, Midcap Growth Index by the widest INC. THESE VIEWS AND OPINIONS ARE
which rose after reporting earnings margin, largely due to an underweight SUBJECT TO CHANGE AT ANY TIME BASED ON
above analysts' expectations due to position, as this sector performed well FACTORS SUCH AS MARKET AND ECONOMIC
securing a number of new contracts. We during the period. One key detractor in CONDITIONS. THESE VIEWS AND OPINIONS MAY
also had success with software holdings this sector during the NOT BE RELIED UPON AS INVESTMENT ADVICE
CITRIX SYSTEMS and AMDOCS. period--SMURFIT-STONE CONTAINER. This OR RECOMMENDATIONS, OR AS AN OFFER FOR A
container and packaging manufacturer PARTICULAR SECURITY. THE INFORMATION IS
The energy sector experienced wide fell short of earnings expectations, NOT A COMPLETE ANALYSIS OF EVERY ASPECT
swings but finished with gains for the citing high energy and materials costs. OF ANY MARKET, COUNTRY, INDUSTRY,
reporting period. In this volatile Despite the pull back, we continued to SECURITY OR THE FUND. STATEMENTS OF FACT
environment, the Fund benefited from own the stock. ARE FROM SOURCES CONSIDERED RELIABLE,
strong stock selection and an overweight BUT A I M ADVISORS, INC. MAKES NO
position in this sector. The top While the Fund performed in-line REPRESENTATION OR WARRANTY AS TO THEIR
contributor to Fund performance during with the style-specific index in the COMPLETENESS OR ACCURACY. ALTHOUGH
the reporting period was AVENTINE health care sector, Fund returns were HISTORICAL PERFORMANCE IS NO GUARANTEE
RENEWABLE ENERGY HOLDINGS, one of the negatively affected by weak performance OF FUTURE RESULTS, THESE INSIGHTS MAY
leading producers and marketers of from biotechnology holding CV HELP YOU UNDERSTAND OUR INVESTMENT
ethanol, a grain alcohol mainly used as THERAPEUTICS, health care providers MANAGEMENT PHILOSOPHY.
a fuel additive in gasoline to reduce OMNICARE and LIFEPOINT HOSPITALS, and
vehicle emissions and enhance engine pharmaceutical manufacturer FOREST PAUL J. RASPLICKA,
performance. Aventine's stock price was LABORATORIES. While we owned Omnicare Chartered Financial
up close to 170% during the period due and Forest Laboratories at the close of [RASPLICKA Analyst, senior
to strong demand and rising prices for the reporting period, we sold CV PHOTO] portfolio manager, is
ethanol. Ethanol was in strong demand Therapeutics and LifePoint Hospitals due lead manager of AIM V.I.
after many refiners phased out the use to deteriorating fundamentals. Dynamics Fund. Mr. Rasplicka began his
of MTBE, a gasoline additive, due to investment career in 1982. A native of
legal concerns. Other significant detractors from Denver, Mr. Rasplicka is a magna cum
Fund performance during the reporting laude graduate of the University of
Two holdings in the consumer staples period included BUSINESS OBJECTS S.A. Colorado at Boulder with a B.S. in
sector made a significant contribution and AEROPOSTALE. Both holdings were business administration. He earned an
to Fund performance--HANSEN NATURAL and subsequently sold due to deteriorating M.B.A. from the University of Chicago.
ARCHER-DANIELS-MIDLAND. Hansen Natural, fundamentals.
a maker of alternative sodas, juices and KARL F. FARMER,
teas, including the popular Monster Overall positioning of the Fund was Chartered Financial
energy drink, was up over 150% during little changed during the period. [FARMER Analyst, is manager of
the reporting period due strong sales of Exposure was added to the industrials, PHOTO] AIM V.I. Dynamics Fund.
its products. Archer-Daniels-Midland is health care and materials sectors, and He spent six years as a
one of the world's largest processors of reduced in the consumer discretionary pension actuary, focusing on retirement
corn, wheat and oilseeds. One of the and IT sectors. plans and other benefit programs prior
products the company produces with corn to joining AIM in 1998. He earned a B.S.
is ethanol; therefore, the company also All changes to the Fund were based in economics from Texas A&M University,
benefited from high demand and rising on our bottom-up stock selection process graduating magna cum laude. He
prices of ethanol. of identifying what we consider high subsequently earned his M.B.A. in
quality growth companies trading at what finance from The Wharton School at the
The Fund also benefited from strong we believe are attractive valuations. University of Pennsylvania.
stock selection and an underweight
position in the Assisted by the Mid Cap Growth-GARP
(growth at a reasonable price) 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 PAGE 4.
3
AIM V.I. DYNAMICS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
======================================== AND SERIES II SHARE CLASSES WILL DIFFER ARE NOT INTENDED TO REFLECT ACTUAL
AVERAGE ANNUAL TOTAL RETURNS PRIMARILY DUE TO DIFFERENT CLASS VARIABLE PRODUCT VALUES. THEY DO NOT
EXPENSES. REFLECT SALES CHARGES, EXPENSES AND FEES
As of 6/30/06 ASSESSED IN CONNECTION WITH A VARIABLE
THE PERFORMANCE DATA QUOTED PRODUCT. SALES CHARGES, EXPENSES AND
SERIES I SHARES REPRESENT PAST PERFORMANCE AND CANNOT FEES, WHICH ARE DETERMINED BY THE
Inception (8/22/97) 5.55% GUARANTEE COMPARABLE FUTURE RESULTS; VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years 1.48 CURRENT PERFORMANCE MAY BE LOWER OR WILL LOWER THE TOTAL RETURN.
1 Year 17.48 HIGHER. PLEASE CONTACT YOUR VARIABLE
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR PER NASD REQUIREMENTS, THE MOST
SERIES II SHARES THE MOST RECENT MONTH-END VARIABLE RECENT MONTH-END PERFORMANCE DATA AT THE
Inception 5.28% PRODUCT PERFORMANCE. PERFORMANCE FIGURES FUND LEVEL, EXCLUDING VARIABLE PRODUCT
5 Years 1.22 REFLECT FUND EXPENSES, REINVESTED CHARGES, IS AVAILABLE ON THIS AIM
1 Year 17.16 DISTRIBUTIONS AND CHANGES IN NET ASSET AUTOMATED INFORMATION LINE,
======================================== VALUE. INVESTMENT RETURN AND PRINCIPAL 866-702-4402. AS MENTIONED ABOVE, FOR
VALUE WILL FLUCTUATE SO THAT YOU MAY THE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES' INCEPTION DATE IS HAVE A GAIN OR LOSS WHEN YOU SELL INCLUDING VARIABLE PRODUCT CHARGES,
APRIL 30, 2004. RETURNS SINCE THAT DATE SHARES. PLEASE CONTACT YOUR VARIABLE PRODUCT
ARE HISTORICAL. ALL OTHER RETURNS ARE ISSUER OR FINANCIAL ADVISOR.
THE BLENDED RETURNS OF THE HISTORICAL AIM V.I. DYNAMICS FUND, A SERIES
PERFORMANCE OF SERIES II SHARES SINCE PORTFOLIO OF AIM VARIABLE INSURANCE
THEIR INCEPTION AND THE RESTATED FUNDS, IS CURRENTLY OFFERED THROUGH
HISTORICAL PERFORMANCE OF SERIES I INSURANCE COMPANIES ISSUING VARIABLE
SHARES (FOR PERIODS PRIOR TO INCEPTION PRODUCTS. YOU CANNOT PURCHASE SHARES OF
OF SERIES II SHARES) ADJUSTED TO REFLECT THE FUND DIRECTLY. PERFORMANCE FIGURES
THE RULE 12b-1 FEES APPLICABLE TO SERIES GIVEN REPRESENT THE FUND AND
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS AUGUST 22, 1997. THE
PERFORMANCE OF THE FUND'S SERIES I
ABOUT INDEXES USED IN THIS REPORT include reinvested dividends, and they
do not reflect sales charges.
PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged STANDARD & POOR'S Performance of an index of funds
COMPOSITE INDEX OF 500 STOCKS (the S&P reflects fund expenses; performance of a
At any given time, the Fund may be 500--Registered Trademark-- Index) is an market index does not.
subject to sector risk, which means a index of common stocks frequently used
certain sector may underperform other as a general measure of U.S. stock OTHER INFORMATION
sectors or the market as a whole. The market performance.
Fund is not limited with respect to the The returns shown in the Management's
sectors in which it can invest. The unmanaged LIPPER MID-CAP GROWTH Discussion of Fund Performance are based
FUND INDEX represents an average of the on net asset values calculated for
Investing in smaller companies performance of the 30 largest shareholder transactions. Generally
involves greater risk than investing in mid-capitalization growth funds tracked accepted accounting principles require
more established companies, such as by Lipper Inc., an independent mutual adjustments to be made to the net assets
business risk, significant stock price fund performance monitor. of the Fund at period end for financial
fluctuations and illiquidity. reporting purposes, and as such, the net
The unmanaged RUSSELL asset value for shareholder transactions
The Fund may invest up to 25% of its MIDCAP--Registered Trademark-- GROWTH and the returns based on those net asset
assets in the securities of non-U.S. INDEX is a subset of the RUSSELL MIDCAP values may differ from the net asset
issuers. Securities of Canadian issuers --Registered Trademark-- INDEX, which values and returns reported in the
and American Depositary Receipts are not represents the performance of the stocks Financial Highlights. Additionally, the
subject to this 25% limitation. of domestic mid-capitalization returns and net asset values shown
International investing presents risks companies; the Growth subset measures throughout this report are at the Fund
not associated with investing solely in the performance of Russell Midcap level only and do not include variable
the United States. These include risks companies with higher price/book ratios product issuer charges. If such charges
relating to the fluctuation in the value and higher forecasted growth values. were included, the total returns would
of the U.S. dollar relative to the be lower.
values of the currencies, the custody The Fund is not managed to track the
arrangements made for the Fund's foreign performance of any particular index, Industry classifications used in
holdings, differences in accounting, including the indexes defined here, and this report are generally according to
political risks and the lesser degree of consequently, the performance of the the Global Industry Classification
public information required to be Fund may deviate significantly from the Standard, which was developed by and is
provided by non-U.S. companies. performance of the indexes. the exclusive property and a service
mark of Morgan Stanley Capital
Portfolio turnover is greater than A direct investment cannot be made International Inc. and Standard &
that of most funds, which may affect in an index. Unless otherwise indicated, Poor's.
performance. index results
4
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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,073.80 $5.81 $1,019.19 $5.66 1.13%
Series II 1,000.00 1,072.10 7.09 1,017.95 6.90 1.38
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. DYNAMICS FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory review and after taking account of all
Insurance Funds (the "Board") oversees services to be provided by AIM. The of the other factors that the Board
the management of AIM V.I. Dynamics Fund Board reviewed the services to be considered in determining whether to
(the "Fund") and, as required by law, provided by AIM under the Advisory continue the Advisory Agreement for the
determines annually whether to approve Agreement. Based on such review, the Fund, the Board concluded that no
the continuance of the Fund's advisory Board concluded that the range of changes should be made to the Fund and
agreement with A I M Advisors, Inc. services to be provided by AIM under the that it was not necessary to change the
("AIM"). Based upon the recommendation Advisory Agreement was appropriate and Fund's portfolio management team at this
of the Investments Committee of the that AIM currently is providing services time. Although the independent written
Board, at a meeting held on June 27, in accordance with the terms of the evaluation of the Fund's Senior Officer
2006, the Board, including all of the Advisory Agreement. (discussed below) only considered Fund
independent trustees, approved the performance through the most recent
continuance of the advisory agreement o The quality of services to be provided calendar year, the Board also reviewed
(the "Advisory Agreement") between the by AIM. The Board reviewed the more recent Fund performance, which did
Fund and AIM for another year, effective credentials and experience of the not change their conclusions.
July 1, 2006. officers and employees of AIM who will
provide investment advisory services to o Meetings with the Fund's portfolio
The Board considered the factors the Fund. In reviewing the managers and investment personnel. With
discussed below in evaluating the qualifications of AIM to provide respect to the Fund, the Board is
fairness and reasonableness of the investment advisory services, the Board meeting periodically with such Fund's
Advisory Agreement at the meeting on considered such issues as AIM's portfolio managers and/or other
June 27, 2006 and as part of the Board's portfolio and product review process, investment personnel and believes that
ongoing oversight of the Fund. In their various back office support functions such individuals are competent and able
deliberations, the Board and the provided by AIM and AIM's equity and to continue to carry out their
independent trustees did not identify fixed income trading operations. Based responsibilities under the Advisory
any particular factor that was on the review of these and other Agreement.
controlling, and each trustee attributed factors, the Board concluded that the
different weights to the various quality of services to be provided by o Overall performance of AIM. The Board
factors. AIM was appropriate and that AIM considered the overall performance of
currently is providing satisfactory AIM in providing investment advisory and
One responsibility of the services in accordance with the terms of portfolio administrative services to the
independent Senior Officer of the Fund the Advisory Agreement. Fund and concluded that such performance
is to manage the process by which the was satisfactory.
Fund's proposed management fees are o The performance of the Fund relative
negotiated to ensure that they are to comparable funds. The Board reviewed o Fees relative to those of clients of
negotiated in a manner which is at arms' the performance of the Fund during the AIM with comparable investment
length and reasonable. To that end, the past one, three and five calendar years strategies. The Board reviewed the
Senior Officer must either supervise a against the performance of funds advised effective advisory fee rate (before
competitive bidding process or prepare by other advisors with investment waivers) for the Fund under the Advisory
an independent written evaluation. The strategies comparable to those of the Agreement. The Board noted that this
Senior Officer has recommended an Fund. The Board noted that the Fund's rate was (i) above the effective
independent written evaluation in lieu performance was below the median advisory fee rates (before waivers) for
of a competitive bidding process and, performance of such comparable funds for two mutual funds advised by AIM with
upon the direction of the Board, has the one and five year periods and above investment strategies comparable to
prepared such an independent written such median performance for the three those of the Fund; (ii) the same as the
evaluation. Such written evaluation also year period. The Board also noted that effective advisory fee rate (before
considered certain of the factors AIM began serving as investment advisor waivers) for a variable insurance fund
discussed below. In addition, as to the Fund in April 2004. Based on this advised by AIM and offered to insurance
discussed below, the Senior Officer made review and after taking account of all company separate accounts with
a recommendation to the Board in of the other factors that the Board investment strategies comparable to
connection with such written evaluation. considered in determining whether to those of the Fund; (iii) above the
continue the Advisory Agreement for the effective sub-advisory fee rate for one
The discussion below serves as a Fund, the Board concluded that no offshore fund advised and sub-advised
summary of the Senior Officer's changes should be made to the Fund and by AIM affiliates with investment
independent written evaluation and that it was not necessary to change the strategies comparable to those of the
recommendation to the Board in Fund's portfolio management team at this Fund, although the total advisory fees
connection therewith, as well as a time. Although the independent written for such offshore fund were above those
discussion of the material factors and evaluation of the Fund's Senior Officer for the Fund; and (iv) above the
the conclusions with respect thereto (discussed below) only considered Fund effective sub-advisory fee rates for two
that formed the basis for the Board's performance through the most recent variable insurance funds sub-advised by
approval of the Advisory Agreement. calendar year, the Board also reviewed an AIM affiliate and offered to
After consideration of all of the more recent Fund performance, which did insurance company separate accounts with
factors below and based on its informed not change their conclusions. investment strategies comparable to
business judgment, the Board determined those of the Fund, although the total
that the Advisory Agreement is in the o The performance of the Fund relative advisory fees for such variable
best interests of the Fund and its to indices. The Board reviewed the insurance funds were the same as or
shareholders and that the compensation performance of the Fund during the past above those for the Fund. The Board
to AIM under the Advisory Agreement is one, three and five calendar years noted that AIM has agreed to waive
fair and reasonable and would have been against the performance of the Lipper advisory fees of the Fund and to limit
obtained through arm's length Variable Underlying Fund Mid-Cap Growth the Fund's total operating expenses, as
negotiations. Index. The Board noted that the Fund's discussed below. Based on this review,
performance was above the performance of the Board concluded that the advisory
Unless otherwise stated, information such Index for the one and five year fee rate for the Fund under the Advisory
presented below is as of June 27, 2006 periods and comparable to such Index for Agreement was fair and reasonable.
and does not reflect any changes that the three year period. The Board also
may have occurred since June 27, 2006, noted that AIM began serving as o Fees relative to those of comparable
including but not limited to changes to investment advisor to the Fund in April funds with other advisors. The Board
the Fund's performance, advisory fees, 2004. Based on this reviewed the advisory fee rate for the
expense limitations and/or fee waivers. Fund under the Advisory Agreement. The
Board compared effective contractual
advisory fee rates
(continued)
6
AIM V.I. DYNAMICS FUND
at a common asset level at the end of o Investments in affiliated money market ates' investment advisory and other
the past calendar year and noted that funds. The Board also took into account activities and its financial condition,
the Fund's rate was comparable to the the fact that uninvested cash and cash the Board concluded that the
median rate of the funds advised by collateral from securities lending compensation to be paid by the Fund to
other advisors with investment arrangements, if any (collectively, AIM under its Advisory Agreement was not
strategies comparable to those of the "cash balances") of the Fund may be excessive.
Fund that the Board reviewed. The Board invested in money market funds advised
noted that AIM has agreed to waive by AIM pursuant to the terms of an SEC o Benefits of soft dollars to AIM. The
advisory fees of the Fund and to limit exemptive order. The Board found that Board considered the benefits realized
the Fund's total operating expenses, as the Fund may realize certain benefits by AIM as a result of brokerage
discussed below. Based on this review, upon investing cash balances in AIM transactions executed through "soft
the Board concluded that the advisory advised money market funds, including a dollar" arrangements. Under these
fee rate for the Fund under the Advisory higher net return, increased liquidity, arrangements, brokerage commissions paid
Agreement was fair and reasonable. increased diversification or decreased by the Fund and/or other funds advised
transaction costs. The Board also found by AIM are used to pay for research and
o Expense limitations and fee waivers. that the Fund will not receive reduced execution services. This research may be
The Board noted that AIM has services if it invests its cash balances used by AIM in making investment
contractually agreed to waive advisory in such money market funds. The Board decisions for the Fund. The Board
fees of the Fund through April 30, 2008 noted that, to the extent the Fund concluded that such arrangements were
to the extent necessary so that the invests uninvested cash in affiliated appropriate.
advisory fees payable by the Fund do not money market funds, AIM has voluntarily
exceed a specified maximum advisory fee agreed to waive a portion of the o AIM's financial soundness in light of
rate, which maximum rate includes advisory fees it receives from the Fund the Fund's needs. The Board considered
breakpoints and is based on net asset attributable to such investment. The whether AIM is financially sound and has
levels. The Board considered the Board further determined that the the resources necessary to perform its
contractual nature of this fee waiver proposed securities lending program and obligations under the Advisory
and noted that it remains in effect related procedures with respect to the Agreement, and concluded that AIM has
until April 30, 2008. The Board noted lending Fund is in the best interests of the financial resources necessary to
that AIM has contractually agreed to the lending Fund and its respective fulfill its obligations under the
waive fees and/or limit expenses of the shareholders. The Board therefore Advisory Agreement.
Fund through April 30, 2008 in an amount concluded that the investment of cash
necessary to limit total annual collateral received in connection with o Historical relationship between the
operating expenses to a specified the securities lending program in the Fund and AIM. In determining whether to
percentage of average daily net assets money market funds according to the continue the Advisory Agreement for the
for each class of the Fund. The Board procedures is in the best interests of Fund, the Board also considered the
considered the contractual nature of the lending Fund and its respective prior relationship between AIM and the
this fee waiver/expense limitation and shareholders. Fund, as well as the Board's knowledge
noted that it remains in effect until of AIM's operations, and concluded that
April 30, 2008. The Board considered the o Independent written evaluation and it was beneficial to maintain the
effect these fee waivers/expense recommendations of the Fund's Senior current relationship, in part, because
limitations would have on the Fund's Officer. The Board noted that, upon of such knowledge. The Board also
estimated expenses and concluded that their direction, the Senior Officer of reviewed the general nature of the
the levels of fee waivers/expense the Fund, who is independent of AIM and non-investment advisory services
limitations for the Fund were fair and AIM's affiliates, had prepared an currently performed by AIM and its
reasonable. independent written evaluation in order affiliates, such as administrative,
to assist the Board in determining the transfer agency and distribution
o Breakpoints and economies of scale. reasonableness of the proposed services, and the fees received by AIM
The Board reviewed the structure of the management fees of the AIM Funds, and its affiliates for performing such
Fund's advisory fee under the Advisory including the Fund. The Board noted that services. In addition to reviewing such
Agreement, noting that it does not the Senior Officer's written evaluation services, the trustees also considered
include any breakpoints. The Board had been relied upon by the Board in the organizational structure employed by
considered whether it would be this regard in lieu of a competitive AIM and its affiliates to provide those
appropriate to add advisory fee bidding process. In determining whether services. Based on the review of these
breakpoints for the Fund or whether, due to continue the Advisory Agreement for and other factors, the Board concluded
to the nature of the Fund and the the Fund, the Board considered the that AIM and its affiliates were
advisory fee structures of comparable Senior Officer's written evaluation and qualified to continue to provide
funds, it was reasonable to structure the recommendation made by the Senior non-investment advisory services to the
the advisory fee without breakpoints. Officer to the Board that the Board Fund, including administrative, transfer
Based on this review, the Board consider whether the advisory fee agency and distribution services, and
concluded that it was not necessary to waivers for certain equity AIM Funds, that AIM and its affiliates currently
add advisory fee breakpoints to the including the Fund, should be are providing satisfactory
Fund's advisory fee schedule. The Board simplified. The Board concluded that it non-investment advisory services.
reviewed the level of the Fund's would be advisable to consider this
advisory fees, and noted that such fees, issue and reach a decision prior to the o Other factors and current trends. The
as a percentage of the Fund's net expiration date of such advisory fee Board considered the steps that AIM and
assets, would remain constant under the waivers. its affiliates have taken over the last
Advisory Agreement because the Advisory several years, and continue to take, in
Agreement does not include any o Profitability of AIM and its order to improve the quality and
breakpoints. The Board noted that AIM affiliates. The Board reviewed efficiency of the services they provide
has contractually agreed to waive information concerning the profitability to the Funds in the areas of investment
advisory fees of the Fund through April of AIM's (and its affiliates') performance, product line
30, 2008 to the extent necessary so that investment advisory and other activities diversification, distribution, fund
the advisory fees payable by the Fund do and its financial condition. The Board operations, shareholder services and
not exceed a specified maximum advisory considered the overall profitability of compliance. The Board concluded that
fee rate, which maximum rate includes AIM, as well as the profitability of AIM these steps taken by AIM have improved,
breakpoints and is based on net asset in connection with managing the Fund. and are likely to continue to improve,
levels. The Board concluded that the The Board noted that AIM's operations the quality and efficiency of the
Fund's fee levels under the Advisory remain profitable, although increased services AIM and its affiliates provide
Agreement therefore would not reflect expenses in recent years have reduced to the Fund in each of these areas, and
economies of scale, although the AIM's profitability. Based on the review support the Board's approval of the
advisory fee waiver reflects economies of the profitability of AIM's and its continuance of the Advisory Agreement
of scale. affili- for the Fund.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.73%
ADVERTISING-1.03%
Clear Channel Outdoor Holdings, Inc.-Class
A(a)(b) 69,241 $ 1,451,291
=====================================================================
AEROSPACE & DEFENSE-1.86%
L-3 Communications Holdings, Inc. 4,981 375,667
- ---------------------------------------------------------------------
Precision Castparts Corp. 37,418 2,236,100
=====================================================================
2,611,767
=====================================================================
AGRICULTURAL PRODUCTS-0.86%
Archer-Daniels-Midland Co. 29,263 1,207,977
=====================================================================
AIR FREIGHT & LOGISTICS-1.39%
Robinson (C.H.) Worldwide, Inc. 36,716 1,956,963
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.44%
Coach, Inc.(b) 43,656 1,305,314
- ---------------------------------------------------------------------
Polo Ralph Lauren Corp. 38,694 2,124,301
=====================================================================
3,429,615
=====================================================================
APPLICATION SOFTWARE-4.11%
Amdocs Ltd.(b) 37,325 1,366,095
- ---------------------------------------------------------------------
Cadence Design Systems, Inc.(a)(b) 86,245 1,479,102
- ---------------------------------------------------------------------
Citrix Systems, Inc.(b) 37,901 1,521,346
- ---------------------------------------------------------------------
TIBCO Software Inc.(b) 201,095 1,417,720
=====================================================================
5,784,263
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.50%
Legg Mason, Inc.(a) 7,100 706,592
=====================================================================
BIOTECHNOLOGY-1.91%
Celgene Corp.(b)(c) 31,800 1,508,274
- ---------------------------------------------------------------------
Genzyme Corp.(b) 19,288 1,177,532
=====================================================================
2,685,806
=====================================================================
BROADCASTING & CABLE TV-0.54%
Univision Communications Inc.-Class A(a)(b) 22,851 765,509
=====================================================================
CASINOS & GAMING-2.31%
Scientific Games Corp.-Class A(b) 49,778 1,773,092
- ---------------------------------------------------------------------
Station Casinos, Inc. 21,705 1,477,677
=====================================================================
3,250,769
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
COAL & CONSUMABLE FUELS-1.86%
Aventine Renewable Energy Holdings,
Inc.(b)(d)(e) 50,647 $ 1,773,151
- ---------------------------------------------------------------------
CONSOL Energy Inc. 18,105 845,866
=====================================================================
2,619,017
=====================================================================
COMMUNICATIONS EQUIPMENT-1.90%
Polycom, Inc.(b) 55,870 1,224,670
- ---------------------------------------------------------------------
Tellabs, Inc.(b) 108,763 1,447,636
=====================================================================
2,672,306
=====================================================================
COMPUTER STORAGE & PERIPHERALS-1.09%
Network Appliance, Inc.(a)(b) 43,390 1,531,667
=====================================================================
CONSTRUCTION & ENGINEERING-1.11%
Foster Wheeler Ltd.(b) 19,985 863,352
- ---------------------------------------------------------------------
Williams Scotsman International Inc.(b) 31,800 694,512
=====================================================================
1,557,864
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.04%
Joy Global Inc.(a) 28,028 1,459,979
=====================================================================
CONSUMER ELECTRONICS-0.89%
Harman International Industries, Inc. 14,656 1,251,183
=====================================================================
CONSUMER FINANCE-1.48%
AmeriCredit Corp.(a)(b) 74,610 2,083,111
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.72%
Alliance Data Systems Corp.(b) 42,003 2,470,616
- ---------------------------------------------------------------------
Fidelity National Information Services, Inc. 38,187 1,351,820
=====================================================================
3,822,436
=====================================================================
DEPARTMENT STORES-1.08%
Nordstrom, Inc.(a) 41,465 1,513,472
=====================================================================
DIVERSIFIED CHEMICALS-0.87%
Ashland Inc.(a) 18,419 1,228,547
=====================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.33%
Corrections Corp. of America(b) 40,571 2,147,829
- ---------------------------------------------------------------------
IHS Inc.-Class A(b) 38,308 1,135,066
=====================================================================
3,282,895
=====================================================================
DRUG RETAIL-1.17%
Shoppers Drug Mart Corp. (Canada) 45,181 1,640,811
=====================================================================
</Table>
AIM V.I. DYNAMICS FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-2.41%
Acuity Brands, Inc.(a) 38,396 $ 1,493,989
- ---------------------------------------------------------------------
Cooper Industries, Ltd.-Class A 20,347 1,890,643
=====================================================================
3,384,632
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.23%
Amphenol Corp.-Class A 30,902 1,729,276
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.83%
Molex Inc. 21,341 716,418
- ---------------------------------------------------------------------
Molex Inc.-Class A 15,918 457,324
=====================================================================
1,173,742
=====================================================================
HEALTH CARE DISTRIBUTORS-1.00%
Schein (Henry), Inc.(b) 30,000 1,401,900
=====================================================================
HEALTH CARE EQUIPMENT-1.55%
Hologic, Inc.(a)(b) 24,400 1,204,384
- ---------------------------------------------------------------------
Intuitive Surgical, Inc.(b) 5,800 684,226
- ---------------------------------------------------------------------
Mentor Corp. 6,781 294,973
=====================================================================
2,183,583
=====================================================================
HEALTH CARE FACILITIES-0.99%
Psychiatric Solutions, Inc.(a)(b) 48,400 1,387,144
=====================================================================
HEALTH CARE SERVICES-4.28%
DaVita, Inc.(b) 25,400 1,262,380
- ---------------------------------------------------------------------
Express Scripts, Inc.(b) 20,200 1,449,148
- ---------------------------------------------------------------------
HealthExtras, Inc.(b) 27,500 831,050
- ---------------------------------------------------------------------
Omnicare, Inc.(a) 37,800 1,792,476
- ---------------------------------------------------------------------
Pediatrix Medical Group, Inc.(b) 15,144 686,023
=====================================================================
6,021,077
=====================================================================
HEALTH CARE TECHNOLOGY-1.07%
Cerner Corp.(a)(b) 40,682 1,509,709
=====================================================================
HOTELS, RESORTS & CRUISE LINES-2.62%
Hilton Hotels Corp. 68,173 1,927,933
- ---------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 29,148 1,758,790
=====================================================================
3,686,723
=====================================================================
HOUSEWARES & SPECIALTIES-1.20%
Jarden Corp.(a)(b) 55,434 1,687,965
=====================================================================
INDUSTRIAL CONGLOMERATES-0.46%
Walter Industries, Inc.(a) 11,123 641,241
=====================================================================
INDUSTRIAL MACHINERY-1.52%
Kaydon Corp. 37,770 1,409,199
- ---------------------------------------------------------------------
Mueller Water Products, Inc.-Class A(b) 42,291 736,286
=====================================================================
2,145,485
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
INTEGRATED TELECOMMUNICATION SERVICES-1.42%
Qwest Communications International Inc.(a)(b) 246,791 $ 1,996,539
=====================================================================
INVESTMENT BANKING & BROKERAGE-1.44%
Schwab (Charles) Corp. (The) 127,212 2,032,848
=====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.99%
iShares Nasdaq Biotechnology Index Fund(b) 19,237 1,398,530
=====================================================================
IT CONSULTING & OTHER SERVICES-1.09%
Cognizant Technology Solutions Corp.-Class
A(b) 22,857 1,539,876
=====================================================================
MANAGED HEALTH CARE-3.37%
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost
$1,611,932)(b)(f) 113,099 1,809,584
- ---------------------------------------------------------------------
Coventry Health Care, Inc.(b) 26,800 1,472,392
- ---------------------------------------------------------------------
Humana Inc.(b) 27,300 1,466,010
=====================================================================
4,747,986
=====================================================================
OIL & GAS DRILLING-1.88%
ENSCO International Inc. 23,100 1,063,062
- ---------------------------------------------------------------------
GlobalSantaFe Corp. 13,200 762,300
- ---------------------------------------------------------------------
Todco-Class A 20,000 817,000
=====================================================================
2,642,362
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-2.75%
Grant Prideco, Inc.(b) 27,500 1,230,625
- ---------------------------------------------------------------------
National-Oilwell Varco Inc.(b) 24,406 1,545,388
- ---------------------------------------------------------------------
Weatherford International Ltd.(b) 22,000 1,091,640
=====================================================================
3,867,653
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.35%
Rosetta Resources, Inc.(b)(d) 68,200 1,133,484
- ---------------------------------------------------------------------
Rosetta Resources, Inc.(a)(b) 25,926 430,890
- ---------------------------------------------------------------------
Southwestern Energy Co.(a)(b) 47,000 1,464,520
- ---------------------------------------------------------------------
VeraSun Energy Corp.(a)(b) 10,360 271,847
=====================================================================
3,300,741
=====================================================================
OIL & GAS REFINING & MARKETING-1.55%
Frontier Oil Corp.(a) 26,000 842,400
- ---------------------------------------------------------------------
Tesoro Corp.(a) 17,942 1,334,167
=====================================================================
2,176,567
=====================================================================
OIL & GAS STORAGE & TRANSPORTATION-0.98%
Williams Cos., Inc. (The) 59,157 1,381,908
=====================================================================
</Table>
AIM V.I. DYNAMICS FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
PAPER PACKAGING-0.73%
Smurfit-Stone Container Corp.(a)(b) 94,345 $ 1,032,134
=====================================================================
PHARMACEUTICALS-2.84%
Adams Respiratory Therapeutics, Inc.(a)(b) 25,200 1,124,424
- ---------------------------------------------------------------------
Allergan, Inc. 1,064 114,125
- ---------------------------------------------------------------------
Barr Pharmaceuticals Inc.(b) 14,400 686,736
- ---------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc.(b) 14,400 474,912
- ---------------------------------------------------------------------
Forest Laboratories, Inc.(b) 41,174 1,593,022
=====================================================================
3,993,219
=====================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.73%
CB Richard Ellis Group, Inc.-Class A(b) 97,720 2,433,228
=====================================================================
REGIONAL BANKS-1.57%
Centennial Bank Holdings Inc.(b)(d) 88,700 917,158
- ---------------------------------------------------------------------
Centennial Bank Holdings Inc.(a)(b) 20,793 215,000
- ---------------------------------------------------------------------
Signature Bank(b) 33,143 1,073,170
=====================================================================
2,205,328
=====================================================================
RESTAURANTS-1.35%
Burger King Holdings Inc.(a)(b) 79,618 1,253,984
- ---------------------------------------------------------------------
Ruby Tuesday, Inc.(a) 26,284 641,592
=====================================================================
1,895,576
=====================================================================
SEMICONDUCTOR EQUIPMENT-2.14%
ASML Holding N.V.-New York Shares
(Netherlands)(b) 75,845 1,533,586
- ---------------------------------------------------------------------
MEMC Electronic Materials, Inc.(b) 39,253 1,471,987
=====================================================================
3,005,573
=====================================================================
SEMICONDUCTORS-4.11%
Analog Devices, Inc. 13,758 442,182
- ---------------------------------------------------------------------
Integrated Device Technology, Inc.(b) 92,584 1,312,841
- ---------------------------------------------------------------------
Intersil Corp.-Class A 58,679 1,364,287
- ---------------------------------------------------------------------
Microchip Technology Inc. 13,851 464,701
- ---------------------------------------------------------------------
National Semiconductor Corp. 54,904 1,309,460
- ---------------------------------------------------------------------
OmniVision Technologies, Inc.(b) 12,962 273,758
- ---------------------------------------------------------------------
Spansion Inc.-Class A(a)(b) 38,464 613,116
=====================================================================
5,780,345
=====================================================================
SOFT DRINKS-0.57%
Hansen Natural Corp.(b) 4,190 797,650
=====================================================================
SPECIALIZED FINANCE-1.41%
Chicago Mercantile Exchange Holdings Inc.(a) 4,048 1,988,175
=====================================================================
SPECIALTY STORES-1.98%
Office Depot, Inc.(b) 34,953 1,328,214
- ---------------------------------------------------------------------
Staples, Inc. 59,789 1,454,068
=====================================================================
2,782,282
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
STEEL-1.15%
Allegheny Technologies, Inc.(a) 23,381 $ 1,618,900
=====================================================================
SYSTEMS SOFTWARE-0.65%
Red Hat, Inc.(a)(b) 39,270 918,918
=====================================================================
TECHNOLOGY DISTRIBUTORS-0.44%
Avnet, Inc.(b) 30,918 618,978
=====================================================================
THRIFTS & MORTGAGE FINANCE-0.31%
People's Choice Financial Corp. (Acquired
12/21/04-06/09/06; Cost $1,188,822)(f) 146,576 439,728
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.38%
WESCO International, Inc.(b) 28,187 1,944,903
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.90%
American Tower Corp.-Class A(b) 24,053 748,529
- ---------------------------------------------------------------------
Crown Castle International Corp.(b) 23,157 799,843
- ---------------------------------------------------------------------
Leap Wireless International, Inc.(b) 42,208 2,002,770
- ---------------------------------------------------------------------
NII Holdings Inc.(b) 34,437 1,941,558
=====================================================================
5,492,700
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $124,317,662) 137,498,964
_____________________________________________________________________
=====================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS
PURCHASED-0.06%
BIOTECHNOLOGY-0.00%
Celgene Corp. 318 $ 40 Jul-06 5,565
- -----------------------------------------------------------------------
PHARMACEUTICALS-0.06%
Forest Laboratories,
Inc. 32 40 Jul-06 8,720
- -----------------------------------------------------------------------
Forest Laboratories,
Inc. 155 35 Jul-06 18,988
- -----------------------------------------------------------------------
Forest Laboratories,
Inc. 224 35 Aug-06 54,320
=======================================================================
82,028
=======================================================================
Total Put Options
Purchased (Cost
$158,402) 87,593
=======================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-2.12%
Liquid Assets Portfolio-Institutional
Class(g) 1,487,582 1,487,582
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 1,487,582 1,487,582
========================================================================
Total Money Market Funds (Cost
$2,975,164) 2,975,164
========================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-99.91% (Cost
$127,451,228) 140,561,721
========================================================================
</Table>
AIM V.I. DYNAMICS FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-11.41%
Premier Portfolio-Institutional Class (Cost
$16,047,994)(g)(h) 16,047,994 $ 16,047,994
========================================================================
TOTAL INVESTMENTS-111.32% (Cost $143,499,222) 156,609,715
========================================================================
OTHER ASSETS LESS LIABILITIES-(11.32)% (15,919,682)
========================================================================
NET ASSETS-100.00% $140,690,033
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security was out on loan at June 30, 2006.
(b) Non-income producing security.
(c) A portion of this security is subject to call options written. See Note 1I
and Note 9.
(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 June 30, 2006 was $3,823,793, which represented 2.72% of the
Fund's Net Assets. See Note 1A.
(e) As a result of an initial public offering, the security is subject to a
contractual lockup period until August 28, 2006 and therefore considered to
be illiquid. The value of this security at June 30, 2006 represented 1.26%
of the Fund's Net Assets. The Fund is limited to investing 15% of net assets
in illiquid securities at the time of purchase.
(f) 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 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 June 30, 2006 was $2,249,312,
which represented 1.60% 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.
(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 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $124,476,064)* $137,586,557
- --------------------------------------------------------------------
Investments in affiliated money market funds (cost
$19,023,158) 19,023,158
====================================================================
Total investments (cost $143,499,222) 156,609,715
====================================================================
Receivables for:
Investments sold 91,936
- --------------------------------------------------------------------
Fund shares sold 274,808
- --------------------------------------------------------------------
Dividends 50,343
- --------------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 13,003
====================================================================
Total assets 157,039,805
____________________________________________________________________
====================================================================
LIABILITIES:
Payables for:
Investments purchased 9,356
- --------------------------------------------------------------------
Fund shares reacquired 31,855
- --------------------------------------------------------------------
Options written, at value (premiums received
$24,085) 46,110
- --------------------------------------------------------------------
Trustee deferred compensation and retirement plans 18,164
- --------------------------------------------------------------------
Collateral upon return of securities loaned 16,047,994
- --------------------------------------------------------------------
Accrued administrative services fees 134,777
- --------------------------------------------------------------------
Accrued distribution fees--Series II 8
- --------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 190
- --------------------------------------------------------------------
Accrued transfer agent fees 2,727
- --------------------------------------------------------------------
Accrued operating expenses 58,591
====================================================================
Total liabilities 16,349,772
====================================================================
Net assets applicable to shares outstanding $140,690,033
____________________________________________________________________
====================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $210,146,917
- --------------------------------------------------------------------
Undistributed net investment income (loss) (311,685)
- --------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (82,233,691)
- --------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and option contracts 13,088,492
====================================================================
$140,690,033
____________________________________________________________________
====================================================================
NET ASSETS:
Series I $140,676,823
____________________________________________________________________
====================================================================
Series II $ 13,210
____________________________________________________________________
====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,871,437
____________________________________________________________________
====================================================================
Series II 837.5
____________________________________________________________________
====================================================================
Series I:
Net asset value per share $ 15.86
____________________________________________________________________
====================================================================
Series II:
Net asset value per share $ 15.77
____________________________________________________________________
====================================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $15,835,155 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,717) $ 319,026
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$2,521, after compensation to counterparties
of $162,296) 132,907
============================================================
Total investment income 451,933
============================================================
EXPENSES:
Advisory fees 499,221
- ------------------------------------------------------------
Administrative services fees 191,111
- ------------------------------------------------------------
Custodian fees 14,328
- ------------------------------------------------------------
Distribution fees-Series II 16
- ------------------------------------------------------------
Transfer agent fees 6,410
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 8,586
- ------------------------------------------------------------
Other 35,978
============================================================
Total expenses 755,650
============================================================
Less: Fees waived and expense offset
arrangement (4,110)
============================================================
Net expenses 751,540
============================================================
Net investment income (loss) (299,607)
============================================================
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 $51,654) 10,402,348
- ------------------------------------------------------------
Foreign currencies 1,835
============================================================
10,404,183
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (3,410,432)
- ------------------------------------------------------------
Option contracts written (22,025)
============================================================
(3,432,457)
============================================================
Net gain from investment securities, foreign
currencies and option contracts 6,971,726
============================================================
Net increase in net assets resulting from
operations $ 6,672,119
____________________________________________________________
============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (299,607) $ (336,942)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 10,404,183 13,541,961
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (3,432,457) (2,315,631)
=============================================================================================
Net increase in net assets resulting from operations 6,672,119 10,889,388
=============================================================================================
Share transactions-net:
Series I 22,350,142 (22,841,394)
- ---------------------------------------------------------------------------------------------
Series II -- --
=============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 22,350,142 (22,841,394)
=============================================================================================
Net increase (decrease) in net assets 29,022,261 (11,952,006)
=============================================================================================
NET ASSETS:
Beginning of period 111,667,772 123,619,778
=============================================================================================
End of period (including undistributed net investment
income (loss) of $(311,685) and $(12,078), respectively) $140,690,033 $111,667,772
_____________________________________________________________________________________________
=============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. DYNAMICS 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. DYNAMICS FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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 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 April 30, 2008, AIM had contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.745%
- ----------------------------------------------------------------------
Next $250 million 0.73%
- ----------------------------------------------------------------------
Next $500 million 0.715%
- ----------------------------------------------------------------------
Next $1.5 billion 0.70%
- ----------------------------------------------------------------------
Next $2.5 billion 0.685%
- ----------------------------------------------------------------------
Next $2.5 billion 0.67%
- ----------------------------------------------------------------------
Next $2.5 billion 0.655%
- ----------------------------------------------------------------------
Over $10 billion 0.64%
_____________________________________________________________________
======================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through April 30, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $3,909.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $166,316 for services
provided by insurance companies.
AIM V.I. DYNAMICS FUND
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $6,410.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $16.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances and cash collateral from securities lending transactions in an
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 six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 1,854,554 $ (366,972) $ -- $ 1,487,582 $ 406 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 958,574 68,508,103 (67,979,095) -- 1,487,582 129,980 --
==================================================================================================================================
Subtotal $ 958,574 $ 70,362,657 $ (68,346,067) $ -- $ 2,975,164 $130,386 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class $ 307,262 $ 51,421,318 $ (35,680,586) $ -- $16,047,994 $ 2,521 $ --
==================================================================================================================================
Total $1,265,836 $121,783,975 $(104,026,653) $ -- $19,023,158 $132,907 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $1,503,347, which resulted in net realized gains
of $51,654 and securities purchases of $1,501,964.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $201.
AIM V.I. DYNAMICS FUND
NOTE 6--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$1,969 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $15,835,155 were on
loan to brokers. The loans were secured by cash collateral of $16,047,994
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2006, the Fund received dividends on cash
collateral investments of $2,521 for securities lending transactions, which are
net of compensation to counterparties.
AIM V.I. DYNAMICS FUND
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of period -- $ --
- -----------------------------------------------------------------------------------
Written 318 24,085
===================================================================================
End of period 318 $24,085
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 06/30/06 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
Celgene Corp. Jul-06 $47.5 318 $24,085 $46,110 $(22,025)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $21,720,093
- -----------------------------------------------------------------------------
December 31, 2010 70,625,929
=============================================================================
Total capital loss carryforward $92,346,022
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $114,811,155 and $93,753,360, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $17,652,472
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,551,218)
===============================================================================
Net unrealized appreciation of investment securities $13,101,254
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $143,508,461.
</Table>
AIM V.I. DYNAMICS FUND
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,182,562 $ 51,685,012 1,388,856 $ 19,000,517
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
======================================================================================================================
Reacquired:
Series I (1,869,681) (29,334,870) (3,095,326) (41,841,911)
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
======================================================================================================================
1,312,881 $ 22,350,142 (1,706,470) $(22,841,394)
______________________________________________________________________________________________________________________
======================================================================================================================
</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 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.
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.77 $ 13.34 $ 11.77 $ 8.54 $ 12.54 $ 18.21
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.04) (0.09) (0.07) (0.00)(a) (0.00)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.12 1.47 1.66 3.30 (4.00) (5.67)
==========================================================================================================================
Total from investment operations 1.09 1.43 1.57 3.23 (4.00) (5.67)
==========================================================================================================================
Net asset value, end of period $ 15.86 $ 14.77 $ 13.34 $ 11.77 $ 8.54 $ 12.54
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 7.38% 10.72% 13.34% 37.82% (31.90)% (31.14)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $140,677 $111,655 $123,609 $169,269 $116,135 $174,716
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.13%(c) 1.16% 1.14% 1.14% 1.12% 1.08%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.14%(c) 1.17% 1.14% 1.15% 1.12% 1.08%
==========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.45)%(c) (0.29)% (0.62)% (0.70)% (0.75)% (0.54)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(d) 73% 110% 64% 129% 110% 62%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(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
$(0.08) 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 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
$134,215,628.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DYNAMICS FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.71 $13.32 $11.94
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.07) (0.07)
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.11 1.46 1.45
=============================================================================================================
Total from investment operations 1.06 1.39 1.38
=============================================================================================================
Net asset value, end of period $15.77 $14.71 $13.32
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(a) 7.21% 10.44% 11.56%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 13 $ 12 $ 11
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.38%(b) 1.41% 1.40%(c)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%(b) 1.42% 1.40%(c)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.54)% (0.88)%(c)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(d) 73% 110% 64%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $13,256.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory,
AIM V.I. DYNAMICS FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. DYNAMICS FUND
AIM V.I. FINANCIAL SERVICES FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. FINANCIAL SERVICES FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 Purchase candidates are subject to
exhaustive fundamental analysis. We
====================================================================================== focus on the drivers of estimated
intrinsic value such as normalized
PERFORMANCE SUMMARY earnings power, marginal returns on
============================================ economic equity which adjusts for
For the six months ended June 30, 2006, distortions present in accounting
and excluding variable product issuer FUND VS. INDEXES numbers, and sustainable growth.
charges, AIM V.I. Financial Services Additionally, we strive to understand a
Fund produced positive returns but CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, company's ability and willingness to
underperformed its broad market and EXCLUDING VARIABLE PRODUCT ISSUER grow capital to be returned to
style-specific indexes. Given the CHARGES. shareholders in the future. Finally, we
mandate of the Fund to invest in the focus on "quality," including
financial services sector, the Fund's IF VARIABLE PRODUCT ISSUER CHARGES WERE competitive position, management and
performance relative to the broad market INCLUDED, RETURNS WOULD BE LOWER. financial strength.
is heavily influenced by the performance
of the sector relative to the broad Series I Shares 1.11% The result is normally a portfolio of
market. The Fund underperformed its 35-50 stocks we believe are attractive
style-specific index primarily because Series II Shares 1.05 from both a valuation and capital
of declines in holdings MARSH & discipline perspective. In constructing
MCLENNAN, FREDDIE MAC and FEDERATED Standard & Poor's Composite Index a portfolio, we attempt to mitigate risk
INVESTORS as well as not owning any real of 500 Stocks (S&P 500 Index) in multiple ways, including by
estate investment trusts, which were (Broad Market Index) 2.71 diversifying holdings across industries
strong performers during the period. and businesses that react in different
S&P 500 Financials Index ways to changes in interest rates and
(Style-Specific Index) 3.11 economic cycles.
Lipper Financial Services Fund Index We believe a portfolio of undervalued
(Peer Group Index) 3.16 and capital-disciplined quality
financial companies that profitably grow
SOURCE: LIPPER INC. cash flows over time provides the best
============================================ opportunity for superior long-term
investment results.
Your Fund's long-term performance appears
on page 4. MARKET CONDITIONS AND YOUR FUND
======================================================================================
The investment backdrop for the
HOW WE INVEST simism. Estimated intrinsic value is a financials sector is heavily impacted by
measure based primarily on the estimated several considerations, including
Our goal is to create wealth for future cash flows generated by the policies of the U.S. Federal Reserve
shareholders. We maintain a long-term businesses. Board (the Fed), capital markets
investment horizon and invest in the two activity and the health of the economy,
primary opportunities we believe have o Reasonably valued financial companies that which drives credit losses. The
historically resulted in superior demonstrate superior capital discipline by macroeconomic environment has changed
investment returns within the financials returning excess capital to shareholders in little as the Fed has been methodi-
sector: the form of dividends and share repurchases.
o Financial companies trading at a We maintain a proprietary database of
significant discount to our estimate of intrinsic value estimates and screen
intrinsic value because of excessive financial companies for those of acceptable
short-term investor pes- quality.
======================================== ============================================ ============================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $123.5 MILLION
TOTAL NUMBER OF HOLDINGS* 34
By industry 1. JPMorgan Chase & Co. 7.5%
Other Diversified Financial 2. Citigroup Inc. 6.6 The Fund's holdings are subject to
Services 20.0% change, and there is no assurance that
3. Merrill Lynch & Co., Inc. 6.2 the Fund will continue to hold any
Thrifts & Mortgage Finance 12.8 particular security.
4. Bank of America Corp. 5.9
Investment Banking & Brokerage 11.9 *Excluding money market fund holdings.
5. Fannie Mae 5.9
Diversified Banks 9.2
6. Morgan Stanley 5.1
Regional Banks 8.4
7. Bank of New York Co., Inc. (The) 4.3
Asset Management & Custody Banks 7.9
8. Hartford Financial Services
Property & Casualty Insurance 7.7 Group, Inc. (The) 3.9
Multi-Line Insurance 6.2 9. ACE Ltd. 3.8
Insurance Brokers 5.5 10. Marsh & McLennan Cos., Inc. 3.5
Consumer Finance 3.3
Three Other Industries, Each with
Less than 3% of Total Net Assets 4.1
Money Market Funds Plus Other
Assets Less Liabilities 3.0
======================================== ============================================ ============================================
</Table>
2
AIM V.I. FINANCIAL SERVICES FUND
cally raising interest rates over the Freddie Mac, which operates THE VIEWS AND OPINIONS EXPRESSED IN
past two years (since June 2004), while attractive businesses vital to the U.S. MANAGEMENT'S DISCUSSION OF FUND
the economy has continued to grow at a housing market, was a detractor from PERFORMANCE ARE THOSE OF A I M ADVISORS,
moderate pace. However, investor Fund performance during the reporting INC. THESE VIEWS AND OPINIONS ARE
expectations regarding the end of period. Shares of the stock declined as SUBJECT TO CHANGE AT ANY TIME BASED ON
interest rate increases by the Fed has the timetable for restating the FACTORS SUCH AS MARKET AND ECONOMIC
varied over the last year, causing company's financial results slipped and CONDITIONS. THESE VIEWS AND OPINIONS MAY
swings in financial stocks. Anticipation disappointed investors, again. We have NOT BE RELIED UPON AS INVESTMENT ADVICE
of an end to Fed rate increases, coupled considered the potential outcomes of OR RECOMMENDATIONS, OR AS AN OFFER FOR A
with robust capital markets, allowed regulatory reform, especially on the PARTICULAR SECURITY. THE INFORMATION IS
financial stocks to post strong gains important issue of capital requirements, NOT A COMPLETE ANALYSIS OF EVERY ASPECT
through the first four months of the and believe the stock is attractively OF ANY MARKET, COUNTRY, INDUSTRY,
year. During May, despite the housing valued. SECURITY OR THE FUND. STATEMENTS OF FACT
sector showing clear signs of slowing, ARE FROM SOURCES CONSIDERED RELIABLE,
investor attention shifted to the Consistent with our relatively low BUT A I M ADVISORS, INC. MAKES NO
prospect for further rate hikes because turnover approach, the composition of REPRESENTATION OR WARRANTY AS TO THEIR
of concerns about persistent the portfolio did not change COMPLETENESS OR ACCURACY. ALTHOUGH
inflationary pressure. Financial stocks significantly during the period. We HISTORICAL PERFORMANCE IS NO GUARANTEE
declined in May and June as investor reduced positions in a number of OF FUTURE RESULTS, THESE INSIGHTS MAY
pessimism escalated. insurance holdings during the period as HELP YOU UNDERSTAND OUR INVESTMENT
valuations became less compelling, with MANAGEMENT PHILOSOPHY.
The Fund's largest contributors PRUDENTIAL and HARTFORD being the most
during the period, MORGAN STANLEY, JP noteworthy reductions. We also reduced MICHAEL J. SIMON,
MORGAN and MERRILL LYNCH, benefited from our position in LEHMAN BROTHERS based on
a robust capital markets environment. valuation. We added modestly to our Chartered Financial Analyst,
More importantly, Morgan Stanley and JP existing position in FIFTH THIRD [SIMON senior portfolio manager, is
Morgan, under the leadership of new BANCORP, a regional banking company that PHOTO] lead manager of AIM V.I.
CEOs, showed signs of improved operating is attractively valued and boasts a 4.3% Financial Services Fund. He
and financial performance. We believe dividend yield. At the close of the started his investment career in 1989
both JP Morgan and Morgan Stanley are reporting period, the portfolio and joined AIM in 2001. Mr. Simon earned
undervalued when the prospect of continued to have significant holdings his B.B.A. in finance from Texas
improved operating results is in the largest diversified U.S. Christian University and his M.B.A. from
considered. financial companies, which we believe to the University of Chicago. He has served
be among the most attractive investment as Occasional Faculty in the Finance and
Detractors from performance included opportunities in the sector at present. Decision Sciences Department of Texas
Marsh & McLennan, Federated Investors Christian University's M.J. Neeley
and Freddie Mac, all declining more than IN CLOSING School of Business.
10% during the period. Marsh & McLennan
suffered from a general malaise in Despite current concerns about MEGGAN M. WALSH,
insurance stocks as investors, after inflation, we may be nearing the end of
becoming excited late last year about two years of interest rate increases by Chartered Financial Analyst,
the prospect for higher insurance the Fed, an inflection point that has [WALSH senior portfolio manager, is
prices, began to worry about the end of historically been positive for financial PHOTO] manager of AIM V.I. Financial
a robust property-casualty insurance stocks. During the period, we believed Services Fund. She has worked
pricing cycle. Interestingly, first investor concerns regarding inflation in the investment industry since 1987,
quarter results demonstrated both margin and the impact of a slowdown in housing joining AIM in 1991 as a trader of
improvement and increased customer might be creating select investment short-term taxable fixed income
stability. We added to the position, opportunities. Regardless of the securities. Ms. Walsh earned her
which we believe is attractively valued macroeconomic environment, we remain bachelor's degree in finance from the
amidst what appears to be excessive focused on identifying financial University of Maryland and her M.B.A.
investor pessimism. companies that are undervalued and from Loyola College.
exhibit capital discipline. Thank you
Investors reacted negatively to for your continued investment in AIM
Federated Investors' first quarter V.I. Financial Services Fund. Assisted by the Basic Value Team and the
earnings report, which was slightly Diversified Dividend Team
weaker than expected. Federated has an
attractive position in the money market
fund business, and management comments
support our expectation that the company
can improve operating margins.
Importantly, the company raised its
dividend 20% and continued to
aggressively repurchase shares. We [RIGHT ARROW GRAPHIC]
continued to hold the stock at the end
of the reporting period. 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.
3
AIM V.I. FINANCIAL SERVICES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE OF THE FUND'S SERIES I AND ANCE FIGURES GIVEN REPRESENT THE FUND
As of 6/30/06 SERIES II SHARE CLASSES WILL DIFFER AND ARE NOT INTENDED TO REFLECT ACTUAL
PRIMARILY DUE TO DIFFERENT CLASS VARIABLE PRODUCT VALUES. THEY DO NOT
SERIES I SHARES EXPENSES. REFLECT SALES CHARGES, EXPENSES AND FEES
Inception (9/20/99) 7.20% ASSESSED IN CONNECTION WITH A VARIABLE
5 Years 3.84 THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT. SALES CHARGES, EXPENSES AND
1 Year 10.25 PAST PERFORMANCE AND CANNOT GUARANTEE FEES, WHICH ARE DETERMINED BY THE
COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
SERIES II SHARES PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
Inception 6.94% PLEASE CONTACT YOUR VARIABLE PRODUCT
5 Years 3.59 ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST
1 Year 10.04 RECENT MONTH-END VARIABLE PRODUCT RECENT MONTH-END PERFORMANCE DATA AT THE
PERFORMANCE. PERFORMANCE FIGURES REFLECT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
======================================== FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON THIS AIM
AND CHANGES IN NET ASSET VALUE. AUTOMATED INFORMATION LINE,
SERIES II SHARES' INCEPTION DATE IS INVESTMENT RETURN AND PRINCIPAL VALUE 866-702-4402. AS MENTIONED ABOVE, FOR
APRIL 30, 2004. RETURNS SINCE THAT DATE WILL FLUCTUATE SO THAT YOU MAY HAVE A THE MOST RECENT MONTH-END PERFORMANCE
ARE HISTORICAL. ALL OTHER RETURNS ARE GAIN OR LOSS WHEN YOU SELL SHARES. INCLUDING VARIABLE PRODUCT CHARGES,
THE BLENDED RETURNS OF THE HISTORICAL PLEASE CONTACT YOUR VARIABLE PRODUCT
PERFORMANCE OF SERIES II SHARES SINCE AIM V.I. FINANCIAL SERVICES FUND, A ISSUER OR FINANCIAL ADVISOR.
THEIR INCEPTION AND THE RESTATED SERIES PORTFOLIO OF AIM VARIABLE
HISTORICAL PERFORMANCE OF SERIES I INSURANCE FUNDS, IS CURRENTLY OFFERED
SHARES (FOR PERIODS PRIOR TO INCEPTION THROUGH INSURANCE COMPANIES ISSUING
OF SERIES II SHARES) ADJUSTED TO REFLECT VARIABLE PRODUCTS. YOU CANNOT PURCHASE
THE RULE 12b-1 FEES APPLICABLE TO SERIES SHARES OF THE FUND DIRECTLY. PERFORM-
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS SEPTEMBER 20, 1999. THE
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT of funds reflects fund expenses;
performance of a market index does not.
The Fund can invest up to 25% of its The unmanaged LIPPER FINANCIAL SERVICES
assets in foreign securities that FUND INDEX represents an average of the OTHER INFORMATION
involve risks not associated with 10 largest financial-services funds
investing solely in the United States. tracked by Lipper Inc., an independent The returns shown in the management's
These include risks relating to mutual fund performance monitor. discussion of Fund performance are based
fluctuations in the value of the U.S. on net asset values calculated for
dollar relative to the values of other The unmanaged STANDARD & POOR'S shareholder transactions. Generally
currencies, the custody arrangements COMPOSITE INDEX OF 500 STOCKS (the S&P accepted accounting principles require
made for the Fund's foreign holdings, 500--Registered Trademark-- Index) is an adjustments to be made to the net assets
differences in accounting, political index of common stocks frequently used of the Fund at period end for financial
risks and the lesser degree of public as a general measure of U.S. stock reporting purposes, and as such, the net
information required to be provided by market performance. asset values for shareholder
non-U.S. companies. transactions and the returns based on
The S&P 500 FINANCIALS INDEX is a those net asset values may differ from
Investing in a single-sector or market capitalization weighted index of the net asset values and returns
single-region mutual fund involves companies involved in activities such as reported in the Financial Highlights.
greater risk and potential reward than banking, consumer finance, investment Additionally, the returns and net asset
investing in a more diversified fund. banking and brokerage, asset management, values shown throughout this report are
insurance and investment, and real at the Fund level only and do not
Investing in smaller companies estate, including REITs. include variable product issuer charges.
involves greater risk than investing in If such charges were included, the total
more established companies, such as The Fund is not managed to track the returns would be lower.
business risk, significant stock price performance of any particular index,
fluctuations and illiquidity. including the indexes defined here, and Industry classifications used in this
consequently, the performance of the report are generally according to the
By concentrating on a small number of Fund may deviate significantly from the Global Industry Classification Standard,
holdings, the Fund carries greater risk performance of the indexes. which was developed by and is the
because each investment has a greater exclusive property and a service mark of
effect on the Fund's overall performance. A direct investment cannot be made in Morgan Stanley Capital International
an index. Unless otherwise indicated, Inc. and Standard & Poor's.
index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index
4
AIM V.I.FINANCIAL SERVICES 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
January 1, 2006, through June 30, 2006. PURPOSES hypothetical information is useful in
The actual and hypothetical expenses in comparing ongoing costs, and will not
the examples below do not represent the The table below also provides help you determine the relative total
effect of any fees or other expenses information about hypothetical account costs of owning different funds.
assessed in connection with a variable values and hypothetical expenses based
product; if they did, the expenses shown on the Fund's actual expense ratio and
would be higher while the ending account an assumed rate of return of 5% per year
values shown would be lower. before expenses, which is not the Fund's
actual return. The Fund's actual
ACTUAL EXPENSES cumulative total returns at net asset
value after expenses for the six months
The table below provides information ended June 30, 2006, appear in the table
about actual account values and actual "Fund vs. Indexes" on page 2.
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,011.10 $5.53 $1,019.29 $5.56 1.11%
Series II 1,000.00 1,010.50 6.78 1,018.05 6.80 1.36
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I.FINANCIAL SERVICES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the team, which need more time to be
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and evaluated before a conclusion can be
the management of AIM V.I. Financial that AIM currently is providing services made that the changes have addressed the
Services Fund (the "Fund") and, as in accordance with the terms of the Fund's under-performance. Based on this
required by law, determines annually Advisory Agreement. review and after taking account of all
whether to approve the continuance of of the other factors that the Board
the Fund's advisory agreement with A I M o The quality of services to be provided considered in determining whether to
Advisors, Inc. ("AIM"). Based upon the by AIM. The Board reviewed the continue the Advisory Agreement for the
recommendation of the Investments credentials and experience of the Fund, the Board concluded that no
Committee of the Board, at a meeting officers and employees of AIM who will changes should be made to the Fund and
held on June 27, 2006, the Board, provide investment advisory services to that it was not necessary to change the
including all of the independent the Fund. In reviewing the Fund's portfolio management team at this
trustees, approved the continuance of qualifications of AIM to provide time. However, due to the Fund's
the advisory agreement (the "Advisory investment advisory services, the Board under-performance, the Board also
Agreement") between the Fund and AIM for considered such issues as AIM's concluded that it would be appropriate
another year, effective July 1, 2006. portfolio and product review process, for the Board to continue to closely
various back office support functions monitor and review the performance of
The Board considered the factors provided by AIM and AIM's equity and the Fund. Although the independent
discussed below in evaluating the fixed income trading operations. Based written evaluation of the Fund's Senior
fairness and reasonableness of the on the review of these and other Officer (discussed below) only
Advisory Agreement at the meeting on factors, the Board concluded that the considered Fund performance through the
June 27, 2006 and as part of the Board's quality of services to be provided by most recent calendar year, the Board
ongoing oversight of the Fund. In their AIM was appropriate and that AIM also reviewed more recent Fund
deliberations, the Board and the currently is providing satisfactory performance, which did not change their
independent trustees did not identify services in accordance with the terms of conclusions.
any particular factor that was the Advisory Agreement.
controlling, and each trustee attributed o Meetings with the Fund's portfolio
different weights to the various o The performance of the Fund relative managers and investment personnel. With
factors. to comparable funds. The Board reviewed respect to the Fund, the Board is
the performance of the Fund during the meeting periodically with such Fund's
One responsibility of the past one, three and five calendar years portfolio managers and/or other
independent Senior Officer of the Fund against the performance of funds advised investment personnel and believes that
is to manage the process by which the by other advisors with investment such individuals are competent and able
Fund's proposed management fees are strategies comparable to those of the to continue to carry out their
negotiated to ensure that they are Fund. The Board noted that the Fund's responsibilities under the Advisory
negotiated in a manner which is at arms' performance in such periods was below Agreement.
length and reasonable. To that end, the the median performance of such
Senior Officer must either supervise a comparable funds. The Board also noted o Overall performance of AIM. The Board
competitive bidding process or prepare that AIM began serving as investment considered the overall performance of
an independent written evaluation. The advisor to the Fund in April 2004. The AIM in providing investment advisory and
Senior Officer has recommended an Board noted that AIM has recently made portfolio administrative services to the
independent written evaluation in lieu changes to the Fund's portfolio Fund and concluded that such performance
of a competitive bidding process and, management team, which need more time to was satisfactory.
upon the direction of the Board, has be evaluated before a conclusion can be
prepared such an independent written made that the changes have addressed the o Fees relative to those of clients of
evaluation. Such written evaluation also Fund's under-performance. Based on this AIM with comparable investment
considered certain of the factors review and after taking account of all strategies. The Board reviewed the
discussed below. In addition, as of the other factors that the Board effective advisory fee rate (before
discussed below, the Senior Officer made considered in determining whether to waivers) for the Fund under the Advisory
a recommendation to the Board in continue the Advisory Agreement for the Agreement. The Board noted that this
connection with such written evaluation. Fund, the Board concluded that no rate was (i) above the effective
changes should be made to the Fund and advisory fee rate (before waivers) for
The discussion below serves as a that it was not necessary to change the one mutual fund advised by AIM with
summary of the Senior Officer's Fund's portfolio management team at this investment strategies comparable to
independent written evaluation and time. However, due to the Fund's those of the Fund; (ii) the same as the
recommendation to the Board in under-performance, the Board also effective advisory fee rates (before
connection therewith, as well as a concluded that it would be appropriate waivers) for three variable insurance
discussion of the material factors and for the Board to continue to closely funds advised by AIM and offered to
the conclusions with respect thereto monitor and review the performance of insurance company separate accounts with
that formed the basis for the Board's the Fund. Although the independent investment strategies comparable to
approval of the Advisory Agreement. written evaluation of the Fund's Senior those of the Fund; and (iii) above the
After consideration of all of the Officer (discussed below) only effective sub-advisory fee rate for two
factors below and based on its informed considered Fund performance through the offshore funds advised and sub-advised
business judgment, the Board determined most recent calendar year, the Board by AIM affiliates with investment
that the Advisory Agreement is in the also reviewed more recent Fund strategies comparable to those of the
best interests of the Fund and its performance, which did not change their Fund, although the total advisory fees
shareholders and that the compensation conclusions. for one such offshore fund were above
to AIM under the Advisory Agreement is those for the Fund and the total
fair and reasonable and would have been o The performance of the Fund relative advisory fees for the other offshore
obtained through arm's length to indices. The Board reviewed the fund were comparable to those for the
negotiations. performance of the Fund during the past Fund. The Board noted that AIM has
one, three and five calendar years agreed to waive advisory fees of the
Unless otherwise stated, against the performance of the Lipper Fund and to limit the Fund's total
information presented below is as of Financial Services Fund Index. The Board operating expenses, as discussed below.
June 27, 2006 and does not reflect any noted that the Fund's performance was Based on this review, the Board
changes that may have occurred since comparable to the performance of such concluded that the advisory fee rate for
June 27, 2006, including but not limited Index for the one year period and below the Fund under the Advisory Agreement
to changes to the Fund's performance, such Index for the three and five year was fair and reasonable.
advisory fees, expense limitations periods. The Board also noted that AIM
and/or fee waivers. began serving as investment advisor to
the Fund in April 2004. The Board noted
o The nature and extent of the advisory that AIM has recently made changes to
services to be provided by AIM. The the Fund's portfolio management
Board reviewed the services to be
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
6
AIM V.I.FINANCIAL SERVICES FUND
o Fees relative to those of comparable The Board concluded that the Fund's fee remain profitable, although increased
funds with other advisors. The Board levels under the Advisory Agreement expenses in recent years have reduced
reviewed the advisory fee rate for the therefore would not reflect economies of AIM's profitability. Based on the review
Fund under the Advisory Agreement. The scale, although the advisory fee waiver of the profitability of AIM's and its
Board compared effective contractual reflects economies of scale. affiliates' investment advisory and
advisory fee rates at a common asset other activities and its financial
level at the end of the past calendar o Investments in affiliated money market condition, the Board concluded that the
year and noted that the Fund's rate was funds. The Board also took into account compensation to be paid by the Fund to
comparable to above the median rate of the fact that uninvested cash and cash AIM under its Advisory Agreement was not
the funds advised by other advisors with collateral from securities lending excessive.
investment strategies comparable to arrangements, if any (collectively,
those of the Fund that the Board "cash balances") of the Fund may be o Benefits of soft dollars to AIM. The
reviewed. The Board noted that AIM has invested in money market funds advised Board considered the benefits realized
agreed to waive advisory fees of the by AIM pursuant to the terms of an SEC by AIM as a result of brokerage
Fund and to limit the Fund's total exemptive order. The Board found that transactions executed through "soft
operating expenses, as discussed below. the Fund may realize certain benefits dollar" arrangements. Under these
Based on this review, the Board upon investing cash balances in AIM arrangements, brokerage commissions paid
concluded that the advisory fee rate for advised money market funds, including a by the Fund and/or other funds advised
the Fund under the Advisory Agreement higher net return, increased liquidity, by AIM are used to pay for research and
was fair and reasonable. increased diversification or decreased execution services. This research may be
transaction costs. The Board also found used by AIM in making investment
o Expense limitations and fee waivers. that the Fund will not receive reduced decisions for the Fund. The Board
The Board noted that AIM has services if it invests its cash balances concluded that such arrangements were
contractually agreed to waive advisory in such money market funds. The Board appropriate.
fees of the Fund through April 30, 2008 noted that, to the extent the Fund
to the extent necessary so that the invests uninvested cash in affiliated o AIM's financial soundness in light of
advisory fees payable by the Fund do not money market funds, AIM has voluntarily the Fund's needs. The Board considered
exceed a specified maximum advisory fee agreed to waive a portion of the whether AIM is financially sound and has
rate, which maximum rate includes advisory fees it receives from the Fund the resources necessary to perform its
breakpoints and is based on net asset attributable to such investment. The obligations under the Advisory
levels. The Board considered the Board further determined that the Agreement, and concluded that AIM has
contractual nature of this fee waiver proposed securities lending program and the financial resources necessary to
and noted that it remains in effect related procedures with respect to the fulfill its obligations under the
until April 30, 2008. The Board noted lending Fund is in the best interests of Advisory Agreement.
that AIM has contractually agreed to the lending Fund and its respective
waive fees and/or limit expenses of the shareholders. The Board therefore o Historical relationship between the
Fund through April 30, 2008 in an amount concluded that the investment of cash Fund and AIM. In determining whether to
necessary to limit total annual collateral received in connection with continue the Advisory Agreement for the
operating expenses to a specified the securities lending program in the Fund, the Board also considered the
percentage of average daily net assets money market funds according to the prior relationship between AIM and the
for each class of the Fund. The Board procedures is in the best interests of Fund, as well as the Board's knowledge
considered the contractual nature of the lending Fund and its respective of AIM's operations, and concluded that
this fee waiver/expense limitation and shareholders. it was beneficial to maintain the
noted that it remains in effect until current relationship, in part, because
April 30, 2008. The Board considered the o Independent written evaluation and of such knowledge. The Board also
effect these fee waivers/expense recommendations of the Fund's Senior reviewed the general nature of the
limitations would have on the Fund's Officer. The Board noted that, upon non-investment advisory services
estimated expenses and concluded that their direction, the Senior Officer of currently performed by AIM and its
the levels of fee waivers/expense the Fund, who is independent of AIM and affiliates, such as administrative,
limitations for the Fund were fair and AIM's affiliates, had prepared an transfer agency and distribution
reasonable. 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
o Breakpoints and economies of scale. reasonableness of the proposed services. In addition to reviewing such
The Board reviewed the structure of the management fees of the AIM Funds, services, the trustees also considered
Fund's advisory fee under the Advisory including the Fund. The Board noted that the organizational structure employed by
Agreement, noting that it does not the Senior Officer's written evaluation AIM and its affiliates to provide those
include any breakpoints. The Board had been relied upon by the Board in services. Based on the review of these
considered whether it would be this regard in lieu of a competitive and other factors, the Board concluded
appropriate to add advisory fee bidding process. In determining whether that AIM and its affiliates were
breakpoints for the Fund or whether, due to continue the Advisory Agreement for qualified to continue to provide
to the nature of the Fund and the the Fund, the Board considered the non-investment advisory services to the
advisory fee structures of comparable Senior Officer's written evaluation and Fund, including administrative, transfer
funds, it was reasonable to structure the recommendation made by the Senior agency and distribution services, and
the advisory fee without breakpoints. Officer to the Board that the Board that AIM and its affiliates currently
Based on this review, the Board consider whether the advisory fee are providing satisfactory
concluded that it was not necessary to waivers for certain equity AIM Funds, non-investment advisory services.
add advisory fee breakpoints to the including the Fund, should be
Fund's advisory fee schedule. The Board simplified. The Board concluded that it o Other factors and current trends. The
reviewed the level of the Fund's would be advisable to consider this Board considered the steps that AIM and
advisory fees, and noted that such fees, issue and reach a decision prior to the its affiliates have taken over the last
as a percentage of the Fund's net expiration date of such advisory fee several years, and continue to take, in
assets, would remain constant under the waivers. order to improve the quality and
Advisory Agreement because the Advisory efficiency of the services they provide
Agreement does not include any o Profitability of AIM and its to the Funds in the areas of investment
breakpoints. The Board noted that AIM affiliates. The Board reviewed performance, product line
has contractually agreed to waive information concerning the profitability diversification, distribution, fund
advisory fees of the Fund through April of AIM's (and its affiliates') operations, shareholder services and
30, 2008 to the extent necessary so that investment advisory and other activities compliance. The Board concluded that
the advisory fees payable by the Fund do and its financial condition. The Board these steps taken by AIM have improved,
not exceed a specified maximum advisory considered the overall profitability of and are likely to continue to improve,
fee rate, which maximum rate includes AIM, as well as the profitability of AIM the quality and efficiency of the
breakpoints and is based on net asset in connection with managing the Fund. services AIM and its affiliates provide
levels. The Board noted that AIM's operations to the Fund in each of these areas, and
support the Board's approval of the
continuance of the Advisory Agreement
for the Fund.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-97.03%
ASSET MANAGEMENT & CUSTODY BANKS-7.87%
Bank of New York Co., Inc. (The) 164,288 $ 5,290,074
- ------------------------------------------------------------------------
Federated Investors, Inc.-Class B 85,711 2,699,896
- ------------------------------------------------------------------------
State Street Corp. 29,712 1,725,970
========================================================================
9,715,940
========================================================================
CONSUMER FINANCE-3.36%
Capital One Financial Corp. 48,641 4,156,374
========================================================================
DIVERSIFIED BANKS-9.22%
Anglo Irish Bank Corp. PLC (Ireland) 77,213 1,205,052
- ------------------------------------------------------------------------
U.S. Bancorp 94,057 2,904,480
- ------------------------------------------------------------------------
Wachovia Corp. 70,399 3,807,178
- ------------------------------------------------------------------------
Wells Fargo & Co. 51,722 3,469,512
========================================================================
11,386,222
========================================================================
DIVERSIFIED CAPITAL MARKETS-1.99%
UBS A.G. (Switzerland) 22,417 2,459,145
========================================================================
INSURANCE BROKERS-5.47%
Aon Corp. 68,315 2,378,728
- ------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 162,590 4,372,045
========================================================================
6,750,773
========================================================================
INVESTMENT BANKING & BROKERAGE-11.91%
Lehman Brothers Holdings Inc. 11,772 766,946
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 109,557 7,620,785
- ------------------------------------------------------------------------
Morgan Stanley 100,010 6,321,632
========================================================================
14,709,363
========================================================================
LIFE & HEALTH INSURANCE-0.87%
Prudential Financial, Inc. 13,917 1,081,351
========================================================================
MULTI-LINE INSURANCE-6.20%
American International Group, Inc. 21,247 1,254,635
- ------------------------------------------------------------------------
Genworth Financial Inc.-Class A 44,677 1,556,547
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 57,274 4,845,380
========================================================================
7,656,562
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-20.00%
Bank of America Corp. 151,166 7,271,084
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Citigroup Inc. 169,249 $ 8,164,572
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 220,461 9,259,362
========================================================================
24,695,018
========================================================================
PROPERTY & CASUALTY INSURANCE-7.69%
ACE Ltd. 92,827 $ 4,696,118
- ------------------------------------------------------------------------
MBIA Inc. 47,293 2,769,005
- ------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 45,474 2,027,231
========================================================================
9,492,354
========================================================================
REGIONAL BANKS-8.41%
Cullen/Frost Bankers, Inc. 11,904 682,099
- ------------------------------------------------------------------------
Fifth Third Bancorp 116,625 4,309,294
- ------------------------------------------------------------------------
North Fork Bancorp., Inc. 82,432 2,486,973
- ------------------------------------------------------------------------
SunTrust Banks, Inc. 22,599 1,723,400
- ------------------------------------------------------------------------
Zions Bancorp. 15,149 1,180,713
========================================================================
10,382,479
========================================================================
SPECIALIZED CONSUMER SERVICES-1.25%
H&R Block, Inc. 64,620 1,541,833
========================================================================
THRIFTS & MORTGAGE FINANCE-12.79%
Fannie Mae 150,328 7,230,777
- ------------------------------------------------------------------------
Freddie Mac 71,093 4,053,012
- ------------------------------------------------------------------------
Hudson City Bancorp, Inc. 113,846 1,517,567
- ------------------------------------------------------------------------
PMI Group, Inc. (The) 67,133 2,992,789
========================================================================
15,794,145
========================================================================
Total Common Stocks (Cost $102,227,004) 119,821,559
========================================================================
MONEY MARKET FUNDS-2.63%
Liquid Assets Portfolio-Institutional
Class(a) 1,620,876 1,620,876
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(a) 1,620,877 1,620,877
========================================================================
Total Money Market Funds (Cost
$3,241,753) 3,241,753
========================================================================
TOTAL INVESTMENTS-99.66% (Cost $105,468,757) 123,063,312
========================================================================
OTHER ASSETS LESS LIABILITIES-0.34% 422,291
========================================================================
NET ASSETS-100.00% $123,485,603
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $102,227,004) $119,821,559
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $3,241,753) 3,241,753
=============================================================
Total investments (cost $105,468,757) 123,063,312
=============================================================
Receivables for:
Investments sold 677,779
- -------------------------------------------------------------
Fund shares sold 124,701
- -------------------------------------------------------------
Dividends 176,240
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 14,382
=============================================================
Total assets 124,056,414
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 314,775
- -------------------------------------------------------------
Fund shares reacquired 62,058
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 22,027
- -------------------------------------------------------------
Accrued administrative services fees 130,157
- -------------------------------------------------------------
Accrued distribution fees -- Series II 7
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 459
- -------------------------------------------------------------
Accrued transfer agent fees 1,949
- -------------------------------------------------------------
Accrued operating expenses 39,379
=============================================================
Total liabilities 570,811
=============================================================
Net assets applicable to shares outstanding $123,485,603
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 99,838,986
- -------------------------------------------------------------
Undistributed net investment income 3,070,212
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 2,981,876
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 17,594,529
=============================================================
$123,485,603
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $123,470,505
_____________________________________________________________
=============================================================
Series II $ 15,098
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,994,276
_____________________________________________________________
=============================================================
Series II 981
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 15.44
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 15.39
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$20,090) $ 1,583,578
- -------------------------------------------------------------
Dividends from affiliated money market funds 67,491
=============================================================
Total investment income 1,651,069
=============================================================
EXPENSES:
Advisory fees 500,708
- -------------------------------------------------------------
Administrative services fees 192,266
- -------------------------------------------------------------
Custodian fees 7,845
- -------------------------------------------------------------
Distribution fees -- Series II 15
- -------------------------------------------------------------
Transfer agent fees 7,307
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 8,948
- -------------------------------------------------------------
Other 27,232
=============================================================
Total expenses 744,321
=============================================================
Less: Fees waived (379)
=============================================================
Net expenses 743,942
=============================================================
Net investment income 907,127
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain from:
Investment securities 3,514,573
- -------------------------------------------------------------
Foreign currencies 241
=============================================================
3,514,814
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (2,657,067)
- -------------------------------------------------------------
Foreign currencies (62)
=============================================================
(2,657,129)
=============================================================
Net gain from investment securities and foreign
currencies 857,685
=============================================================
Net increase in net assets resulting from
operations $ 1,764,812
_____________________________________________________________
=============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 907,127 $ 2,173,979
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 3,514,814 12,719,470
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (2,657,129) (10,553,270)
==========================================================================================
Net increase in net assets resulting from operations 1,764,812 4,340,179
==========================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,893,397)
- ------------------------------------------------------------------------------------------
Series II -- (135)
==========================================================================================
Total distributions from net investment income -- (1,893,532)
==========================================================================================
Share transactions-net:
Series I (19,535,355) (65,084,200)
- ------------------------------------------------------------------------------------------
Series II 3,483 135
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (19,531,872) (65,084,065)
==========================================================================================
Net increase (decrease) in net assets (17,767,060) (62,637,418)
==========================================================================================
NET ASSETS:
Beginning of period 141,252,663 203,890,081
==========================================================================================
End of period (including undistributed net investment
income of $3,070,212 and $2,163,085, respectively) $123,485,603 $141,252,663
__________________________________________________________________________________________
==========================================================================================
</Table>
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
June 30, 2006
(Unaudited)
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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. FINANCIAL SERVICES FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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 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, 2008. 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
net annual 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
AIM V.I. FINANCIAL SERVICES FUND
because of an expense offset arrangement. Currently, in addition to the expense
reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more fully
below, the expense offset arrangements from which the Fund may benefit are in
the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. To the extent
that the annualized expense ratio does not exceed the expense limitation, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursements
prior to the end of each fiscal year. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $379.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $167,472 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $7,307.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $15.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 1.792,232 $ (171,356) $ -- $1,620,876 $ 344 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-
Institutional
Class 5,064,797 20,087,232 (23,531,152) -- 1,620,877 67,147 --
=================================================================================================================================
Total $5,064,797 $21,879,464 $(23,702,508) $ -- $3,241,753 $67,491 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities purchases of $193,600.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 5--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$2,001 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 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 six months
ended June 30, 2006 was $1,519,930 and $19,116,820, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 22,184,001
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,782,463)
===============================================================================
Net unrealized appreciation of investment securities $ 16,401,538
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $106,661,774.
</Table>
AIM V.I. FINANCIAL SERVICES FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 673,525 $ 10,635,863 1,679,434 $ 24,855,189
- ----------------------------------------------------------------------------------------------------------------------
Series II 226 3,483 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 123,028 1,893,397
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- 9 135
======================================================================================================================
Reacquired:
Series I (1,931,972) (30,171,218) (6,506,406) (91,832,786)
======================================================================================================================
(1,258,221) $(19,531,872) (4,703,935) $(65,084,065)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 85% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units 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, 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 entities are also owned beneficially.
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.26 $ 14.61 $ 13.54 $ 10.50 $ 12.42 $ 13.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11(a) 0.19(a) 0.15 0.08 0.08 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.07 0.66 1.02 3.02 (1.93) (1.43)
=================================================================================================================================
Total from investment operations 0.18 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 $ 15.44 $ 15.26 $ 14.61 $ 13.54 $ 10.50 $ 12.42
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.18% 5.84% 8.68% 29.58% (14.90)% (9.88)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,471 $141,241 $203,879 $210,352 $142,403 $183,084
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.11%(c) 1.12% 1.12% 1.09% 1.09% 1.07%
=================================================================================================================================
Ratio of net investment income to average net assets 1.36%(c) 1.30% 0.89% 0.87% 0.57% 0.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 1% 22% 67% 65% 72% 132%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$134,616,837.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS YEAR (DATE SALES
ENDED ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.23 $14.59 $13.50
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.15(a) 0.12
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.07 0.67 1.07
=============================================================================================================
Total from investment operations 0.16 0.82 1.19
=============================================================================================================
Less dividends from net investment income -- (0.18) (0.10)
=============================================================================================================
Net asset value, end of period $15.39 $15.23 $14.59
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 1.05% 5.61% 8.85%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 15 $ 11 $ 11
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.37% 1.38%(d)
=============================================================================================================
Ratio of net investment income to average net assets 1.11%(c) 1.05% 0.63%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(e) 1% 22% 67%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $11,843.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds, including those formerly advised by
IFG, and failed to disclose these arrangements in the prospectuses for such
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. FINANCIAL SERVICES FUND
AIM V.I. GLOBAL EQUITY FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. GLOBAL EQUITY FUND seeks to provide long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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. GLOBAL EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE strong performers, such as growth and
stability of earnings, profitability and
=================================================================================== financial strength.
PERFORMANCE SUMMARY o Our stock selection model measures
======================================== these qualities for each company in the
Since its inception on May 1, 2006, AIM Fund's global universe and takes into
V.I. Global Equity Fund posted negative FUND VS. INDEXES account that the significance of each
returns, underperforming its broad quality varies depending on the industry
market and style-specific benchmark, the CUMULATIVE TOTAL RETURNS and region of operation.
MSCI World Index, for the period ending 05/01/06-06/30/06, EXCLUDING VARIABLE
June 30, 2006. The Fund's negative PRODUCT ISSUER CHARGES. IF VARIABLE Our risk model enables fund managers to:
performance was due primarily to its PRODUCT ISSUER CHARGES WERE INCLUDED,
Asia/Pacific regional exposure, RETURNS WOULD BE LOWER. o Simultaneously analyze how changes in
specifically holdings in Korea. From a such economic factors as interest rates,
sector perspective, slight Fund Series I Shares -4.70% currencies and the price of oil will
underperformance was attributable affect the stocks of these companies.
primarily to financials holdings. Series II Shares -4.70
o Seek to reduce the Fund's volatility
Morgan Stanley Capital International by creating a portfolio that pairs
(MSCI) World Index (Broad Market stocks that benefit from an increase in
and Style-Specific Index) -3.57 a specific economic factor with stocks
that benefit from a decrease in the same
Lipper Global Multi-Cap Core factor. The goal is to neutralize the
Fund Index (Peer Group Index) -2.59 impact of these risk factors on the
overall portfolio.
SOURCE: LIPPER INC.
======================================== We combine the results of the
analyses from these two models with a
=================================================================================== trading and transaction cost analysis.
The process is designed to construct a
HOW WE INVEST The Fund's investment philosophy is portfolio containing the optimal
based on three key principles: combination of securities with the
Our global equity investment strategy potential to deliver favorable returns
gives the Fund primary exposure to o An investment process must be without assuming excessive amounts of
large-cap companies and secondary structured and disciplined. risk.
exposure to mid- and small-cap firms. As
part of a portfolio's overall asset o Stocks should be selected on the We consider selling or reducing our
allocation strategy, the Fund can merits of each individual company. holding of a particular stock if:
complement domestic holdings with its
exposure to both domestic and o Risk management is as important as o It no longer exhibits characteristics
international companies that are stock selection. that drive positive performance.
diversified by geography, sector and
market capitalization. Mindful of these principles, o Holding the security no longer
portfolio managers have developed a provides risk management benefits.
Our investment philosophy balances quantitative investment process with two
stock selection with risk management. To main components: stock selection and MARKET CONDITIONS AND YOUR FUND
help mitigate geopolitical risk, we own risk management.
stocks across a variety of regions and The inception of your Fund coincided
countries. We believe a portfolio that Our stock selection model is based with the market downturn as investors
is well diversified geographically also on the following: became con-
helps minimize foreign exchange risk.
o Portfolio managers believe securities
exhibit certain qualities that identify
them as probable
======================================== ======================================== =========================================
PORTFOLIO COMPOSITION TOP FIVE COUNTRIES TOP 10 EQUITY HOLDINGS
By sector 1. U.S.A 48.8% 1. Hewlett-Packard Co. 2.1%
Financials 27.9% 2. France 9.9 2. Moody's Corp. 2.1
Information Technology 10.8 3. Japan 9.9 3. Assurances Generales de France
(France) 2.1
Consumer Discretionary 10.5 4. United Kingdom 8.0
4. ING Groep N.V. (Netherlands) 2.1
Industrials 10.4 5. Canada 5.7
5. PagesJaunes S.A. (France) 2.1
Utilities 8.5
TOTAL NET ASSETS $953.1 THOUSAND 6. Kyushu Electric Power Co., Inc.
Materials 7.7 TOTAL NUMBER OF HOLDINGS 134 (Japan) 2.0
Health Care 7.5 7. Verizon Communications Inc. 1.9
Energy 6.0 8. Societe Generale (France) 1.9
Consumer Staples 4.9 9. Prudential Financial, Inc. 1.7
Telecommunication Services 2.2 10. Cummins Inc. 1.7
Other Assets Less Liabilities 3.6
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. GLOBAL EQUITY FUND
cerned over the effects of higher IN CLOSING DEREK S. IZUEL, senior port-
interest rates and inflation pressures. [IZUEL folio manager, is lead manager
During the reporting period, the U.S. We are pleased to welcome shareholders PHOTO] of AIM V.I. Global Equity Fund.
Federal Reserve Bank (the Fed) continued to AIM V.I. Global Equity Fund. Although Mr. Izuel began his investment
its tightening policy, raising the key we regret that market conditions were career in 1997. He earned a B.A.
federal funds rate to 5.25% as Ben not more positive during the reporting in computer science from the University
Bernanke settled into his new role as period, this underscores the importance of California-Berkeley and an M.B.A.
Fed Chairman. During the first five of keeping a long-term perspective for from the University of Michigan.
months of 2006, the consumer price index investments. We believe our investment
rose 5.2% at a seasonally adjusted process helps us build a strong DUY NGUYEN, Chartered
annual rate, compared with a 3.4% rise portfolio of diversified global stocks [NGUYEN Financial Analyst, portfolio
for all of 2005. that complements the traditional PHOTO] manager, is manager of AIM
components of a domestic asset V.I. Global Equity Fund.
Despite an increase in volatility allocation. Thank you for your Mr. Nguyen joined AIM in 2000.
during the reporting period, global investment in AIM V.I. Global Equity He earned a B.A. from The University of
economic growth continued to show record Fund. Texas at Austin and an M.S. in finance
strength. After impressive gains for from the University of Houston.
Japan in 2005, when improving secular THE VIEWS AND OPINIONS EXPRESSED IN
economic growth prospects drove the MANAGEMENT'S DISCUSSION OF FUND Assisted by Global Quantitative
local market largely higher, the country PERFORMANCE ARE THOSE OF A I M ADVISORS, Strategies Team
witnessed a bout of profit taking, INC. THESE VIEWS AND OPINIONS ARE
especially in more cyclical, SUBJECT TO CHANGE AT ANY TIME BASED ON
economically sensitive stocks. FACTORS SUCH AS MARKET AND ECONOMIC
CONDITIONS. THESE VIEWS AND OPINIONS MAY
Regionally, the Fund benefited from NOT BE RELIED UPON AS INVESTMENT ADVICE
holdings in France and Canada, while OR RECOMMENDATIONS, OR AS AN OFFER FOR A
Korean and Swedish stocks had a negative PARTICULAR SECURITY. THE INFORMATION IS
effect on performance. From a sector NOT A COMPLETE ANALYSIS OF EVERY ASPECT
perspective, investments in industrials OF ANY MARKET, COUNTRY, INDUSTRY,
and materials contributed to the Fund, SECURITY OR THE FUND. STATEMENTS OF FACT
while energy and financials detracted ARE FROM SOURCES CONSIDERED RELIABLE,
from performance relative to the Fund's BUT A I M ADVISORS, INC. MAKES NO
style-specific benchmark. REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH
Information technology (IT) was one HISTORICAL PERFORMANCE IS NO GUARANTEE
of the poorer performing sectors during OF FUTURE RESULTS, THESE INSIGHTS MAY
the reporting period because of concerns HELP YOU UNDERSTAND OUR INVESTMENT
about slowing IT spending and overall MANAGEMENT PHILOSOPHY.
valuations. QUALCOMM performed poorly
for the Fund during the reporting period
as it dealt with an antitrust lawsuit
brought by Broadcom in the U.S. and
braced for an investigation by the
European Commission over licensing fees.
Health care was one of the stronger
performers during the reporting period.
ASTRAZENECA PLC, which develops,
manufactures and markets prescription
pharmaceuticals, contributed to Fund
performance during the reporting period
as a result of announcing strategic
acquisitions and divestitures.
During the brief reporting period
since your Fund was introduced,
management did not make significant
changes to sector exposures and
positioning. We increased exposure to [RIGHT ARROW GRAPHIC]
financials and decreased our
telecommunications and consumer FOR A DISCUSSION OF THE RISKS OF
discretionary holdings relative to the INVESTING IN YOUR FUND, INDEXES USED IN
style-specific benchmark. THIS REPORT AND YOUR FUND'S PERFORMANCE,
PLEASE TURN TO PAGE 4.
3
AIM V.I. GLOBAL EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=======================================
CUMULATIVE TOTAL RETURNS FUND EXPENSES, REINVESTED DISTRIBUTIONS ARE DETERMINED BY THE VARIABLE PRODUCT
As of 6/30/06 AND CHANGES IN NET ASSET VALUE. ISSUERS, WILL VARY AND WILL LOWER THE
INVESTMENT RETURN AND PRINCIPAL VALUE TOTAL RETURN. PER NASD REQUIREMENTS, THE
SERIES I SHARES WILL FLUCTUATE SO THAT YOU MAY HAVE A MOST RECENT MONTH-END PERFORMANCE DATA
Inception (5/1/06) -4.70% GAIN OR LOSS WHEN YOU SELL SHARES. AT THE FUND LEVEL, EXCLUDING VARIABLE
PRODUCT CHARGES, IS AVAILABLE ON THIS
SERIES II SHARES AIM V.I. GLOBAL EQUITY FUND, A AIM AUTOMATED INFORMATION LINE,
Inception (5/1/06) -4.70% SERIES PORTFOLIO OF AIM VARIABLE 866-702-4402. AS MENTIONED ABOVE, FOR
INSURANCE FUNDS, IS CURRENTLY OFFERED THE MOST RECENT MONTH-END PERFORMANCE
======================================= THROUGH INSURANCE COMPANIES ISSUING INCLUDING VARIABLE PRODUCT CHARGES,
VARIABLE PRODUCTS. YOU CANNOT PURCHASE PLEASE CONTACT YOUR VARIABLE PRODUCT
THE PERFORMANCE OF THE FUND'S SERIES I SHARES OF THE FUND DIRECTLY. PERFORMANCE ISSUER OR FINANCIAL ADVISOR.
AND SERIES II SHARE CLASSES WILL DIFFER FIGURES GIVEN REPRESENT THE FUND AND ARE
PRIMARILY DUE TO DIFFERENT CLASS NOT INTENDED TO REFLECT ACTUAL VARIABLE HAD THE ADVISOR NOT WAIVED FEES
EXPENSES. PRODUCT VALUES. THEY DO NOT REFLECT AND/OR REIMBURSED EXPENSES, PERFORMANCE
SALES CHARGES, EXPENSES AND FEES WOULD HAVE BEEN LOWER.
THE PERFORMANCE DATA QUOTED ASSESSED IN CONNECTION WITH A VARIABLE
REPRESENT PAST PERFORMANCE AND CANNOT PRODUCT. SALES CHARGES, EXPENSES AND
GUARANTEE COMPARABLE FUTURE RESULTS; FEES, WHICH
CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER. PLEASE CONTACT YOUR VARIABLE
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR
THE MOST RECENT MONTH-END VARIABLE
PRODUCT PERFORMANCE. PERFORMANCE FIGURES
REFLECT
PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged LIPPER GLOBAL reporting purposes, and as such, the net
MULTI-CAP CORE FUND INDEX represents an asset values for shareholder
Foreign securities have additional average of the performance of the 10 transactions and the returns based on
risks, including exchange rate changes, largest global multi-capitalization core those net asset values may differ from
political and economic developments, the funds tracked by Lipper Inc., an the net asset values and returns
relative lack of information about these independent mutual fund performance reported in the Financial Highlights.
companies, relatively low market monitor.
liquidity and the potential lack of Additionally, the returns and net asset
strict financial and accounting controls The Fund is not managed to track values shown throughout this report are
and standards. the performance of any particular index, at the Fund level only and do not
including the indexes defined here, and include variable product issuer charges.
The Fund invests in synthetic consequently, the performance of the If such charges were included, the total
instruments, the value of which may not Fund may deviate significantly from the returns would be lower.
correlate perfectly with the overall performance of the indexes.
securities markets. Rising interest Industry classifications used in
rates and market price fluctuations will A direct investment cannot be made this report are generally according to
affect the performance of the Fund's in an index. Unless otherwise indicated, the Global Industry Classification
investments in synthetic instruments. index results include reinvested Standard, which was developed by and is
dividends, and they do not reflect sales the exclusive property and a service
The Fund invests in repurchase charges. Performance of an index of mark of Morgan Stanley Capital
agreements which are subject to the risk funds reflects fund expenses; International Inc. and Standard &
that the seller of such agreements may performance of a market index does not. Poor's.
default or declare bankruptcy, which may
result in a decline in security values, OTHER INFORMATION
reduced income levels and additional
expenses. The returns shown in the management's
discussion of Fund performance are based
ABOUT INDEXES USED IN THIS REPORT on net asset values calculated for
shareholder transactions. Generally
The unmanaged MSCI WORLD INDEX is a accepted accounting principles require
group of global securities tracked by adjustments to be made to the net assets
Morgan Stanley Capital International. of the Fund at period end for financial
4
AIM V.I. GLOBAL EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES expenses based on the Fund's actual
expense ratio and an assumed rate of
As a shareholder of the Fund, you incur The table below provides information return of 5% per year before expenses,
ongoing costs, including management about actual account values and actual which is not the Fund's actual return.
fees; distribution and/or service fees expenses. You may use the information in The Fund's actual cumulative total
(12b-1); and other Fund expenses. This this table, together with the amount you returns at net asset value after
example is intended to help you invested, to estimate the expenses that expenses for the period ended June 30,
understand your ongoing costs (in you paid over the period. Simply divide 2006, appear in the table "Funds vs.
dollars) of investing in the Fund and to your account value by $1,000 (for Indexes" on page 2.
compare these costs with ongoing costs example, an $8,600 account value divided
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the THE HYPOTHETICAL ACCOUNT VALUES AND
actual ending account value and expenses result by the number in the table under EXPENSES MAY NOT BE USED TO ESTIMATE THE
of Series I and Series II shares in the the heading entitled "Actual Expenses ACTUAL ENDING ACCOUNT BALANCE OR
below example are based on an investment Paid During Period" to estimate the EXPENSES YOU PAID FOR THE PERIOD. YOU
of $1,000 invested on May 1, 2006, (the expenses you paid on your account during MAY USE THIS INFORMATION TO COMPARE THE
date the share classes commenced this period (May 1, 2006, through June ONGOING COSTS OF INVESTING IN THE FUND
operations) and held through June 30, 30, 2006 for Series I and Series II). AND OTHER FUNDS. TO DO SO, COMPARE THIS
2006. The hypothetical ending account Because the actual ending account value 5% HYPOTHETICAL EXAMPLE WITH THE 5%
value and expenses of Series I and and expense information in the example HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
Series II shares in the below example is not based upon a six month period, SHAREHOLDER REPORTS OF THE OTHER FUNDS.
are based on an investment of $1,000 the ending account value and expense
invested at the beginning of the period information may not provide a meaningful Please note that the expenses shown
and held for the entire six month period comparison to mutual funds that provide in the table are meant to highlight your
January 1, 2006, through June 30, 2006. such information for a full six month ongoing costs. Therefore, the
period. hypothetical information is useful in
The actual and hypothetical comparing ongoing costs, and will not
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON help you determine the relative total
represent the effect of any fees or PURPOSES costs of owning different funds.
other expenses assessed in connection
with a variable product; if they did, The table below also provides
the expenses shown would be higher while information about hypothetical account
the ending account values shown would be values and hypothetical
lower.
====================================================================================================================================
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 (1/1/06)(1) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(3) RATIO
Series I $1,000.00 $953.00 $1.80 $1,019.34 $5.51 1.10%
Series II 1,000.00 953.00 2.20 1,018.10 6.76 1.35
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, (date operations
commenced) through June 30, 2006, 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 period ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 61 (May 1, 2006 (date operations commenced) through June 30, 2006)/365. Because the shares have not been
in existence for a full six month period, the actual ending account value and expense information show may not provide a
meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the
actual ending account value and expense information in the expense example covers a short time period, return and expense data
may not be indicative of return and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over
the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be
used to compare ongoing costs of investing in the Series I and Series II shares of the Fund and other funds because such data
is based on a full six month period.
====================================================================================================================================
5
AIM V.I. GLOBAL EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory advised by an AIM affiliate and
Insurance Funds (the "Board") oversees services to be provided by AIM. The sub-advised by AIM with investment
the management of AIM V.I. Global Equity Board reviewed the services to be strategies comparable to those of the
Fund (the "Fund") and, as required by provided by AIM under the Advisory Fund, although the total advisory fees
law, determines annually whether to Agreement. Based on such review, the for one such Canadian mutual fund were
approve the continuance of the Fund's Board concluded that the range of above those for the Fund; (iv) above the
advisory agreement with A I M Advisors, services to be provided by AIM under the effective sub-advisory fee rates for
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and three collective trust funds sub-advised
recommendation of the Investments that AIM currently is providing services by an AIM affiliate with investment
Committee of the Board, at a meeting in accordance with the terms of the strategies comparable to those of the
held on June 27, 2006, the Board, Advisory Agreement. Fund, although the total advisory fees
including all of the independent for such collective trust funds were the
trustees, approved the continuance of o The quality of services to be provided same as those for the Fund; and (v)
the advisory agreement (the "Advisory by AIM. The Board reviewed the above the effective sub-advisory fee
Agreement") between the Fund and AIM for credentials and experience of the rates for three mutual funds sub-advised
another year, effective July 1, 2006. officers and employees of AIM who will by an AIM affiliate with investment
provide investment advisory services to strategies comparable to those of the
The Board considered the factors the Fund. In reviewing the Fund. The Board noted that AIM has
discussed below in evaluating the qualifications of AIM to provide agreed to limit the Fund's total annual
fairness and reasonableness of the investment advisory services, the Board operating expenses, as discussed below.
Advisory Agreement at the meeting on considered such issues as AIM's Based on this review, the Board
June 27, 2006 and as part of the Board's portfolio and product review process, concluded that the advisory fee rate for
ongoing oversight of the Fund. In their various back office support functions the Fund under the Advisory Agreement
deliberations, the Board and the provided by AIM and AIM's equity and was fair and reasonable.
independent trustees did not identify fixed income trading operations. Based
any particular factor that was on the review of these and other o Fees relative to those of comparable
controlling, and each trustee attributed factors, the Board concluded that the funds with other advisors. The Board
different weights to the various quality of services to be provided by reviewed the advisory fee rate for the
factors. AIM was appropriate and that AIM Fund under the Advisory Agreement. The
currently is providing satisfactory Board compared effective contractual
One responsibility of the services in accordance with the terms of advisory fee rates at a common asset
independent Senior Officer of the Fund the Advisory Agreement. level at the end of the past calendar
is to manage the process by which the year and noted that the Fund's rate was
Fund's proposed management fees are o The performance of the Fund relative below the median rate of the funds
negotiated to ensure that they are to comparable funds. Not applicable advised by other advisors with
negotiated in a manner which is at arms' because the Fund has not been in investment strategies comparable to
length and reasonable. To that end, the operation for a full calendar year. those of the Fund that the Board
Senior Officer must either supervise a reviewed. The Board noted that AIM has
competitive bidding process or prepare o The performance of the Fund relative agreed to limit the Fund's total annual
an independent written evaluation. The to indices. Not applicable because the operating expenses, as discussed below.
Senior Officer has recommended an Fund has not been in operation for a The Board also considered the fact that
independent written evaluation in lieu full calendar year. AIM set the proposed advisory fees for
of a competitive bidding process and, the Fund based upon the median effective
upon the direction of the Board, has o Meetings with the Fund's portfolio management fee rate (comprised of
prepared such an independent written managers and investment personnel. With advisory fees plus, in some cases,
evaluation. Such written evaluation also respect to the Fund, the Board is administrative fees) at various asset
considered certain of the factors meeting periodically with such Fund's levels of competitor mutual funds with
discussed below. In addition, as portfolio managers and/or other investment strategies comparable to
discussed below, the Senior Officer made investment personnel and believes that those of the Fund. In addition, the
a recommendation to the Board in such individuals are competent and able Board noted that the proposed advisory
connection with such written evaluation. to continue to carry out their fees for the Fund are equal to the
responsibilities under the Advisory uniform fee schedule that applies to
The discussion below serves as a Agreement. other mutual funds advised by AIM with
summary of the Senior Officer's investment strategies comparable to
independent written evaluation and o Overall performance of AIM. Not those of the Fund, which uniform fee
recommendation to the Board in applicable because the Fund has not been schedule includes breakpoints and is
connection therewith, as well as a in operation for a full calendar year. based on net asset levels. Based on this
discussion of the material factors and review, the Board concluded that the
the conclusions with respect thereto o Fees relative to those of clients of advisory fee rate for the Fund under the
that formed the basis for the Board's AIM with comparable investment Advisory Agreement was fair and
approval of the Advisory Agreement. strategies. The Board reviewed the reasonable.
After consideration of all of the effective advisory fee rate (before
factors below and based on its informed waivers) for the Fund under the Advisory o Expense limitations and fee waivers.
business judgment, the Board determined Agreement. The Board noted that this The Board noted that AIM has
that the Advisory Agreement is in the rate was (i) below the effective contractually agreed to waive fees
best interests of the Fund and its advisory fee rate (before waivers) for and/or limit expenses of the Fund
shareholders and that the compensation one mutual fund advised by AIM with through April 30, 2008 in an amount
to AIM under the Advisory Agreement is investment strategies comparable to necessary to limit total annual
fair and reasonable and would have been those of the Fund and comparable to the operating expenses to a specified
obtained through arm's length effective advisory fee rate (before percentage of average daily net assets
negotiations. waivers) for a second mutual fund for each class of the Fund. The Board
advised by AIM with investment considered the contractual nature of
Unless otherwise stated, strategies comparable to those of the this fee waiver/expense limitation and
information presented below is as of Fund; (ii) above the effective noted that it remains in effect until
June 27, 2006 and does not reflect any sub-advisory fee rates for two offshore April 30, 2008. The Board considered the
changes that may have occurred since funds advised and sub-advised by AIM effect these fee waivers/expense
June 27, 2006, including but not limited affiliates with investment strategies limitations would have on the Fund's
to changes to the Fund's performance, comparable to those of the Fund, estimated expenses and concluded that
advisory fees, expense limitations although the total advisory fees for one the levels of fee waivers/expense
and/or fee waivers. such offshore fund were comparable to limitations for the Fund were fair and
those for the Fund; (iii) above the reasonable.
effective sub-advisory fee rates for two
Canadian mutual funds
(continued)
6
AIM V.I. GLOBAL EQUITY 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 approve the Advisory Agreement for the
Agreement, noting that it contains seven their direction, the Senior Officer of Fund, the Board also considered the
breakpoints. The Board reviewed the the Fund, who is independent of AIM and prior relationship between AIM and the
level of the Fund's advisory fees, and AIM's affiliates, had prepared an Fund, as well as the Board's knowledge
noted that such fees, as a percentage of independent written evaluation in order of AIM's operations, and concluded that
the Fund's net assets, would decrease as to assist the Board in determining the it was beneficial to maintain the
net assets increase because the Advisory reasonableness of the proposed current relationship, in part, because
Agreement includes breakpoints. 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 breakpoints. 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. services. In addition to reviewing such
higher asset levels and that it was not services, the trustees also considered
necessary to change the advisory fee o Profitability of AIM and its the organizational structure employed by
breakpoints in the Fund's advisory fee affiliates. The Board reviewed AIM and its affiliates to provide those
schedule. information concerning the profitability services. Based on the review of these
of AIM's (and its affiliates') and other factors, the Board concluded
o Investments in affiliated money market investment advisory and other activities that AIM and its affiliates were
funds. The Board also took into account and its financial condition. The Board qualified to continue to provide
the fact that uninvested cash and cash considered the overall profitability of non-investment advisory services to the
collateral from securities lending AIM. The Board noted that AIM's Fund, including administrative, transfer
arrangements, if any (collectively, operations remain profitable, although agency and distribution services, and
"cash balances") of the Fund may be increased expenses in recent years have that AIM and its affiliates currently
invested in money market funds advised reduced AIM's profitability. Based on are providing satisfactory
by AIM pursuant to the terms of an SEC the review of the profitability of AIM's non-investment advisory services.
exemptive order. The Board found that and its affiliates' investment advisory
the Fund may realize certain benefits and other activities and its financial o Other factors and current trends. The
upon investing cash balances in AIM condition, the Board concluded that the Board considered the steps that AIM and
advised money market funds, including a compensation to be paid by the Fund to its affiliates have taken over the last
higher net return, increased liquidity, AIM under its Advisory Agreement was not several years, and continue to take, in
increased diversification or decreased excessive. order to improve the quality and
transaction costs. The Board also found efficiency of the services they provide
that the Fund will not receive reduced o Benefits of soft dollars to AIM. The to the Funds in the areas of investment
services if it invests its cash balances Board considered the benefits realized performance, product line
in such money market funds. The Board by AIM as a result of brokerage diversification, distribution, fund
noted that, to the extent the Fund transactions executed through "soft operations, shareholder services and
invests uninvested cash in affiliated dollar" arrangements. Under these compliance. The Board concluded that
money market funds, AIM has voluntarily arrangements, brokerage commissions paid these steps taken by AIM have improved,
agreed to waive a portion of the by the Fund and/or other funds advised and are likely to continue to improve,
advisory fees it receives from the Fund by AIM are used to pay for research and the quality and efficiency of the
attributable to such investment. The execution services. This research may be services AIM and its affiliates provide
Board further determined that the used by AIM in making investment to the Fund in each of these areas, and
proposed securities lending program and decisions for the Fund. The Board support the Board's approval of the
related procedures with respect to the concluded that such arrangements were continuance of the Advisory Agreement
lending Fund is in the best interests of appropriate. for the Fund.
the lending Fund and its respective
shareholders. The Board therefore o AIM's financial soundness in light of
concluded that the investment of cash the Fund's needs. The Board considered
collateral received in connection with whether AIM is financially sound and has
the securities lending program in the the resources necessary to perform its
money market funds according to the obligations under the Advisory
procedures is in the best interests of Agreement, and concluded that AIM has
the lending Fund and its respective the financial resources necessary to
shareholders. fulfill its obligations under the
Advisory Agreement.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-48.76%
AEROSPACE & DEFENSE-1.05%
General Dynamics Corp. 153 $ 10,015
================================================================
AIR FREIGHT & LOGISTICS-0.20%
EGL, Inc.(a) 37 1,857
================================================================
AIRLINES-0.28%
US Airways Group, Inc.(a) 53 2,679
================================================================
APPAREL RETAIL-0.89%
Buckle, Inc. (The) 33 1,381
- ----------------------------------------------------------------
Dress Barn, Inc. (The)(a) 197 4,994
- ----------------------------------------------------------------
Too Inc.(a) 56 2,150
================================================================
8,525
================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.46%
Phillips-Van Heusen Corp. 116 4,427
================================================================
COAL & CONSUMABLE FUELS-0.58%
Peabody Energy Corp. 99 5,519
================================================================
COMMODITY CHEMICALS-0.99%
Lyondell Chemical Co. 304 6,888
- ----------------------------------------------------------------
Westlake Chemical Corp. 86 2,563
================================================================
9,451
================================================================
COMMUNICATIONS EQUIPMENT-1.65%
Cisco Systems, Inc.(a) 149 2,910
- ----------------------------------------------------------------
Corning Inc.(a) 102 2,467
- ----------------------------------------------------------------
QUALCOMM Inc. 259 10,378
================================================================
15,755
================================================================
COMPUTER HARDWARE-3.24%
Hewlett-Packard Co. 644 20,402
- ----------------------------------------------------------------
International Business Machines Corp. 136 10,447
================================================================
30,849
================================================================
COMPUTER STORAGE & PERIPHERALS-0.65%
Brocade Communications Systems, Inc.(a) 490 3,009
- ----------------------------------------------------------------
Komag, Inc.(a) 68 3,140
================================================================
6,149
================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.74%
Cummins Inc. 136 16,626
================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-1.09%
Global Payments Inc. 63 $ 3,059
- ----------------------------------------------------------------
Paychex, Inc. 188 7,328
================================================================
10,387
================================================================
DEPARTMENT STORES-0.40%
Kohl's Corp.(a) 64 3,784
================================================================
DIVERSIFIED CHEMICALS-3.42%
Ashland Inc. 240 16,008
- ----------------------------------------------------------------
Dow Chemical Co. (The) 86 3,357
- ----------------------------------------------------------------
Eastman Chemical Co. 245 13,230
================================================================
32,595
================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.24%
Corporate Executive Board Co. (The) 57 5,711
- ----------------------------------------------------------------
West Corp.(a) 127 6,085
================================================================
11,796
================================================================
ELECTRIC UTILITIES-0.98%
Allegheny Energy, Inc.(a) 86 3,188
- ----------------------------------------------------------------
FirstEnergy Corp. 114 6,180
================================================================
9,368
================================================================
GAS UTILITIES-0.46%
Questar Corp. 55 4,427
================================================================
GENERAL MERCHANDISE STORES-0.37%
Conn's, Inc.(a) 134 3,558
================================================================
HEALTH CARE TECHNOLOGY-0.37%
IMS Health Inc. 133 3,571
================================================================
HOME IMPROVEMENT RETAIL-0.31%
Lowe's Cos., Inc. 49 2,973
================================================================
HOMEBUILDING-0.23%
Centex Corp. 43 2,163
================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.80%
TXU Corp. 127 7,593
================================================================
INDUSTRIAL CONGLOMERATES-1.51%
3M Co. 178 14,377
================================================================
</Table>
AIM V.I. GLOBAL EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
INDUSTRIAL MACHINERY-1.37%
Eaton Corp. 173 $ 13,044
================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.92%
Verizon Communications Inc. 545 18,252
================================================================
INVESTMENT BANKING & BROKERAGE-0.25%
Lehman Brothers Holdings Inc. 36 2,345
================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-2.81%
Energy Select Sector Standard & Poor's
Depositary Receipts Fund 65 3,687
- ----------------------------------------------------------------
iShares Morgan Stanley Capital International
Japan Index Fund 510 6,956
- ----------------------------------------------------------------
iShares Morgan Stanley Capital International
Taiwan Index Fund 1,258 16,103
================================================================
26,746
================================================================
IT CONSULTING & OTHER SERVICES-0.81%
Accenture Ltd.-Class A 273 7,731
================================================================
LEISURE PRODUCTS-0.27%
JAKKS Pacific, Inc.(a) 129 2,592
================================================================
LIFE & HEALTH INSURANCE-1.75%
Prudential Financial, Inc. 214 16,628
================================================================
LIFE SCIENCES TOOLS & SERVICES-0.45%
Applera Corp.-Applied Biosystems Group 133 4,303
================================================================
MANAGED HEALTH CARE-2.30%
Aetna Inc. 93 3,713
- ----------------------------------------------------------------
Humana Inc.(a) 68 3,652
- ----------------------------------------------------------------
UnitedHealth Group Inc. 325 14,554
================================================================
21,919
================================================================
MARINE-1.00%
Overseas Shipholding Group, Inc. 161 9,523
================================================================
MULTI-UTILITIES-0.25%
MDU Resources Group, Inc. 64 2,343
================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.18%
Apache Corp. 79 5,392
- ----------------------------------------------------------------
GMX Resources Inc.(a) 100 3,092
- ----------------------------------------------------------------
Parallel Petroleum Corp.(a) 112 2,767
================================================================
11,251
================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION-1.40%
Energy Transfer Partners, L.P. 238 $ 10,627
- ----------------------------------------------------------------
Suburban Propane Partners, L.P. 87 2,742
================================================================
13,369
================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.36%
Bank of America Corp. 44 2,116
- ----------------------------------------------------------------
JPMorgan Chase & Co. 258 10,836
================================================================
12,952
================================================================
PHARMACEUTICALS-0.19%
Merck & Co. Inc. 50 1,822
================================================================
PUBLISHING-1.20%
McGraw-Hill Cos., Inc. (The) 228 11,452
================================================================
RAILROADS-0.16%
Burlington Northern Santa Fe Corp. 19 1,506
================================================================
RESTAURANTS-0.30%
Starbucks Corp.(a) 76 2,870
================================================================
SEMICONDUCTOR EQUIPMENT-0.56%
Lam Research Corp.(a) 115 5,361
================================================================
SEMICONDUCTORS-0.71%
Intel Corp. 188 3,562
- ----------------------------------------------------------------
Texas Instruments Inc. 106 3,211
================================================================
6,773
================================================================
SPECIALIZED CONSUMER SERVICES-0.23%
Jackson Hewitt Tax Service Inc. 70 2,195
================================================================
SPECIALIZED FINANCE-2.66%
Chicago Mercantile Exchange Holdings Inc. 6 2,947
- ----------------------------------------------------------------
CIT Group, Inc. 44 2,301
- ----------------------------------------------------------------
Moody's Corp. 369 20,095
================================================================
25,343
================================================================
STEEL-0.64%
Commercial Metals Co. 122 3,135
- ----------------------------------------------------------------
Nucor Corp. 54 2,930
================================================================
6,065
================================================================
THRIFTS & MORTGAGE FINANCE-0.97%
Corus Bankshares, Inc. 158 4,137
- ----------------------------------------------------------------
Downey Financial Corp. 38 2,578
- ----------------------------------------------------------------
Fremont General Corp. 138 2,561
================================================================
9,276
================================================================
</Table>
AIM V.I. GLOBAL EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
TOBACCO-1.11%
Reynolds American Inc. 92 $ 10,608
================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $475,625) 464,713
================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-47.64%
AUSTRALIA-1.73%
Australia and New Zealand Banking Group Ltd.
(Diversified Banks)(b) 426 8,438
- ----------------------------------------------------------------
Commonwealth Bank of Australia (Diversified
Banks)(b) 244 8,043
================================================================
16,481
================================================================
BELGIUM-0.70%
GIMV N.V. (Multi-Sector Holdings)(b) 48 2,790
- ----------------------------------------------------------------
Option N.V. (Communications Equipment)(a)(b) 162 3,875
================================================================
6,665
================================================================
CANADA-5.73%
Aur Resources Inc. (Diversified Metals &
Mining) 600 9,567
- ----------------------------------------------------------------
Canadian National Railway Co. (Railroads) 300 13,104
- ----------------------------------------------------------------
Galleon Energy Inc. (Oil & Gas Exploration &
Production)(a) 150 2,913
- ----------------------------------------------------------------
Husky Energy Inc. (Integrated Oil & Gas) 100 6,276
- ----------------------------------------------------------------
MacDonald, Dettwiler and Associates Ltd.
(Application Software)(a) 100 4,116
- ----------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 100 3,169
- ----------------------------------------------------------------
Petrobank Energy and Resources Ltd. (Oil &
Gas Exploration & Production)(a) 200 2,727
- ----------------------------------------------------------------
Rothmans, Inc. (Tobacco) 300 5,241
- ----------------------------------------------------------------
Russel Metals Inc. (Trading Companies &
Distributors) 200 4,640
- ----------------------------------------------------------------
Shaw Communications, Inc.-Class B
(Broadcasting & Cable TV) 100 2,826
================================================================
54,579
================================================================
DENMARK-1.91%
Danske Bank A.S. (Diversified Banks)(b) 200 7,598
- ----------------------------------------------------------------
Novo Nordisk A.S.-Class B
(Pharmaceuticals)(b) 50 3,181
- ----------------------------------------------------------------
William Demant Holdings A.S. (Health Care
Equipment)(a) 100 7,478
================================================================
18,257
================================================================
FINLAND-0.64%
Nokia Oyj (Communications Equipment)(b) 300 6,071
================================================================
FRANCE-9.91%
Assurances Generales de France (Multi-Line
Insurance) 169 19,944
- ----------------------------------------------------------------
Axa (Multi-Line Insurance) 256 8,403
- ----------------------------------------------------------------
BNP Paribas (Diversified Banks)(b) 15 1,434
- ----------------------------------------------------------------
Christian Dior S.A. (Apparel, Accessories &
Luxury Goods)(b) 11 1,077
- ----------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
FRANCE-(CONTINUED)
Credit Agricole S.A. (Diversified Banks)(b) 154 $ 5,850
- ----------------------------------------------------------------
Essilor International S.A. (Health Care
Supplies)(b) 70 7,040
- ----------------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A.
(Apparel, Accessories & Luxury Goods) 135 13,401
- ----------------------------------------------------------------
PagesJaunes S.A. (Publishing) 622 19,534
- ----------------------------------------------------------------
Societe Generale (Diversified Banks) 121 17,801
================================================================
94,484
================================================================
GERMANY-1.73%
Deutsche Bank A.G. (Diversified Capital
Markets) 16 1,801
- ----------------------------------------------------------------
Norddeutsche Affinerie A.G. (Diversified
Metals & Mining) 153 3,746
- ----------------------------------------------------------------
ThyssenKrupp A.G. (Steel) 164 5,617
- ----------------------------------------------------------------
Wincor Nixdorf A.G. (Computer Hardware) 42 5,370
================================================================
16,534
================================================================
GREECE-0.91%
OPAP S.A. (Casinos & Gaming)(b) 240 8,690
================================================================
JAPAN-9.87%
Chubu Electric Power Co., Inc. (Electric
Utilities)(b) 600 16,190
- ----------------------------------------------------------------
Chugoku Electric Power Co., Inc. (Electric
Utilities)(b) 300 6,341
- ----------------------------------------------------------------
Daiwa Securities Group Inc. (Investment
Banking & Brokerage)(b) 1,000 12,000
- ----------------------------------------------------------------
Japan General Estate Co., Ltd. (The)
(Homebuilding) 100 2,058
- ----------------------------------------------------------------
Kyushu Electric Power Co., Inc. (Electric
Utilities)(b) 800 18,622
- ----------------------------------------------------------------
Marusan Securities Co., Ltd. (Investment
Banking & Brokerage)(b) 100 1,517
- ----------------------------------------------------------------
Nikko Cordial Corp. (Investment Banking &
Brokerage)(b) 500 6,435
- ----------------------------------------------------------------
Nomura Holdings, Inc. (Investment Banking &
Brokerage) 400 7,498
- ----------------------------------------------------------------
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)(b) 2 2,934
- ----------------------------------------------------------------
Tamron Co., Ltd. (Photographic Products)(b) 100 1,667
- ----------------------------------------------------------------
Tokyo Electric Power Co., Inc. (The)
(Electric Utilities)(b) 600 16,549
- ----------------------------------------------------------------
Yamato Kogyo Co., Ltd. (Steel)(b) 100 2,248
================================================================
94,059
================================================================
NETHERLANDS-2.09%
ING Groep N.V. (Other Diversified Financial
Services)(b) 508 19,936
================================================================
NORWAY-1.72%
DNB NOR A.S.A. (Diversified Banks)(b) 400 4,960
- ----------------------------------------------------------------
Norsk Hydro A.S.A. (Oil & Gas Exploration &
Production)(b) 430 11,466
================================================================
16,426
================================================================
PORTUGAL-0.45%
Semapa-Sociedade de Investimento e Gestao,
SGPS, S.A. (Construction Materials) 403 4,253
================================================================
</Table>
AIM V.I. GLOBAL EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
SPAIN-0.65%
Gestevision Telecinco S.A. (Broadcasting &
Cable TV)(b) 147 $ 3,521
- ----------------------------------------------------------------
Telefonica Publicidad e Informacion, S.A.
(Publishing) 243 2,633
================================================================
6,154
================================================================
SWEDEN-1.49%
Industrivarden A.B.-Class C (Multi-Sector
Holdings)(b) 400 10,511
- ----------------------------------------------------------------
Investor A.B.-Class A (Multi-Sector
Holdings)(b) 200 3,648
================================================================
14,159
================================================================
SWITZERLAND-0.12%
Novartis A.G. (Pharmaceuticals) 21 1,137
================================================================
UNITED KINGDOM-7.99%
AstraZeneca PLC (Pharmaceuticals)(b) 213 12,775
- ----------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Aviva PLC (Multi-Line Insurance)(b) 372 $ 5,258
- ----------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals) 294 8,215
- ----------------------------------------------------------------
Legal & General Group PLC (Life & Health
Insurance)(b) 5,167 12,236
- ----------------------------------------------------------------
Lloyds TSB Group PLC (Diversified Banks) 702 6,900
- ----------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(b) 390 14,544
- ----------------------------------------------------------------
Tesco PLC (Food Retail)(b) 2,623 16,186
================================================================
76,114
================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $470,775) 453,999
================================================================
TOTAL INVESTMENTS-96.40% (Cost $946,400) 918,712
================================================================
OTHER ASSETS LESS LIABILITIES-3.60% 34,345
================================================================
NET ASSETS-100.00% 953,057
________________________________________________________________
================================================================
</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 June 30, 2006 was $263,631, which
represented 27.66% 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. GLOBAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $946,400) $ 918,712
- ------------------------------------------------------------
Foreign currencies, at value (cost $260) 261
- ------------------------------------------------------------
Cash 34,931
- ------------------------------------------------------------
Receivables for:
Investments sold 144
- ------------------------------------------------------------
Dividends 956
- ------------------------------------------------------------
Fund expenses absorbed 14,902
- ------------------------------------------------------------
Other assets 469
============================================================
Total assets 970,375
____________________________________________________________
============================================================
LIABILITIES:
Accrued administrative services fees 397
- ------------------------------------------------------------
Accrued distribution fees-Series II 199
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 355
- ------------------------------------------------------------
Accrued transfer agent fees 30
- ------------------------------------------------------------
Accrued operating expenses 16,337
============================================================
Total liabilities 17,318
============================================================
Net assets applicable to shares outstanding $ 953,057
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,000,020
- ------------------------------------------------------------
Undistributed net investment income 3,564
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (22,837)
- ------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities and foreign currencies (27,690)
============================================================
$ 953,057
____________________________________________________________
============================================================
NET ASSETS:
Series I $ 476,628
____________________________________________________________
============================================================
Series II $ 476,429
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 50,001
____________________________________________________________
============================================================
Series II 50,001
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 9.53
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 9.53
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$471) $ 4,818
- -----------------------------------------------------------
Interest 693
===========================================================
Total investment income 5,511
===========================================================
EXPENSES:
Advisory fees 1,270
- -----------------------------------------------------------
Administrative services fees 8,753
- -----------------------------------------------------------
Custodian fees 1,000
- -----------------------------------------------------------
Distribution fees-Series II 198
- -----------------------------------------------------------
Transfer agent fees 38
- -----------------------------------------------------------
Trustees' and officer's fees and benefits 3,060
- -----------------------------------------------------------
Reports to shareholders 6,667
- -----------------------------------------------------------
Professional services fees 13,845
- -----------------------------------------------------------
Other 617
===========================================================
Total expenses 35,448
===========================================================
Less: Fees waived and expenses reimbursed (33,501)
===========================================================
Net expenses 1,947
===========================================================
Net investment income 3,564
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities (20,693)
- -----------------------------------------------------------
Foreign currencies (2,144)
===========================================================
(22,837)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (27,688)
- -----------------------------------------------------------
Foreign currencies (2)
===========================================================
(27,690)
===========================================================
Net gain (loss) from investment securities and
foreign currencies (50,527)
===========================================================
Net increase (decrease) in net assets resulting
from operations $(46,963)
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,564
- --------------------------------------------------------------------------
Net realized gain (loss) on investment securities and
foreign currencies (22,837)
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (27,690)
==========================================================================
Net increase (decrease) in net assets resulting from
operations (46,963)
==========================================================================
Share transactions-net:
Series I 500,010
- --------------------------------------------------------------------------
Series II 500,010
==========================================================================
Net increase in net assets resulting from share
transactions 1,000,020
==========================================================================
Net increase in net assets 953,057
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income of $3,564) $ 953,057
__________________________________________________________________________
==========================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global 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-five 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 commenced operations on May 1, 2006.
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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by
AIM V.I. GLOBAL EQUITY FUND
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option contracts
generally 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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
AIM V.I. GLOBAL EQUITY FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. 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"). The
principal amount of the repurchase agreement is equal to the value at
period end. 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 collateral and loss of income.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.80%
- -------------------------------------------------------------------
Next $250 million 0.78%
- -------------------------------------------------------------------
Next $500 million 0.76%
- -------------------------------------------------------------------
Next $1.5 billion 0.74%
- -------------------------------------------------------------------
Next $2.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.68%
- -------------------------------------------------------------------
Over $10 billion 0.66%
__________________________________________________________________
===================================================================
</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 1.10% and Series
II shares to 1.35% of average daily net assets, through April 30, 2008. 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
net annual 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, 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. To the extent that the annualized
expense ratio does not exceed the expense limitation, AIM will retain its
ability to be reimbursed for such fee waivers or reimbursements prior to the end
of each fiscal year.
For the period May 1, 2006 (date operations commenced) to June 30, 2006, AIM
waived fees of $1,270 and reimbursed expenses of $32,231.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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;
AIM V.I. GLOBAL EQUITY FUND
the facilitation of purchases and redemptions requested by the participants; and
the servicing of participants' accounts. Pursuant to such agreement, for the
period May 1, 2006 (date operations commenced) to June 30, 2006, AIM was paid
$8,356 for accounting and fund administrative services and reimbursed $397 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the period May 1,
2006 (date operations commenced) to June 30, 2006, the Fund paid AIS $38.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, 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 period May 1,
2006 (date operations commenced) to June 30, 2006, the Series II shares paid
$198.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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.
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 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 period May 1, 2006 (date operations commenced) to June 30, 2006,
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 5--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
AIM V.I. GLOBAL EQUITY FUND
NOTE 6--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the period May 1,
2006 (date operations commenced) to June 30, 2006 was $1,213,292 and $246,055,
respectively. In a fund's initial year of operations, the cost of investments
for tax purposes will not reflect any tax adjustments until its fiscal year end
reporting period.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 17,495
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (45,183)
==============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(27,688)
______________________________________________________________________________
==============================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
NOTE 7--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------
FOR THE PERIOD MAY 1, 2006
(DATE OPERATIONS COMMENCED)
THROUGH JUNE 30, 2006
-------------------------------
SHARES(A) AMOUNT
- ---------------------------------------------------------------------------------------------
Sold:
Series I 50,001 $ 500,010
- ---------------------------------------------------------------------------------------------
Series II 50,001 500,010
=============================================================================================
100,002 $1,000,020
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) 100% of the outstanding shares of the Fund are owned by AIM.
NOTE 8--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I SERIES II
---------------- ----------------
MAY 1, 2006 MAY 1, 2006
(DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO
JUNE 30, JUNE 30,
2006 2006
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $10.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.03
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.51) (0.50)
=====================================================================================================
Total from investment operations (0.47) (0.47)
=====================================================================================================
Net asset value, end of period $ 9.53 $ 9.53
_____________________________________________________________________________________________________
=====================================================================================================
Total return(a) (4.70)% (4.70)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 477 $ 476
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.10%(b) 1.35%(b)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 22.20%(b) 22.45%(b)
=====================================================================================================
Ratio of net investment income to average net assets 2.37%(b) 2.12%(b)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(c) 31% 31%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $475,179
and $475,081 for Series I and Series II shares, respectively.
(c) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GLOBAL EQUITY FUND
NOTE 10--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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. GLOBAL EQUITY FUND
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. GLOBAL EQUITY FUND
AIM V.I. GLOBAL HEALTH CARE FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. GLOBAL HEALTH CARE FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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. GLOBAL HEALTH CARE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE the long-term commercial potential of
each company's current and prospective
====================================================================================== products, especially products that fill
PERFORMANCE SUMMARY otherwise unfilled market segments.
=========================================
The six-month period ended June 30, FUND VS. INDEXES We seek to manage risk by generally:
2006, was a difficult one for health care
stocks. For the period, AIM V.I. Global CUMULATIVE TOTAL RETURNS o Limiting investments in a single stock.
Health Care Fund, excluding variable 12/31/05-6/30/06, EXCLUDING VARIABLE
product issuer charges, fared better than PRODUCT ISSUER CHARGES. IF VARIABLE o Diversifying across industries.
its peer group index but trailed its PRODUCT ISSUER CHARGES WERE INCLUDED,
broad market and style-specific indexes. RETURNS WOULD BE LOWER. o Monitoring political trends that could
The Fund underperformed the MSCI World negatively affect a specific industry.
Index because the health care sector was Series I Shares -1.76%
one of the weakest-performing sectors of We may sell a holding when:
the market. The Fund underperformed the Series II Shares -1.87
MSCI World Health Care Index due o We identify a more attractive
primarily to stock selection and an MSCI World Index investment opportunity.
overweight position in biotechnology (Broad Market Index)(1) 6.06
stocks and an underweight position in o We see a deterioration of a company's
pharmaceutical stocks relative to the Standard & Poor's Composite Index fundamentals.
index. of 500 Stocks (S&P 500 Index)
(Former Broad Market Index)(1) 2.71 o A company fails to capitalize on a
Your Fund's long-term performance market opportunity.
appears on page 4. MSCI World Health Care Index
(Style-Specific Index)(2) 2.09 o A change in management occurs.
Goldman Sachs Health Care Index o A stock's price target has been met.
(Former Style-Specific Index)(2) -4.67
MARKET CONDITIONS AND YOUR FUND
Lipper Health/Biotechnology
Fund Index (Peer Group Index) -3.05 During the first four months of 2006,
equity markets generated positive
SOURCE: LIPPER INC., BLOOMBERG L.P. returns. However, over the last two
========================================= months of the reporting period, the
equity markets retreated as investors
(1) The Fund has elected to use the MSCI World Index as its broad-based index were concerned about persistently high
instead of the S&P 500 Index as it better represents the global investments of energy prices and rising interest rates
the Fund. and the potential impact of both on
economic growth and inflation. During the
(2) The Fund has elected to use the MSCI World Health Care Index as its reporting period, the U.S. Federal
style-specific index instead of the Goldman Sachs Health Care Index as it better Reserve Board (the Fed) continued its
represents the global investments of the Fund. tightening policy, raising the key
federal funds target rate to 5.25%.
======================================================================================
Against this backdrop, energy and
HOW WE INVEST We typically invest in four broad telecommunication services were the
segments of the health care sector: best-performing sectors of the MSCI World
We seek health care stocks of all market pharmaceuticals, biotechnology, medical Index. The health
capitalizations from around the world technology and health services. We look
that we believe are attractively priced for companies that are financially
and have the potential to benefit from healthy and, in our opinion, likely to
long-term earnings and cash flow growth. sustain their profitability. We assess
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By country 1. Pharmaceuticals 33.4% 1. Roche Holding A.G. (Switzerland) 6.5%
United States 74.4% 2. Biotechnology 20.7 2. Novartis A.G.-ADR (Switzerland) 4.2
Switzerland 10.6 3. Health Care Equipment 12.3 3. Amgen Inc. 3.9
France 3.7 4. Managed Health Care 9.4 4. Johnson & Johnson 3.4
United Kingdom 2.2 5. Health Care Services 7.0 5. Genzyme Corp. 3.1
Countries each less than 6. UnitedHealth Group Inc. 2.9
2.0% of portfolio 4.7
TOTAL NET ASSETS $250.5 MILLION 7. Medco Health Solutions, Inc. 2.8
Money Market Funds TOTAL NUMBER OF HOLDINGS* 89
Plus Other Assets Less Liabilities 4.4 8. Gilead Sciences, Inc. 2.7
9. Wyeth 2.5
10. Biogen Idec Inc. 2.1
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
2
AIM V.I. GLOBAL HEALTH CARE FUND
care sector was one of the weakest backdating of stock options. Our position DEREK M. TANER,
sectors of the broad market as small-cap in AMGEN, a biotechnology company engaged Chartered Financial
biotechnology and health care information in the discovery, development and launch [TANER Analyst, portfolio
technology stocks struggled. Within the of human therapeutics based on advanced PHOTO] manager, is manager of
health care sector, pharmaceutical stocks in cellular and molecular technology, AIM V.I. Global Health
fared better than biotechnology stocks. also detracted from performance. The Care Fund. Mr. Taner began his investment
Relative to the style-specific index, our stock declined on initial news of career in 1993 with another employer,
overweight position in biotechnology competition for Amgen's bestselling where he worked as a fixed income
stocks and underweight position in product, Aranesp--Registered analyst, assistant portfolio manager and
pharmaceutical stocks, which composed Trademark--. manager of a health care fund. Mr. Taner
more than 60% of the index, detracted joined AIM in 2005. He earned a B.S. in
from performance. On the other hand, the During the period, we added BOSTON accounting and an M.B.A. from the Haas
Fund's positions in pharmaceuticals and SCIENTIFIC as we saw an opportunity for School of Business at the University of
life and science tools and services long-term synergies with the pending California at Berkeley.
stocks were positive contributors. acquisition of medical-device rival
Guidant. We sold our position in Assisted by the Global Health Care Team
Stocks that enhanced Fund performance LIFEPOINT HOSPITALS, an operator of
included SHIRE PLC, a specialty non-urban hospitals in the U.S., as we
pharmaceutical company focused in areas saw integration issues involving its 2004
of central nervous system, acquisition of Province Healthcare.
gastrointestinal and human genetic
therapies. The stock rose on recent news We maintained our foreign exposure
about a rival pharmaceutical company with moderate weightings in Japan, France
failing to make FDA approval on ADHD and Switzerland. We reduced our Japanese
medication. The stock also rose in holdings due to profit-taking and bought
anticipation of a patent settlement for certain U.S. stocks as we identified
its largest product, Adderall XR attractive buying opportunities in the
- --Registered Trademark--. region.
We continued to We continued to balance growth with
balance growth with valuation. We believed our best
valuation opportunities were in health care
equipment, services and biotechnology, as
IPSEN, a manufacturer of medical drugs well as in the undervalued companies in
for targeted disease areas of oncology, the U.S.
endocrinology and neuromuscular
disorders, was another strong contributor IN CLOSING
to performance during the period. Shares
of the stock appreciated from an initial During the period, we positioned the Fund
public offering in December 2005. There in anticipation of the impact of the
were also positive developments in the Medicare Modernization Act.
quarter related to growing interest in
Ipsen's product pipeline. As always, we thank you for your
continued investment in AIM V.I. Global
On the other hand, UNITEDHEALTH GROUP, Health Care Fund.
a U.S. health care insurer, detracted
from performance. Although this stock was THE VIEWS AND OPINIONS EXPRESSED IN
acquired through takeover of an original MANAGEMENT'S DISCUSSION OF FUND
holding, PacifiCare Health Systems, the PERFORMANCE ARE THOSE OF A I M ADVISORS,
company fundamentals have not changed. We INC. THESE VIEWS AND OPINIONS ARE SUBJECT
believed UnitedHealth Group was poised TO CHANGE AT ANY TIME BASED ON FACTORS
for future growth. Although the company SUCH AS MARKET AND ECONOMIC CONDITIONS.
continued to meet or exceed analysts' THESE VIEWS AND OPINIONS MAY NOT BE
earnings estimates, its share price fell RELIED UPON AS INVESTMENT ADVICE OR
due primarily to the RECOMMENDATIONS, OR AS AN OFFER FOR A
PARTICULAR SECURITY. THE INFORMATION IS
NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
SECURITY OR THE FUND. STATEMENTS OF FACT
ARE FROM SOURCES CONSIDERED RELIABLE, BUT
A I M ADVISORS, INC. MAKES NO
REPRESENTATION OR WARRANTY AS TO THEIR [RIGHT ARROW GRAPHIC]
COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE OF FOR A DISCUSSION OF THE RISKS OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP INVESTING IN YOUR FUND, INDEXES USED IN
YOU UNDERSTAND OUR INVESTMENT MANAGEMENT THIS REPORT AND YOUR FUND'S LONG-TERM
PHILOSOPHY. PERFORMANCE, PLEASE TURN TO PAGE 4.
3
AIM V.I. GLOBAL HEALTH CARE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS MANCE OF THE FUND'S SERIES I AND SERIES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
II SHARE CLASSES WILL DIFFER PRIMARILY SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 6/30/06 DUE TO DIFFERENT CLASS EXPENSES. FIGURES GIVEN REPRESENT THE FUND AND ARE
NOT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (5/21/97) 8.38% PAST PERFORMANCE AND CANNOT GUARANTEE CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 1.89 COMPARABLE FUTURE RESULTS; CURRENT CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 7.49 PERFORMANCE MAY BE LOWER OR HIGHER. CHARGES, EXPENSES AND FEES, WHICH ARE
PLEASE CONTACT YOUR VARIABLE PRODUCT DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES ISSUER OR FINANCIAL ADVISOR FOR THE MOST ISSUERS, WILL VARY AND WILL LOWER THE
Inception 8.11% RECENT MONTH-END VARIABLE PRODUCT TOTAL RETURN.
5 Years 1.63 PERFORMANCE. PERFORMANCE FIGURES REFLECT
1 Year 7.25 FUND EXPENSES, REINVESTED DISTRIBUTIONS PER NASD REQUIREMENTS, THE MOST RECENT
========================================= AND CHANGES IN NET ASSET VALUE. MONTH-END PERFORMANCE DATA AT THE FUND
INVESTMENT RETURN AND PRINCIPAL VALUE LEVEL, EXCLUDING VARIABLE PRODUCT
SERIES II SHARES' INCEPTION DATE IS APRIL WILL FLUCTUATE SO THAT YOU MAY HAVE A CHARGES, IS AVAILABLE ON THIS AIM
30, 2004. RETURNS SINCE THAT DATE ARE GAIN OR LOSS WHEN YOU SELL SHARES. AUTOMATED INFORMATION LINE, 866-702-4402.
HISTORICAL. ALL OTHER RETURNS ARE THE AS MENTIONED ABOVE, FOR THE MOST RECENT
BLENDED RETURNS OF THE HISTORICAL AIM V.I. GLOBAL HEALTH CARE FUND, A MONTH-END PERFORMANCE INCLUDING VARIABLE
PERFORMANCE OF SERIES II SHARES, SINCE SERIES PORTFOLIO OF AIM VARIABLE PRODUCT CHARGES, PLEASE CONTACT YOUR
THEIR INCEPTION AND THE RESTATED INSURANCE FUNDS, IS CURRENTLY OFFERED VARIABLE PRODUCT ISSUER OR FINANCIAL
HISTORICAL PERFORMANCE OF SERIES I SHARES THROUGH INSURANCE COMPANIES ISSUING ADVISOR.
(FOR PERIODS PRIOR TO INCEPTION OF SERIES
II SHARES) ADJUSTED TO REFLECT THE RULE
12b-1 FEES APPLICABLE TO SERIES II
SHARES. THE INCEPTION DATE OF SERIES I
SHARES IS MAY 21, 1997. THE PERFOR-
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
Investing in a single-sector or The unmanaged MSCI WORLD INDEX is a group The returns shown in management's
single-region mutual fund involves of global securities tracked by Morgan discussion of Fund performance are based
greater risk and potential reward than Stanley Capital International. on net asset values calculated for
investing in a more diversified fund. shareholder transactions. Generally
The unmanaged STANDARD & POOR'S accepted accounting principles require
Investing in smaller companies COMPOSITE INDEX OF 500 STOCKS (the S&P adjustments to be made to the net assets
involves greater risk than investing in 500--Registered Trademark-- Index) is an of the Fund at period end for financial
more established companies, such as index of common stocks frequently used as reporting purposes, and as such, the net
business risk, significant stock price a general measure of U.S. stock market asset values for shareholder transactions
fluctuations and illiquidity. performance. and the returns based on those net asset
values may differ from the net asset
The Fund may invest up to 25% of its The MSCI WORLD HEALTH CARE INDEX, a values and returns reported in the
assets in the securities of non-U.S. subset of the MSCI World Index, includes Financial Highlights. Additionally, the
issuers. Securities of Canadian issuers health care securities from developed returns and net asset values shown
and American Depositary Receipts are not countries. The unmanaged MSCI World Index throughout this report are at the Fund
subject to this 25% limitation. tracks the performance of approximately level only and do not include variable
International investing presents risks 50 countries covered by Morgan Stanley product issuer charges. If such charges
not associated with investing solely in Capital International that are considered were included, the total returns would be
the United States. These include risks developed markets. lower.
relating to the fluctuation in the value
of the U.S. dollar relative to the values The GOLDMAN SACHS HEALTH CARE INDEX is Industry classifications used in this
of the currencies, the custody a modified capitalization-weighted index report are generally according to the
arrangements made for the Fund's foreign designed as a benchmark for U.S. traded Global Industry Classification Standard,
holdings, differences in accounting, securities in the health care sector. The which was developed by and is the
political risks and the lesser degree of index includes companies in the following exclusive property and a service mark of
public information required to be categories: providers of health care Morgan Stanley Capital International Inc.
provided by non-U.S. companies. related services, researchers, and Standard & Poor's.
manufacturers, and distributors of
Portfolio turnover is greater than pharmaceuticals, drugs and related
that of most funds, which may affect sciences, and medical supplies,
performance. instruments and products.
The unmanaged LIPPER HEALTH/
BIOTECHNOLOGY FUND INDEX represents an
average of the 30 largest health and
biotechnology funds tracked by Lipper
Inc., an independent mutual fund
performance monitor.
The Fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
consequently, the performance of the Fund
may deviate significantly from the
performance of the indexes.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index of funds
reflects fund expenses; performance of a
market index does not.
4
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 fees; about actual account values and actual value after expenses for the six months
distribution and/or service fees (12b-1); expenses. You may use the information in ended June 30, 2006, appear in the table
and other Fund expenses. This example is this table, together with the amount you "Fund vs. Indexes" on page 2.
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 January 1, 2006, through Paid During Period" to estimate the TO DO SO, COMPARE THIS 5% HYPOTHETICAL
June 30, 2006. 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 COMPARISON
the effect of any fees or other expenses 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $982.40 $5.46 $1,019.29 $5.56 1.11%
Series II 1,000.00 981.30 6.68 1,018.05 6.80 1.36
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. GLOBAL HEALTH CARE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable on such review, the Board concluded that under-performance. Based on this review
Insurance Funds (the "Board") oversees the range of services to be provided by and after taking account of all of the
the management of AIM V.I. Global Health AIM under the Advisory Agreement was other factors that the Board considered
Care Fund (the "Fund") and, as required appropriate and that AIM currently is in determining whether to continue the
by law, determines annually whether to providing services in accordance with the Advisory Agreement for the Fund, the
approve the continuance of the Fund's terms of the Advisory Agreement. Board concluded that no changes should be
advisory agreement with A I M Advisors, made to the Fund and that it was not
Inc. ("AIM"). Based upon the o The quality of services to be provided necessary to change the Fund's portfolio
recommendation of the Investments by AIM. The Board reviewed the management team at this time. Although
Committee of the Board, at a meeting held credentials and experience of the the independent written evaluation of the
on June 27, 2006, the Board, including officers and employees of AIM who will Fund's Senior Officer (discussed below)
all of the independent trustees, approved provide investment advisory services to only considered Fund performance through
the continuance of the advisory agreement the Fund. In reviewing the qualifications the most recent calendar year, the Board
(the "Advisory Agreement") between the of AIM to provide investment advisory also reviewed more recent Fund
Fund and AIM for another year, effective services, the Board considered such performance, which did not change their
July 1, 2006. issues as AIM's portfolio and product conclusions.
review process, various back office
The Board considered the factors support functions provided by AIM and o Meetings with the Fund's portfolio
discussed below in evaluating the AIM's equity and fixed income trading managers and investment personnel. With
fairness and reasonableness of the operations. Based on the review of these respect to the Fund, the Board is meeting
Advisory Agreement at the meeting on June and other factors, the Board concluded periodically with such Fund's portfolio
27, 2006 and as part of the Board's that the quality of services to be managers and/or other investment
ongoing oversight of the Fund. In their provided by AIM was appropriate and that personnel and believes that such
deliberations, the Board and the AIM currently is providing satisfactory individuals are competent and able to
independent trustees did not identify any services in accordance with the terms of continue to carry out their
particular factor that was controlling, the Advisory Agreement. responsibilities under the Advisory
and each trustee attributed different Agreement.
weights to the various factors. o The performance of the Fund relative to
comparable funds. The Board reviewed the o Overall performance of AIM. The Board
One responsibility of the independent performance of the Fund during the past considered the overall performance of AIM
Senior Officer of the Fund is to manage one and three calendar years against the in providing investment advisory and
the process by which the Fund's proposed performance of funds advised by other portfolio administrative services to the
management fees are negotiated to ensure advisors with investment strategies Fund and concluded that such performance
that they are negotiated in a manner comparable to those of the Fund. The was satisfactory.
which is at arms' length and reasonable. Board noted that the Fund's performance
To that end, the Senior Officer must in such periods was below the median o Fees relative to those of clients of
either supervise a competitive bidding performance of such comparable funds. The AIM with comparable investment
process or prepare an independent written Board also noted that AIM began serving strategies. The Board reviewed the
evaluation. The Senior Officer has as investment advisor to the Fund in effective advisory fee rate (before
recommended an independent written April 2004. The Board noted that AIM has waivers) for the Fund under the Advisory
evaluation in lieu of a competitive recently made changes to the Fund's Agreement. The Board noted that this rate
bidding process and, upon the direction portfolio management team, which need was (i) above the effective advisory fee
of the Board, has prepared such an more time to be evaluated before a rate (before waivers) for one mutual fund
independent written evaluation. Such conclusion can be made that the changes advised by AIM with investment strategies
written evaluation also considered have addressed the Fund's comparable to those of the Fund; (ii) the
certain of the factors discussed below. under-performance. Based on this review same as the effective advisory fee rates
In addition, as discussed below, the and after taking account of all of the (before waivers) for three variable
Senior Officer made a recommendation to other factors that the Board considered insurance funds advised by AIM and
the Board in connection with such written in determining whether to continue the offered to insurance company separate
evaluation. Advisory Agreement for the Fund, the accounts with investment strategies
Board concluded that no changes should be comparable to those of the Fund; and
The discussion below serves as a made to the Fund and that it was not (iii) above the effective sub-advisory
summary of the Senior Officer's necessary to change the Fund's portfolio fee rates for two offshore funds advised
independent written evaluation and management team at this time. Although and sub-advised by AIM affiliates with
recommendation to the Board in connection the independent written evaluation of the investment strategies comparable to those
therewith, as well as a discussion of the Fund's Senior Officer (discussed below) of the Fund, although the total advisory
material factors and the conclusions with only considered Fund performance through fees for one such offshore fund were
respect thereto that formed the basis for the most recent calendar year, the Board above those for the Fund and the total
the Board's approval of the Advisory also reviewed more recent Fund advisory fees for the other offshore fund
Agreement. After consideration of all of performance, which did not change their were comparable to those for the Fund.
the factors below and based on its conclusions. The Board noted that AIM has agreed to
informed business judgment, the Board waive advisory fees of the Fund and to
determined that the Advisory Agreement is o The performance of the Fund relative to limit the Fund's total operating
in the best interests of the Fund and its indices. he Board reviewed the expenses, as discussed below. Based on
shareholders and that the compensation to performance of the Fund during the past this review, the Board concluded that the
AIM under the Advisory Agreement is fair one, three and five calendar years advisory fee rate for the Fund under the
and reasonable and would have been against the performance of the Lipper Advisory Agreement was fair and
obtained through arm's length Health/Biotech Fund Index. The Board reasonable.
negotiations. noted that the Fund's performance in such
periods was below the performance of such o Fees relative to those of comparable
Unless otherwise stated, information Index. The Board also noted that AIM funds with other advisors. The Board
presented below is as of June 27, 2006 began serving as investment advisor to reviewed the advisory fee rate for the
and does not reflect any changes that may the Fund in April 2004. The Board noted Fund under the Advisory Agreement. The
have occurred since June 27, 2006, that AIM has recently made changes to the Board compared effective contractual
including but not limited to changes to Fund's portfolio management team, which advisory fee rates at a common asset
the Fund's performance, advisory fees, need more time to be evaluated before a level at the end of the past calendar
expense limitations and/or fee waivers. conclusion can be made that the changes year and noted that the Fund's rate was
have addressed the Fund's comparable to the median rate of the
o The nature and extent of the advisory funds advised by other advisors with
services to be provided by AIM. The Board investment strategies comparable to those
reviewed the services to be provided by of the
AIM under the Advisory Agreement. Based
(continued)
6
AIM V.I. GLOBAL HEALTH CARE FUND
Fund that the Board reviewed. The Board the Fund may be invested in money market o Benefits of soft dollars to AIM. The
noted that AIM has agreed to waive funds advised by AIM pursuant to the Board considered the benefits realized by
advisory fees of the Fund and to limit terms of an SEC exemptive order. The AIM as a result of brokerage transactions
the Fund's total operating expenses, as Board found that the Fund may realize executed through "soft dollar"
discussed below. Based on this review, certain benefits upon investing cash arrangements. Under these arrangements,
the Board concluded that the advisory fee balances in AIM advised money market brokerage commissions paid by the Fund
rate for the Fund under the Advisory funds, including a higher net return, and/or other funds advised by AIM are
Agreement was fair and reasonable. increased liquidity, increased used to pay for research and execution
diversification or decreased transaction services. This research may be used by
o Expense limitations and fee waivers. costs. The Board also found that the Fund AIM in making investment decisions for
The Board noted that AIM has will not receive reduced services if it the Fund. The Board concluded that such
contractually agreed to waive advisory invests its cash balances in such money arrangements were appropriate.
fees of the Fund through April 30, 2008 market funds. The Board noted that, to
to the extent necessary so that the the extent the Fund invests uninvested o AIM's financial soundness in light of
advisory fees payable by the Fund do not cash in affiliated money market funds, the Fund's needs. The Board considered
exceed a specified maximum advisory fee AIM has voluntarily agreed to waive a whether AIM is financially sound and has
rate, which maximum rate includes portion of the advisory fees it receives the resources necessary to perform its
breakpoints and is based on net asset from the Fund attributable to such obligations under the Advisory Agreement,
levels. The Board considered the investment. The Board further determined and concluded that AIM has the financial
contractual nature of this fee waiver and that the proposed securities lending resources necessary to fulfill its
noted that it remains in effect until program and related procedures with obligations under the Advisory Agreement.
April 30, 2008. The Board also noted that respect to the lending Fund is in the
AIM has contractually agreed to waive best interests of the lending Fund and o Historical relationship between the
fees and/or limit expenses of the Fund its respective shareholders. The Board Fund and AIM. In determining whether to
through April 30, 2008 so that total therefore concluded that the investment continue the Advisory Agreement for the
annual operating expenses are limited to of cash collateral received in connection Fund, the Board also considered the prior
a specified percentage of average daily with the securities lending program in relationship between AIM and the Fund, as
net assets for each class of the Fund. the money market funds according to the well as the Board's knowledge of AIM's
The Board considered the contractual procedures is in the best interests of operations, and concluded that it was
nature of this fee waiver/expense the lending Fund and its respective beneficial to maintain the current
limitation and noted that it remains in shareholders. relationship, in part, because of such
effect until April 30, 2008. The Board knowledge. The Board also reviewed the
considered the effect these fee o Independent written evaluation and general nature of the non-investment
waivers/expense limitations would have on recommendations of the Fund's Senior advisory services currently performed by
the Fund's estimated expenses and Officer. The Board noted that, upon their AIM and its affiliates, such as
concluded that the levels of fee direction, the independent Senior Vice administrative, transfer agency and
waivers/expense limitations for the Fund President of the Fund had prepared an distribution services, and the fees
were fair and reasonable. independent written evaluation in order received by AIM and its affiliates for
to assist the Board in determining the performing such services. In addition to
o Breakpoints and economies of scale. The reasonableness of the proposed management reviewing such services, the trustees
Board reviewed the structure of the fees of the AIM Funds, including the also considered the organizational
Fund's advisory fee under the Advisory Fund. The Board noted that the Senior structure employed by AIM and its
Agreement, noting that it does not Vice President's written evaluation had affiliates to provide those services.
include any breakpoints. The Board been relied upon by the Board in this Based on the review of these and other
considered whether it would be regard in lieu of a competitive bidding factors, the Board concluded that AIM and
appropriate to add advisory fee process. In determining whether to its affiliates were qualified to continue
breakpoints for the Fund or whether, due continue the Advisory Agreement for the to provide non-investment advisory
to the nature of the Fund and the Fund, the Board considered the Senior services to the Fund, including
advisory fee structures of comparable Vice President's written evaluation and administrative, transfer agency and
funds, it was reasonable to structure the the recommendation made by the Senior distribution services, and that AIM and
advisory fee without breakpoints. Based Vice President to the Board that the its affiliates currently are providing
on this review, the Board concluded that Board consider whether the advisory fee satisfactory non-investment advisory
it was not necessary to add advisory fee waivers for certain equity AIM Funds, services.
breakpoints to the Fund's advisory fee including the Fund, should be simplified.
schedule. The Board reviewed the level of The Board concluded that it would be o Other factors and current trends. The
the Fund's advisory fees, and noted that advisable to consider this issue and Board considered the steps that AIM and
such fees, as a percentage of the Fund's reach a decision prior to the expiration its affiliates have taken over the last
net assets, would remain constant under date of such advisory fee waivers. several years, and continue to take, in
the Advisory Agreement because the order to improve the quality and
Advisory Agreement does not include any o Profitability of AIM and its efficiency of the services they provide
breakpoints. The Board noted that AIM has affiliates. The Board reviewed to the Funds in the areas of investment
contractually agreed to waive advisory information concerning the profitability performance, product line
fees of the Fund through April 30, 2008 of AIM's (and its affiliates') investment diversification, distribution, fund
to the extent necessary so that the advisory and other activities and its operations, shareholder services and
advisory fees payable by the Fund do not financial condition. The Board considered compliance. The Board concluded that
exceed a specified maximum advisory fee the overall profitability of AIM, as well these steps taken by AIM have improved,
rate, which maximum rate includes as the profitability of AIM in connection and are likely to continue to improve,
breakpoints and is based on net asset with managing the Fund. The Board noted the quality and efficiency of the
levels. The Board concluded that the that AIM's operations remain profitable, services AIM and its affiliates provide
Fund's fee levels under the Advisory although increased expenses in recent to the Fund in each of these areas, and
Agreement therefore would not reflect years have reduced AIM's profitability. support the Board's approval of the
economies of scale, although the advisory Based on the review of the profitability continuance of the Advisory Agreement for
fee waiver reflects economies of scale. of AIM's and its affiliates' investment the Fund.
advisory and other activities and its
o Investments in affiliated money market financial condition, the Board concluded
funds. The Board also took into account that the compensation to be paid by the
the fact that uninvested cash and cash Fund to AIM under its Advisory Agreement
collateral from securities lending was not excessive.
arrangements, if any (collectively, "cash
balances") of
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-74.44%
BIOTECHNOLOGY-20.67%
Amgen Inc.(a)(b) 151,350 $ 9,872,560
- ------------------------------------------------------------------------
Arena Pharmaceuticals, Inc.(b) 75,522 874,545
- ------------------------------------------------------------------------
ARIAD Pharmaceuticals, Inc.(b) 108,611 489,836
- ------------------------------------------------------------------------
Array BioPharma Inc.(b) 76,759 660,127
- ------------------------------------------------------------------------
Biogen Idec Inc.(b) 113,326 5,250,394
- ------------------------------------------------------------------------
Cubist Pharmaceuticals, Inc.(b) 58,088 1,462,656
- ------------------------------------------------------------------------
Genentech, Inc.(b) 31,951 2,613,592
- ------------------------------------------------------------------------
Genzyme Corp.(b) 126,014 7,693,155
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(b) 112,505 6,655,796
- ------------------------------------------------------------------------
Human Genome Sciences, Inc.(a)(b) 116,126 1,242,548
- ------------------------------------------------------------------------
InterMune, Inc.(a)(b) 43,098 708,962
- ------------------------------------------------------------------------
Keryx Biopharmaceuticals, Inc.(a)(b) 44,221 627,938
- ------------------------------------------------------------------------
Mannkind Corp.(a)(b) 30,947 659,480
- ------------------------------------------------------------------------
Medarex, Inc.(a)(b) 70,013 672,825
- ------------------------------------------------------------------------
MedImmune, Inc.(a)(b) 187,099 5,070,383
- ------------------------------------------------------------------------
Myogen, Inc.(b) 40,003 1,160,087
- ------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a)(b) 20,401 672,417
- ------------------------------------------------------------------------
Panacos Pharmaceuticals Inc.(a)(b) 139,186 768,307
- ------------------------------------------------------------------------
PDL BioPharma Inc.(b) 108,097 1,990,066
- ------------------------------------------------------------------------
Theravance, Inc.(b) 23,257 532,120
- ------------------------------------------------------------------------
United Therapeutics Corp.(a)(b) 12,019 694,338
- ------------------------------------------------------------------------
Vertex Pharmaceuticals Inc.(a)(b) 19,595 719,332
- ------------------------------------------------------------------------
ZymoGenetics, Inc.(b) 35,395 671,443
========================================================================
51,762,907
========================================================================
DRUG RETAIL-1.34%
CVS Corp. 109,504 3,361,773
========================================================================
HEALTH CARE DISTRIBUTORS-0.79%
PSS World Medical, Inc.(b) 111,952 1,975,953
========================================================================
HEALTH CARE EQUIPMENT-12.30%
Biomet, Inc.(a) 43,877 1,372,911
- ------------------------------------------------------------------------
Boston Scientific Corp.(b) 218,565 3,680,635
- ------------------------------------------------------------------------
Cytyc Corp.(b) 180,137 4,568,274
- ------------------------------------------------------------------------
Edwards Lifesciences Corp.(a)(b) 31,118 1,413,691
- ------------------------------------------------------------------------
Medtronic, Inc. 63,911 2,998,704
- ------------------------------------------------------------------------
Mentor Corp.(a) 114,744 4,991,364
- ------------------------------------------------------------------------
NxStage Medical, Inc.(a)(b) 104,667 913,743
- ------------------------------------------------------------------------
Respironics, Inc.(b) 58,273 1,994,102
- ------------------------------------------------------------------------
St. Jude Medical, Inc.(b) 76,402 2,476,953
- ------------------------------------------------------------------------
Thoratec Corp.(a)(b) 97,798 1,356,458
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(b) 39,122 1,852,427
- ------------------------------------------------------------------------
Wright Medical Group, Inc.(b) 71,587 1,498,316
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(b) 29,674 1,683,109
========================================================================
30,800,687
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE SERVICES-7.01%
DaVita, Inc.(b) 79,925 $ 3,972,272
- ------------------------------------------------------------------------
Express Scripts, Inc.(b) 36,082 2,588,523
- ------------------------------------------------------------------------
HMS Holdings Corp.(b) 117,811 1,262,934
- ------------------------------------------------------------------------
Medco Health Solutions, Inc.(b) 124,204 7,114,405
- ------------------------------------------------------------------------
Omnicare, Inc.(a) 55,302 2,622,421
========================================================================
17,560,555
========================================================================
HEALTH CARE SUPPLIES-1.42%
Alcon, Inc. 24,504 2,414,869
- ------------------------------------------------------------------------
Cooper Cos., Inc. (The) 25,941 1,148,927
========================================================================
3,563,796
========================================================================
HEALTH CARE TECHNOLOGY-1.46%
Eclipsys Corp.(a)(b) 120,653 2,191,058
- ------------------------------------------------------------------------
Merge Technologies Inc.(b) 118,961 1,464,410
========================================================================
3,655,468
========================================================================
INDUSTRIAL CONGLOMERATES-2.00%
Tyco International Ltd. 182,251 5,011,903
========================================================================
LIFE & HEALTH INSURANCE-0.47%
Universal American Financial Corp.(b) 89,719 1,179,805
========================================================================
LIFE SCIENCES TOOLS & SERVICES-4.52%
Charles River Laboratories International,
Inc.(a)(b) 56,452 2,077,434
- ------------------------------------------------------------------------
Dionex Corp.(b) 25,590 1,398,749
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 17,886 1,306,572
- ------------------------------------------------------------------------
Invitrogen Corp.(a)(b) 25,246 1,668,003
- ------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 79,361 2,787,158
- ------------------------------------------------------------------------
Thermo Electron Corp.(b) 36,092 1,307,974
- ------------------------------------------------------------------------
Varian Inc.(b) 18,942 786,283
========================================================================
11,332,173
========================================================================
MANAGED HEALTH CARE-9.40%
Aetna Inc. 128,703 5,139,111
- ------------------------------------------------------------------------
Aveta, Inc. (Acquired 12/21/05; Cost
$1,683,450)(b)(c)(d) 124,700 1,995,200
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(b) 49,784 2,735,133
- ------------------------------------------------------------------------
Health Net Inc.(b) 55,832 2,521,931
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 162,072 7,257,584
- ------------------------------------------------------------------------
WellPoint Inc.(b) 53,475 3,891,376
========================================================================
23,540,335
========================================================================
PHARMACEUTICALS-13.06%
Allergan, Inc. 37,087 3,977,952
- ------------------------------------------------------------------------
Cypress Bioscience, Inc.(b) 85,002 521,912
- ------------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc.(b) 57,559 1,898,296
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(b) 29,045 1,123,751
- ------------------------------------------------------------------------
Impax Laboratories, Inc.(b) 115,070 719,187
- ------------------------------------------------------------------------
</Table>
AIM V.I. GLOBAL HEALTH CARE FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-(CONTINUED)
NxJohnson & Johnson 143,358 $ 8,590,011
- ------------------------------------------------------------------------
Medicines Co. (The)(a)(b) 36,845 720,320
- ------------------------------------------------------------------------
MGI Pharma, Inc.(a)(b) 62,910 1,352,565
- ------------------------------------------------------------------------
Pfizer Inc. 216,021 5,070,013
- ------------------------------------------------------------------------
Sepracor Inc.(a)(b) 32,138 1,836,365
- ------------------------------------------------------------------------
Wyeth 141,039 6,263,542
- ------------------------------------------------------------------------
XenoPort Inc.(a)(b) 34,461 624,089
========================================================================
32,698,003
========================================================================
Total Domestic Common Stocks (Cost
$190,681,785) 186,443,358
========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-21.25%
CANADA-1.77%
Biovail Corp. (Pharmaceuticals) 83,162 1,946,822
- ------------------------------------------------------------------------
Cardiome Pharma Corp. (Pharmaceuticals)(b) 92,645 818,982
- ------------------------------------------------------------------------
MDS Inc. (Life Sciences Tools & Services) 91,500 1,668,033
========================================================================
4,433,837
========================================================================
FRANCE-3.67%
Ipsen S.A. (Pharmaceuticals) (Acquired
12/06/05; Cost $2,556,926)(a)(b)(c)(e) 97,682 3,942,029
- ------------------------------------------------------------------------
Sanofi-Aventis-ADR (Pharmaceuticals) 107,664 5,243,237
========================================================================
9,185,266
========================================================================
GERMANY-0.88%
Merck KGaA (Pharmaceuticals)(a)(e) 24,362 2,213,310
========================================================================
JAPAN-1.81%
Eisai Co., Ltd. (Pharmaceuticals) 56,378 2,537,441
- ------------------------------------------------------------------------
Shionogi & Co., Ltd. (Pharmaceuticals)(a) 112,507 2,005,805
========================================================================
4,543,246
========================================================================
SPAIN-0.28%
Grifols S.A. (Pharmaceuticals) (Acquired
05/16/06; Cost $455,830)(b)(c) 81,018 666,420
- ------------------------------------------------------------------------
Grifols S.A. (Pharmaceuticals)(b) 2,467 20,292
========================================================================
686,712
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SWITZERLAND-10.64%
Novartis A.G.-ADR (Pharmaceuticals) 193,117 $ 10,412,869
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(a) 98,270 16,245,167
========================================================================
26,658,036
========================================================================
UNITED KINGDOM-2.20%
AstraZeneca PLC-ADR (Pharmaceuticals) 38,131 2,280,997
- ------------------------------------------------------------------------
iSOFT Group PLC (Health Care
Technology)(a)(e) 503,177 717,695
- ------------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 56,793 2,511,954
========================================================================
5,510,646
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $43,399,373) 53,231,053
========================================================================
MONEY MARKET FUNDS-2.40%
Liquid Assets Portfolio-Institutional
Class(f) 3,005,099 3,005,099
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(f) 3,005,100 3,005,100
========================================================================
Total Money Market Funds (Cost
$6,010,199) 6,010,199
========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-98.09% (Cost
$240,091,357) 245,684,610
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.25%
Premier Portfolio-Institutional Class(f)(g) 30,692,861 30,692,861
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $30,692,861) 30,692,861
========================================================================
TOTAL INVESTMENTS-110.34% (Cost $270,784,218) 276,377,471
========================================================================
OTHER ASSETS LESS LIABILITIES-(10.34)% (25,898,745)
========================================================================
NET ASSETS-100.00% $250,478,726
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security was out on loan at June 30, 2006.
(b) Non-income producing security.
(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 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 June 30, 2006 was $6,603,649,
which represented 2.64% 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 June 30, 2006 represented 0.80% of the
Fund's Net Assets.
(e) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at June 30, 2006 was $6,873,034, which
represented 2.74% 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.
(g) The security has been segregated to satisfy the 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $234,081,158)* $239,674,411
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $36,703,060) 36,703,060
=============================================================
Total investments (cost $270,784,218) 276,377,471
=============================================================
Foreign currencies, at value (cost $12,965) 13,045
- -------------------------------------------------------------
Receivables for:
Investments sold 4,287,522
- -------------------------------------------------------------
Fund shares sold 819,156
- -------------------------------------------------------------
Dividends 191,861
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 21,860
=============================================================
Total assets 281,710,915
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 120,999
- -------------------------------------------------------------
Fund shares reacquired 95,546
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 35,258
- -------------------------------------------------------------
Collateral upon return of securities loaned 30,692,861
- -------------------------------------------------------------
Accrued administrative services fees 237,696
- -------------------------------------------------------------
Accrued distribution fees -- Series II 1,996
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 136
- -------------------------------------------------------------
Accrued transfer agent fees 2,677
- -------------------------------------------------------------
Accrued operating expenses 45,020
=============================================================
Total liabilities 31,232,189
=============================================================
Net assets applicable to shares outstanding $250,478,726
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $252,793,917
- -------------------------------------------------------------
Undistributed net investment income (loss) (258,424)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment
securities and foreign currencies (7,674,099)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign
currencies 5,617,332
=============================================================
$250,478,726
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $239,064,991
_____________________________________________________________
=============================================================
Series II $ 11,413,735
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 11,902,710
_____________________________________________________________
=============================================================
Series II 571,540
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 20.08
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 19.97
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$108,418) $ 1,004,847
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$25,593, after compensation to counterparties
of $369,801) 246,403
=============================================================
Total investment income 1,251,250
=============================================================
EXPENSES:
Advisory fees 966,699
- -------------------------------------------------------------
Administrative services fees 354,338
- -------------------------------------------------------------
Custodian fees 29,878
- -------------------------------------------------------------
Distribution fees -- Series II 2,003
- -------------------------------------------------------------
Transfer agent fees 18,610
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 9,937
- -------------------------------------------------------------
Other 47,426
=============================================================
Total expenses 1,428,891
=============================================================
Less: Fees waived and expense offset
arrangement (2,146)
=============================================================
Net expenses 1,426,745
=============================================================
Net investment income (loss) (175,495)
=============================================================
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 $524,300) 12,933,937
- -------------------------------------------------------------
Foreign currencies 68,114
=============================================================
13,002,051
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (17,300,569)
- -------------------------------------------------------------
Foreign currencies 24,258
=============================================================
(17,276,311)
=============================================================
Net gain (loss) from investment securities and
foreign currencies (4,274,260)
=============================================================
Net increase (decrease) in net assets resulting
from operations $ (4,449,755)
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $29,945,790 were on
loan to brokers.
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (175,495) $ (747,529)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 13,002,051 29,418,586
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (17,276,311) (5,403,259)
===========================================================================================
Net increase (decrease) in net assets resulting from
operations (4,449,755) 23,267,798
===========================================================================================
Share transactions-net:
Series I (14,184,593) (120,420,216)
- -------------------------------------------------------------------------------------------
Series II 11,366,237 --
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,818,356) (120,420,216)
===========================================================================================
Net increase (decrease) in net assets (7,268,111) (97,152,418)
===========================================================================================
NET ASSETS:
Beginning of period 257,746,837 354,899,255
===========================================================================================
End of period (including undistributed net investment
income (loss) of $(258,424) and $(82,929), respectively) $250,478,726 $ 257,746,837
___________________________________________________________________________________________
===========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global Health Care 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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by
AIM V.I. GLOBAL HEALTH CARE FUND
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option contracts
generally 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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
AIM V.I. GLOBAL HEALTH CARE FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment 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 April 30, 2008, AIM had 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>
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, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
AIM V.I. GLOBAL HEALTH CARE FUND
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $1,422.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $34,604 for
accounting and fund administrative services and reimbursed $319,734 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $18,610.
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $2,003.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances and cash collateral from securities lending transactions in affiliated
money market funds. The Fund and the money market funds below have the same
investment advisor and therefore, are considered to be affiliated. The tables
below show the transactions in and earnings from investments in affiliated money
market funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 6,877,863 $ (3,872,764) $ -- $ 3,005,099 $ 1,938 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,568,522 67,458,869 (70,022,291) -- 3,005,100 218,872 --
==================================================================================================================================
Subtotal $ 5,568,522 $ 74,336,732 $ (73,895,055) $ -- $ 6,010,199 $220,810 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class $ 5,595,032 $158,741,608 $(133,643,779) $ -- $30,692,861 $ 25,593 $ --
==================================================================================================================================
Total $11,163,554 $233,078,340 $(207,538,834) $ -- $36,703,060 $246,403 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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
AIM V.I. GLOBAL HEALTH CARE FUND
price. Pursuant to these procedures, for the six months ended June 30, 2006, the
Fund engaged in securities sales of $1,654,094, which resulted in net realized
gains of $524,300 and securities purchases of $885,864.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $724.
NOTE 6--TRUSTEES' AND OFFICERS 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 six months ended June 30, 2006, the Fund paid legal fees of
$2,208 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $29,945,790 were on
loan to brokers. The loans were secured by cash collateral of $30,692,861
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended June 30, 2006, the Fund received dividends on
cash collateral investments of $25,593 for securities lending transactions,
which are net of compensation to counterparties.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available
AIM V.I. GLOBAL HEALTH CARE FUND
capital loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $20,476,873
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $125,044,507 and $134,065,975, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 21,807,202
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,317,351)
===============================================================================
Net unrealized appreciation of investment securities $ 5,489,851
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $270,887,620.
</Table>
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,131,664 $ 23,816,450 1,865,466 $ 35,904,906
- -----------------------------------------------------------------------------------------------------------------------
Series II 571,212 11,370,779 -- --
=======================================================================================================================
Reacquired:
Series I (1,841,388) (38,001,043) (8,032,556) (156,325,122)
- -----------------------------------------------------------------------------------------------------------------------
Series II (222) (4,542) -- --
=======================================================================================================================
(138,734) $ (2,818,356) (6,167,090) $(120,420,216)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are five entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 68% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
AIM V.I. GLOBAL HEALTH CARE 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
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.44 $ 18.90 $ 17.57 $ 13.75 $ 18.20 $ 20.89
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.06) (0.03) (0.03) (0.00)(a) (0.01)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.35) 1.60 1.36 3.85 (4.45) (2.62)
==========================================================================================================================
Total from investment operations (0.36) 1.54 1.33 3.82 (4.45) (2.63)
==========================================================================================================================
Less distributions from net investment
income -- -- -- -- -- (0.06)
==========================================================================================================================
Net asset value, end of period $ 20.08 $ 20.44 $ 18.90 $ 17.57 $ 13.75 $ 18.20
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (1.76)% 8.15% 7.57% 27.78% (24.45)% (12.59)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $239,065 $257,736 $354,889 $340,711 $232,681 $343,304
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 1.11%(c) 1.08%(d) 1.11% 1.07% 1.07% 1.06%
==========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.13)%(c) (0.24)% (0.17)% (0.20)% (0.43)% (0.38)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 50% 82% 175% 114% 130% 88%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) The net investment income (loss) per share was calculated after
permanent book tax differences, such as net operating losses, were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated
using the current method, which is before reclassification of net
operating losses, net investment income (loss) per share would have been
$(0.07) and $(0.07) for the years ended December 31, 2002 and 2001,
respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns 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
$258,306,994.
(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.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-------------------------------------------------------
APRIL 30, 2004,
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.34 $18.86 $18.19
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.09) (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.37) 1.57 0.72
=====================================================================================================================
Total from investment operations (0.37) 1.48 0.67
=====================================================================================================================
Net asset value, end of period $ 19.97 $20.34 $18.86
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(a) (1.82)% 7.85% 3.68%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,414 $ 11 $ 10
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 1.36%(b) 1.33%(c) 1.36%(d)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.38)%(b) (0.49)% (0.42)%(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate(e) 50% 82% 175%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of
$1,615,652.
(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.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GLOBAL HEALTH CARE 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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. GLOBAL HEALTH CARE FUND
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. GLOBAL HEALTH CARE FUND
AIM V.I. GOVERNMENT SECURITIES FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. GOVERNMENT SECURITIES FUND seeks to achieve a high level of
current income consistent with reasonable concern for safety of
principal.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington,D.C. 20549.
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
033-57340. 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, 2006, 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
dropdown menu. The information is also available on the SEC Web site, sec.gov.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
================================================================================
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
MANAGEMENT'S DISCUSSION or minus 1.5 years around our
OF FUND PERFORMANCE style-specific benchmark's duration,
placing limits on how much principal risk
======================================================================================= we take relative to our style-specific
benchmark.
PERFORMANCE SUMMARY ==========================================
After our top-down strategic decisions,
For the six months ended June 30, 2006, FUND VS. INDEXES we identify securities we believe are
Series I shares of AIM V.I. Government undervalued given the prevailing market
Securities Fund, excluding variable issuer CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, environment or possible future
charges, held up better than its broad EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. developments. The security selection
market index and performed in line with IF VARIABLE PRODUCT ISSUER CHARGES WERE process includes deciding whether to buy
its style-specific index, as shown in the INCLUDED, RETURNS WOULD BE LOWER. callable securities, deciding how many
table. During the reporting period, months or years of call protection we
mortgage-backed securities performed in Series I Shares -0.08% want, and identifying MBS that might
the middle relative to the other major exhibit faster or slower refinancing
sectors in the broad bond market, which Series II Shares -0.17 activity than other mortgages with the
explains the Fund's relative performance same coupon and maturity.
compared to the broad market. Lehman Brothers U.S. Aggregate
Bond Index (Broad Market Index) -0.72 We consider selling a security when:
Your Fund's long-term performance appears
on page 4. Lehman Brothers Intermediate o A change in the economic or market
U.S. Government and Mortgage Index outlook indicates assets should be
(Style-Specific Index) -0.03 reallocated.
Lipper Intermediate U.S. Government Bond o A mortgage security is prepaying faster
Fund Index (Peer Group Index) -0.45 or slower than desired.
SOURCE: LIPPER INC. o A security is likely to be called, and
we prefer to own one with a longer
========================================== maturity.
======================================================================================= o A security has become fully valued.
HOW WE INVEST selection to take advantage of prevailing MARKET CONDITIONS AND YOUR FUND
market conditions and possible future
We believe that in a variety of market developments. The U.S. Federal Reserve Board (the Fed)
environments, a portfolio of is in its 24th month of a tightening
intermediate-maturity bonds and We begin by assessing the overall campaign that may be coming to an end.
mortgage-backed securities (MBS) economic environment and its potential While inflation looked like a real problem
guaranteed by the U.S. government and its impact on the level and direction of during the reporting period, particularly
agencies has the potential to provide a interest rates. We develop a six- to the headline figures, most economists
more efficient risk/return tradeoff than a 12-month strategic outlook to take believed that the oil-price-surge-induced
portfolio holding only one of these asset advantage of shorter term tactical inflation bubble could prove transitory
classes. opportunities. This strategic outlook due to labor costs being contained by
helps determine where we allocate Fund global competition and record strong
We seek to enhance returns relative to assets among the three sectors represented productivity gains.
our style-specific benchmark, the Lehman in our style-specific index--U.S.
Brothers Intermediate U.S. Government and Treasuries, U.S. agency bonds and U.S. Ten year U.S. Treasury bond yields rose
Mortgage Index, by using calculated risks agency MBS--and where we position the three-quarters of a percentage point
in sector allocation, duration management Fund's duration. The duration spans plus during the
and security
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP FIXED INCOME ISSUERS* TOTAL NET ASSETS $858.0 MILLION
By sector, based on total investments 1. Federal National TOTAL NUMBER OF HOLDINGS* 711
Mortgage Association (FNMA) 43.0%
[PIE CHART] 2. Federal Home Loan Mortgage
Corp. (FHLMC) 37.5
Money Market Funds 17.4%
3. Government National Mortgage
U.S. Treasury Obligations 1.0% Association (GNMA) 11.3
Non-Mortgage U.S. Agency Obligations 15.7% 4. Federal Home Loan Bank (FHLB) 9.7
Mortgage U.S. Agency Obligations 65.9% 5. Tennessee Valley Authority 1.3
6. U.S. Treasury Bonds 1.0
7. Federal Farm Credit Bank 0.9 The Fund's holdings are subject to change,
and there is no assurance that the Fund
8. Private Export Funding Corp. 0.3 will continue to hold any particular
security.
9. U.S. Treasury STRIPS 0.3 *Excluding money market fund holdings.
========================================== ========================================== ==========================================
</Table>
2
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
first half of 2006, closing at 5.14%--a MBS and simultaneously agree to later SCOT W. JOHNSON,
level last seen four years ago. Bond repurchase another MBS with the same [JOHNSON Chartered Financial
prices move inversely to interest rates; interest rate and maturity date, but PHOTO] Analyst, senior
consequently the broad bond market generally backed by a different pool of portfolio manager, is
finished the reporting period with a mortgages. While we lose the right to lead manager of AIM
slightly negative total return. With the receive interest and principal payments on V.I. Government Securities Fund. Mr.
fed funds target rate at 5.25% at the end the security we sold, the Fund benefits Johnson joined AIM in 1994. He earned both
of the reporting period, the discrepancy from the interest earned on investing the a B.A. in economics and an M.B.A. in
between short-term and long-term rates proceeds of the sale and may receive a fee finance from Vanderbilt University.
(the yield curve) was slightly inverted. or a lower repurchase price. The benefits
Historical records have shown that such from these transactions depend in part on CLINT DUDLEY, Charted
yield curve inversions have often been our ability to forecast mortgage [DUDLEY Financial Analyst,
followed by substantial slowing of prepayment patterns on different mortgage PHOTO] portfolio manager, is
economic activity. pools. The Fund may lose money if these manager of AIM V.I.
types of securities decline in value, due Government Securities
In this time of continued Fed rate to market conditions or prepayments of the Fund. Mr. Dudley joined AIM in 1998. He
increases, we did not change our underlying mortgages, between the time of earned both a B.B.A. and M.B.A. from
investment strategies. We continued to the agreement and the actual repurchase of Baylor University.
keep the duration of the Fund's portfolio the security.
around three-and-a-half years, maintained
portfolio duration shorter than the Fund's Finally, we used U.S. Treasury futures, Assisted by the Taxable Investment Grade
style-specific index and invested in a which can be an effective and efficient Bond Team
fairly consistent weighting of MBS. way to gain exposure to the U.S. Treasury
market to manage the Fund's duration. This
At the end of the reporting period, investment strategy had a positive impact
your Fund's duration was 3.6 years, while on the Fund's performance during the
the duration of the style-specific index reporting period.
was 4.0 years. Our short-duration strategy
contributed to the Fund's performance as IN CLOSING
shorter maturity bonds outperformed longer
dated bonds for the reporting period. Our ongoing strategy is to position the
Duration measures a portfolio's price Fund's sector allocations to provide an
sensitivity to interest rate movements. A efficient risk/return relationship
shorter duration means less sensitivity. matching expected returns with the level
of risk taken. We believe that by managing
We maintained a shorter duration to sector weights and portfolio duration, we
position the Fund defensively among our can navigate through or take advantage of
peers. We believed that our defensive prevailing market conditions. Although
positioning in a rising interest rate returns were disappointing, we continue to
environment could provide shareholders strive to provide competitive returns
greater safety of principal. While a while maintaining a relatively stable
portfolio of longer duration may result in share price over the reporting period. As
somewhat higher returns, greater share always, we thank you for your continued
price instability may also result. investment in AIM V.I. Government
Securities Fund.
The composition of the mortgage
portfolio reflected our defensive stance. THE VIEWS AND OPINIONS EXPRESSED IN
We primarily owned higher-coupon, MANAGEMENT'S DISCUSSION OF FUND
low-duration mortgages seeking newly PERFORMANCE ARE THOSE OF A I M ADVISORS,
issued and older pools of mortgages that INC. THESE VIEWS AND OPINIONS ARE SUBJECT
have little incentive to refinance. This TO CHANGE AT ANY TIME BASED ON FACTORS
includes mortgages that have generated SUCH AS MARKET AND ECONOMIC CONDITIONS.
less prepayment risk based on geographic THESE VIEWS AND OPINIONS MAY NOT BE RELIED
location. States that have a less dense UPON AS INVESTMENT ADVICE OR
population base have typically prepaid RECOMMENDATIONS, OR AS AN OFFER FOR A
their mortgages at a slower rate than PARTICULAR SECURITY. THE INFORMATION IS
those with a larger population base. NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
The Fund management team also used THE FUND. STATEMENTS OF FACT ARE FROM
mortgage dollar roll transactions to take SOURCES CONSIDERED RELIABLE, BUT A I M
advantage of opportunities in the mortgage ADVISORS, INC. MAKES NO REPRESENTATION OR [RIGHT ARROW GRAPHIC]
market and enhance current income. This WARRANTY AS TO THEIR COMPLETENESS OR
strategy positively impacted performance ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE FOR A DISCUSSION OF THE RISKS OF INVESTING
of the Fund. In mortgage dollar roll IS NO GUARANTEE OF FUTURE RESULTS, THESE IN YOUR FUND, INDEXES USED IN THIS REPORT
transactions, we sell an INSIGHTS MAY HELP YOU UNDERSTAND OUR AND YOUR FUND'S LONG-TERM PERFORMANCE,
INVESTMENT MANAGEMENT PHILOSOPHY. PLEASE TURN TO PAGE 4.
</Table>
3
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
==========================================
AVERAGE ANNUAL TOTAL RETURNS FUND'S SERIES I AND SERIES II SHARE SHARES OF THE FUND DIRECTLY. PERFORMANCE
CLASSES WILL DIFFER PRIMARILY DUE TO FIGURES GIVEN REPRESENT THE FUND AND ARE
As of 6/30/06 DIFFERENT CLASS EXPENSES. NOT INTENDED TO REFLECT ACTUAL VARIABLE
PRODUCT VALUES. THEY DO NOT REFLECT SALES
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT CHARGES, EXPENSES AND FEES ASSESSED IN
Inception (5/5/93) 4.71% PAST PERFORMANCE AND CANNOT GUARANTEE CONNECTION WITH A VARIABLE PRODUCT. SALES
10 Years 4.94 COMPARABLE FUTURE RESULTS; CURRENT CHARGES, EXPENSES AND FEES, WHICH ARE
5 Years 3.75 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE DETERMINED BY THE VARIABLE PRODUCT
1 Year 0.41 CONTACT YOUR VARIABLE PRODUCT ISSUER OR ISSUERS, WILL VARY AND WILL LOWER THE
FINANCIAL ADVISOR FOR THE MOST RECENT TOTAL RETURN.
SERIES II SHARES MONTH-END VARIABLE PRODUCT PERFORMANCE.
10 Years 4.68% PERFORMANCE FIGURES REFLECT FUND EXPENSES, PER NASD REQUIREMENTS, THE MOST RECENT
5 Years 3.50 REINVESTED DISTRIBUTIONS AND CHANGES IN MONTH-END PERFORMANCE DATA AT THE FUND
1 Year 0.23 NET ASSET VALUE. INVESTMENT RETURN AND LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU IS AVAILABLE ON THIS AIM AUTOMATED
========================================== MAY HAVE A GAIN OR LOSS WHEN YOU SELL INFORMATION LINE, 866-702-4402. AS
SHARES. MENTIONED ABOVE, FOR THE MOST RECENT
SERIES II SHARES' INCEPTION DATE IS MONTH-END PERFORMANCE INCLUDING VARIABLE
SEPTEMBER 19, 2001. RETURNS SINCE THAT AIM V.I. GOVERNMENT SECURITIES FUND, A PRODUCT CHARGES, PLEASE CONTACT YOUR
DATE ARE HISTORICAL. ALL OTHER RETURNS ARE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE VARIABLE PRODUCT ISSUER OR FINANCIAL
THE BLENDED RETURNS OF THE HISTORICAL FUNDS, IS CURRENTLY OFFERED THROUGH ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE COMPANIES ISSUING VARIABLE
THEIR INCEPTION AND THE RESTATED PRODUCTS. YOU CANNOT PURCHASE
HISTORICAL PERFORMANCE OF SERIES I SHARES
(FOR PERIODS PRIOR TO INCEPTION OF SERIES
II SHARES) ADJUSTED TO REFLECT THE RULE
12b-1 FEES APPLICABLE TO SERIES II SHARES.
THE PERFORMANCE OF THE
PRINCIPAL RISKS OF INVESTING IN THE FUND The LIPPER INTERMEDIATE U.S. GOVERNMENT reflect sales charges. Performance of an
BOND FUND INDEX represents an average of index of funds reflects fund expenses;
The Fund invests in securities issued or the 30 largest intermediate-term U.S. performance of a market index does not.
backed by the U.S. government, its government bond funds tracked by Lipper
agencies or instrumentalities. They offer Inc., an independent mutual fund OTHER INFORMATION
a high degree of safety and, in the case performance monitor.
of Treasury securities, are guaranteed as The returns shown in the management's
to timely payment of principal and The unmanaged LEHMAN BROTHERS discussion of Fund performance are based
interest if held to maturity. Many INTERMEDIATE U.S. GOVERNMENT AND MORTGAGE on net asset values calculated for
securities purchased by the Fund are not Index is a market-weighted combination of shareholder transactions. Generally
guaranteed by the U.S. Government. Fund the unmanaged Lehman Brothers Intermediate accepted accounting principles require
shares are not insured, and their value or U.S. Government Bond Index and the adjustments to be made to the net assets
yield will vary with market conditions. unmanaged LEHMAN BROTHERS MORTGAGE BACKED of the Fund at period end for financial
SECURITIES FIXED RATE INDEX. It includes reporting purposes, and as such, the net
The Fund may invest in asset-backed or securities in the intermediate maturity asset values for shareholder transactions
mortgage-backed securities which may lose range of the U.S. Government Index that and the returns based on those net asset
value if they are called or prepaid. must have between one year and 10 years to values may differ from the net asset
final maturity, regardless of call values and returns reported in the
A change in interest rates will affect features, and fixed-rate mortgage-backed Financial Highlights. Additionally, the
the performance of the Fund's investments securities collateralized by 15-year, returns and net asset values shown
in debt securities. 30-year and balloon mortgages issued by throughout this report are at the Fund
GNMA, FHLMC or FNMA. level only and do not include variable
ABOUT INDEXES USED IN THIS REPORT product issuer charges. If such charges
The Fund is not managed to track the were included, the total returns would be
The unmanaged LEHMAN BROTHERS U.S. performance of any particular index, lower.
AGGREGATE BOND INDEX (the Lehman including the indexes defined here, and
Aggregate), which represents the U.S. consequently, the performance of the Fund
investment-grade fixed-rate bond market may deviate significantly from the
(including government and corporate performance of the indexes.
securities, mortgage pass-through
securities and asset-backed securities), A direct investment cannot be made in
is compiled by Lehman Brothers, a global an index. Unless otherwise indicated,
investment bank. index results include reinvested
dividends, and they do not
</Table>
4
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES with the amount you invested, to estimate THE HYPOTHETICAL ACCOUNT VALUES AND
the expenses that you paid over the EXPENSES MAY NOT BE USED TO ESTIMATE THE
period. Simply divide your account value ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
EXAMPLE by $1,000 (for example, an $8,600 account YOU PAID FOR THE PERIOD. YOU MAY USE THIS
value divided by $1,000 = 8.6), then INFORMATION TO COMPARE THE ONGOING COSTS
As a shareholder of the Fund, you incur multiply the result by the number in the OF INVESTING IN THE FUND AND OTHER FUNDS.
ongoing costs, including management fees; table under the heading entitled "Actual TO DO SO, COMPARE THIS 5% HYPOTHETICAL
distribution and/or service fees (12b-1); Expenses Paid During Period" to estimate EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
and other Fund expenses. This example is the expenses you paid on your account THAT APPEAR IN THE SHAREHOLDER REPORTS OF
intended to help you understand your during this period. THE OTHER FUNDS.
ongoing costs (in dollars) of investing in
the Fund and to compare these costs with HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
ongoing costs of investing in other mutual COMPARISON PURPOSES the table are meant to highlight your
funds. The example is based on an ongoing costs. Therefore, the hypothetical
investment of $1,000 invested at the The table below also provides information information is useful in comparing ongoing
beginning of the period and held for the about hypothetical account values and costs, and will not help you determine the
entire period January 1, 2006, through hypothetical expenses based on the Fund's relative total costs of owning different
June 30, 2006. actual expense ratio and an assumed rate funds.
of return of 5% per year before expenses,
The actual and hypothetical expenses in which is not the Fund's actual return. The
the examples below do not represent the Fund's actual cumulative total returns at
effect of any fees or other expenses net asset value after expenses for the six
assessed in connection with a variable months ended June 30, 2006, appear in the
product; if they did, the expenses shown table "Fund vs. Indexes" on page 2.
would be higher while the ending account
values shown would be lower.
ACTUAL EXPENSES
The table below provides information about
actual account values and actual expenses.
You may use the information in this table,
together
====================================================================================================================================
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $999.20 $3.57 $1,021.22 $3.61 0.72%
Series II 1,000.00 998.30 4.81 1,019.98 4.86 0.97
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
5
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT o The nature and extent of the advisory should be made to the Fund and that it was
services to be provided by AIM. The Board not necessary to change the Fund's
The Board of Trustees of AIM Variable reviewed the services to be provided by portfolio management team at this time.
Insurance Funds (the "Board") oversees the AIM under the Advisory Agreement. Based on However, due to the Fund's
management of AIM V.I. Government such review, the Board concluded that the under-performance, the Board also
Securities Fund (the "Fund") and, as range of services to be provided by AIM concluded that it would be appropriate for
required by law, determines annually under the Advisory Agreement was the Board to continue to closely monitor
whether to approve the continuance of the appropriate and that AIM currently is and review the performance of the Fund.
Fund's advisory agreement with A I M providing services in accordance with the Although the independent written
Advisors, Inc. ("AIM"). Based upon the terms of the Advisory Agreement. evaluation of the Fund's Senior Officer
recommendation of the Investments (discussed below) only considered Fund
Committee of the Board, at a meeting held o The quality of services to be provided performance through the most recent
on June 27, 2006, the Board, including all by AIM. The Board reviewed the credentials calendar year, the Board also reviewed
of the independent trustees, approved the and experience of the officers and more recent Fund performance, which did
continuance of the advisory agreement (the employees of AIM who will provide not change their conclusions.
"Advisory Agreement") between the Fund and investment advisory services to the Fund.
AIM for another year, effective July 1, In reviewing the qualifications of AIM to o Meetings with the Fund's portfolio
2006. provide investment advisory services, the managers and investment personnel. With
Board considered such issues as AIM's respect to the Fund, the Board is meeting
The Board considered the factors portfolio and product review process, periodically with such Fund's portfolio
discussed below in evaluating the fairness various back office support functions managers and/or other investment personnel
and reasonableness of the Advisory provided by AIM and AIM's equity and fixed and believes that such individuals are
Agreement at the meeting on June 27, 2006 income trading operations. Based on the competent and able to continue to carry
and as part of the Board's ongoing review of these and other factors, the out their responsibilities under the
oversight of the Fund. In their Board concluded that the quality of Advisory Agreement.
deliberations, the Board and the services to be provided by AIM was
independent trustees did not identify any appropriate and that AIM currently is o Overall performance of AIM. The Board
particular factor that was controlling, providing satisfactory services in considered the overall performance of AIM
and each trustee attributed different accordance with the terms of the Advisory in providing investment advisory and
weights to the various factors. Agreement. portfolio administrative services to the
Fund and concluded that such performance
One responsibility of the independent o The performance of the Fund relative to was satisfactory.
Senior Officer of the Fund is to manage comparable funds. The Board reviewed the
the process by which the Fund's proposed performance of the Fund during the past o Fees relative to those of clients of AIM
management fees are negotiated to ensure one, three and five calendar years against with comparable investment strategies. The
that they are negotiated in a manner which the performance of funds advised by other Board noted that AIM does not serve as an
is at arms' length and reasonable. To that advisors with investment strategies advisor to other mutual funds or other
end, the Senior Officer must either comparable to those of the Fund. The Board clients with investment strategies
supervise a competitive bidding process or noted that the Fund's performance in such comparable to those of the Fund.
prepare an independent written evaluation. periods was below the median performance
The Senior Officer has recommended an of such comparable funds. Based on this o Fees relative to those of comparable
independent written evaluation in lieu of review and after taking account of all of funds with other advisors. The Board
a competitive bidding process and, upon the other factors that the Board reviewed the advisory fee rate for the
the direction of the Board, has prepared considered in determining whether to Fund under the Advisory Agreement. The
such an independent written evaluation. continue the Advisory Agreement for the Board compared effective contractual
Such written evaluation also considered Fund, the Board concluded that no changes advisory fee rates at a common asset level
certain of the factors discussed below. In should be made to the Fund and that it was at the end of the past calendar year and
addition, as discussed below, the Senior not necessary to change the Fund's noted that the Fund's rate was comparable
Officer made a recommendation to the Board portfolio management team at this time. to the median rate of the funds advised by
in connection with such written However, due to the Fund's other advisors with investment strategies
evaluation. under-performance, the Board also comparable to those of the Fund that the
concluded that it would be appropriate for Board reviewed. The Board noted that AIM
The discussion below serves as a the Board to continue to closely monitor has agreed to limit the Fund's total
summary of the Senior Officer's and review the performance of the Fund. operating expenses, as discussed below.
independent written evaluation and Although the independent written Based on this review, the Board concluded
recommendation to the Board in connection evaluation of the Fund's Senior Officer that the advisory fee rate for the Fund
therewith, as well as a discussion of the (discussed below) only considered Fund under the Advisory Agreement was fair and
material factors and the conclusions with performance through the most recent reasonable.
respect thereto that formed the basis for calendar year, the Board also reviewed
the Board's approval of the Advisory more recent Fund performance, which did o Expense limitations and fee waivers. The
Agreement. After consideration of all of not change their conclusions. Board noted that AIM has contractually
the factors below and based on its agreed to waive fees and/or limit expenses
informed business judgment, the Board o The performance of the Fund relative to of the Fund through April 30, 2008 so that
determined that the Advisory Agreement is indices. The Board reviewed the total annual operating expenses are
in the best interests of the Fund and its performance of the Fund during the past limited to a specified percentage of
shareholders and that the compensation to one, three and five calendar years against average daily net assets for each class of
AIM under the Advisory Agreement is fair the performance of the Lipper Variable the Fund. The Board considered the
and reasonable and would have been Underlying Fund General U.S. Government contractual nature of this fee waiver and
obtained through arm's length Fund Index. The Board noted that the noted that it remains in effect until
negotiations. Fund's performance in such periods was April 30, 2008. The Board considered the
below the performance of such Index. Based effect this fee waiver/expense limitation
Unless otherwise stated, information on this review and after taking account of would have on the Fund's estimated
presented below is as of June 27, 2006 and all of the other factors that the Board expenses and concluded that the levels of
does not reflect any changes that may have considered in determining whether to fee waivers/expense limitations for the
occurred since June 27, 2006, including continue the Advisory Agreement for the Fund were fair and reasonable.
but not limited to changes to the Fund's Fund, the Board concluded that no changes
performance, advisory fees, expense
limitations and/or fee waivers. (continued)
</Table>
6
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
o Breakpoints and economies of scale. The o Profitability of AIM and its affiliates. o Other factors and current trends. The
Board reviewed the structure of the Fund's The Board reviewed information concerning Board considered the steps that AIM and
advisory fee under the Advisory Agreement, the profitability of AIM's (and its its affiliates have taken over the last
noting that it includes one breakpoint. affiliates') investment advisory and other several years, and continue to take, in
The Board reviewed the level of the Fund's activities and its financial condition. order to improve the quality and
advisory fees, and noted that such fees, The Board considered the overall efficiency of the services they provide to
as a percentage of the Fund's net assets, profitability of AIM, as well as the the Funds in the areas of investment
have decreased as net assets increased profitability of AIM in connection with performance, product line diversification,
because the Advisory Agreement includes a managing the Fund. The Board noted that distribution, fund operations, shareholder
breakpoint. The Board concluded that the AIM's operations remain profitable, services and compliance. The Board
Fund's fee levels under the Advisory although increased expenses in recent concluded that these steps taken by AIM
Agreement therefore reflect economies of years have reduced AIM's profitability. have improved, and are likely to continue
scale and that it was not necessary to Based on the review of the profitability to improve, the quality and efficiency of
change the advisory fee breakpoints in the of AIM's and its affiliates' investment the services AIM and its affiliates
Fund's advisory fee schedule. advisory and other activities and its provide to the Fund in each of these
financial condition, the Board concluded areas, and support the Board's approval of
o Investments in affiliated money market that the compensation to be paid by the the continuance of the Advisory Agreement
funds. The Board also took into account Fund to AIM under its Advisory Agreement for the Fund.
the fact that uninvested cash and cash was not excessive.
collateral from securities lending
arrangements, if any (collectively, "cash o Benefits of soft dollars to AIM. The
balances") of the Fund may be invested in Board considered the benefits realized by
money market funds advised by AIM pursuant AIM as a result of brokerage transactions
to the terms of an SEC exemptive order. executed through "soft dollar"
The Board found that the Fund may realize arrangements. Under these arrangements,
certain benefits upon investing cash brokerage commissions paid by the Fund
balances in AIM advised money market and/or other funds advised by AIM are used
funds, including a higher net return, to pay for research and execution
increased liquidity, increased services. This research may be used by AIM
diversification or decreased transaction in making investment decisions for the
costs. The Board also found that the Fund Fund. The Board concluded that such
will not receive reduced services if it arrangements were appropriate.
invests its cash balances in such money
market funds. The Board noted that, to the o AIM's financial soundness in light of
extent the Fund invests uninvested cash in the Fund's needs. The Board considered
affiliated money market funds, AIM has whether AIM is financially sound and has
voluntarily agreed to waive a portion of the resources necessary to perform its
the advisory fees it receives from the obligations under the Advisory Agreement,
Fund attributable to such investment. The and concluded that AIM has the financial
Board further determined that the proposed resources necessary to fulfill its
securities lending program and related obligations under the Advisory Agreement.
procedures with respect to the lending
Fund is in the best interests of the o Historical relationship between the Fund
lending Fund and its respective and AIM. In determining whether to
shareholders. The Board therefore continue the Advisory Agreement for the
concluded that the investment of cash Fund, the Board also considered the prior
collateral received in connection with the relationship between AIM and the Fund, as
securities lending program in the money well as the Board's knowledge of AIM's
market funds according to the procedures operations, and concluded that it was
is in the best interests of the lending beneficial to maintain the current
Fund and its respective shareholders. relationship, in part, because of such
knowledge. The Board also reviewed the
o Independent written evaluation and general nature of the non-investment
recommendations of the Fund's Senior advisory services currently performed by
Officer. The Board noted that, upon their AIM and its affiliates, such as
direction, the Senior Officer of the Fund, administrative, transfer agency and
who is independent of AIM and AIM's distribution services, and the fees
affiliates, had prepared an independent received by AIM and its affiliates for
written evaluation in order to assist the performing such services. In addition to
Board in determining the reasonableness of reviewing such services, the trustees also
the proposed management fees of the AIM considered the organizational structure
Funds, including the Fund. The Board noted employed by AIM and its affiliates to
that the Senior Officer's written provide those services. Based on the
evaluation had been relied upon by the review of these and other factors, the
Board in this regard in lieu of a Board concluded that AIM and its
competitive bidding process. In affiliates were qualified to continue to
determining whether to continue the provide non-investment advisory services
Advisory Agreement for the Fund, the Board to the Fund, including administrative,
considered the Senior Officer's written transfer agency and distribution services,
evaluation. and that AIM and its affiliates currently
are providing satisfactory non-investment
advisory services.
</Table>
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-84.01%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-32.16%(A)
Pass Through Ctfs.,
8.00%, 05/01/08 to 02/01/35 $ 27,088,588 $ 28,740,384
- ----------------------------------------------------------------------------
6.00%, 11/01/08 to 02/01/34 25,420,248 25,475,101
- ----------------------------------------------------------------------------
6.50%, 12/01/08 to 12/01/35 53,234,568 53,824,248
- ----------------------------------------------------------------------------
7.00%, 11/01/10 to 05/01/36 36,487,940 37,587,233
- ----------------------------------------------------------------------------
10.50%, 08/01/19 14,691 15,918
- ----------------------------------------------------------------------------
8.50%, 09/01/20 to 08/01/31 2,433,610 2,608,838
- ----------------------------------------------------------------------------
10.00%, 03/01/21 230,078 250,140
- ----------------------------------------------------------------------------
9.00%, 06/01/21 to 06/01/22 1,540,746 1,648,818
- ----------------------------------------------------------------------------
7.50%, 08/01/24 to 06/01/35 4,938,075 5,131,172
- ----------------------------------------------------------------------------
7.05%, 05/20/27 775,322 796,161
- ----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 07/01/21 20,034,265 18,913,598
- ----------------------------------------------------------------------------
5.00%, 07/01/21 to 07/01/36(b) 58,420,000 55,556,248
- ----------------------------------------------------------------------------
5.50%, 07/01/36(b) 33,312,283 32,000,612
- ----------------------------------------------------------------------------
6.00%, 07/01/36(b) 13,600,000 13,391,750
============================================================================
275,940,221
============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-40.58%
Pass Through Ctfs.,
7.50%, 11/01/09 to 06/01/36(a) 34,743,979 36,024,865
- ----------------------------------------------------------------------------
6.50%, 10/01/10 to 10/01/35(a) 55,709,471 56,486,048
- ----------------------------------------------------------------------------
7.00%, 12/01/10 to 06/01/36(a) 75,362,070 77,514,834
- ----------------------------------------------------------------------------
8.00%, 06/01/12 to 05/01/36(a) 27,261,772 28,748,719
- ----------------------------------------------------------------------------
8.50%, 06/01/12 to 10/01/33(a) 6,539,634 7,018,910
- ----------------------------------------------------------------------------
10.00%, 09/01/13 to 03/01/16(a) 210,478 223,828
- ----------------------------------------------------------------------------
6.00%, 03/01/17 to 02/01/34(a) 14,347,916 14,363,644
- ----------------------------------------------------------------------------
5.00%, 11/01/17 to 12/01/33(a) 2,945,717 2,832,876
- ----------------------------------------------------------------------------
6.75%, 07/01/24(a) 2,413,770 2,456,842
- ----------------------------------------------------------------------------
6.95%, 10/01/25 to 09/01/26(a) 247,989 254,338
- ----------------------------------------------------------------------------
7.50%, 01/01/36 2,072,843 2,150,574
- ----------------------------------------------------------------------------
8.00%, 02/01/36 3,252,611 3,388,814
- ----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/21(a)(b) 4,773,250 4,597,236
- ----------------------------------------------------------------------------
5.50%, 07/01/21 to 07/01/36(a)(b) 35,509,268 34,770,816
- ----------------------------------------------------------------------------
6.00%, 07/01/21 to 07/01/36(a)(b) 63,507,701 62,997,588
- ----------------------------------------------------------------------------
6.50%, 07/01/36(a)(b) 14,272,996 14,348,821
============================================================================
348,178,753
============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-11.27%(A)
Pass Through Ctfs.,
7.50%, 03/15/08 to 10/15/35 $ 12,618,422 $ 13,186,382
- ----------------------------------------------------------------------------
9.00%, 09/15/08 to 09/20/17 269,652 287,811
- ----------------------------------------------------------------------------
6.50%, 09/20/08 to 09/15/35 46,529,876 47,462,017
- ----------------------------------------------------------------------------
9.38%, 06/15/09 to 12/15/09 943,456 980,652
- ----------------------------------------------------------------------------
8.00%, 07/15/12 to 09/15/35 8,690,404 9,229,119
- ----------------------------------------------------------------------------
11.00%, 10/15/15 2,908 3,195
- ----------------------------------------------------------------------------
9.50%, 09/15/16 4,201 4,557
- ----------------------------------------------------------------------------
7.00%, 04/15/17 to 03/15/36 13,187,149 13,651,396
- ----------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 5,484 6,049
- ----------------------------------------------------------------------------
8.50%, 12/15/17 to 04/15/31 3,041,272 3,261,088
- ----------------------------------------------------------------------------
10.00%, 06/15/19 86,673 94,993
- ----------------------------------------------------------------------------
6.00%, 06/20/20 to 08/15/33 6,241,091 6,227,846
- ----------------------------------------------------------------------------
6.95%, 08/20/25 to 08/20/27 2,218,475 2,272,146
============================================================================
96,667,251
============================================================================
Total U.S. Mortgage-Backed Securities
(Cost $733,570,537) 720,786,225
============================================================================
U.S. GOVERNMENT AGENCY SECURITIES-20.00%(A)
FEDERAL FARM CREDIT BANK-0.88%
Bonds, 5.75%, 01/18/11 2,000,000 2,023,320
- ----------------------------------------------------------------------------
Medium Term Notes, 5.75%, 12/07/28 5,500,000 5,554,340
============================================================================
7,577,660
============================================================================
FEDERAL HOME LOAN BANK (FHLB)-9.71%
Unsec. Bonds,
3.50%, 11/15/07 4,650,000 4,535,517
- ----------------------------------------------------------------------------
4.50%, 08/08/08 14,375,000 14,114,813
- ----------------------------------------------------------------------------
5.75%, 10/27/10 31,555,000 31,513,031
- ----------------------------------------------------------------------------
Unsec. Disc. Bonds, 6.00%, 11/16/15(c) 3,625,000 3,565,985
- ----------------------------------------------------------------------------
Unsec. Global Bonds, 5.13%, 11/01/10 30,000,000 29,625,900
============================================================================
83,355,246
============================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-5.33%
Unsec. Global Notes,
4.88%, 08/16/10 16,500,000 16,161,090
- ----------------------------------------------------------------------------
5.00%, 11/01/10 7,000,000 6,859,510
- ----------------------------------------------------------------------------
5.20%, 03/05/19 15,000,000 14,094,450
- ----------------------------------------------------------------------------
5.50%, 08/20/19 9,000,000 8,653,680
============================================================================
45,768,730
============================================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-2.43%
Unsec. Global Bonds, 6.63%, 11/15/30 $ 700,000(d) $ 796,306
- ----------------------------------------------------------------------------
Unsec. Notes,
6.00%, 11/17/15 8,565,000 8,436,696
- ----------------------------------------------------------------------------
6.13%, 03/21/16 6,195,000 6,102,571
- ----------------------------------------------------------------------------
6.50%, 11/25/25 4,762,000 4,663,379
- ----------------------------------------------------------------------------
Unsec. Sub. Disc. Deb.,
6.74%, 10/09/19(e) 1,000,000 461,430
- ----------------------------------------------------------------------------
7.37%, 10/09/19(e) 800,000 369,144
============================================================================
20,829,526
============================================================================
PRIVATE EXPORT FUNDING CORP.-0.33%
Series G, Sec. Gtd. Notes, 6.67%, 09/15/09 2,701,000 2,794,752
============================================================================
TENNESSEE VALLEY AUTHORITY-1.32%
Series A, Bonds, 6.79%, 05/23/12 5,000,000 5,315,750
- ----------------------------------------------------------------------------
Series G, Global Bonds, 5.38%, 11/13/08 6,000,000 5,989,920
============================================================================
11,305,670
============================================================================
Total U.S. Government Agency Securities
(Cost $175,324,542) 171,631,584
============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
U.S. TREASURY SECURITIES-1.25%
U.S. TREASURY BONDS-0.98%
7.50%, 11/15/24(a) $ 5,715,000(d) $ 7,164,267
- ----------------------------------------------------------------------------
7.63%, 02/15/25(a) 550,000 698,588
- ----------------------------------------------------------------------------
6.88%, 08/15/25(a) 500,000 592,970
============================================================================
8,455,825
============================================================================
U.S. TREASURY STRIPS-0.27%
6.79%, 11/15/18(a)(e) 4,405,000 2,294,036
============================================================================
Total U.S. Treasury Securities (Cost
$10,773,780) 10,749,861
============================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-22.22%
Government & Agency Portfolio-Institutional
Class (Cost $190,615,411)(f) 190,615,411 190,615,411
============================================================================
TOTAL INVESTMENTS-127.48% (Cost
$1,110,284,270) 1,093,783,081
============================================================================
OTHER ASSETS LESS LIABILITIES-(27.48)% (235,779,191)
============================================================================
NET ASSETS-100.00% $ 858,003,890
____________________________________________________________________________
============================================================================
</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 value of these securities at June 30, 2006
was $897,842,197, which represented 104.64% of the Fund's Net Assets. See
Note 1A.
(b) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1H.
(c) Step coupon bond. The interest rate represents the coupon rate at which the
bond will accrue at a specified future date.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 5.
(e) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $919,668,859) $ 903,167,670
- ---------------------------------------------------------------------
Investments in affiliated money market funds (cost
$190,615,411) 190,615,411
=====================================================================
Total investments (cost $1,110,284,270) 1,093,783,081
=====================================================================
Receivables for:
Investments sold 28,637,846
- ---------------------------------------------------------------------
Variation margin 266,125
- ---------------------------------------------------------------------
Fund shares sold 394,082
- ---------------------------------------------------------------------
Dividends and Interest 6,055,799
- ---------------------------------------------------------------------
Fund expenses absorbed 48,889
- ---------------------------------------------------------------------
Principal paydowns 97,549
- ---------------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 59,894
- ---------------------------------------------------------------------
Other assets 3,918
=====================================================================
Total assets 1,129,347,183
_____________________________________________________________________
=====================================================================
LIABILITIES:
Payables for:
Investments purchased 267,838,307
- ---------------------------------------------------------------------
Fund shares reacquired 95,356
- ---------------------------------------------------------------------
Amount due custodian 2,636,971
- ---------------------------------------------------------------------
Trustee deferred compensation and retirement plans 92,681
- ---------------------------------------------------------------------
Accrued administrative services fees 528,184
- ---------------------------------------------------------------------
Accrued distribution fees -- Series II 10,914
- ---------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 817
- ---------------------------------------------------------------------
Accrued transfer agent fees 1,456
- ---------------------------------------------------------------------
Accrued operating expenses 138,607
=====================================================================
Total liabilities 271,343,293
=====================================================================
Net assets applicable to shares outstanding $ 858,003,890
_____________________________________________________________________
=====================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 866,202,205
- ---------------------------------------------------------------------
Undistributed net investment income 55,028,184
- ---------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures contracts (46,486,047)
- ---------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and futures contracts (16,740,452)
=====================================================================
$ 858,003,890
_____________________________________________________________________
=====================================================================
NET ASSETS:
Series I $ 840,888,727
_____________________________________________________________________
=====================================================================
Series II $ 17,115,163
_____________________________________________________________________
=====================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 70,878,918
_____________________________________________________________________
=====================================================================
Series II 1,451,853
_____________________________________________________________________
=====================================================================
Series I:
Net asset value per share $ 11.86
_____________________________________________________________________
=====================================================================
Series II:
Net asset value per share $ 11.79
_____________________________________________________________________
=====================================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 18,225,677
- -------------------------------------------------------------
Dividends from affiliated money market funds 3,451,653
=============================================================
Total investment income 21,677,330
=============================================================
EXPENSES:
Advisory fees 1,957,112
- -------------------------------------------------------------
Administrative services fees 1,125,514
- -------------------------------------------------------------
Custodian fees 35,690
- -------------------------------------------------------------
Distribution fees -- Series II 22,340
- -------------------------------------------------------------
Transfer agent fees 8,439
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 18,146
- -------------------------------------------------------------
Other 65,274
=============================================================
Total expenses 3,232,515
=============================================================
Less: Fees waived (179,078)
=============================================================
Net expenses 3,053,437
=============================================================
Net investment income 18,623,893
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized (loss) from:
Investment securities (6,641,231)
- -------------------------------------------------------------
Futures contracts (2,133,134)
=============================================================
(8,774,365)
=============================================================
Change in net unrealized (depreciation) of:
Investment securities (10,486,004)
- -------------------------------------------------------------
Futures contracts (239,263)
=============================================================
(10,725,267)
=============================================================
Net gain (loss) from investment securities and
futures contracts (19,499,632)
=============================================================
Net increase (decrease) in net assets resulting
from operations $ (875,739)
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 18,623,893 $ 28,009,847
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures contracts (8,774,365) (8,167,558)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts (10,725,267) (6,469,700)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (875,739) 13,372,589
==========================================================================================
Distributions to shareholders from net investment income:
Series I -- (26,201,982)
- ------------------------------------------------------------------------------------------
Series II -- (562,380)
==========================================================================================
Decrease in net assets resulting from distributions -- (26,764,362)
==========================================================================================
Share transactions-net:
Series I 28,898,740 173,693,059
- ------------------------------------------------------------------------------------------
Series II (1,706,550) 1,431,974
==========================================================================================
Net increase in net assets resulting from share
transactions 27,192,190 175,125,033
==========================================================================================
Net increase in net assets 26,316,451 161,733,260
==========================================================================================
NET ASSETS:
Beginning of period 831,687,439 669,954,179
==========================================================================================
End of period (including undistributed net investment
income of $55,028,184 and $36,404,291, respectively) $858,003,890 $831,687,439
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2006
<Table>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from
operations $ (875,739)
============================================================================
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATIONS:
Purchases of investments (81,105,407)
- ----------------------------------------------------------------------------
Amortization 556,437
- ----------------------------------------------------------------------------
Proceeds from disposition of investments and principal
payments 175,444,387
- ----------------------------------------------------------------------------
Realized gain (loss) on investment securities 6,641,231
- ----------------------------------------------------------------------------
Change in unrealized gain (loss) on investment securities 10,486,004
- ----------------------------------------------------------------------------
Increase in variation margin receivable (266,125)
- ----------------------------------------------------------------------------
Increase in receivables and other assets (378,757)
- ----------------------------------------------------------------------------
Increase in accrued expenses and other payables 92,566
============================================================================
Net cash provided by operating activities 110,594,597
============================================================================
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from shares of beneficial interest sold 96,795,222
- ----------------------------------------------------------------------------
Disbursements from shares of beneficial interest
reacquired (69,474,465)
- ----------------------------------------------------------------------------
Increase in amount due to custodian 2,636,971
============================================================================
Net cash provided by financing activities 29,957,728
============================================================================
Net increase in cash and cash equivalents 140,552,325
============================================================================
Cash and cash equivalents at beginning of period 50,063,086
============================================================================
Cash and cash equivalents at end of period $190,615,411
____________________________________________________________________________
============================================================================
</Table>
See accompany Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Government Securities Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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,
AIM V.I. GOVERNMENT SECURITIES FUND
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. 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 transactions
by the Fund, fee income is agreed upon amongst the parties at the
commencement of the dollar roll. This fee 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. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are received or
made depending upon whether unrealized gains or losses are incurred. When
the contracts are closed, the Fund recognizes a realized gain or loss equal
to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to 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>
AIM V.I. GOVERNMENT SECURITIES 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 0.73% and Series
II shares to 0.98% of average daily net assets, through April 30, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $179,078.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $101,821 for
accounting and fund administrative services and reimbursed $1,023,693 for
services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $8,439.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $22,340.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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 the
affiliated money market fund for the six months ended June 30, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Government &
Agency
Portfolio-Institutional
Class $50,063,086 $306,418,589 $(165,866,264) $ -- $190,615,411 $3,451,653 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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
AIM V.I. GOVERNMENT SECURITIES FUND
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 six months ended June 30, 2006, the Fund paid legal fees of
$3,176 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--FUTURES CONTRACTS
On June 30, 2006, $1,200,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 6/30/06 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Note 136 Sept-06/Long $ 27,578,250 $(100,552)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Note 517 Sept-06/Long 53,461,031 (337,830)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Note 273 Sept-06/Long 28,626,609 199,119
=========================================================================================================================
$109,665,890 $(239,263)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 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.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $208,961,809 and $300,743,984, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 399,338
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,900,534)
==============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(16,501,196)
______________________________________________________________________________
==============================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 8,046,589 $ 95,503,293 20,898,858 $ 252,971,625
- -----------------------------------------------------------------------------------------------------------------------
Series II 99,868 1,178,580 608,696 7,319,396
=======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 2,216,750 26,201,982
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- 47,822 562,380
=======================================================================================================================
Reacquired:
Series I (5,617,210) (66,604,553) (8,720,788) (105,480,548)
- -----------------------------------------------------------------------------------------------------------------------
Series II (244,672) (2,885,130) (536,527) (6,449,802)
=======================================================================================================================
2,284,575 $ 27,192,190 14,514,811 $ 175,125,033
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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 88% of the
outstanding shares of the Fund. The Fund and the Funds'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, 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.
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 11.87 $ 12.07 $ 12.23 $ 12.40 $ 11.53 $ 11.16
- ---------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income(a) 0.26 0.45 0.40 0.36 0.49 0.59(b)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.27) (0.25) (0.09) (0.23) 0.61 0.12
===============================================================================================================
Total from investment
operations (0.01) 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 $ 11.86 $ 11.87 $ 12.07 $ 12.23 $ 12.40 $ 11.53
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(c) (0.08)% 1.66% 2.56% 1.07% 9.59% 6.41%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $840,889 $812,824 $652,226 $526,482 $428,322 $150,660
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average
net assets 0.72%(d)(e) 0.85%(e) 0.87% 0.76% 0.81% 1.08%(f)
===============================================================================================================
Ratio of net investment income
to average net assets 4.43%(d) 3.68% 3.20% 2.93% 4.01% 5.09%(b)(f)
===============================================================================================================
Ratio of interest expense to
average net assets --% 0.11% 0.09% 0.01% 0.01% 0.28%(f)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(g) 30% 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 Investments 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 net 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 purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$831,238,362.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.76% (annualized) and 0.88%, for the six months ended June 30, 2006
and the year ended December 31, 2005, respectively.
(f) Annualized.
(g) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------------------------------------
SEPTEMBER 19, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 11.81 $ 12.01 $ 12.17 $ 12.35 $ 11.52 $11.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.24 0.41 0.36 0.33 0.46 0.16
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.26) (0.24) (0.08) (0.22) 0.60 (0.14)
=================================================================================================================================
Total from investment
operations (0.02) 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 $ 11.79 $ 11.81 $ 12.01 $ 12.17 $ 12.35 $11.52
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.17)% 1.41% 2.27% 0.93% 9.25% 0.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $17,115 $18,863 $17,728 $22,325 $14,926 $ 946
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 0.97%(c)(d) 1.10%(d) 1.12% 1.01% 1.06% 1.41%(e)
=================================================================================================================================
Ratio of net investment income to
average net assets 4.18%(c) 3.43% 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%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 30% 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 annualized and based on average daily net assets of
$18,019,705
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.01% (annualized) and 1.13%, for the six months ended June 30, 2006
and the year ended December 31, 2005, respectively.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. HIGH YIELD FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. HIGH YIELD FUND seeks to achieve a high level of current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, is available at our Web
site. Go to AIMinvestments.com, access the About Us tab, click on Required
Notices and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
================================================================================
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark -- --Registered Trademark --
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. HIGH YIELD FUND
<Table>
MANAGEMENT'S DISCUSSION We also consider general economic and
OF FUND PERFORMANCE market trends in selecting securities for
====================================================================================== the portfolio. Changes in a security's
PERFORMANCE SUMMARY ========================================= risk profile or value and overall market
FUND VS. INDEXES conditions generally determine buy and
The high yield market proved resilient sell decisions.
during the six-month reporting period CUMULATIVE TOTAL RETURNS,
despite a volatile market environment. 12/31/05-6/30/06, EXCLUDING VARIABLE Measures we use to control risk
AIM V.I. High Yield Fund underperformed PRODUCT ISSUER CHARGES. include:
its style-specific benchmark largely
because of an underweight position in IF VARIABLE PRODUCT ISSUER CHARGES WERE o Limiting the portfolio's assets that
auto company bonds relative to the index. INCLUDED, RETURNS WOULD BE LOWER. are invested in any one security.
While auto company bonds finished the
reporting period as the best performing Series I Shares 2.49% o Diversifying Fund holdings over
industry, they were volatile. Your Fund different industries.
benefited from exposure to autos, Series II Shares 2.33
particularly from General Motors (GM), We consider selling a security if its
but not to the same degree as the index. Lehman Brothers U.S. Aggregate risk profile deteriorates or we determine
Uncertainty continued to linger over the Bond Index (Broad Market Index) -0.72 that there are other securities that are
auto industry. Ford and General Motors more attractive.
make up a larger share of the index than Lehman Brothers High Yield
managers believe is appropriate to Index (Style-Specific Index) 3.14 MARKET CONDITIONS AND YOUR FUND
maintain appropriate risk controls and
diversification for your Fund. Excluding Lipper High Current Yield Bond The U.S. Federal Reserve Board continued
variable product issuer charges, your Fund Index (Peer Group Index) 2.35 raising interest rates during the
Fund did outperform the reporting period to contain inflation.
SOURCE: LIPPER INC. While inflation figures were a cause of
========================================= some concern, many economists believed
that oil-price-surge-induced inflation
broad investment-grade market index would be transitory because labor costs
during the period as high yield bonds were contained due to global competition
generally outperformed their and because of record strong productivity
investment-grade counterparts. gains.
Your Fund's long-term performance U.S. high yield bonds generally
appears on page 4. outperformed their investment-grade
====================================================================================== counterparts during the reporting period.
In the first quarter of 2006, returns of
HOW WE INVEST principal without exposure to undue risk. the high yield market were boosted by
exposure to the larger issuers--FORD, GM
Your Fund invests primarily in We use a bottom-up approach to and QWEST (no longer a Fund holding).
lower-rated credit quality corporate investing, focusing on individual Despite the auto industry's
bonds. Our investment discipline focuses companies. Our analysts evaluate balance underperformance in February as a result
on providing attractive current income sheets and income statements to assess a of negative auto-supplier concerns, GM
for shareholders and consistent company's condition. We also seek to own benefited from the expected sale of GMAC,
performance within a framework designed securities that are attractively valued while Ford surprised some investors
to control volatility. Additionally, we relative to other high yield bonds and
seek growth of shareholders' within their respective industries.
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 ISSUERS*
By credit rating quality
AAA 9.8% 1. Wireless Telecommunication 1. General Motors Acceptance Corp. 3.8%
Services 5.9%
AA 0.4 2. Targeted Return Index
2. Consumer Finance 5.3 Securities Trust 2.7
A 0.4
3. Broadcasting & Cable TV 4.9 3. OM Group, Inc. 1.3
BB 24.0
4. Independent Power Producers 4. Novelis Inc. (Canada) 1.3
B 55.2 & Energy Traders 4.0
5 AES Corp. (The) 1.3
CCC 7.3 5. Paper Products 3.7
6. Goodyear Tire & Rubber Co.
NR 0.9 (The) 1.1
Equity 1.8 TOTAL NET ASSETS $53.8 MILLION 7. Warner Music Group 1.0
TOTAL NUMBER OF HOLDINGS* 227
Cash 9.6 8. Mark West Energy Partners
L.P./ Mark West Energy Finance
Corp.- Series B 1.0
Source for Credit Quality Rating: Moody's
and Standard & Poor's 9. Grupo Transportacion
Ferroviaria Mexicana, S.A.
de C.V. (Mexico) 1.0
10. Sonat Inc. 1.0
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
</Table>
2
AIM V.I. HIGH YIELD FUND
<Table>
with better than expected fourth quarter While the portfolio remained highly THE VIEWS AND OPINIONS EXPRESSED IN
2005 earnings results and its diversified to help mitigate volatility, MANAGEMENT'S DISCUSSION OF FUND
restructuring plan. High yield bond there were detractors from the Fund's PERFORMANCE ARE THOSE OF A I M ADVISORS,
returns were buoyed in April by the performance during the reporting period. INC. THESE VIEWS AND OPINIONS ARE SUBJECT
strength of equities and corporate ADELPHIA COMMUNICATIONS--a U.S. cable TO CHANGE AT ANY TIME BASED ON FACTORS
fundamentals. May generally produced television provider--was one of our SUCH AS MARKET AND ECONOMIC CONDITIONS.
negative returns for high yield bonds biggest detractors. Despite declines in THESE VIEWS AND OPINIONS MAY NOT BE
because of a volatile Treasury market, a Adelphia, we maintained our position as RELIED UPON AS INVESTMENT ADVICE OR
weakening commodity market and severe the company's assets have recently been RECOMMENDATIONS, OR AS AN OFFER FOR A
underperformance of equities. June marked acquired by Time Warner and Comcast. PARTICULAR SECURITY. THE INFORMATION IS
the worst performance of the high yield NOT A COMPLETE ANALYSIS OF EVERY ASPECT
market since October 2005. Despite strong Other detractors from Fund performance OF ANY MARKET, COUNTRY, INDUSTRY,
credit fundamentals, further volatility were SELECT MEDICAL, a specialty health SECURITY OR THE FUND. STATEMENTS OF FACT
in the equity market weighed heavily on care provider. This holding ARE FROM SOURCES CONSIDERED RELIABLE, BUT
high yield bonds, as did a heavy new underperformed in the first half of the A I M ADVISORS, INC. MAKES NO
issue calendar. period as a result of a proposed REPRESENTATION OR WARRANTY AS TO THEIR
government change to reimbursement plans COMPLETENESS OR ACCURACY. ALTHOUGH
During the reporting period, bonds for health care services. Other holdings HISTORICAL PERFORMANCE IS NO GUARANTEE OF
rated in the lowest credit quality that detracted from performance included FUTURE RESULTS, THESE INSIGHTS MAY HELP
category, those rated CCC and below, WOLVERINE TUBE, a manufacturer and YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
performed the best. We limited exposure distributor of copper and copper alloy PHILOSOPHY.
to these lower rated securities due to tubular products. We sold the holding.
the historically expensive levels of PETER EHRET,
these securities. This proved to be We continued to gradually decrease the Chartered Financial
detrimental to the Fund as our primary portfolio's exposure to lower rated Analyst, senior
focus remained on bonds rated B, one of bonds. We believe valuations for those [EHRET portfolio manager, is
the weaker performing categories. issues were less attractive as yields PHOTO] co-lead manager of
between higher and lower rated bonds have AIM V.I. High Yield
We increased our exposure to General continued to compress. BB-rated issues Fund. Mr. Ehret
Motors and GMAC near the middle of the tend to have a higher performance joined AIM in 2001.
reporting period, but maintained an correlation to U.S. Treasury securities. He graduated cum laude with a B.S. in
underweight position relative to the Because of concerns that Treasury yields economics from the University of
Fund's style-specific benchmark. While might continue to rise, we maintained a Minnesota. He also earned an M.S. in real
this exposure to the automobile industry focus on the less interest rate sensitive estate appraisal and investment analysis
had a positive impact on Fund B-rated area of the market. from the University of Wisconsin-Madison.
performance, our underweight position
relative to the style-specific benchmark Our limited exposure to longer
detracted from performance relative to maturity high yield securities compared CAROLYN GIBBS,
that index. However, the Fund's limited with our style-specific benchmark also Chartered Financial
exposure to the automotive and airline hurt comparative results. Longer maturity Analyst, senior
industries at the beginning of the high yield bonds outperformed portfolio manager, is
reporting period helped reduce intermediate high yield bonds during the [GIBBS co-lead manager of
volatility. reporting period. We generally limit PHOTO] AIM V.I. High Yield
positions in more volatile long-term Fund. Ms. Gibbs has
Other issuers that contributed bonds with higher credit risk, especially been in the
positively to performance for the period given the relatively low yield spread investment business
were DOLLAR FINANCIAL, a lending environment. since 1983. She
institution, and AMERICAN TOWER, a joined AIM in 1992. She graduated magna
cellular tower builder. ALAMOSA DELAWARE, IN CLOSING cum laude from Texas Christian
a convertible preferred bond holding, University, where she earned a B.A. in
also performed well during the period and We were encouraged by the resilience of English. She also earned an M.B.A. in
contributed positively to performance. the high yield market in the midst of finance from The Wharton School at the
This holding benefited from the company's volatile Treasury and equity markets. University of Pennsylvania.
pending sale. We sold the holding. During the reporting period, economic
NAVISTAR INTERNATIONAL, an growth remained robust and merger and
automotive/truck company, provided a acquisition activity for the asset class DARREN HUGHES,
meaningful return to the Fund at the continued at a rapid pace, providing a [HUGHES Chartered Financial
beginning of the period. Our analysis solid fundamental underpinning for the PHOTO] Analyst, senior
identified a special situation wherein we market. portfolio
believed the company would have to prepay manager, is manager of AIM V.I. High
debt substantially above existing trading We thank you for your continued Yield Fund. He joined AIM in 1992.
levels. We sold the holding. participation in AIM V.I. High Yield Mr. Hughes earned a B.B.A. in finance and
Fund. economics from Baylor University.
Assisted by Taxable High Yield 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 PAGE 4.
</Table>
3
AIM V.I. HIGH YIELD FUND
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS SHARE CLASSES WILL DIFFER PRIMARILY DUE ARE NOT INTENDED TO REFLECT ACTUAL
TO DIFFERENT CLASS EXPENSES. VARIABLE PRODUCT VALUES. THEY DO NOT
As of 6/30/06 REFLECT SALES CHARGES, EXPENSES AND FEES
THE PERFORMANCE DATA QUOTED REPRESENT ASSESSED IN CONNECTION WITH A VARIABLE
SERIES I SHARES PAST PERFORMANCE AND CANNOT GUARANTEE PRODUCT. SALES CHARGES, EXPENSES AND
Inception (5/1/98) 1.28% COMPARABLE FUTURE RESULTS; CURRENT FEES, WHICH ARE DETERMINED BY THE
5 Years 6.94 PERFORMANCE MAY BE LOWER OR HIGHER. VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 3.82 PLEASE CONTACT YOUR VARIABLE PRODUCT WILL LOWER THE TOTAL RETURN.
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
SERIES II SHARES RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST RECENT
Inception 1.05% PERFORMANCE. PERFORMANCE FIGURES REFLECT MONTH-END PERFORMANCE DATA AT THE FUND
5 Years 6.72 FUND EXPENSES, REINVESTED DISTRIBUTIONS LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 3.54 AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON THIS AIM
INVESTMENT RETURN AND PRINCIPAL VALUE AUTOMATED INFORMATION LINE, 866-702-4402.
========================================= WILL FLUCTUATE SO THAT YOU MAY HAVE A AS MENTIONED ABOVE, FOR THE MOST RECENT
GAIN OR LOSS WHEN YOU SELL SHARES. MONTH-END PERFORMANCE INCLUDING VARIABLE
PRODUCT CHARGES, PLEASE CONTACT YOUR
RETURNS SINCE MARCH 26, 2002, THE AIM V.I. HIGH YIELD FUND, A SERIES VARIABLE PRODUCT ISSUER OR FINANCIAL
INCEPTION DATE OF SERIES II SHARES, ARE PORTFOLIO OF AIM VARIABLE INSURANCE ADVISOR.
HISTORICAL. ALL OTHER RETURNS ARE THE FUNDS, IS CURRENTLY OFFERED THROUGH
BLENDED RETURNS OF THE HISTORICAL INSURANCE COMPANIES ISSUING VARIABLE
PERFORMANCE OF SERIES II SHARES SINCE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
THEIR INCEPTION AND THE RESTATED THE FUND DIRECTLY. PERFORMANCE FIGURES
HISTORICAL PERFORMANCE OF SERIES I SHARES GIVEN REPRESENT THE FUND AND
(FOR PERIODS PRIOR TO INCEPTION OF SERIES
II SHARES) ADJUSTED TO REFLECT THE RULE
12b-1 FEES APPLICABLE TO SERIES II
SHARES. THE INCEPTION DATE OF SERIES I
SHARES IS MAY 1, 1998. THE PERFORMANCE OF
THE FUND'S SERIES I AND SERIES II
PRINCIPAL RISKS OF INVESTING IN THE FUND Aggregate), which represents the U.S. OTHER INFORMATION
investment-grade fixed-rate bond market
Investing in higher-yielding, lower-rated (including government and corporate The average credit quality of the Fund's
corporate bonds, commonly known as junk securities, mortgage pass-through holdings as of the close of the reporting
bonds, has a greater risk of price securities and asset-backed securities), period represents the weighted average
fluctuation and loss of principal and is compiled by Lehman Brothers, a global quality rating of the securities in the
income than U.S. government securities investment bank. portfolio as assigned by Nationally
such as U.S. Treasury bills, notes and Recognized Statistical Rating
bonds. Treasuries are guaranteed by the The unmanaged LIPPER HIGH CURRENT Organizations based on assessment of the
government for repayment of principal and YIELD BOND FUND INDEX represents an credit quality of the individual
interest if held to maturity. Fund shares average of the 30 largest high-yield bond securities.
are not insured, and their value and funds tracked by Lipper Inc., an
yield will vary with market conditions. independent mutual fund performance The returns shown in management's
Investors should carefully assess the monitor. discussion of Fund performance are based
risk associated with investing in the on net asset values calculated for
Fund. The unmanaged LEHMAN BROTHERS HIGH shareholder transactions. Generally
YIELD INDEX, which represents the accepted accounting principles require
The Fund may invest up to 25% of its performance of high-yield debt adjustments to be made to the net assets
assets in the securities of non-U.S. securities, is compiled by Lehman of the Fund at period end for financial
issuers. International investing presents Brothers, a global investment bank. reporting purposes, and as such, the net
risks not associated with investing asset values for shareholder transactions
solely in the United States. These The Fund is not managed to track the and the returns based on those net asset
include risks relating to the fluctuation performance of any particular index, values may differ from the net asset
in the value of the U.S. dollar relative including the indexes defined here, and values and returns reported in the
to the values of the currencies, the consequently, the performance of the Fund Financial Highlights. Additionally, the
custody arrangements made for the Fund's may deviate significantly from the returns and net asset values shown
foreign holdings, differences in performance of the indexes. throughout this report are at the Fund
accounting, political risks and the level only and do not include variable
lesser degree of public information A direct investment cannot be made in product issuer charges. If such charges
required to be provided by non-U.S. an index. Unless otherwise indicated, were included, the total returns would be
companies. index results include reinvested lower.
dividends, and they do not reflect sales
ABOUT INDEXES USED IN THIS REPORT charges. Performance of an index of funds
reflects fund expenses; performance of a
The unmanaged LEHMAN BROTHERS U.S. market index does not.
AGGREGATE BOND INDEX (the Lehman
</Table>
4
AIM V.I. HIGH YIELD FUND
<Table>
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 fees; about actual account values and actual value after expenses for the six months
distribution and/or service fees (12b-1); expenses. You may use the information in ended June 30, 2006, appear in the table
and other Fund expenses. This example is this table, together with the amount you "Fund vs. Indexes" on page 2.
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 January 1, 2006, through Paid During Period" to estimate the TO DO SO, COMPARE THIS 5% HYPOTHETICAL
June 30, 2006. 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 COMPARISON
the effect of any fees or other expenses 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,024.90 $4.82 $1,020.03 $4.81 0.96%
Series II 1,000.00 1,023.30 6.07 1,018.79 6.06 1.21
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through
June 30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's
expense ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset
value after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
5
AIM V.I. HIGH YIELD FUND
<Table>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the performance, which did not change their
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and conclusions.
the management of AIM V.I. High Yield that AIM currently is providing services
Fund (the "Fund") and, as required by in accordance with the terms of the o Meetings with the Fund's portfolio
law, determines annually whether to Advisory Agreement. managers and investment personnel. With
approve the continuance of the Fund's respect to the Fund, the Board is meeting
advisory agreement with A I M Advisors, o The quality of services to be provided periodically with such Fund's portfolio
Inc. ("AIM"). Based upon the by AIM. The Board reviewed the managers and/or other investment
recommendation of the Investments credentials and experience of the personnel and believes that such
Committee of the Board, at a meeting held officers and employees of AIM who will individuals are competent and able to
on June 27, 2006, the Board, including provide investment advisory services to continue to carry out their
all of the independent trustees, approved the Fund. In reviewing the qualifications responsibilities under the Advisory
the continuance of the advisory agreement of AIM to provide investment advisory Agreement.
(the "Advisory Agreement") between the services, the Board considered such
Fund and AIM for another year, effective issues as AIM's portfolio and product o Overall performance of AIM. The Board
July 1, 2006. review process, various back office considered the overall performance of AIM
support functions provided by AIM and in providing investment advisory and
The Board considered the factors AIM's equity and fixed income trading portfolio administrative services to the
discussed below in evaluating the operations. Based on the review of these Fund and concluded that such performance
fairness and reasonableness of the and other factors, the Board concluded was satisfactory.
Advisory Agreement at the meeting on that the quality of services to be
June 27, 2006 and as part of the Board's provided by AIM was appropriate and that o Fees relative to those of clients of
ongoing oversight of the Fund. In their AIM currently is providing satisfactory AIM with comparable investment
deliberations, the Board and the services in accordance with the terms of strategies. The Board reviewed the
independent trustees did not identify any the Advisory Agreement. effective advisory fee rate (before
particular factor that was controlling, waivers) for the Fund under the Advisory
and each trustee attributed different o The performance of the Fund relative to Agreement. The Board noted that this rate
weights to the various factors. comparable funds. The Board reviewed the was (i) above the effective advisory fee
performance of the Fund during the past rate (before waivers) for a mutual fund
One responsibility of the independent one, three and five calendar years advised by AIM with investment strategies
Senior Officer of the Fund is to manage against the performance of funds advised comparable to those of the Fund; and (ii)
the process by which the Fund's proposed by other advisors with investment above the effective sub-advisory fee rate
management fees are negotiated to ensure strategies comparable to those of the for one offshore fund advised and
that they are negotiated in a manner Fund. The Board noted that the Fund's sub-advised by AIM affiliates with
which is at arms' length and reasonable. performance was above the median investment strategies comparable to those
To that end, the Senior Officer must performance of such comparable funds for of the Fund, although the total advisory
either supervise a competitive bidding the one and three year periods and below fees for such offshore fund were
process or prepare an independent written such median performance for the five year comparable to those for the Fund. The
evaluation. The Senior Officer has period. Based on this review and after Board noted that AIM has agreed to limit
recommended an independent written taking account of all of the other the Fund's total operating expenses, as
evaluation in lieu of a competitive factors that the Board considered in discussed below. Based on this review,
bidding process and, upon the direction determining whether to continue the the Board concluded that the advisory fee
of the Board, has prepared such an Advisory Agreement for the Fund, the rate for the Fund under the Advisory
independent written evaluation. Such Board concluded that no changes should be Agreement was fair and reasonable.
written evaluation also considered made to the Fund and that it was not
certain of the factors discussed below. necessary to change the Fund's portfolio o Fees relative to those of comparable
In addition, as discussed below, the management team at this time. Although funds with other advisors. The Board
Senior Officer made a recommendation to the independent written evaluation of the reviewed the advisory fee rate for the
the Board in connection with such written Fund's Senior Officer (discussed below) Fund under the Advisory Agreement. The
evaluation. only considered Fund performance through Board compared effective contractual
the most recent calendar year, the Board advisory fee rates at a common asset
The discussion below serves as a also reviewed more recent Fund level at the end of the past calendar
summary of the Senior Officer's performance, which did not change their year and noted that the Fund's rate was
independent written evaluation and conclusions. comparable to the median rate of the
recommendation to the Board in connection funds advised by other advisors with
therewith, as well as a discussion of the o The performance of the Fund relative to investment strategies comparable to those
material factors and the conclusions with indices. The Board reviewed the of the Fund that the Board reviewed. The
respect thereto that formed the basis for performance of the Fund during the past Board noted that AIM has agreed to limit
the Board's approval of the Advisory one, three and five calendar years the Fund's total operating expenses, as
Agreement. After consideration of all of against the performance of the Lipper discussed below. Based on this review,
the factors below and based on its Variable Underlying Fund High Yield the Board concluded that the advisory fee
informed business judgment, the Board Index. The Board noted that the Fund's rate for the Fund under the Advisory
determined that the Advisory Agreement is performance for the one and three year Agreement was fair and reasonable.
in the best interests of the Fund and its periods was comparable to the performance
shareholders and that the compensation to of such Index and below such Index for o Expense limitations and fee waivers.
AIM under the Advisory Agreement is fair the five year period. Based on this The Board noted that AIM has
and reasonable and would have been review and after taking account of all of contractually agreed to waive fees and/or
obtained through arm's length the other factors that the Board limit expenses of the Fund through April
negotiations. considered in determining whether to 30, 2008 in an amount necessary to limit
continue the Advisory Agreement for the total annual operating expenses to a
Unless otherwise stated, information Fund, the Board concluded that no changes specified percentage of average daily net
presented below is as of June 27, 2006 should be made to the Fund and that it assets for each class of the Fund. The
and does not reflect any changes that may was not necessary to change the Fund's Board considered the contractual nature
have occurred since June 27, 2006, portfolio management team at this time. of this fee waiver/expense limitation and
including but not limited to changes to Although the independent written noted that it remains in effect until
the Fund's performance, advisory fees, evaluation of the Fund's Senior Officer April 30, 2008. The Board considered the
expense limitations and/or fee waivers. (discussed below) only considered Fund effect this fee waiver/expense limitation
performance through the most recent would have on the Fund's estimated
o The nature and extent of the advisory calendar year, the Board also reviewed expenses and concluded that the levels of
services to be provided by AIM. The Board more recent Fund fee waivers/expense limitations for the
reviewed the services to be provided by Fund were fair and reasonable.
AIM under the Advisory Agreement. Based
on such review, the Board concluded that
the range of (continued)
</Table>
6
AIM V.I. HIGH YIELD FUND
<Table>
o Breakpoints and economies of scale. The o Profitability of AIM and its o Other factors and current trends. The
Board reviewed the structure of the affiliates. The Board reviewed Board considered the steps that AIM and
Fund's advisory fee under the Advisory information concerning the profitability its affiliates have taken over the last
Agreement, noting that it includes three of AIM's (and its affiliates') investment several years, and continue to take, in
breakpoints. The Board reviewed the level advisory and other activities and its order to improve the quality and
of the Fund's advisory fees, and noted financial condition. The Board considered efficiency of the services they provide
that such fees, as a percentage of the the overall profitability of AIM, as well to the Funds in the areas of investment
Fund's net assets, would decrease as net as the profitability of AIM in connection performance, product line
assets increase because the Advisory with managing the Fund. The Board noted diversification, distribution, fund
Agreement includes breakpoints. The Board that AIM's operations remain profitable, operations, shareholder services and
noted that, due to the Fund's asset although increased expenses in recent compliance. The Board concluded that
levels at the end of the past calendar years have reduced AIM's profitability. these steps taken by AIM have improved,
year and the way in which the advisory Based on the review of the profitability and are likely to continue to improve,
fee breakpoints have been structured, the of AIM's and its affiliates' investment the quality and efficiency of the
Fund has yet to benefit from the advisory and other activities and its services AIM and its affiliates provide
breakpoints. The Board concluded that the financial condition, the Board concluded to the Fund in each of these areas, and
Fund's fee levels under the Advisory that the compensation to be paid by the support the Board's approval of the
Agreement therefore would reflect Fund to AIM under its Advisory Agreement continuance of the Advisory Agreement for
economies of scale at higher asset levels was not excessive. the Fund.
and that it was not necessary to change
the advisory fee breakpoints in the o Benefits of soft dollars to AIM. The
Fund's advisory fee schedule. Board considered the benefits realized by
AIM as a result of brokerage transactions
o Investments in affiliated money market executed through "soft dollar"
funds. The Board also took into account arrangements. Under these arrangements,
the fact that uninvested cash and cash brokerage commissions paid by the Fund
collateral from securities lending and/or other funds advised by AIM are
arrangements, if any (collectively, "cash used to pay for research and execution
balances") of the Fund may be invested in services. This research may be used by
money market funds advised by AIM AIM in making investment decisions for
pursuant to the terms of an SEC exemptive the Fund. The Board concluded that such
order. The Board found that the Fund may arrangements were appropriate.
realize certain benefits upon investing
cash balances in AIM advised money market o AIM's financial soundness in light of
funds, including a higher net return, the Fund's needs. The Board considered
increased liquidity, increased whether AIM is financially sound and has
diversification or decreased transaction the resources necessary to perform its
costs. The Board also found that the Fund obligations under the Advisory Agreement,
will not receive reduced services if it and concluded that AIM has the financial
invests its cash balances in such money resources necessary to fulfill its
market funds. The Board noted that, to obligations under the Advisory Agreement.
the extent the Fund invests uninvested
cash in affiliated money market funds, o Historical relationship between the
AIM has voluntarily agreed to waive a Fund and AIM. In determining whether to
portion of the advisory fees it receives continue the Advisory Agreement for the
from the Fund attributable to such Fund, the Board also considered the prior
investment. The Board further determined relationship between AIM and the Fund, as
that the proposed securities lending well as the Board's knowledge of AIM's
program and related procedures with operations, and concluded that it was
respect to the lending Fund is in the beneficial to maintain the current
best interests of the lending Fund and relationship, in part, because of such
its respective shareholders. The Board knowledge. The Board also reviewed the
therefore concluded that the investment general nature of the non-investment
of cash collateral received in connection advisory services currently performed by
with the securities lending program in AIM and its affiliates, such as
the money market funds according to the administrative, transfer agency and
procedures is in the best interests of distribution services, and the fees
the lending Fund and its respective received by AIM and its affiliates for
shareholders. performing such services. In addition to
reviewing such services, the trustees
o Independent written evaluation and also considered the organizational
recommendations of the Fund's Senior structure employed by AIM and its
Officer. The Board noted that, upon their affiliates to provide those services.
direction, the Senior Officer of the Based on the review of these and other
Fund, who is independent of AIM and AIM's factors, the Board concluded that AIM and
affiliates, had prepared an independent its affiliates were qualified to continue
written evaluation in order to assist the to provide non-investment advisory
Board in determining the reasonableness services to the Fund, including
of the proposed management fees of the administrative, transfer agency and
AIM Funds, including the Fund. The Board distribution services, and that AIM and
noted that the Senior Officer's written its affiliates currently are providing
evaluation had been relied upon by the satisfactory non-investment advisory
Board in this regard in lieu of a services.
competitive bidding process. In
determining whether to continue the
Advisory Agreement for the Fund, the
Board considered the Senior Officer's
written evaluation.
</Table>
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BONDS & NOTES-83.17%
AEROSPACE & DEFENSE-2.05%
Argo-Tech Corp., Sr. Unsec. Gtd. Global
Notes, 9.25%, 06/01/11(a) $ 261,000 $ 270,135
- -----------------------------------------------------------------------
Armor Holdings, Inc., Sr. Sub. Global Notes,
8.25%, 08/15/13(a)(b) 160,000 166,400
- -----------------------------------------------------------------------
DRS Technologies, Inc.,
Sr. Gtd. Notes,
6.63%, 02/01/16(a) 165,000 157,987
- -----------------------------------------------------------------------
Sr. Unsec. Putable Notes,
2.00%, 02/01/11 (Acquired 01/30/06; Cost
$110,000)(a)(c) 110,000 109,175
- -----------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Global Notes,
6.75%, 02/01/15(a) 162,000 152,280
- -----------------------------------------------------------------------
L-3 Communications Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
6.13%, 01/15/14(a) 84,000 80,220
- -----------------------------------------------------------------------
-Series B,
Sr. Unsec. Gtd. Sub. Global Notes,
6.38%, 10/15/15(a) 103,000 98,623
- -----------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11(a) 64,000 66,960
=======================================================================
1,101,780
=======================================================================
ALTERNATIVE CARRIERS-0.79%
Hughes Network Systems LLC/HNS Finance Corp.,
Sr. Notes,
9.50%, 04/15/14
(Acquired 04/06/06; Cost $105,000)(a)(c) 105,000 104,475
- -----------------------------------------------------------------------
Level 3 Financing Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
10.75%, 10/15/11(a)(b) 310,000 322,400
=======================================================================
426,875
=======================================================================
ALUMINUM-1.49%
Century Aluminum Co., Sr. Unsec. Gtd. Global
Notes, 7.50%, 08/15/14(a) 103,000 103,386
- -----------------------------------------------------------------------
Novelis Inc. (Canada), Sr. Notes,
7.25%, 02/15/15
(Acquired 05/05/06-06/21/06; Cost
$698,063)(a)(c) 725,000 699,625
=======================================================================
803,011
=======================================================================
APPAREL RETAIL-1.47%
Mothers Work Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10(a) 400,000 418,000
- -----------------------------------------------------------------------
Payless ShoeSource, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.25%, 08/01/13(a) 360,000 374,400
=======================================================================
792,400
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
APPAREL, ACCESSORIES & LUXURY GOODS-1.60%
Broder Brothers Co.-Series B,
Sr. Unsec. Gtd. Global Notes,
11.25%, 10/15/10(a) $ 351,000 $ 328,185
- -----------------------------------------------------------------------
Levi Strauss & Co., Sr. Notes,
8.88%, 04/01/16
(Acquired 06/15/06-06/29/06; Cost
$205,931)(a)(c) 215,000 206,400
- -----------------------------------------------------------------------
Perry Ellis International, Inc.-Series B, Sr.
Sub. Global Notes,
8.88%, 09/15/13(a) 212,000 208,820
- -----------------------------------------------------------------------
Warnaco Inc., Sr. Unsec. Global Notes, 8.88%,
06/15/13(a) 117,000 119,340
=======================================================================
862,745
=======================================================================
AUTO PARTS & EQUIPMENT-1.80%
Autocam Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 10.88%, 06/15/14(a) 91,000 56,193
- -----------------------------------------------------------------------
Cooper-Standard Automotive, Inc., Sr. Unsec.
Gtd. Global Notes,
7.00%, 12/15/12(a) 210,000 189,000
- -----------------------------------------------------------------------
Delphi Corp., Global Notes,
6.50%, 05/01/09(a)(d) 105,000 88,069
- -----------------------------------------------------------------------
Tenneco Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.63%, 11/15/14(a)(b) 160,000 160,400
- -----------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13(a) 198,000 210,870
- -----------------------------------------------------------------------
Visteon Corp., Sr. Unsec. Global Notes,
8.25%, 08/01/10(a) 285,000 265,762
=======================================================================
970,294
=======================================================================
AUTOMOBILE MANUFACTURERS-0.41%
General Motors Corp., Global Notes,
7.20%, 01/15/11(a) 250,000 222,500
=======================================================================
BROADCASTING & CABLE TV-4.72%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(a)(d) 178,000 97,900
- -----------------------------------------------------------------------
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)(c) 223,000 222,442
- -----------------------------------------------------------------------
CSC Holdings, Inc.-Series B, Sr. Unsec.
Unsub. Notes, 7.63%, 04/01/11(a) 382,000 383,910
- -----------------------------------------------------------------------
Echostar DBS Corp., Sr. Unsec. Gtd. Global
Notes, 6.38%, 10/01/11(a) 150,000 144,188
- -----------------------------------------------------------------------
Intelsat Subsidiary Holding Co. Ltd.
(Bermuda), Sr. Global Notes,
8.25%, 01/15/13(a) 407,000 405,982
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Mediacom Broadband LLC/ Mediacom Broadband
Corp., Sr. Global Notes,
8.50%, 10/15/15(a) $ 155,000 $ 150,350
- -----------------------------------------------------------------------
NTL Cable PLC, Sr. Unsec. Gtd. Global Notes,
8.75%, 04/15/14(a) 180,000 178,650
- -----------------------------------------------------------------------
Rainbow National Services LLC, Sr. Notes,
8.75%, 09/01/12
(Acquired 08/13/04-05/09/06; Cost
$476,371)(a)(c) 463,000 488,465
- -----------------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.00%, 03/15/12(a) 120,000 122,100
- -----------------------------------------------------------------------
Videotron Ltee (Canada), Sr. Unsec. Gtd.
Global Notes, 6.88%, 01/15/14(a) 212,000 202,460
- -----------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Floating Rate
Notes, 9.65%, 05/01/13
(Acquired 04/21/06; Cost $155,000)(a)(c)(e) 155,000 142,988
=======================================================================
2,539,435
=======================================================================
BUILDING PRODUCTS-0.79%
Indalex Holding Corp., Sr. Sec. Notes,
11.50%, 02/01/14 (Acquired
01/30/06-04/28/06; Cost $407,112)(a)(c) 415,000 425,375
=======================================================================
CASINOS & GAMING-2.25%
Boyd Gaming Corp., Sr. Sub. Global Notes,
6.75%, 04/15/14(a) 207,000 197,426
- -----------------------------------------------------------------------
MGM Mirage, Sr. Unsec. Gtd. Global Notes,
6.63%, 07/15/15(a) 273,000 256,620
- -----------------------------------------------------------------------
Penn National Gaming, Inc.,
Sr. Unsec. Sub. Global Notes,
6.75%, 03/01/15(a) 199,000 188,055
- -----------------------------------------------------------------------
Poster Financial Group, Inc., Sr. Sec. Global
Notes, 8.75%, 12/01/11(a) 324,000 337,770
- -----------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11(a) 104,000 109,980
- -----------------------------------------------------------------------
Seneca Gaming Corp., Sr. Global Notes, 7.25%,
05/01/12(a) 124,000 121,365
=======================================================================
1,211,216
=======================================================================
COMMODITY CHEMICALS-1.01%
Basell AF SCA (Luxembourg), Sr. Sec. Gtd.
Sub. Notes, 8.38%, 08/15/15 (Acquired
05/18/06; Cost $153,644)(a)(c) 155,000 149,963
- -----------------------------------------------------------------------
BCP Crystal US Holdings Corp., Sr. Sub.
Global Notes, 9.63%, 06/15/14(a) 111,000 119,880
- -----------------------------------------------------------------------
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)(c) 297,000 274,725
=======================================================================
544,568
=======================================================================
COMMUNICATIONS EQUIPMENT-0.60%
MasTec, Inc.-Series B, Sr. Sub. Notes, 7.75%,
02/01/08(a) 325,000 325,000
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
CONSTRUCTION & ENGINEERING-0.27%
Great Lakes Dredge & Dock Corp., Sr. Unsec.
Gtd. Sub. Global Notes,
7.75%, 12/15/13(a) $ 156,000 $ 144,300
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.68%
Case New Holland Inc., Sr. Gtd. Global Notes,
9.25%, 08/01/11(a) 170,000 179,775
- -----------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13(a) 190,000 186,200
=======================================================================
365,975
=======================================================================
CONSTRUCTION MATERIALS-1.02%
Goodman Global Holding Co., Inc., Sr. Unsec.
Sub. Global Notes,
7.88%, 12/15/12(a) 49,000 47,652
- -----------------------------------------------------------------------
RMCC Acquisition Co., Sr. Sub. Notes,
9.50%, 11/01/12
(Acquired 10/28/04-01/03/06; Cost
$178,150)(a)(c) 178,000 186,455
- -----------------------------------------------------------------------
U.S. Concrete, Inc.,
Sr. Sub. Notes,
8.38%, 04/01/14
(Acquired 06/29/06; Cost $108,086)(a)(c) 110,000 108,900
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
8.38%, 04/01/14(a) 205,000 202,694
=======================================================================
545,701
=======================================================================
CONSUMER FINANCE-5.29%
Dollar Financial Group, Inc., Sr. Gtd. Global
Notes, 9.75%, 11/15/11(a) 327,000 353,160
- -----------------------------------------------------------------------
Ford Motor Credit Co., Notes,
6.63%, 06/16/08(a) 454,000 434,592
- -----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds,
8.00%, 11/01/31(a) 605,000 582,312
- -----------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06(a) 55,000 54,986
- -----------------------------------------------------------------------
6.13%, 09/15/06(a) 390,000 390,000
- -----------------------------------------------------------------------
6.75%, 12/01/14(a)(b) 310,000 289,952
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes,
5.85%, 01/14/09(a) 570,000 550,158
- -----------------------------------------------------------------------
Series GM,
Sr. Medium Term Notes,
6.31%, 11/30/07(a) 198,000 192,549
=======================================================================
2,847,709
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.18%
Worldspan L.P./WS Financing Corp., Sr. Sec.
Gtd. Floating Rate Global Second Lien
Notes, 11.42%, 02/15/11(a)(e) 100,000 97,000
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
DISTILLERS & VINTNERS-0.13%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes,
8.13%, 01/15/12(a) $ 68,000 $ 70,465
=======================================================================
DIVERSIFIED CHEMICALS-1.01%
Ineos Group Holdings PLC (United Kingdom),
Notes, 8.50%, 02/15/16 (Acquired
03/08/06-05/10/06; Cost $296,638)(a)(b)(c) 310,000 293,725
- -----------------------------------------------------------------------
Innophos Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/15/14(a) 250,000 248,125
=======================================================================
541,850
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.57%
Corrections Corp. of America, Sr. Unsec. Gtd.
Sub. Global Notes,
6.25%, 03/15/13(a) 171,000 162,664
- -----------------------------------------------------------------------
GEO Group, Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13(a) 143,000 143,715
=======================================================================
306,379
=======================================================================
DIVERSIFIED METALS & MINING-0.31%
Aleris International Inc., Sr. Sec. Gtd.
Global Notes, 10.38%, 10/15/10(a) 155,000 167,788
=======================================================================
DRUG RETAIL-0.87%
Jean Coutu Group (PJC) Inc. (The) (Canada),
Sr. Unsec. Global Notes,
7.63%, 08/01/12(a) 238,000 231,157
- -----------------------------------------------------------------------
Rite Aid Corp.,
Sr. Sec. Gtd. Second Lien Global Notes,
8.13%, 05/01/10(a) 103,000 104,159
- -----------------------------------------------------------------------
Unsec. Notes,
6.13%, 12/15/08 (Acquired
09/15/05-03/10/06; Cost $129,204)(a)(c) 137,000 134,089
=======================================================================
469,405
=======================================================================
ELECTRIC UTILITIES-2.52%
Dynegy Holdings Inc., Sr. Unsec. Notes,
8.38%, 05/01/16 (Acquired 03/29/06; Cost
$185,000)(a)(c) 185,000 183,150
- -----------------------------------------------------------------------
Edison Mission Energy, Sr. Notes,
7.75%, 06/15/16
(Acquired 05/19/06; Cost $155,000)(a)(c) 155,000 152,675
- -----------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds,
7.16%, 01/15/14(a) 189,164 190,110
- -----------------------------------------------------------------------
Midwest Generation, LLC, Sr. Sec. Second
Priority Putable Global Notes,
8.75%, 05/01/34(a) 250,000 266,875
- -----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(a) 331,000 371,548
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-(CONTINUED)
Nevada Power Co., General Refunding Mortgage
Notes, 5.95%, 03/15/16 (Acquired 01/10/06;
Cost $54,858)(a)(c) $ 55,000 $ 51,820
- -----------------------------------------------------------------------
Reliant Energy Inc., Sr. Sec. Gtd. Notes,
6.75%, 12/15/14(a) 150,000 139,125
=======================================================================
1,355,303
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.12%
Allied Waste North America, Inc.-Series B,
Sr. Sec. Gtd. Global Notes,
8.50%, 12/01/08(a) 294,000 305,025
- -----------------------------------------------------------------------
Allied Waste North America Inc., Sr. Sec.
Notes, 7.13%, 05/15/16 (Acquired 05/04/06;
Cost $307,349)(a)(c) 310,000 294,500
=======================================================================
599,525
=======================================================================
FOOD RETAIL-0.22%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes,
8.25%, 07/15/10(a) 115,000 119,888
=======================================================================
FOREST PRODUCTS-0.54%
Ainsworth Lumber Co. Ltd. (Canada), Sr.
Unsec. Yankee Notes,
6.75%, 03/15/14(a) 53,000 41,207
- -----------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Global Notes,
7.75%, 11/15/13(a) 322,000 246,330
=======================================================================
287,537
=======================================================================
GAS UTILITIES-0.24%
SEMCO Energy, Inc.,
Sr. Global Notes,
7.75%, 05/15/13(a) 68,000 68,340
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes,
7.13%, 05/15/08(a) 60,000 59,850
=======================================================================
128,190
=======================================================================
GENERAL MERCHANDISE STORES-0.25%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 135,000 134,325
=======================================================================
HEALTH CARE FACILITIES-2.96%
Concentra Operating Corp., Sr. Unsec. Gtd.
Sub. Global Notes,
9.13%, 06/01/12(a) 147,000 152,880
- -----------------------------------------------------------------------
HCA, Inc.,
Global Bonds,
6.50%, 02/15/16(a) 165,000 153,392
- -----------------------------------------------------------------------
Notes,
7.50%, 11/06/33(a) 165,000 152,454
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.38%, 01/15/15(a) 110,000 102,409
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
Healthsouth Corp., Sr. Notes,
10.75%, 06/15/16 (Acquired 06/09/06; Cost
$147,758)(a)(c) $ 150,000 $ 148,500
- -----------------------------------------------------------------------
Select Medical Corp.,
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%,
02/01/15(a) 338,000 294,060
- -----------------------------------------------------------------------
Tenet Healthcare Corp.,
Sr. Global Notes,
9.88%, 07/01/14(a) 72,000 72,540
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
6.38%, 12/01/11(a) 409,000 366,055
- -----------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Unsec. Sub. Notes,
7.00%, 11/15/13(a) 155,000 151,125
=======================================================================
1,593,415
=======================================================================
HEALTH CARE SERVICES-2.24%
AmeriPath, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.50%, 04/01/13(a) 305,000 321,012
- -----------------------------------------------------------------------
Omnicare, Inc., Sr. Sub. Notes,
6.88%, 12/15/15(a) 165,000 158,813
- -----------------------------------------------------------------------
Rural/Metro Corp., Sr. Gtd. Sub. Global
Notes, 9.88%, 03/15/15(a) 56,000 58,170
- -----------------------------------------------------------------------
Universal Hospital Services Inc.,
Sr. Unsec. Global Notes,
10.13%, 11/01/11(a) 345,000 358,368
- -----------------------------------------------------------------------
US Oncology, Inc., Sr. Unsec. Gtd. Global
Notes, 9.00%, 08/15/12(a) 295,000 308,644
=======================================================================
1,205,007
=======================================================================
HEALTH CARE SUPPLIES-0.28%
Inverness Medical Innovations, Inc.,
Sr. Sub. Global Notes,
8.75%, 02/15/12(a) 155,000 151,125
=======================================================================
HOMEBUILDING-0.30%
Technical Olympic USA, Inc.,
Sr. Unsec. Gtd. Global Notes,
9.00%, 07/01/10(a) 163,000 158,314
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.94%
Grupo Posadas S.A. de C.V. (Mexico), Sr.
Notes, 8.75%, 10/04/11 (Acquired 09/27/04;
Cost $183,000)(a)(c) 183,000 184,601
- -----------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Global
Notes, 7.50%, 10/15/13(a) 260,000 260,000
- -----------------------------------------------------------------------
NCL Corp., Sr. Unsub. Global Notes, 10.63%,
07/15/14(a) 426,000 420,675
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes,
7.88%, 05/01/12(a) 172,000 179,525
=======================================================================
1,044,801
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
HOUSEHOLD APPLIANCES-0.09%
Gregg Appliances Inc., Sr. Unsec. Gtd. Global
Notes, 9.00%, 02/01/13(a) $ 53,000 $ 48,959
=======================================================================
HOUSEHOLD PRODUCTS-0.19%
Spectrum Brands, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.38%, 02/01/15(a) 125,000 101,563
=======================================================================
HOUSEWARES & SPECIALTIES-0.68%
Jarden Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.75%, 05/01/12(a) 255,000 262,650
- -----------------------------------------------------------------------
Johnsondiversey Inc.-Series B, Sr. Unsec.
Gtd. Sub. Global Notes,
9.63%, 05/15/12(a) 105,000 105,262
=======================================================================
367,912
=======================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-3.03%
AES Corp. (The),
Sr. Sec. Second Priority Notes,
8.75%, 05/15/13 (Acquired
04/13/06-04/27/06; Cost $287,794)(a)(c) 265,000 284,875
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
7.75%, 03/01/14(a) 396,000 399,960
- -----------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) 349,708 370,690
- -----------------------------------------------------------------------
Mirant North America LLC, Sr. Notes,
7.38%, 12/31/13
(Acquired 12/20/05-06/15/06; Cost
$268,813)(a)(c) 270,000 263,250
- -----------------------------------------------------------------------
NRG Energy, Inc.,
Sr. Unsec. Gtd. Notes,
7.25%, 02/01/14(a) 160,000 156,400
- -----------------------------------------------------------------------
7.38%, 02/01/16(a) 160,000 156,400
=======================================================================
1,631,575
=======================================================================
INDUSTRIAL CONGLOMERATES-0.38%
TransDigm Inc., Sr. Sub. Notes,
7.75%, 07/15/14
(Acquired 06/20/06; Cost $205,000)(a)(c) 205,000 205,000
=======================================================================
INDUSTRIAL MACHINERY-0.42%
Columbus McKinnon Corp., Sr. Sub. Global
Notes, 8.88%, 11/01/13(a) 218,000 223,450
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.78%
Empresa Brasileira de Telecommunicacoes S.A.
(Brazil)-Series B, Gtd. Global Notes,
11.00%, 12/15/08(a) 216,000 234,090
- -----------------------------------------------------------------------
Hawaiian Telcom Communications Inc.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 12.50%,
05/01/15(a)(b) 200,000 210,500
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Madison River Capital, LLC/Madison River
Finance Corp., Sr. Unsec. Notes,
13.25%, 03/01/10(a) $ 100,000 $ 104,688
- -----------------------------------------------------------------------
Windstream Corp., Sr. Notes,
8.13%, 08/01/13
(Acquired 06/28/06; Cost $400,000)(a)(c) 400,000 410,000
=======================================================================
959,278
=======================================================================
METAL & GLASS CONTAINERS-1.02%
Greif, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12(a) 263,000 278,122
- -----------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Sec. Gtd. Global Notes,
8.75%, 11/15/12(a) 203,000 211,374
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
8.25%, 05/15/13(a) 56,000 56,700
=======================================================================
546,196
=======================================================================
MOVIES & ENTERTAINMENT-1.83%
AMC Entertainment Inc.,
Sr. Unsec. Sub. Global Notes,
9.88%, 02/01/12(a) 133,000 133,000
- -----------------------------------------------------------------------
-Series B,
Sr. Unsec. Gtd. Sub. Global Notes,
8.63%, 08/15/12(a)(b) 165,000 170,362
- -----------------------------------------------------------------------
Cinemark Inc., Sr. Unsec. Disc. Global Notes,
9.75%, 03/15/14(a)(g) 150,000 117,375
- -----------------------------------------------------------------------
Warner Music Group, Sr. Sub. Global Notes,
7.38%, 04/15/14(a) 578,000 562,105
=======================================================================
982,842
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.91%
Basic Energy Services Inc., Sr. Notes,
7.13%, 04/15/16
(Acquired 04/07/06; Cost $55,000)(a)(c) 55,000 51,150
- -----------------------------------------------------------------------
CHC Helicopter Corp. (Canada), Sr. Sub.
Global Notes, 7.38%, 05/01/14(a) 235,000 227,656
- -----------------------------------------------------------------------
Hanover Compressor Co., Sr. Notes,
9.00%, 06/01/14(a) 106,000 112,890
- -----------------------------------------------------------------------
PHI Inc., Sr. Notes,
7.13%, 04/15/13
(Acquired 04/07/06; Cost $105,000)(a)(c) 105,000 98,700
=======================================================================
490,396
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
OIL & GAS EXPLORATION & PRODUCTION-2.07%
Clayton Williams Energy, Inc.,
Sr. Unsec. Gtd. Global Notes,
7.75%, 08/01/13(a) $ 312,000 $ 288,600
- -----------------------------------------------------------------------
Delta Petroleum Corp., Sr. Unsec. Gtd. Global
Notes, 7.00%, 04/01/15(a) 100,000 93,500
- -----------------------------------------------------------------------
Paramount Resources Ltd. (Canada), Sr. Unsec.
Unsub. Yankee Notes,
8.50%, 01/31/13(a) 384,000 391,200
- -----------------------------------------------------------------------
Quicksilver Resources Inc., Sr. Unsec. Gtd.
Sub. Notes, 7.13%, 04/01/16(a) 205,000 193,212
- -----------------------------------------------------------------------
Whiting Petroleum Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.00%, 02/01/14(a) 155,000 148,025
=======================================================================
1,114,537
=======================================================================
OIL & GAS REFINING & MARKETING-0.58%
United Refining Co., Sr. Unsec. Gtd. Global
Notes, 10.50%, 08/15/12(a) 300,000 312,000
=======================================================================
OIL & GAS STORAGE & TRANSPORTATION-2.91%
El Paso Corp., Sr. Unsec. Notes,
7.75%, 06/15/10
(Acquired 01/07/03-08/20/04; Cost
$208,013)(a)(c) 225,000 229,500
- -----------------------------------------------------------------------
MarkWest Energy Partners L.P./ MarketWest
Energy Finance Corp., Sr. Notes,
8.50%, 07/15/16
(Acquired 06/30/06; Cost $260,628)(c)(h)(i) 265,000 260,628
- -----------------------------------------------------------------------
MarkWest Energy Partners L.P./ MarkWest
Energy Finance Corp.-Series B, Sr. Unsec.
Global Notes, 6.88%, 11/01/14(a) 309,000 285,825
- -----------------------------------------------------------------------
Pacific Energy Partners, L.P./Pacific Energy
Finance Corp., Sr. Unsec. Global Notes,
7.13%, 06/15/14(a) 127,000 128,746
- -----------------------------------------------------------------------
Sonat Inc., Sr. Unsec. Notes,
7.63%, 07/15/11(a)(b) 517,000 523,462
- -----------------------------------------------------------------------
Southern Natural Gas Co.,
Sr. Unsec. Unsub. Global Notes,
8.88%, 03/15/10(a) 28,000 29,610
- -----------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.50%, 04/01/17(a) 105,000 105,263
=======================================================================
1,563,034
=======================================================================
PACKAGED FOODS & MEATS-1.42%
Dole Foods Co. Inc., Sr. Unsec. Gtd. Global
Notes, 7.25%, 06/15/10(a) 155,000 138,338
- -----------------------------------------------------------------------
Nutro Products Inc.,
Sr. Floating Rate Notes,
9.23%, 10/15/13
(Acquired 04/13/06; Cost $25,000)(a)(c)(f) 25,000 25,594
- -----------------------------------------------------------------------
Sr. Sub. Notes, 10.75%, 04/15/14 (Acquired
04/13/06-06/16/06; Cost $163,919)(a)(c) 160,000 165,200
- -----------------------------------------------------------------------
Pilgrim's Pride Corp., Sr. Unsec. Gtd. Notes,
9.63%, 09/15/11(a) 415,000 434,712
=======================================================================
763,844
=======================================================================
PAPER PACKAGING-1.25%
Caraustar Industries, Inc., Unsec. Unsub.
Notes, 7.38%, 06/01/09(a) 455,000 429,975
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
PAPER PACKAGING-(CONTINUED)
Jefferson Smurfit Corp.,
Sr. Unsec. Gtd. Unsub. Global Notes,
7.50%, 06/01/13(a) $ 274,000 $ 243,517
=======================================================================
673,492
=======================================================================
PAPER PRODUCTS-3.68%
Abitibi-Consolidated Finance L.P., Unsec.
Gtd. Notes, 7.88%, 08/01/09(a) 155,000 149,769
- -----------------------------------------------------------------------
Abitibi-Consolidated Inc. (Canada), Unsec.
Unsub. Yankee Notes,
8.55%, 08/01/10(a) 450,000 432,000
- -----------------------------------------------------------------------
Boise Cascade LLC, Sr. Unsec. Gtd. Sub.
Global Notes, 7.13%, 10/15/14(a) 297,000 266,557
- -----------------------------------------------------------------------
Bowater Inc., Global Notes,
6.50%, 06/15/13(a) 95,000 83,600
- -----------------------------------------------------------------------
Cellu Tissue Holdings, Inc., Sec. Gtd. Global
Notes, 9.75%, 03/15/10(a) 182,000 177,905
- -----------------------------------------------------------------------
Domtar Inc. (Canada), Yankee Notes,
5.38%, 12/01/13(a) 105,000 85,706
- -----------------------------------------------------------------------
7.13%, 08/01/15(a) 373,000 326,375
- -----------------------------------------------------------------------
Exopack Holding Corp., Sr. Notes,
11.25%, 02/01/14
(Acquired 01/26/06-01/27/06; Cost
$145,025)(a)(c) 145,000 145,544
- -----------------------------------------------------------------------
Mercer International Inc., Sr. Global Notes,
9.25%, 02/15/13(a) 167,000 149,465
- -----------------------------------------------------------------------
Neenah Paper, Inc., Sr. Unsec. Gtd. Global
Notes, 7.38%, 11/15/14(a) 179,000 164,009
=======================================================================
1,980,930
=======================================================================
PERSONAL PRODUCTS-1.26%
DEL Laboratories Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 8.00%,
02/01/12(a) 100,000 83,875
- -----------------------------------------------------------------------
NBTY Inc., Sr. Unsec. Sub. Global Notes,
7.13%, 10/01/15(a) 269,000 256,559
- -----------------------------------------------------------------------
Playtex Products, Inc., Sr. Sec. Global
Notes, 8.00%, 03/01/11(a) 322,000 334,880
=======================================================================
675,314
=======================================================================
PHARMACEUTICALS-2.16%
Athena Neurosciences Finance, LLC, Sr. Unsec.
Gtd. Unsub. Notes,
7.25%, 02/21/08(a) 476,000 474,810
- -----------------------------------------------------------------------
Elan Finance PLC/ Elan Finance Corp.
(Ireland), Sr. Unsec. Gtd. Global Notes,
7.75%, 11/15/11(a) 166,000 159,775
- -----------------------------------------------------------------------
Leiner Health Products Inc., Sr. Sub. Global
Notes, 11.00%, 06/01/12(a) 195,000 185,250
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Unsec. Global Notes,
7.00%, 12/15/11(a) 355,000 339,025
=======================================================================
1,158,860
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
PUBLISHING-1.80%
Dex Media Inc., Unsec. Disc. Global Notes,
9.00%, 11/15/13(a)(g) $ 424,000 $ 356,160
- -----------------------------------------------------------------------
Houghton Mifflin Co., Sr. Sub. Global Notes,
9.88%, 02/01/13(a) 265,000 276,925
- -----------------------------------------------------------------------
PRIMEDIA Inc., Sr. Global Notes,
8.00%, 05/15/13(a) 263,000 238,015
- -----------------------------------------------------------------------
Vertis Inc.-Series B, Sr. Unsec. Gtd. Global
Notes,, 10.88%, 06/15/09(a) 100,000 98,750
=======================================================================
969,850
=======================================================================
RAILROADS-0.99%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico), Sr. Global Notes,
9.38%, 05/01/12(a) 507,000 529,815
=======================================================================
REGIONAL BANKS-0.42%
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(a) 206,000 228,131
=======================================================================
RESTAURANTS-0.49%
Carrols Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.00%, 01/15/13(a)(b) 260,000 261,950
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.85%
Amkor Technology Inc., Sr. Unsec. Global
Notes, 7.13%, 03/15/11(a)(b) 390,000 354,900
- -----------------------------------------------------------------------
Sensata Technologies B.V. (Netherlands), Sr.
Notes, 8.00%, 05/01/14 (Acquired
04/21/06-04/25/06; Cost $105,600)(a)(c) 105,000 102,638
=======================================================================
457,538
=======================================================================
SEMICONDUCTORS-0.65%
Advanced Micro Devices, Inc., Sr. Unsec.
Global Notes, 7.75%, 11/01/12(a) 68,000 69,700
- -----------------------------------------------------------------------
MagnaChip Semiconductor S.A./MagnaChip
Semiconductor Finance Co. (South Korea),
Sr. Sec. Global Notes,
6.88%, 12/15/11(a) 200,000 181,000
- -----------------------------------------------------------------------
MagnaChip Semiconductor S.A./MagnaChip
Semiconductor Finance Co.,
Sr. Unsec. Sub. Global Notes,
8.00%, 12/15/14(a) 115,000 96,025
=======================================================================
346,725
=======================================================================
SPECIALTY CHEMICALS-1.94%
Johnsondiversey Holdings Inc.,
Unsec. Disc. Global Notes,
10.67%, 05/15/13(a)(g) 190,000 161,975
- -----------------------------------------------------------------------
NewMarket Corp., Sr. Unsec. Gtd. Global
Notes, 8.88%, 05/01/10(a) 50,000 51,500
- -----------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11(a) 703,000 720,575
- -----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
SPECIALTY CHEMICALS-(CONTINUED)
Rhodia S.A. (France), Sr. Unsec. Global
Notes, 7.63%, 06/01/10(a) $ 110,000 $ 110,550
=======================================================================
1,044,600
=======================================================================
SPECIALTY STORES-0.42%
General Nutrition Centers Inc.,
Sr. Unsec. Sub. Global Notes,
8.50%, 12/01/10(a) 235,000 227,363
=======================================================================
STEEL-0.59%
AK Steel Corp., Sr. Unsec. Gtd. Global Notes,
7.75%, 06/15/12(a) 150,000 148,500
- -----------------------------------------------------------------------
Metals USA, Inc., Sr. Sec. Notes,
11.13%, 12/01/15
(Acquired 11/21/05; Cost $155,000)(a)(c) 155,000 170,500
=======================================================================
319,000
=======================================================================
TEXTILES-0.54%
Invista, Sr. Notes,
9.25%, 05/01/12
(Acquired 06/17/04-04/26/06; Cost
$289,419)(a)(c) 280,000 291,900
=======================================================================
TIRES & RUBBER-1.14%
Goodyear Tire & Rubber Co. (The),
Sr. Unsec. Global Notes,
9.00%, 07/01/15(a)(b) 640,000 614,400
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.51%
United Rentals, Inc., Sr. Unsec. Gtd. Global
Notes, 6.50%, 02/15/12(a) 180,000 171,450
- -----------------------------------------------------------------------
Wesco Distribution Inc., Sr. Sub. Notes,
7.50%, 10/15/17 (Acquired 04/20/06; Cost
$103,000)(a)(c) 100,000 100,625
=======================================================================
272,075
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-5.25%
American Cellular Corp.-Series B, Sr. Global
Notes, 10.00%, 08/01/11(a) 85,000 89,888
- -----------------------------------------------------------------------
American Tower Corp., Sr. Unsec. Global
Notes, 7.13%, 10/15/12(a) 324,000 328,050
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Centennial Cellular Operating Co.
LLC/Centennial Communications Corp., Sr.
Unsec. Gtd. Global Notes,
10.13%, 06/15/13(a) $ 303,000 $ 321,180
- -----------------------------------------------------------------------
Dobson Cellular Systems Inc., Sr. Sec. Notes,
8.38%, 11/01/11 (Acquired 05/11/06; Cost
$273,000)(a)(c) 260,000 269,100
- -----------------------------------------------------------------------
Dobson Communications Corp.,
Sr. Global Notes,
8.88%, 10/01/13(a) 228,000 224,010
- -----------------------------------------------------------------------
Sr. Unsec. Floating Rate Global Notes,
9.32%, 10/15/12(a)(e) 103,000 103,257
- -----------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Global Notes, 11.50%,
05/01/12(a) 116,000 130,790
- -----------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11(a) 214,000 225,770
- -----------------------------------------------------------------------
Rogers Wireless Communications Inc. (Canada),
Sr. Sec. Global Notes,
7.25%, 12/15/12(a) 139,000 141,085
- -----------------------------------------------------------------------
6.38%, 03/01/14(a) 165,000 156,956
- -----------------------------------------------------------------------
Rural Cellular Corp.,
Sr. Sec. Notes,
8.25%, 03/15/12 (Acquired 04/26/06; Cost
$83,300)(a)(c) 80,000 82,000
- -----------------------------------------------------------------------
Sr. Sub. Floating Rate Notes, 10.90%,
11/01/12 (Acquired 11/01/05; Cost
$79,002)(a)(c)(e) 80,000 83,100
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes,
9.88%, 02/01/10(a) 332,000 344,865
- -----------------------------------------------------------------------
Suncom Wireless, Sr. Unsec. Gtd. Global
Notes, 8.50%, 06/01/13(a) 350,000 322,875
=======================================================================
2,822,926
=======================================================================
Total Bonds & Notes (Cost $44,936,974) 44,744,656
=======================================================================
BUNDLED SECURITY-2.74%
Targeted Return Index Securities Trust Sec.
Bonds (Acquired 06/27/06; Cost
$1,464,395)(a)(c) 1,500,000 1,472,506
=======================================================================
ASSET-BACKED SECURITIES-1.09%
ELECTRIC UTILITIES-1.09%
Midwest Generation, LLC-Series B, Global
Asset-Backed Pass Through Ctfs.,
8.56%, 01/02/16(a) 358,663 376,820
- -----------------------------------------------------------------------
Nevada Power Co., Notes,
6.50%, 05/15/18
(Acquired 05/09/06; Cost $49,852)(a)(c) 50,000 48,154
- -----------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LLC- Series B, Sr. Unsec. Asset-Backed Pass
Through Ctfs.,
9.24%, 07/02/17(a) 151,785 164,023
=======================================================================
Total Asset-Backed Securities (Cost
$561,643) 588,997
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
PREFERRED STOCKS-0.98%
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.98%
AES Trust VII, $3.00 Conv. Pfd. 9,645 $ 465,371
- -----------------------------------------------------------------------
NRG Energy, Inc., $14.38 Conv. Pfd. 250 60,980
=======================================================================
Total Preferred Stocks (Cost $478,003) 526,351
=======================================================================
COMMON STOCKS & OTHER EQUITY INTERESTS-0.82%
BROADCASTING & CABLE TV-0.19%
NTL Inc. 4,129 102,812
- -----------------------------------------------------------------------
ONO Finance PLC-Wts., expiring 05/31/09
(United Kingdom) (Acquired 10/08/99; Cost
$0)(c)(h)(i)(j) 436 0
- -----------------------------------------------------------------------
XM Satellite Radio Inc.-Wts., expiring
03/15/10(j) 182 1,365
=======================================================================
104,177
=======================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(c)(h)(i)(j) 175 0
=======================================================================
GENERAL MERCHANDISE STORES-0.00%
Travelcenters of America, Inc.-Wts.,
-expiring 05/01/09
(Acquired 01/29/01; Cost $0)(a)(c)(i)(j) 238 476
- -----------------------------------------------------------------------
-expiring 05/01/09
(Acquired 01/29/01; Cost $0)(a)(c)(i)(j) 80 160
=======================================================================
636
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-0.01%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
07/21/00-11/15/00; Cost $7,710)(c)(h)(i)(j) 832 $ 0
- -----------------------------------------------------------------------
XO Holdings Inc.(k) 33 145
- -----------------------------------------------------------------------
XO Holdings Inc.-Class A-Wts., expiring
01/16/10(j)(k) 1,533 1,319
- -----------------------------------------------------------------------
XO Holdings Inc.-Class B-Wts., expiring
01/16/10(j)(k) 1,148 551
- -----------------------------------------------------------------------
XO Holdings Inc.-Class C-Wts., expiring
01/16/10(j)(k) 1,148 402
=======================================================================
2,417
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.62%
American Tower Corp.-Class A(k) 4,129 128,494
- -----------------------------------------------------------------------
iPCS, Inc.(k) 4,209 203,295
=======================================================================
331,789
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $228,609) 439,019
=======================================================================
MONEY MARKET FUNDS-9.49%
Liquid Assets Portfolio-Institutional
Class(l) 2,551,337 2,551,337
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(l) 2,551,337 2,551,337
=======================================================================
Total Money Market Funds (Cost
$5,102,674) 5,102,674
=======================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)--98.29% (Cost
$52,772,298) 52,874,203
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-3.53%
Liquid Assets Portfolio-Institutional
Class(l)(m) 950,402 950,402
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(l)(m) 950,401 950,401
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,900,803) 1,900,803
=======================================================================
TOTAL INVESTMENTS-101.82% (Cost $54,673,101) 54,775,006
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.82)% (977,086)
=======================================================================
NET ASSETS-100.00% $53,797,920
_______________________________________________________________________
=======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
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 June 30, 2006
was $46,546,167, which represented 86.52% of the Fund's Net Assets. See Note
1A.
(b) All or a portion of this security was out on loan at June 30, 2006.
(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 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 June 30, 2006 was $9,322,648,
which represented 17.33% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(d) Defaulted security. Adelphia Communications Corp. and Delphia Corp. have
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The
aggregate value of these securities at June 30, 2006 was $185,969, which
represented 0.35% of the Fund's Net Assets.
(e) Interest or dividend rate is redetermined quarterly. Rate shown is in effect
on June 30, 2006.
(f) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on June 30, 2006.
(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 fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at June 30, 2006 was $260,628, which represented 0.48% of the
Fund's Net Assets. See Note 1A.
(i) 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 June 30, 2006 was $261,264,
which represented 0.49% of the Fund's Net Assets.
(j) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(k) Non-income producing security.
(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 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $47,669,624)* $ 47,771,529
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $7,003,477) 7,003,477
=============================================================
Total investments (cost $54,673,101) 54,775,006
=============================================================
Cash 1,491,480
- -------------------------------------------------------------
Receivables for:
Investments sold 931,155
- -------------------------------------------------------------
Fund shares sold 551,159
- -------------------------------------------------------------
Dividends and Interest 994,134
- -------------------------------------------------------------
Fund expenses absorbed 7,642
- -------------------------------------------------------------
Investments matured (Note 10) 286,355
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 38,860
=============================================================
Total assets 59,075,791
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 3,241,762
- -------------------------------------------------------------
Fund shares reacquired 15,649
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 42,140
- -------------------------------------------------------------
Collateral upon return of securities loaned 1,900,803
- -------------------------------------------------------------
Accrued administrative services fees 35,070
- -------------------------------------------------------------
Accrued distribution fees--Series II 634
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 375
- -------------------------------------------------------------
Accrued transfer agent fees 1,073
- -------------------------------------------------------------
Accrued operating expenses 40,365
=============================================================
Total liabilities 5,277,871
=============================================================
Net assets applicable to shares outstanding $ 53,797,920
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 58,930,907
- -------------------------------------------------------------
Undistributed net investment income 6,665,913
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (11,740,343)
- -------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (58,557)
=============================================================
$ 53,797,920
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 52,826,024
_____________________________________________________________
=============================================================
Series II $ 971,896
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,552,566
_____________________________________________________________
=============================================================
Series II 158,344
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.18
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.14
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $1,868,015 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 17,280
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$62,826) 94,037
- -------------------------------------------------------------
Interest 1,985,378
=============================================================
Total investment income 2,096,695
=============================================================
EXPENSES:
Advisory fees 161,698
- -------------------------------------------------------------
Administrative services fees 84,760
- -------------------------------------------------------------
Custodian fees 12,790
- -------------------------------------------------------------
Distribution fees-Series II 1,464
- -------------------------------------------------------------
Transfer agent fees 5,969
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 7,864
- -------------------------------------------------------------
Professional services fees 20,423
- -------------------------------------------------------------
Other 20,256
=============================================================
Total expenses 315,224
=============================================================
Less: Fees waived and expense offset arrangement (67,646)
=============================================================
Net expenses 247,578
=============================================================
Net investment income 1,849,117
=============================================================
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
$(14,065)) 888,894
- -------------------------------------------------------------
Foreign currencies (1,118)
=============================================================
887,776
=============================================================
Change in net unrealized appreciation
(depreciation) of investment securities (1,370,029)
=============================================================
Net gain (loss) from investment securities and
foreign currencies (482,253)
=============================================================
Net increase in net assets resulting from
operations $ 1,366,864
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,849,117 $ 4,842,726
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 887,776 2,184,161
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,370,029) (4,907,554)
=========================================================================================
Net increase in net assets resulting from operations 1,366,864 2,119,333
=========================================================================================
Distributions to shareholders from net investment income:
Series I -- (5,020,673)
- -----------------------------------------------------------------------------------------
Series II -- (138,745)
=========================================================================================
Decrease in net assets resulting from distributions -- (5,159,418)
=========================================================================================
Share transactions-net:
Series I (3,237,643) (38,922,743)
- -----------------------------------------------------------------------------------------
Series II (617,566) 575,779
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (3,855,209) (38,346,964)
=========================================================================================
Net increase (decrease) in net assets (2,488,345) (41,387,049)
=========================================================================================
NET ASSETS:
Beginning of period 56,286,265 97,673,314
=========================================================================================
End of period (including undistributed net investment
income of $6,665,913 and $4,816,796, respectively) $53,797,920 $ 56,286,265
_________________________________________________________________________________________
=========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. High Yield Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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.
AIM V.I. HIGH YIELD FUND
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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs and domestic and foreign index futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
AIM V.I. HIGH YIELD FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
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 April 30,
2008. 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 net annual 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. To the extent that the annualized expense
ratio does not exceed the expense limitation, AIM will retain its ability to be
reimbursed for such fee waivers or reimbursements prior to the end of each
fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $66,109.
AIM V.I. HIGH YIELD FUND
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $59,966 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $5,969.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $1,464.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and procedures approved by the Board of Trustees, to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,064,801 $11,204,324 $(10,717,788) $ -- $2,551,337 $15,590 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 3,361,756 (810,419) -- 2,551,337 1,270 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,064,801 11,116,755 (13,181,556) -- -- 14,351 --
==================================================================================================================================
Subtotal $4,129,602 $25,682,835 $(24,709,763) $ -- $5,102,674 $31,211 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 850,448 $ 3,235,452 $ (3,135,498) $ -- $ 950,402 $31,343 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 850,448 3,235,451 (3,135,498) -- 950,401 31,483 --
==================================================================================================================================
Subtotal $1,700,896 $ 6,470,903 $ (6,270,996) $ -- $1,900,803 $62,826 $ --
==================================================================================================================================
Total $5,830,498 $32,153,738 $(30,980,759) $ -- $7,003,477 $94,037 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $1,060,167, which resulted in net realized gains
(losses) of $(14,065) and securities purchases of $787,966.
AIM V.I. HIGH YIELD FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,537.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,861 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $1,868,015 were on
loan to brokers. The loans were secured by cash collateral of $1,900,803
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2006, the Fund received dividends on cash
collateral investments of $62,826 for securities lending transactions.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the
AIM V.I. HIGH YIELD FUND
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 had 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.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $38,297,585 and $42,548,489, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
Receivable for investments matured represents the estimated proceeds to the
Fund by Adelphia Communications Corp., which is in default with respect to
principal payments on $251,000 par value, 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 aggregate at June 30, 2006 was $(160,462).
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 873,671
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (919,668)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $ (45,997)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $54,821,003.
</Table>
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006(A) 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,964,950 $ 12,124,446 7,537,516 $ 48,935,734
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,563 9,524 220,053 1,408,205
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 836,779 5,020,673
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 23,240 138,745
========================================================================================================================
Reacquired:
Series I (2,489,339) (15,362,089) (14,270,486) (92,879,150)
- ------------------------------------------------------------------------------------------------------------------------
Series II (102,484) (627,090) (150,740) (971,171)
========================================================================================================================
(625,310) $ (3,855,209) (5,803,638) $(38,346,964)
________________________________________________________________________________________________________________________
========================================================================================================================
</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 74% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
-----------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------- ---------------------------------------------------
2006 2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.03 $ 6.45 $ 5.97 $ 5.00 $ 5.31 $ 6.35
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22(a) 0.43(a) 0.42(a) 0.49(a) 0.51(a) 0.70(b)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07) (0.26) 0.23 0.91 (0.82) (1.01)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- -- 0.02 -- -- --
===============================================================================================================================
Total from investment operations 0.15 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 $ 6.18 $ 6.03 $ 6.45 $ 5.97 $ 5.00 $ 5.31
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 2.49% 2.72% 11.25%(d) 28.04% (5.84)% (4.85)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $52,826 $54,731 $96,602 $37,267 $24,984 $28,799
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.96%(e) 1.01% 1.04% 1.20% 1.30% 1.21%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.22%(e) 1.16% 1.04% 1.20% 1.30% 1.29%
===============================================================================================================================
Ratio of net investment income to average net assets 7.15%(e) 6.58% 6.79% 8.54% 10.20% 11.39%(b)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 75% 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 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 $0.71 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 are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Total return is after reimbursement the advisor agreed to pay for an
economic loss due to a trading error. Total return before reimbursement
by the advisor was 10.90%
(e) Ratios are annualized and based on average daily net assets of
$50,991,514.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. HIGH YIELD FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------
SIX MONTHS MARCH 26, 2002
ENDED (DATE SALES
JUNE 30, YEAR ENDED DECEMBER 31, COMMENCED) TO
---------- -------------------------- DECEMBER 31,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.00 $ 6.43 $ 5.95 $ 4.99 $ 5.27
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.21 0.41 0.41 0.49 0.38
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07) (0.26) 0.24 0.90 (0.66)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- -- 0.01 -- --
===========================================================================================================================
Total from investment operations 0.14 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 $ 6.14 $ 6.00 $ 6.43 $ 5.95 $ 4.99
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 2.33% 2.43% 11.14%(c) 27.89% (5.31)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 972 $1,556 $1,072 $1,251 $ 142
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.21%(d) 1.22% 1.24% 1.45% 1.45%(e)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.47%(d) 1.41% 1.29% 1.45% 1.55%(e)
===========================================================================================================================
Ratio of net investment income to average net assets 6.90%(d) 6.37% 6.59% 8.29% 10.05%(e)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 75% 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 the advisor agreed to pay for an
economic loss due to a trading error. Total return before reimbursement
by the advisor was 10.96%
(d) Ratios are annualized and based on average daily net assets of
$1,180,778.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such
AIM V.I. HIGH YIELD FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL CORE EQUITY FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. INTERNATIONAL CORE EQUITY FUND seeks to provide total return.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 CORE EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE was the best-performing region in the
======================================================================================== period. Strong manufacturing growth--the
PERFORMANCE SUMMARY strongest in nearly six years--and low
=========================================== unemployment--the lowest since
After reaching new highs for the year in 2001--bolstered confidence in the
early May, global equity markets FUND VS. INDEXES region.
experienced a significant correction.
Rising inflation led to fears that CUMULATIVE TOTAL RETURNS, 5/1/06-6/30/06, After impressive gains in 2005, when
central banks may raise interest rates EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. improving secular economic growth
to levels that could threaten global IF VARIABLE PRODUCT ISSUER CHARGES WERE prospects drove the local market largely
economic growth. Overall though, INCLUDED, RETURNS WOULD BE LOWER. higher, Japan witnessed a bout of profit
non-U.S. markets ended on a positive taking, especially in more cyclical,
note and, following a trend of recent Series I Shares -4.70% economically sensitive stocks. From a
years, continued to outperform U.S. broad market perspective,
equities. Series II Shares -4.70 emerging-market equities lagged stocks
in developed markets. With risk-aversion
Since the Fund's inception on May 1, Morgan Stanley Capital levels rising sharply and emerging
2006, Series I shares of AIM VI International markets' outperformance for much of the
International Core Equity Fund returned (MSCI) EAFE Index (Broad Market and last year, profit taking was inevitable.
- -4.70% through June 30, 2006. Despite the Style-Specific Index) -4.52
Fund's negative return, our preference The cornerstone of our investment
for higher caliber companies with proven Lipper International Large-Cap strategy continued to be our stock
financial strength Core Fund Index (Peer Group Index) -5.12 selection process. Fund results
benefited from the improving performance
SOURCE: LIPPER INC. of higher quality stocks.
=========================================== On an absolute basis, all industry
sectors were down during the reporting
enabled the Fund to perform in line with period. But strong stock selection in
its benchmark, the MSCI EAFE Index, for the the information technology (IT) and
same period. industrials sectors and an overweight
exposure to consumer staples relative to
======================================================================================== the style-specific benchmark made the
largest contribution to the Fund's
HOW WE INVEST diversification. However, individual outperformance.
holdings are selected based on their own
The Fund invests primarily in the stocks merits, not on projections of country or Particularly notable contributors
of larger cap foreign companies with a sector performance. included NINTENDO COMPANY LTD. and CHINA
record of stable earnings and strong LIFE INSURANCE CO. Nintendo, the
balance sheets. Our research targets a MARKET CONDITIONS AND YOUR FUND Japanese maker of video games,
long-term horizon to permit individual outperformed during the recent quarter
investments to realize return potential Global equity markets experienced a sharp following the company's announcement of
driven by a higher share price increase in volatility during the review rising sales and profit forecasts due to
associated with business growth, in period, as the threat of sustained increasing demand for its new products.
addition to the prospect of inflationary pressures led to coordinated China Life, that nation's biggest
valuation-based multiple expansion. monetary policy tightening by the world's insurer, benefited from an
central banks. Europe, bolstered by the
We strive to maintain a consistent traditionally defensive attributes of the
investment discipline through varying United Kingdom (U.K.) market,
market conditions and an appropriate
level of overall portfolio
======================================== ========================================= ========================================
PORTFOLIO COMPOSITION TOP 5 COUNTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. United Kingdom 26.4% 1. Royal Bank of Scotland Group PLC
(United Kingdom) 3.3%
Financials 25.9% 2. Japan 19.6
2. GlaxoSmithKline PLC
Consumer Discretionary 13.1 3. Switzerland 9.4 (United Kingdom) 2.9
Consumer Staples 11.1 4. Netherlands 8.6 3. Nestle S.A. (Switzerland) 2.6
Energy 8.7 5. France 6.9 4. Novartis A.G. (Switzerland) 2.6
Health Care 8.2 5. Canon Inc. (Japan) 2.5
Telecommunication Services 8.1 TOTAL NET ASSETS $4.8 MILLION 6. Nokia Oyj (Finland) 2.5
TOTAL NUMBER OF HOLDINGS* 67
Industrials 8.0 7. Aegon N.V. (Netherlands) 2.4
Materials 7.1 8. Vodafone Group PLC
(United Kingdom) 2.4
Information Technology 7.0
9. HSBC Holdings PLC-ADR
Utilities 0.6 (United Kingdom) 2.2
U.S.Govt.Agency Securities and 10. TNT N.V. (Netherlands) 2.2
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 U.S. Government Agency securities holdings.
======================================== ========================================= ========================================
2
AIM V.I. INTERNATIONAL CORE EQUITY FUND
announced 29% jump in premiums. China's IN CLOSING ERIK B. GRANADE, Chartered
insurers are selling more life coverage [GRANADE Financial Analyst, is
as the growing economy bolsters the At the end of the reporting period, we PHOTO] manager of AIM V.I.
middle class. believed non-U.S. equities looked more International Core Equity
favorably valued than U.S. stocks, while Fund. He began his investment career in
In contrast, our holdings in the also offering valuable diversification 1986 and has been a portfolio manager
health care segment detracted from Fund benefits to U.S.-based investors. We with INVESCO and its affiliates since
returns. An underweight exposure to the remain committed to our disciplined 1996. He earned a B.A. in economics from
outperforming utilities sector relative strategy of selecting holdings based on Trinity College in Hartford, Conn.
to the style-specific benchmark also the strengths of individual companies
hurt performance. A detractor from Fund and holding our course through the INGRID E. BAKER, Chartered
performance was NOMURA HOLDINGS INC., market's fluctuations. [BAKER Financial Analyst, is
Japan's largest brokerage firm, which PHOTO] manager of AIM V.I.
underperformed during the period as the We thank you for your investment in International Core Equity
Japanese market witnessed significant AIM V.I. International Core Equity Fund. Fund. She began her investment career in
profit taking following previous gains. 1990 and joined INVESCO in 1999. She
Additionally, Nomura announced a reduced THE VIEWS AND OPINIONS EXPRESSED IN graduated with a B.A. in international
dividend payout versus a year ago. MANAGEMENT'S DISCUSSION OF FUND politics from Oberlin College and earned
PERFORMANCE ARE THOSE OF A I M ADVISORS, an M.B.A. in finance from the University
London-based BAE SYSTEMS PLC, the INC. THESE VIEWS AND OPINIONS ARE of Navarra in Spain.
British defense contractor, also SUBJECT TO CHANGE AT ANY TIME BASED ON
detracted from performance, following FACTORS SUCH AS MARKET AND ECONOMIC W. LINDSAY DAVIDSON is
the announcement that the sale price of CONDITIONS. THESE VIEWS AND OPINIONS MAY [DAVIDSON manager of AIM V.I.
its 20% stake in Airbus may be impacted NOT BE RELIED UPON AS INVESTMENT ADVICE PHOTO] International Core Equity
by a delay in deliveries. OR RECOMMENDATIONS, OR AS AN OFFER FOR A Fund. He began his
PARTICULAR SECURITY. THE INFORMATION IS investment career in 1974 and has served
While all geographical regions were NOT A COMPLETE ANALYSIS OF EVERY ASPECT as a portfolio manager with AMVESCAP PLC
down on an absolute basis during the OF ANY MARKET, COUNTRY, INDUSTRY, and its affiliates since 1984. A native
reporting period, favorable stock SECURITY OR THE FUND. STATEMENTS OF FACT of St. Andrews, Scotland, he earned his
selection in the U.K. and Japan were ARE FROM SOURCES CONSIDERED RELIABLE, degree in economics with honors from the
particularly helpful to Fund BUT A I M ADVISORS, INC. MAKES NO Edinburgh University.
performance, while our stock selection REPRESENTATION OR WARRANTY AS TO THEIR
in France detracted. COMPLETENESS OR ACCURACY. ALTHOUGH MICHELE T. GARREN, Chartered
HISTORICAL PERFORMANCE IS NO GUARANTEE [GARREN Financial Analyst, is
OF FUTURE RESULTS, THESE INSIGHTS MAY PHOTO] manager of AIM V.I.
The cornerstone of our HELP YOU UNDERSTAND OUR INVESTMENT International Core Equity
investment strategy MANAGEMENT PHILOSOPHY. Fund. She began her investment career in
continued to be our 1987 and joined INVESCO in 1997. She
stock selection process. earned a B.B.A. in finance from Southern
Methodist University and earned an
M.B.A. in finance from New York
As noted previously, emerging markets University.
were turbulent over the period. In
addition to direct exposure to the KENT A. STARKE is manager of
rising interest rate environment, [STARKE AIM V.I. International Core
emerging markets suffered as many PHOTO] Equity Fund. He began his
investors sought to reduce portfolio investment career in 1983
risk. Countries with large deficit and joined INVESCO in 1992. He has been
positions, such as Turkey and South with the international equity product
Africa, led the decliners, while Taiwan, since its inception. He earned a B.B.A.
like other Asian countries, posted from the University of Georgia and an
nominal gains in the period. The Fund's M.S. in finance from Georgia State
modest portfolio allocation to emerging University.
markets did not significantly affect
overall performance.
[RIGHT ARROW GRAPHIC]
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S PERFORMANCE,
PLEASE TURN TO PAGE 4.
3
AIM V.I. INTERNATIONAL CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
========================================
CUMULATIVE TOTAL RETURNS DISTRIBUTIONS AND CHANGES IN NET ASSET WILL VARY AND WILL LOWER THE TOTAL
VALUE. INVESTMENT RETURN AND PRINCIPAL RETURN.
As of 6/30/06 VALUE WILL FLUCTUATE SO THAT YOU MAY
HAVE A GAIN OR LOSS WHEN YOU SELL PER NASD REQUIREMENTS, THE MOST
SERIES I SHARES SHARES. RECENT MONTH-END PERFORMANCE DATA AT THE
Inception (5/1/06) -4.70% FUND LEVEL, EXCLUDING VARIABLE PRODUCT
AIM V.I. INTERNATIONAL CORE EQUITY CHARGES, IS AVAILABLE ON THIS AIM
SERIES II SHARES FUND, A SERIES PORTFOLIO OF AIM VARIABLE AUTOMATED INFORMATION LINE,
Inception (5/1/06) -4.70% INSURANCE FUNDS, IS CURRENTLY OFFERED 866-702-4402. AS MENTIONED ABOVE, FOR
THROUGH INSURANCE COMPANIES ISSUING THE MOST RECENT MONTH-END PERFORMANCE
======================================== VARIABLE PRODUCTS. YOU CANNOT PURCHASE INCLUDING VARIABLE PRODUCT CHARGES,
SHARES OF THE FUND DIRECTLY. PLEASE CONTACT YOUR VARIABLE PRODUCT
THE PERFORMANCE OF THE FUND'S SERIES I ISSUER OR FINANCIAL ADVISOR.
AND SERIES II SHARE CLASSES WILL DIFFER PERFORMANCE FIGURES GIVEN REPRESENT
PRIMARILY DUE TO DIFFERENT CLASS THE FUND AND ARE NOT INTENDED TO REFLECT HAD THE ADVISOR NOT WAIVED FEES
EXPENSES. ACTUAL VARIABLE PRODUCT VALUES. THEY DO AND/OR REIMBURSED EXPENSES, PERFORMANCE
NOT REFLECT SALES CHARGES, EXPENSES AND WOULD HAVE BEEN LOWER.
THE PERFORMANCE DATA QUOTED REPRESENT FEES ASSESSED IN CONNECTION WITH A
PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT. SALES CHARGES,
COMPARABLE FUTURE RESULTS; CURRENT EXPENSES AND FEES, WHICH ARE DETERMINED
PERFORMANCE MAY BE LOWER OR HIGHER. BY THE VARIABLE PRODUCT ISSUERS,
PLEASE CONTACT YOUR VARIABLE PRODUCT
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
RECENT MONTH-END VARIABLE PRODUCT
PERFORMANCE. PERFORMANCE FIGURES REFLECT
FUND EXPENSES, REINVESTED
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
Foreign securities have additional The unmanaged MORGAN STANLEY CAPITAL The returns shown in management's
risks, including exchange rate changes, INTERNATIONAL EUROPE, AUSTRALASIA AND discussion of Fund performance are based
political and economic developments, the THE FAR EAST INDEX (the MSCI on net asset values calculated for
relative lack of information about these EAFE--Registered Trademark--) is a group shareholder transactions. Generally
companies, relatively low market of foreign securities tracked by Morgan accepted accounting principles require
liquidity and the potential lack of Stanley Capital International. adjustments to be made to the net assets
strict financial and accounting controls of the Fund at period end for financial
and standards. The unmanaged LIPPER INTERNATIONAL reporting purposes, and as such, the net
LARGE-CAP CORE FUND INDEX represents an asset values for shareholder
The Fund invests in repurchase average of the performance of the 10 transactions and the returns based on
agreements which are subject to the risk largest international large-cap core those net asset values may differ from
that the seller of such agreements may mutual funds tracked by Lipper Inc., an the net asset values and returns
default or declare bankruptcy, which may independent mutual fund performance reported in the Financial Highlights.
result in a decline in security values, monitor. Additionally, the returns and net asset
reduced income levels and additional values shown throughout this report are
expenses. The Fund is not managed to track the at the Fund level only and do not
performance of any particular index, include variable product issuer charges.
including the indexes defined here, and If such charges were included, the total
consequently, the performance of the returns would be lower.
Fund may deviate significantly from the
performance of the indexes. Industry classifications used in this
report are generally according to the
A direct investment cannot be made in Global Industry Classification Standard,
an index. Unless otherwise indicated, which was developed by and is the
index results include reinvested exclusive property and a service mark of
dividends, and they do not reflect sales Morgan Stanley Capital International
charges. Performance of an index of Inc. and Standard & Poor's.
funds reflects fund expenses;
performance of a market index does not.
4
AIM V.I. INTERNATIONAL CORE 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
actual ending account value and expenses this period (May 1, 2006, through June Please note that the expenses shown
of Series I and Series II shares in the 30, 2006 for Series I and Series II). in the table are meant to highlight your
below example are based on an investment Because the actual ending account value ongoing costs. Therefore, the
of $1,000 invested on May 1, 2006, (the and expense information in the example hypothetical information is useful in
date the share classes commenced is not based upon a six month period, comparing ongoing costs, and will not
operations) and held through June 30, the ending account value and expense help you determine the relative total
2006. The hypothetical ending account information may not provide a meaningful costs of owning different funds.
value and expenses of Series I and comparison to mutual funds that provide
Series II shares in the below example such information for a full six month
are based on an investment of $1,000 period.
invested at the beginning of the period
and held for the entire six month period HYPOTHETICAL EXAMPLE FOR COMPARISON
January 1, 2006, through June 30, 2006. PURPOSES
The actual and hypothetical expenses The table below also provides
in the examples below do not represent information about hypothetical account
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 period
ended June 30, 2006, appear in the table
The table below provides information "Funds vs. Indexes" on page 2.
about actual account values and actual
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 (1/1/06)(1) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(3) RATIO
Series I $1,000.00 $953.00 $1.80 $1,019.34 $5.51 1.10%
Series II 1,000.00 953.00 2.20 1,018.10 6.76 1.35
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through June 30,
2006, 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 period ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 61 (May 1, 2006 through June 30, 2006)/365. Because the shares have not been in existence for a full six
month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund
expense information of classes that show such data for a full six month period and, because the actual ending account value and
expense information in the expense example covers a short time period, return and expense data may not be indicative of return
and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over
the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be
used to compare ongoing costs of investing in the Series I and Series II shares of the Fund and other funds because such data
is based on a full six month period.
====================================================================================================================================
5
AIM V.I. INTERNATIONAL CORE EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable uct review process, various back office plus, in some cases, administrative
Insurance Funds (the "Board") oversees support functions provided by AIM and fees) at various asset levels of
the management of AIM V.I. International AIM's equity and fixed income trading competitor mutual funds with investment
Core Equity Fund (the "Fund") and, as operations. Based on the review of these strategies comparable to those of the
required by law, determines annually and other factors, the Board concluded Fund. In addition, the Board noted that
whether to approve the continuance of that the quality of services to be the proposed advisory fees for the Fund
the Fund's advisory agreement with A I M provided by AIM was appropriate and that are equal to the uniform fee schedule
Advisors, Inc. ("AIM"). Based upon the AIM currently is providing satisfactory that applies to other mutual funds
recommendation of the Investments services in accordance with the terms of advised by AIM with investment
Committee of the Board, at a meeting the Advisory Agreement. strategies comparable to those of the
held on June 27, 2006, the Board, Fund, which uniform fee schedule
including all of the independent o The performance of the Fund relative includes breakpoints and is based on net
trustees, approved the continuance of to comparable funds. Not applicable asset levels. Based on this review, the
the advisory agreement (the "Advisory because the Fund has not been in Board concluded that the advisory fee
Agreement") between the Fund and AIM for operation for a full calendar year. rate for the Fund under the Advisory
another year, effective July 1, 2006. Agreement was fair and reasonable.
o The performance of the Fund relative
The Board considered the factors to indices. Not applicable because the o Expense limitations and fee waivers.
discussed below in evaluating the Fund has not been in operation for a The Board noted that AIM has
fairness and reasonableness of the full calendar year. contractually agreed to waive fees
Advisory Agreement at the meeting on and/or limit expenses of the Fund
June 27, 2006 and as part of the Board's o Meetings with the Fund's portfolio through April 30, 2008 in an amount
ongoing oversight of the Fund. In their managers and investment personnel. With necessary to limit total annual
deliberations, the Board and the respect to the Fund, the Board is operating expenses to a specified
independent trustees did not identify meeting periodically with such Fund's percentage of average daily net assets
any particular factor that was portfolio managers and/or other for each class of the Fund. The Board
controlling, and each trustee attributed investment personnel and believes that considered the contractual nature of
different weights to the various such individuals are competent and able this fee waiver/expense limitation and
factors. to continue to carry out their noted that it remains in effect until
responsibilities under the Advisory April 30, 2008. The Board considered the
One responsibility of the independent Agreement. effect these fee waivers/expense
Senior Officer of the Fund is to manage limitations would have on the Fund's
the process by which the Fund's proposed o Overall performance of AIM. Not estimated expenses and concluded that
management fees are negotiated to ensure applicable because the Fund has not been the levels of fee waivers/expense
that they are negotiated in a manner in operation for a full calendar year. limitations for the Fund were fair and
which is at arms' length and reasonable. reasonable.
To that end, the Senior Officer must o Fees relative to those of clients of
either supervise a competitive bidding AIM with comparable investment o Breakpoints and economies of scale.
process or prepare an independent strategies. The Board reviewed the The Board reviewed the structure of the
written evaluation. The Senior Officer effective advisory fee rate (before Fund's advisory fee under the Advisory
has recommended an independent written waivers) for the Fund under the Advisory Agreement, noting that it contains seven
evaluation in lieu of a competitive Agreement. The Board noted that this breakpoints. The Board reviewed the
bidding process and, upon the direction rate was (i) above the effective level of the Fund's advisory fees, and
of the Board, has prepared such an advisory fee rate (before waivers) for noted that such fees, as a percentage of
independent written evaluation. Such one mutual fund advised by AIM with the Fund's net assets, would decrease as
written evaluation also considered investment strategies comparable to net assets increase because the Advisory
certain of the factors discussed below. those of the Fund; (ii) above the Agreement includes breakpoints. The
In addition, as discussed below, the effective sub-advisory fee rate for one Board noted that, due to the Fund's
Senior Officer made a recommendation to collective trust fund sub-advised by an current asset levels and the way in
the Board in connection with such AIM affiliate with investment strategies which the advisory fee breakpoints have
written evaluation. comparable to those of the Fund; (iii) been structured, the Fund has yet to
above the effective sub-advisory fee benefit from the breakpoints. The Board
The discussion below serves as a rate for one variable insurance fund concluded that the Fund's fee levels
summary of the Senior Officer's sub-advised by an AIM affiliate and under the Advisory Agreement therefore
independent written evaluation and offered to insurance company separate would reflect economies of scale at
recommendation to the Board in accounts with investment strategies higher asset levels and that it was not
connection therewith, as well as a comparable to those of the Fund, necessary to change the advisory fee
discussion of the material factors and although the total advisory fees for breakpoints in the Fund's advisory fee
the conclusions with respect thereto such variable insurance fund were schedule.
that formed the basis for the Board's comparable to those for the Fund; and
approval of the Advisory Agreement. (iv) below or comparable to the total o Investments in affiliated money market
After consideration of all of the advisory fee rates for 23 separately funds. The Board also took into account
factors below and based on its informed managed accounts/wrap accounts managed the fact that uninvested cash and cash
business judgment, the Board determined by an AIM affiliate with investment collateral from securities lending
that the Advisory Agreement is in the strategies comparable to those of the arrangements, if any (collectively,
best interests of the Fund and its Fund and above the total advisory fee "cash balances") of the Fund may be
shareholders and that the compensation rates for 280 separately managed invested in money market funds advised
to AIM under the Advisory Agreement is accounts/wrap accounts managed by an AIM by AIM pursuant to the terms of an SEC
fair and reasonable and would have been affiliate with investment strategies exemptive order. The Board found that
obtained through arm's length comparable to those of the Fund. The the Fund may realize certain benefits
negotiations. Board noted that AIM has agreed to limit upon investing cash balances in AIM
the Fund's total annual operating advised money market funds, including a
Unless otherwise stated, information expenses, as discussed below. Based on higher net return, increased liquidity,
presented below is as of June 27, 2006 this review, the Board concluded that increased diversification or decreased
and does not reflect any changes that the advisory fee rate for the Fund under transaction costs. The Board also found
may have occurred since June 27, 2006, the Advisory Agreement was fair and that the Fund will not receive reduced
including but not limited to changes to reasonable. services if it invests its cash balances
the Fund's performance, advisory fees, in such money market funds. The Board
expense limitations and/or fee waivers. o Fees relative to those of comparable noted that, to the extent the Fund
funds with other advisors. The Board invests uninvested cash in affiliated
o The nature and extent of the advisory reviewed the advisory fee rate for the money market funds, AIM has voluntarily
services to be provided by AIM. The Fund under the Advisory Agreement. The agreed to waive a portion of the
Board reviewed the services to be Board compared effective contractual advisory fees it receives from the Fund
provided by AIM under the Advisory advisory fee rates at a common asset attributable to such investment. The
Agreement. Based on such review, the level at the end of the past calendar Board further determined that the
Board concluded that the range of year and noted that the Fund's rate was proposed securities lending program and
services to be provided by AIM under the comparable to the median rate of the related procedures with respect to the
Advisory Agreement was appropriate and funds advised by other advisors with lending Fund is in the best interests of
that AIM currently is providing services investment strategies comparable to the lending Fund and its respective
in accordance with the terms of the those of the Fund that the Board shareholders. The Board therefore
Advisory Agreement. reviewed. The Board noted that AIM has concluded that the investment of cash
agreed to limit the Fund's total annual collateral received in connection with
o The quality of services to be provided operating expenses, as discussed below. the securities lending program in the
by AIM. The Board reviewed the The Board also considered the fact that money market funds according to the
credentials and experience of the AIM set the proposed advisory fees for procedures is in the best interests of
officers and employees of AIM who will the Fund based upon the median effective the lending Fund and its respective
provide investment advisory services to management fee rate (comprised of shareholders.
the Fund. In reviewing the advisory fees
qualifications of AIM to provide
investment advisory services, the Board
considered such issues as AIM's
portfolio and prod-
(continued)
6
AIM V.I. INTERNATIONAL CORE EQUITY FUND
o Independent written evaluation and improve the quality and efficiency of o The performance of the Fund relative
recommendations of the Fund's Senior the services they provide to the Funds to comparable funds. Not applicable
Officer. The Board noted that, upon in the areas of investment performance, because the Fund has not been in
their direction, the Senior Officer of product line diversification, operation for a full calendar year.
the Fund, who is independent of AIM and distribution, fund operations,
AIM's affiliates, had prepared an shareholder services and compliance. The o The performance of the Fund relative
independent written evaluation in order Board concluded that these steps taken to indices. Not applicable because the
to assist the Board in determining the by AIM have improved, and are likely to Fund has not been in operation for a
reasonableness of the proposed continue to improve, the quality and full calendar year.
management fees of the AIM Funds, efficiency of the services AIM and its
including the Fund. The Board noted that affiliates provide to the Fund in each o Meetings with the Fund's portfolio
the Senior Officer's written evaluation of these areas, and support the Board's managers and investment personnel. With
had been relied upon by the Board in approval of the continuance of the respect to the Fund, the Board is
this regard in lieu of a competitive Advisory Agreement for the Fund. meeting periodically with such Fund's
bidding process. In determining whether portfolio managers and/or other
to continue the Advisory Agreement for APPROVAL OF SUB-ADVISORY AGREEMENT investment personnel and believes that
the Fund, the Board considered the such individuals are competent and able
Senior Officer's written evaluation. The Board oversees the management of the to continue to carry out their
Fund and, as required by law, determines responsibilities under the Sub-Advisory
o Profitability of AIM and its annually whether to approve the Agreement.
affiliates. The Board reviewed continuance of the Fund's sub-advisory
information concerning the profitability agreement. Based upon the recommendation o Overall performance of the
of AIM's (and its affiliates') of the Investments Committee of the Sub-Advisor. Not applicable because the
investment advisory and other activities Board, at a meeting held on June 27, Fund has not been in operation for a
and its financial condition. The Board 2006, the Board, including all of the full calendar year.
considered the overall profitability of independent trustees, approved the
AIM. The Board noted that AIM's continuance of the sub-advisory o Fees relative to those of clients of
operations remain profitable, although agreement (the "Sub-Advisory Agreement") the Sub-Advisor with comparable
increased expenses in recent years have between INVESCO Global Asset Management investment strategies. The Board
reduced AIM's profitability. Based on (N.A.), Inc. (the "Sub-Advisor") and AIM reviewed the sub-advisory fee rate for
the review of the profitability of AIM's with respect to the Fund for another the Fund under the Sub-Advisory
and its affiliates' investment advisory year, effective July 1, 2006. Agreement and the sub-advisory fees paid
and other activities and its financial thereunder. The Board noted that this
condition, the Board concluded that the The Board considered the factors rate was (i) above the sub-advisory fee
compensation to be paid by the Fund to discussed below in evaluating the rate for one mutual fund sub-advised by
AIM under its Advisory Agreement was not fairness and reasonableness of the the Sub-Advisor with investment
excessive. Sub-Advisory Agreement at the meeting on strategies comparable to those of the
June 27, 2006 and as part of the Board's Fund; and (ii) below or comparable to
o Benefits of soft dollars to AIM. The ongoing oversight of the Fund. In their the total advisory fee rates for 26
Board considered the benefits realized deliberations, the Board and the separately managed accounts/wrap
by AIM as a result of brokerage independent trustees did not identify accounts managed by the Sub-Advisor with
transactions executed through "soft any particular factor that was investment strategies comparable to
dollar" arrangements. Under these controlling, and each trustee attributed those of the Fund and above the total
arrangements, brokerage commissions paid different weights to the various advisory fee rates for 277 separately
by the Fund and/or other funds advised factors. managed accounts/wrap accounts managed
by AIM are used to pay for research and by the Sub-Advisor with investment
execution services. This research may be The discussion below serves as a strategies comparable to those of the
used by AIM in making investment discussion of the material factors and Fund. The Board noted that AIM has
decisions for the Fund. The Board the conclusions with respect thereto agreed to limit the Fund's total annual
concluded that such arrangements were that formed the basis for the Board's operating expenses. The Board also
appropriate. approval of the Sub-Advisory Agreement. considered the services to be provided
After consideration of all of the by the Sub-Advisor pursuant to the
o AIM's financial soundness in light of factors below and based on its informed Sub-Advisory Agreement and the services
the Fund's needs. The Board considered business judgment, the Board determined to be provided by AIM pursuant to the
whether AIM is financially sound and has that the Sub-Advisory Agreement is in Advisory Agreement, as well as the
the resources necessary to perform its the best interests of the Fund and its allocation of fees between AIM and the
obligations under the Advisory shareholders and that the compensation Sub-Advisor pursuant to the Sub-Advisory
Agreement, and concluded that AIM has to the Sub-Advisor under the Agreement. The Board noted that the
the financial resources necessary to Sub-Advisory Agreement is fair and sub-advisory fees have no direct effect
fulfill its obligations under the reasonable. on the Fund or its shareholders, as they
Advisory Agreement. are paid by AIM to the Sub-Advisor, and
Unless otherwise stated, information that AIM and the Sub-Advisor are
o Historical relationship between the presented below is as of June 27, 2006 affiliates. Based on this review, the
Fund and AIM. In determining whether to and does not reflect any changes that Board concluded that the sub-advisory
approve the Advisory Agreement for the may have occurred since June 27, 2006, fee rate under the Sub-Advisory
Fund, the Board also considered the including but not limited to changes to Agreement was fair and reasonable.
prior relationship between AIM and the the Fund's performance.
Fund, as well as the Board's knowledge o Profitability of AIM and its
of AIM's operations, and concluded that o The nature and extent of the advisory affiliates. The Board reviewed
it was beneficial to maintain the services to be provided by the information concerning the profitability
current relationship, in part, because Sub-Advisor. The Board reviewed the of AIM's (and its affiliates')
of such knowledge. The Board also services to be provided by the investment advisory and other activities
reviewed the general nature of the Sub-Advisor under the Sub-Advisory and its financial condition. The Board
non-investment advisory services Agreement. Based on such review, the considered the overall profitability of
currently performed by AIM and its Board concluded that the range of AIM. The Board noted that AIM's
affiliates, such as administrative, services to be provided by the operations remain profitable, although
transfer agency and distribution Sub-Advisor under the Sub-Advisory increased expenses in recent years have
services, and the fees received by AIM Agreement was appropriate and that the reduced AIM's profitability. Based on
and its affiliates for performing such Sub-Advisor currently is providing the review of the profitability of AIM's
services. In addition to reviewing such services in accordance with the terms of and its affiliates' investment advisory
services, the trustees also considered the Sub-Advisory Agreement. and other activities and its financial
the organizational structure employed by condition, the Board concluded that the
AIM and its affiliates to provide those o The quality of services to be provided compensation to be paid by the Fund to
services. Based on the review of these by the Sub-Advisor. The Board reviewed AIM under its Advisory Agreement was not
and other factors, the Board concluded the credentials and experience of the excessive.
that AIM and its affiliates were officers and employees of the
qualified to continue to provide Sub-Advisor who will provide investment o The Sub-Advisor's financial soundness
non-investment advisory services to the advisory services to the Fund. Based on in light of the Fund's needs. The Board
Fund, including administrative, transfer the review of these and other factors, considered whether the Sub-Advisor is
agency and distribution services, and the Board concluded that the quality of financially sound and has the resources
that AIM and its affiliates currently services to be provided by the necessary to perform its obligations
are providing satisfactory Sub-Advisor was appropriate and that the under the Sub-Advisory Agreement, and
non-investment advisory services. Sub-Advisor currently is providing concluded that the Sub-Advisor has the
satisfactory services in accordance with financial resources necessary to fulfill
o Other factors and current trends. The the terms of the Sub-Advisory Agreement. its obligations under the Sub-Advisory
Board considered the steps that AIM and Agreement.
its affiliates have taken over the last
several years, and continue to take, in
order to
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-97.75%
AUSTRALIA-1.37%
National Australia Bank Ltd. (Diversified
Banks)(a) 2,500 $ 65,157
=====================================================================
BELGIUM-1.25%
Belgacom (Integrated Telecommunication
Services) 1,800 59,708
=====================================================================
CANADA-1.57%
BCE Inc. (Integrated Telecommunication
Services) 1,600 37,811
- ---------------------------------------------------------------------
EnCana Corp. (Oil & Gas Exploration &
Production) 700 36,859
=====================================================================
74,670
=====================================================================
CHINA-0.53%
China Life Insurance Co., Ltd.-ADR (Life &
Health Insurance) 400 25,320
=====================================================================
DENMARK-1.43%
Danske Bank A.S. (Diversified Banks)(a) 1,800 68,379
=====================================================================
FINLAND-5.33%
Nokia Oyj (Communications Equipment)(a) 5,800 117,374
- ---------------------------------------------------------------------
Stora Enso Oyj-Class R (Paper Products) 4,100 57,274
- ---------------------------------------------------------------------
UPM-Kymmene Oyj (Paper Products)(a) 3,700 79,495
=====================================================================
254,143
=====================================================================
FRANCE-6.90%
Compagnie Generale des Etablissements
Michelin- Class B (Tires & Rubber)(a) 980 58,805
- ---------------------------------------------------------------------
Credit Agricole S.A. (Diversified Banks)(a) 1,700 64,579
- ---------------------------------------------------------------------
Societe Generale-ADR (Diversified Banks)(b) 2,335 68,670
- ---------------------------------------------------------------------
Thomson (Consumer Electronics)(c) 3,000 49,622
- ---------------------------------------------------------------------
Total S.A.-ADR (Integrated Oil & Gas) 1,330 87,142
=====================================================================
328,818
=====================================================================
GERMANY-2.74%
BASF A.G. (Diversified Chemicals)(a) 880 70,590
- ---------------------------------------------------------------------
Bayerische Motoren Werke A.G. (Automobile
Manufacturers) 1,200 59,961
=====================================================================
130,551
=====================================================================
HONG KONG-2.06%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(a) 4,000 43,328
- ---------------------------------------------------------------------
Hutchison Whampoa Ltd.-ADR (Industrial
Conglomerates)(b) 1,200 54,770
=====================================================================
98,098
=====================================================================
ITALY-1.92%
Eni S.p.A-ADR (Integrated Oil & Gas) 1,560 91,650
=====================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
JAPAN-19.58%
Canon Inc. (Office Electronics)(a) 2,400 $ 117,400
- ---------------------------------------------------------------------
East Japan Railway Co. (Railroads)(a) 8 59,611
- ---------------------------------------------------------------------
Fuji Photo Film Co., Ltd.-ADR (Photographic
Products) 2,350 78,866
- ---------------------------------------------------------------------
Kao Corp.-ADR (Household Products)(b) 162 42,443
- ---------------------------------------------------------------------
NEC Electronics Corp. (Semiconductors)(a)(c) 600 19,325
- ---------------------------------------------------------------------
Nintendo Co., Ltd. (Home Entertainment
Software)(a) 300 50,512
- ---------------------------------------------------------------------
Nippon Telegraph and Telephone Corp.
(Integrated Telecommunication Services)(a) 12 58,783
- ---------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment)(a) 1,600 46,581
- ---------------------------------------------------------------------
Nomura Holdings, Inc. (Investment Banking &
Brokerage) 4,000 74,984
- ---------------------------------------------------------------------
Seven & I Holdings Co., Ltd. (Food Retail) 1,000 32,947
- ---------------------------------------------------------------------
Shin-Etsu Chemical Co., Ltd. (Specialty
Chemicals)(a) 1,200 65,559
- ---------------------------------------------------------------------
SMC Corp. (Industrial Machinery) 400 56,596
- ---------------------------------------------------------------------
Sony Corp.-ADR (Consumer Electronics) 1,990 87,640
- ---------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(a) 1,600 99,774
- ---------------------------------------------------------------------
Toyota Motor Corp. (Automobile
Manufacturers)(a) 800 41,861
=====================================================================
932,882
=====================================================================
MEXICO-1.94%
Fomento Economico Mexicano, S.A. de C.V.-ADR
(Soft Drinks) 500 41,860
- ---------------------------------------------------------------------
Telefonos de Mexico S.A. de C.V.-Series L-ADR
(Integrated Telecommunication Services) 2,440 50,825
=====================================================================
92,685
=====================================================================
NETHERLANDS-8.58%
Aegon N.V. (Life & Health Insurance) 6,600 112,883
- ---------------------------------------------------------------------
Heineken N.V. (Brewers)(a) 2,000 84,747
- ---------------------------------------------------------------------
ING Groep N.V.-ADR (Other Diversified
Financial Services) 1,655 65,075
- ---------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Consumer Electronics) 1,300 40,482
- ---------------------------------------------------------------------
TNT N.V. (Air Freight & Logistics)(a) 2,950 105,627
=====================================================================
408,814
=====================================================================
NORWAY-0.71%
Statoil A.S.A. (Integrated Oil & Gas) 1,200 34,031
=====================================================================
SOUTH KOREA-3.25%
Kookmin Bank-ADR (Diversified Banks) 700 58,142
- ---------------------------------------------------------------------
Korea Electric Power Corp.-ADR (Electric
Utilities) 1,650 31,284
- ---------------------------------------------------------------------
KT Corp.-ADR (Integrated Telecommunication
Services) 3,050 65,423
=====================================================================
154,849
=====================================================================
</Table>
AIM V.I. INTERNATIONAL CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
SPAIN-0.96%
Repsol YPF, S.A.-ADR (Integrated Oil & Gas) 1,625 $ 45,598
=====================================================================
SWEDEN-1.23%
Nordea Bank A.B. (Diversified Banks)(a) 4,900 58,485
=====================================================================
SWITZERLAND-9.37%
Credit Suisse Group (Diversified Capital
Markets)(a) 1,400 78,204
- ---------------------------------------------------------------------
Nestle S.A. (Packaged Foods & Meats)(a) 400 125,504
- ---------------------------------------------------------------------
Novartis A.G. (Pharmaceuticals) 2,260 122,378
- ---------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 200 33,062
- ---------------------------------------------------------------------
Zurich Financial Services A.G. (Multi-Line
Insurance)(a)(c) 400 87,533
=====================================================================
446,681
=====================================================================
TAIWAN-0.60%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 3,089 28,357
=====================================================================
UNITED KINGDOM-26.43%
Anglo American PLC (Diversified Metals &
Mining)(a) 1,600 65,478
- ---------------------------------------------------------------------
BAE Systems PLC (Aerospace & Defense)(a) 15,200 103,786
- ---------------------------------------------------------------------
BP PLC (Integrated Oil & Gas)(a) 3,400 39,481
- ---------------------------------------------------------------------
Cadbury Schweppes plc (Packaged Foods &
Meats)(a) 4,900 47,179
- ---------------------------------------------------------------------
Diageo PLC (Distillers & Vintners)(a) 4,600 77,292
- ---------------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals) 4,900 136,920
- ---------------------------------------------------------------------
HSBC Holdings PLC-ADR (Diversified Banks) 1,205 106,462
- ---------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Kingfisher PLC (Home Improvement Retail)(a) 16,600 $ 73,132
- ---------------------------------------------------------------------
Lloyds TSB Group PLC (Diversified Banks) 9,915 97,455
- ---------------------------------------------------------------------
Morrison (William) Supermarkets PLC (Food
Retail) 20,900 75,175
- ---------------------------------------------------------------------
Reed Elsevier PLC (Publishing) 8,600 86,836
- ---------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Diversified
Banks)(a) 4,800 157,601
- ---------------------------------------------------------------------
Royal Dutch Shell PLC-ADR (Integrated Oil &
Gas) 1,200 80,376
- ---------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services)(a) 52,800 112,325
=====================================================================
1,259,498
=====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $4,890,459) 4,658,374
=====================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITY-2.10%
FEDERAL FARM CREDIT BANK-2.10%
Disc. Notes, 4.95%, 07/03/06(d) $100,000 99,972
=====================================================================
Total U.S. Government Agency Securities
(Cost $99,973) 99,972
=====================================================================
TOTAL INVESTMENTS-99.85%
(Cost $4,990,432) 4,758,346
=====================================================================
OTHER ASSETS LESS LIABILITIES-0.15% 7,218
=====================================================================
NET ASSETS-100.00% $4,765,564
_____________________________________________________________________
=====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Disc. - Discounted
</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 June 30, 2006 was $2,343,487, which
represented 49.18% of the Fund's Net Assets. See Note 1A.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate value of these securities at June 30, 2006
was $165,883, which represented 3.48% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security.
(d) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $4,990,432) $4,758,346
- ------------------------------------------------------------
Cash 5,752
- ------------------------------------------------------------
Receivables for:
Dividends 11,262
- ------------------------------------------------------------
Fund expenses absorbed 11,350
- ------------------------------------------------------------
Other assets 338
============================================================
Total assets 4,787,048
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Accrued administrative services fees 1,997
- ------------------------------------------------------------
Accrued distribution fees -- Series II 998
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 361
- ------------------------------------------------------------
Accrued transfer agent fees 238
- ------------------------------------------------------------
Accrued operating expenses 17,890
============================================================
Total liabilities 21,484
============================================================
Net assets applicable to shares outstanding $4,765,564
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $5,000,020
- ------------------------------------------------------------
Undistributed net investment income 22,205
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (24,548)
- ------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities and foreign currencies (232,113)
============================================================
$4,765,564
____________________________________________________________
============================================================
NET ASSETS:
Series I $2,383,282
____________________________________________________________
============================================================
Series II $2,382,282
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 250,001
____________________________________________________________
============================================================
Series II 250,001
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 9.53
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 9.53
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$3,537) $ 28,637
- ------------------------------------------------------------
Interest 3,345
============================================================
Total investment income 31,982
============================================================
EXPENSES:
Advisory fees 7,467
- ------------------------------------------------------------
Administrative services fees 10,353
- ------------------------------------------------------------
Custodian fees 4,359
- ------------------------------------------------------------
Distribution fees -- Series II 998
- ------------------------------------------------------------
Transfer agent fees 246
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 3,071
- ------------------------------------------------------------
Reports to shareholders 4,833
- ------------------------------------------------------------
Professional services fees 13,846
- ------------------------------------------------------------
Other 616
============================================================
Total expenses 45,789
============================================================
Less: Fees waived and expenses reimbursed (36,012)
============================================================
Net expenses 9,777
============================================================
Net investment income 22,205
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 1,789
- ------------------------------------------------------------
Foreign currencies (26,337)
============================================================
(24,548)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (232,086)
- ------------------------------------------------------------
Foreign currencies (27)
============================================================
(232,113)
============================================================
Net gain (loss) from investment securities and
foreign currencies (256,661)
============================================================
Net increase (decrease) in net assets resulting
from operations $(234,456)
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 2006 (date operations commenced) through June 30, 2006
(Unaudited)
<Table>
<Caption>
JUNE 30,
2006
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 22,205
- --------------------------------------------------------------------------
Net realized gain (loss) on investment securities and
foreign currencies (24,548)
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (232,113)
==========================================================================
Net increase (decrease) in net assets resulting from
operations (234,456)
==========================================================================
Share transactions-net:
Series I 2,500,010
- --------------------------------------------------------------------------
Series II 2,500,010
==========================================================================
Net increase in net assets resulting from share
transactions 5,000,020
==========================================================================
Net increase in net assets 4,765,564
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income of $22,205) $4,765,564
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. International 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-five 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 commenced operations on May 1, 2006.
The Fund's investment objective is to provide 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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 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. 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. INTERNATIONAL CORE EQUITY FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.935%
- --------------------------------------------------------------------
Next $250 million 0.91%
- --------------------------------------------------------------------
Next $500 million 0.885%
- --------------------------------------------------------------------
Next $1.5 billion 0.86%
- --------------------------------------------------------------------
Next $2.5 billion 0.835%
- --------------------------------------------------------------------
Next $2.5 billion 0.81%
- --------------------------------------------------------------------
Next $2.5 billion 0.785%
- --------------------------------------------------------------------
Over $10 billion 0.76%
___________________________________________________________________
====================================================================
</Table>
Under the terms of a master sub-advisory agreement between AIM and INVESCO
Global Asset Management ("N.A"), Inc. ("IGAM"), AIM pays IGAM 40% of the amount
of AIM's compensation on the sub advised 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 1.10% and Series
II shares to 1.35% of average daily net assets, through April 30, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
For May 1, 2006 (date operations commenced) through June 30, 2006, AIM
waived fees of $7,467 and reimbursed expenses of $28,545.
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 period May 1, 2006 (date operations commenced)
through June 30, 2006, 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 period May 1, 2006 (date operations commenced) through June
30, 2006, AIM was paid $8,356 for accounting and fund administrative services
and reimbursed $1,997 for services provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the period May 1,
2006 (date operations commenced) through June 30, 2006, the Fund paid AIS $246.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, 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 period May 1,
2006 (date operations commenced) through June 30, 2006, the Series II shares
paid $998.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. INTERNATIONAL CORE EQUITY FUND
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.
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 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 period May 1, 2006 (date operations commenced) through June 30,
2006, 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 5--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
NOTE 6--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the period May 1,
2006 (date operations commenced) through June 30, 2006 was $5,061,570 and
$172,899, respectively. In a fund's initial year of operations, the cost of
investments for tax purposes will not reflect any tax adjustments until its
fiscal year end reporting period.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 37,717
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (269,803)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $ (232,086)
_______________________________________________________________________________
===============================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
AIM V.I. INTERNATIONAL CORE EQUITY FUND
NOTE 7--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------
MAY 1, 2006
(DATE OPERATIONS
COMMENCED) TO
JUNE 30, 2006(a)
---------------------
SHARES AMOUNT
- -----------------------------------------------------------------------------------
Sold:
Series I 250,001 $2,500,010
- -----------------------------------------------------------------------------------
Series II 250,001 2,500,010
===================================================================================
500,002 $5,000,020
___________________________________________________________________________________
===================================================================================
</Table>
(a) 100% of shares outstanding are owned by AIM.
NOTE 8--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I SERIES II
---------------- ----------------
MAY 1, 2006 MAY 1, 2006
(DATE OPERATIONS (DATE OPERATIONS
COMMENCED) TO COMMENCED) TO
JUNE 30, JUNE 30,
2006 2006
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00 $10.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.04
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.52) (0.51)
=====================================================================================================
Total from investment operations (0.47) (0.47)
=====================================================================================================
Net asset value, end of period $ 9.53 $ 9.53
_____________________________________________________________________________________________________
=====================================================================================================
Total return(a) (4.70)% (4.70)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,383 $2,382
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements(b) 1.10% 1.35%
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements(b) 5.61% 5.86%
=====================================================================================================
Ratio of net investment income to average net assets(b) 2.91% 2.66%
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(c) 5% 5%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of
$2,389,559 and $2,389,067 for Series I and Series II shares,
respectively.
(c) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 10--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the
AIM V.I. INTERNATIONAL CORE EQUITY FUND
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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 CORE EQUITY FUND
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary
Mark H. Williamson and Chief Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
SUB-ADVISOR
INVESCO Global Asset Management (N.A.),
Inc.
1360 Peachtree Street
Suite 100
Atlanta, GA 30309
</Table>
AIM V.I. INTERNATIONAL CORE EQUITY FUND
AIM V.I. INTERNATIONAL GROWTH FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. INTERNATIONAL GROWTH FUND seeks to provide
long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 FUND PERFORMANCE We believe disciplined sell decisions
are key to successful investing. We
====================================================================================== consider selling a stock for any one of
PERFORMANCE SUMMARY the following reasons:
============================================
After reaching new highs for the year in FUND vs. INDEXES o A company's fundamentals deteriorate,
early May, global equity markets or it posts disappointing earnings.
experienced a significant correction. CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06,
Rising inflation led to fears that EXCLUDING VARIABLE PRODUCT ISSUER o A stock's price is overvalued.
central banks may raise interest rates CHARGES. IF VARIABLE PRODUCT ISSUER
to levels that could threaten global CHARGES WERE INCLUDED, RETURNS WOULD BE o A more attractive opportunity becomes
economic growth. Overall though, LOWER. available.
non-U.S. markets ended on a positive
note and, following a trend of recent Series I Shares 8.93% MARKET CONDITIONS AND YOUR FUND
years, continued to outperform U.S.
equities. Series II Shares 8.78 Despite increased volatility in the
latter half of the reporting period,
Within this environment, we are Morgan Stanley Capital global economic growth continued to show
pleased to report to shareholders International (MSCI) record strength. Europe, bolstered by
positive Fund performance once again. EAFE Index (Broad Market Index) 10.16 the traditionally defensive attributes
Although returns were positive, your of the United Kingdom (U.K.) market, was
Fund underperformed its broad market and MSCI EAFE Growth Index the best-performing region during the
style-specific benchmarks. Our position (Style-Specific Index) 9.29 period. Strong manufacturing growth--the
in certain volatile emerging strongest in nearly six years--and low
markets--Hungary and Turkey--largely Lipper International unemployment--the lowest since
explained Multi-Cap Growth 2001--bolstered confidence in the
Fund Index (Peer Group Index) 8.29 region.
SOURCE: LIPPER INC. After impressive gains in 2005, when
improving economic growth prospects
============================================ drove the local market largely higher,
this relative underperformance. Japan witnessed a bout of profit taking,
especially in more cyclical,
Your Fund's Long-term performance appears economically sensitive stocks. From a
on Page 4. broad market perspective,
====================================================================================== emerging-market equities lagged stocks
in developed markets. With risk-aversion
HOW WE INVEST for, accelerating or above-average levels rising sharply and emerging
earnings growth, but whose prices do not markets' outperformance for much of the
We believe that earnings drive stock fully reflect these attributes. last year, profit taking was inevitable.
prices and that companies generating Countries with large deficit positions,
substantial, repeatable, above-average Although research responsibilities such as Turkey and South Africa, led the
earnings growth may provide long-term within the portfolio management team decliners, while Taiwan, like other
growth of capital. focus on specific geographic regions, we Asian countries, posted nominal gains in
select investments for the Fund by using the period.
When selecting stocks for your Fund, a bottom-up investment approach, which
we employ a disciplined investment means that we construct the Fund Fund performance was broad based,
strategy that emphasizes fundamental primarily on a stock-by-stock basis. We with almost all major regions
research, supported by both quantitative focus on the strengths of individual registering positive
analysis and portfolio construction companies, rather than sectors,
techniques. The strategy primarily countries or regional trends.
focuses on identifying quality companies
that have experienced, or exhibit the
potential
======================================== ============================================ ============================================
PORTFOLIO COMPOSITION TOP 5 COUNTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Japan 14.4% 1. BNP Paribas (France) 2.1%
Financials 21.9% 2. France 11.5 2. Vinci S.A. (France) 1.9
Consumer Discretionary 17.3 3. United Kingdom 10.1 3. Syngenta A.G.
(Switzerland) 1.7
Industrials 11.7 4. Switzerland 8.4
4. Roche Holding A.G.
Consumer Staples 10.4 5. Germany 8.3 (Switzerland) 1.7
Information Technology 9.6 5. Total S.A. (France) 1.7
Energy 9.0 TOTAL NET ASSETS $570.7 MILLION 6. Canon Inc. (Japan) 1.7
TOTAL NUMBER OF HOLDINGS* 104
Health Care 6.3 7. Anglo Irish Bank
Corp. PLC (Ireland) 1.7
Materials 6.2
8. UBS A.G. (Switzerland) 1.7
Telecommunication Services 1.9
9. Eni S.p.A. (Italy) 1.6
Utilities 1.4
10. Imperial Tobacco Group PLC
Money Market Funds (United Kingdom) 1.6
Plus Other Assets
Less Liabilities 4.3
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. INTERNATIONAL GROWTH FUND
returns for the period. Our largest TEVA PHARMACEUTICAL undermined good CLAS G. OLSSON,
regional allocation remained in European stock selection elsewhere in our senior portfolio
stocks, and strong stock selection pharmaceutical holdings. [OLSSON manager and head of
helped us perform in line with our PHOTO] AIM's International
style-specific benchmark. Our continued Foreign exchange was another Investment Management
underweight exposure to the region contributor to Fund performance. Because Unit, is lead manager
versus the benchmark detracted from we do not typically hedge currencies--we of AIM V.I.
performance, but this allocation buy stocks in their local currency and International
strategy should not be construed as a then translate that value back into Growth Fund with respect to the Fund's
bias against European stocks--we dollars--our exposure to the investments in Europe and Canada. Mr.
continued to find very compelling appreciating euro, compared with the Olsson joined AIM in 1994. Mr. Olsson
investment opportunities there. Instead U.S. dollar, added value to your Fund's became a commissioned naval officer at
this strategy indicated our flexibility overall return. the Royal Swedish Naval Academy in 1988.
in seeking investment opportunities He also earned a B.B.A. from The
across both developed and emerging world Stock-specific detractors included University of Texas at Austin.
markets (the Fund's emerging-markets AKBANK, Teva Pharmaceutical, MEDIATEK
exposure is limited to less than 20%). INC, TELKOM S.A. and L.G. PHILLIPS. The BARRETT K. SIDES,
For instance, our holdings in Canada and Fund sold its holdings in L.G. Phillips senior portfolio
China, countries not represented in the during the reporting period. Akbank, a [SIDES manager, is lead
EAFE benchmarks, gave the Fund a smaller Turkish bank, was negatively PHOTO] manager of AIM V.I.
competitive edge. An underweight affected by interest rate tightening International Growth
exposure to the volatile Japan market during the reporting period. Despite a Fund with respect to
relative to the style-specific benchmark more volatile market environment, the the Fund's
was a key contributor to Fund returns as stock continued to produce strong return investments in Asia
well. on equity and remained at a reasonable Pacific and Latin
valuation--two key characteristics of America. He joined AIM in 1990. Mr. Sides
Our exposure to the emerging-market our stock selection process. earned a B.S. in economics from Bucknell
countries Korea, Hungary and Turkey Consequently, we increased our holdings University and a master's in international
detracted during the reporting period, of the stock during the reporting business from the University of St. Thomas.
although they had been top contributors period.
in the past. An underweight exposure SHUXIN CAO, Chartered
versus the style-specific benchmark, IN CLOSING Financial Analyst,
combined with weaker stock selection to [CAO senior portfolio
the strong U.K. market, detracted from We remain committed to our disciplined PHOTO] manager, is manager
comparative results as well. strategy of selecting holdings based on of AIM V.I.
the earnings, quality and valuation of International Growth
Sector performance was also broad an individual company and maintaining Fund. He joined AIM
based, with all sectors registering our course through the market's in 1997. Mr. Cao
positive returns for the period. With fluctuations. graduated from Tianjin Foreign Language
oil prices rising to historic highs of Institute with a B.A. in English. He
more than $75 per barrel, the energy We welcome new investors who have also earned an M.B.A. from Texas A&M
sector benefited from a dramatic rise in joined the Fund during the reporting University and is a certified public
commodity prices. Our Canadian energy period and thank all of our shareholders accountant.
holdings in particular benefited from for your continued investment in AIM
this rise, and SUNCOR ENERGY was the top V.I. International Growth Fund. MATTHEW W. DENNIS,
contributor for the reporting period. Chartered Financial
THE VIEWS AND OPINIONS EXPRESSED IN [DENNIS Analyst, portfolio
Our bottom-up investment approach MANAGEMENT'S DISCUSSION OF FUND PHOTO] manager, is manager
enabled us to outperform our PERFORMANCE ARE THOSE OF A I M ADVISORS, of AIM V.I.
style-specific index across multiple INC. THESE VIEWS AND OPINIONS ARE International Growth
sectors, with contributors coming from SUBJECT TO CHANGE AT ANY TIME BASED ON Fund. He has been in
the Fund's consumer staples, industrials FACTORS SUCH AS MARKET AND ECONOMIC the investment
and telecommunication services holdings. CONDITIONS. THESE VIEWS AND OPINIONS MAY business since 1994. Mr. Dennis earned a
Within the consumer discretionary NOT BE RELIED UPON AS INVESTMENT ADVICE B.A. in economics from The University of
sector, long-term Fund holding PUMA, the OR RECOMMENDATIONS, OR AS AN OFFER FOR A Texas at Austin and an M.S. in finance
German athletic shoe and apparel PARTICULAR SECURITY. THE INFORMATION IS from Texas A&M University.
manufacturer, was up over 34% for the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
reporting period. Strong sales surprised OF ANY MARKET, COUNTRY, INDUSTRY, JASON T. HOLZER,
a market that was apprehensive about the SECURITY OR THE FUND. STATEMENTS OF FACT Chartered Financial
company's new expansion program. ARE FROM SOURCES CONSIDERED RELIABLE, [HOLZER Analyst, portfolio
BUT A I M ADVISORS, INC. MAKES NO PHOTO] manager, is manager
In contrast, an underweight exposure REPRESENTATION OR WARRANTY AS TO THEIR of AIM V.I.
to telecommunication services, materials COMPLETENESS OR ACCURACY. ALTHOUGH International Growth
and health care relative to the HISTORICAL PERFORMANCE IS NO GUARANTEE Fund. He has been in
style-specific benchmark detracted from OF FUTURE RESULTS, THESE INSIGHTS MAY the investment
performance. Within health care, HELP YOU UNDERSTAND OUR INVESTMENT business since 1994. Mr. Dennis earned a
exposure to generic manufacturer MANAGEMENT PHILOSOPHY. B.A. in economics from The University of
Texas at Austin and an M.S. in finance
from Texas A&M University.
Assisted by Asia Pacific/Latin America
Team and Europe/Canada 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 PAGE 4.
3
AIM V.I. INTERNATIONAL GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS SERIES I AND SERIES II SHARE CLASSES SHARES OF THE FUND DIRECTLY. PERFORMANCE
WILL DIFFER PRIMARILY DUE TO DIFFERENT FIGURES GIVEN REPRESENT THE FUND AND ARE
As of 6/30/06 CLASS EXPENSES. NOT INTENDED TO REFLECT ACTUAL VARIABLE
PRODUCT VALUES. THEY DO NOT REFLECT
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT SALES CHARGES, EXPENSES AND FEES
PAST PERFORMANCE AND CANNOT GUARANTEE ASSESSED IN CONNECTION WITH A VARIABLE
Inception (5/5/93) 8.92% COMPARABLE FUTURE RESULTS; CURRENT PRODUCT. SALES CHARGES, EXPENSES AND
10 Years 7.09 PERFORMANCE MAY BE LOWER OR HIGHER. FEES, WHICH ARE DETERMINED BY THE
5 Years 9.15 PLEASE CONTACT YOUR VARIABLE PRODUCT VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 27.37 ISSUER OR FINANCIAL ADVISOR FOR THE MOST WILL LOWER THE TOTAL RETURN.
RECENT MONTH-END VARIABLE PRODUCT
SERIES II SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT PER NASD REQUIREMENTS, THE MOST
FUND EXPENSES, REINVESTED DISTRIBUTIONS RECENT MONTH-END PERFORMANCE DATA AT THE
10 Years 6.82% AND CHANGES IN NET ASSET VALUE. FUND LEVEL, EXCLUDING VARIABLE PRODUCT
5 Years 8.86 INVESTMENT RETURN AND PRINCIPAL VALUE CHARGES, IS AVAILABLE ON THIS AIM
1 Year 27.01 WILL FLUCTUATE SO THAT YOU MAY HAVE A AUTOMATED INFORMATION LINE,
GAIN OR LOSS WHEN YOU SELL SHARES. 866-702-4402. AS MENTIONED ABOVE, FOR
======================================== THE MOST RECENT MONTH-END PERFORMANCE
AIM V.I. INTERNATIONAL GROWTH FUND, A INCLUDING VARIABLE PRODUCT CHARGES,
SERIES II SHARES' INCEPTION DATE IS SERIES PORTFOLIO OF AIM VARIABLE PLEASE CONTACT YOUR VARIABLE PRODUCT
SEPTEMBER 19, 2001. RETURNS SINCE THAT INSURANCE FUNDS, IS CURRENTLY OFFERED ISSUER OR FINANCIAL ADVISOR.
DATE ARE HISTORICAL. ALL OTHER RETURNS THROUGH INSURANCE COMPANIES ISSUING
ARE THE BLENDED RETURNS OF THE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
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 RULE 12b-1 FEES
APPLICABLE TO SERIES II SHARES. THE
PERFORMANCE OF THE FUND'S
PRINCIPAL RISKS OF INVESTING IN THE FUND and higher forecasted growth values. reporting purposes, and as such, the net
asset values for shareholder
Foreign securities have additional The unmanaged LIPPER INTERNATIONAL transactions and the returns based on
risks, including exchange rate changes, MULTI-CAP GROWTH FUND INDEX represents those net asset values may differ from
political and economic developments, the an average of the performance of the 10 the net asset values and returns
relative lack of information about these largest international reported in the Financial Highlights.
companies, relatively low market multi-capitalization growth funds Additionally, the returns and net asset
liquidity and the potential lack of tracked by Lipper Inc., an independent values shown throughout this report are
strict financial and accounting controls mutual fund performance monitor. at the Fund level only and do not
and standards. include variable product issuer charges.
The Fund is not managed to track the If such charges were included, the total
Investing in emerging markets performance of any particular index, returns would be lower.
involves greater risk and potential including the indexes defined here, and
reward than investing in more consequently, the performance of the Industry classifications used in this
established markets. Fund may deviate significantly from the report are generally according to the
performance of the indexes. Global Industry Classification Standard,
ABOUT INDEXES USED IN THIS REPORT which was developed by and is the
A direct investment cannot be made in exclusive property and a service mark of
The unmanaged MSCI EUROPE, AUSTRALASIA an index. Unless otherwise indicated, Morgan Stanley Capital International
AND THE FAR EAST INDEX (the MSCI index results include reinvested Inc. and Standard & Poor's.
EAFE--Registered Trademark--) is a group dividends, and they do not reflect sales
of foreign securities tracked by Morgan charges. Performance of an index of
Stanley Capital International. funds reflects fund expenses;
performance of a market index does not.
The unmanaged MSCI EUROPE,
AUSTRALASIA AND THE FAR EAST GROWTH OTHER INFORMATION
INDEX is a subset of the unmanaged MSCI
EAFE--Registered Trademark--, which The returns shown in the management's
represents the performance of foreign discussion of Fund performance are based
stocks tracked by Morgan Stanley Capital on net asset values calculated for
International. The Growth portion shareholder transactions. Generally
measures performance of companies with accepted accounting principles require
higher price/earnings ratios adjustments to be made to the net assets
of the Fund at period end for financial
4
AIM V.I. INTERNATIONAL 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
January 1, 2006, through June 30, 2006. COMPARISON PURPOSES hypothetical information is useful in
The actual and hypothetical expenses in comparing ongoing costs, and will not
the examples below do not represent the The table below also provides help you determine the relative total
effect of any fees or other expenses information about hypothetical account costs of owning different funds.
assessed in connection with a variable values and hypothetical expenses based
product; if they did, the expenses shown on the Fund's actual expense ratio and
would be higher while the ending account an assumed rate of return of 5% per year
values shown would be lower. before expenses, which is not the Fund's
actual return. The Fund's actual
ACTUAL EXPENSES cumulative total returns at net asset
value after expenses for the six months
The table below provides information ended June 30, 2006, appear in the table
about actual account values and actual "Fund vs. Indexes" on page 2.
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,089.30 $5.75 $1,019.29 $5.56 1.11%
Series II 1,000.00 1,089.80 7.04 1,018.05 6.80 1.36
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. INTERNATIONAL GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory Agreement for the Fund, the Board
Insurance Funds (the "Board") oversees services to be provided by AIM. The concluded that no changes should be made
the management of AIM V.I. International Board reviewed the services to be to the Fund and that it was not
Growth Fund (the "Fund") and, as provided by AIM under the Advisory necessary to change the Fund's portfolio
required by law, determines annually Agreement. Based on such review, the management team at this time. Although
whether to approve the continuance of Board concluded that the range of the independent written evaluation of
the Fund's advisory agreement with A I M services to be provided by AIM under the the Fund's Senior Officer (discussed
Advisors, Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and below) only considered Fund performance
recommendation of the Investments that AIM currently is providing services through the most recent calendar year,
Committee of the Board, at a meeting in accordance with the terms of the the Board also reviewed more recent Fund
held on June 27, 2006, the Board, Advisory Agreement. performance, which did not change their
including all of the independent conclusions.
trustees, approved the continuance of o The quality of services to be provided
the advisory agreement (the "Advisory by AIM. The Board reviewed the o Meetings with the Fund's portfolio
Agreement") between the Fund and AIM for credentials and experience of the managers and investment personnel. With
another year, effective July 1, 2006. officers and employees of AIM who will respect to the Fund, the Board is
provide investment advisory services to meeting periodically with such Fund's
The Board considered the factors the Fund. In reviewing the portfolio managers and/or other
discussed below in evaluating the qualifications of AIM to provide investment personnel and believes that
fairness and reasonableness of the investment advisory services, the Board such individuals are competent and able
Advisory Agreement at the meeting on considered such issues as AIM's to continue to carry out their
June 27, 2006 and as part of the Board's portfolio and product review process, responsibilities under the Advisory
ongoing oversight of the Fund. In their various back office support functions Agreement.
deliberations, the Board and the provided by AIM and AIM's equity and
independent trustees did not identify fixed income trading operation. Based on o Overall performance of AIM. The Board
any particular factor that was the review of these and other factors, considered the overall performance of
controlling, and each trustee attributed the Board concluded that the quality of AIM in providing investment advisory and
different weights to the various services to be provided by AIM was portfolio administrative services to the
factors. appropriate and that AIM currently is Fund and concluded that such performance
providing satisfactory services in was satisfactory.
One responsibility of the independent accordance with the terms of the
Senior Officer of the Fund is to manage Advisory Agreement. o Fees relative to those of clients of
the process by which the Fund's proposed AIM with comparable investment
management fees are negotiated to ensure o The performance of the Fund relative strategies. The Board reviewed the
that they are negotiated in a manner to comparable funds. The Board reviewed effective advisory fee rate (before
which is at arms' length and reasonable. the performance of the Fund during the waivers) for the Fund under the Advisory
To that end, the Senior Officer must past one, three and five calendar years Agreement. The Board noted that this
either supervise a competitive bidding against the performance of funds advised rate was (i) below the effective
process or prepare an independent by other advisors with investment advisory fee rate (before waivers) for
written evaluation. The Senior Officer strategies comparable to those of the one mutual fund advised by AIM with
has recommended an independent written Fund. The Board noted that the Fund's investment strategies comparable to
evaluation in lieu of a competitive performance was above the median those of the Fund; (ii) above the
bidding process and, upon the direction performance of such comparable funds for effective sub-advisory fee rate for one
of the Board, has prepared such an the one and five year periods and below Canadian mutual fund advised by an AIM
independent written evaluation. Such such median performance for the three affiliate and sub-advised by AIM with
written evaluation also considered year period. Based on this review and investment strategies comparable to
certain of the factors discussed below. after taking account of all of the other those of the Fund, although the total
In addition, as discussed below, the factors that the Board considered in advisory fees for such Canadian mutual
Senior Officer made a recommendation to determining whether to continue the fund were above those for the Fund;
the Board in connection with such Advisory Agreement for the Fund, the (iii) above the effective sub-advisory
written evaluation. Board concluded that no changes should fee rates for two variable insurance
be made to the Fund and that it was not funds sub-advised by an AIM affiliate
The discussion below serves as a necessary to change the Fund's portfolio and offered to insurance company
summary of the Senior Officer's management team at this time. Although separate accounts with investment
independent written evaluation and the independent written evaluation of strategies comparable to those of the
recommendation to the Board in the Fund's Senior Officer (discussed Fund, although the total advisory fees
connection therewith, as well as a below) only considered Fund performance for such variable insurance funds were
discussion of the material factors and through the most recent calendar year, above those for the Fund; and (iv)
the conclusions with respect thereto the Board also reviewed more recent Fund comparable to the total advisory fee
that formed the basis for the Board's performance, which did not change their rate for one separately managed
approval of the Advisory Agreement. conclusions. account/wrap account managed by an AIM
After consideration of all of the affiliate with investment strategies
factors below and based on its informed o The performance of the Fund relative comparable to those of the Fund and
business judgment, the Board determined to indices. The Board reviewed the above the total advisory fee rates for
that the Advisory Agreement is in the performance of the Fund during the past 10 other separately managed
best interests of the Fund and its one, three and five calendar years accounts/wrap accounts managed by an AIM
shareholders and that the compensation against the performance of the Lipper affiliate with investment strategies
to AIM under the Advisory Agreement is Variable Underlying Fund International comparable to those of the Fund. The
fair and reasonable and would have been Growth Index. The Board noted that the Board noted that AIM has agreed to limit
obtained through arm's length Fund's performance was comparable to the the Fund's total operating expenses, as
negotiations. performance of such Index for the one discussed below. Based on this review,
year period and above such Index for the the Board concluded that the advisory
Unless otherwise stated, information three and five year periods. Based on fee rate for the Fund under the Advisory
presented below is as of June 27, 2006 this review and after taking account of Agreement was fair and reasonable.
and does not reflect any changes that all of the other factors that the Board
may have occurred since June 27, 2006, considered in determining whether to
including but not limited to changes to continue the Advisory
the Fund's performance, advisory fees,
expense limitations and/or fee waivers.
(continued)
6
AIM V.I. INTERNATIONAL GROWTH FUND
o Fees relative to those of comparable Fund invests uninvested cash in form its obligations under the Advisory
funds with other advisors. The Board affiliated money market funds, AIM has Agreement, and concluded that AIM has
reviewed the advisory fee rate for the voluntarily agreed to waive a portion of the financial resources necessary to
Fund under the Advisory Agreement. The the advisory fees it receives from the fulfill its obligations under the
Board compared effective contractual Fund attributable to such investment. Advisory Agreement.
advisory fee rates at a common asset The Board further determined that the
level at the end of the past calendar proposed securities lending program and o Historical relationship between the
year and noted that the Fund's rate was related procedures with respect to the Fund and AIM. In determining whether to
below the median rate of the funds lending Fund is in the best interests of continue the Advisory Agreement for the
advised by other advisors with the lending Fund and its respective Fund, the Board also considered the
investment strategies comparable to shareholders. The Board therefore prior relationship between AIM and the
those of the Fund that the Board concluded that the investment of cash Fund, as well as the Board's knowledge
reviewed. The Board noted that AIM has collateral received in connection with of AIM's operations, and concluded that
agreed to limit the Fund's total the securities lending program in the it was beneficial to maintain the
operating expenses, as discussed below. money market funds according to the current relationship, in part, because
Based on this review, the Board procedures is in the best interests of of such knowledge. The Board also
concluded that the advisory fee rate for the lending Fund and its respective reviewed the general nature of the
the Fund under the Advisory Agreement shareholders. non-investment advisory services
was fair and reasonable. currently performed by AIM and its
o Independent written evaluation and affiliates, such as administrative,
o Expense limitations and fee waivers. recommendations of the Fund's Senior transfer agency and distribution
The Board noted that AIM has Officer. The Board noted that, upon services, and the fees received by AIM
contractually agreed to waive fees their direction, the Senior Officer of and its affiliates for performing such
and/or limit expenses of the Fund the Fund, who is independent of AIM and services. In addition to reviewing such
through April 30, 2008 in an amount AIM's affiliates, had prepared an services, the trustees also considered
necessary to limit total annual independent written evaluation in order the organizational structure employed by
operating expenses to a specified to assist the Board in determining the AIM and its affiliates to provide those
percentage of average daily net assets reasonableness of the proposed services. Based on the review of these
for each class of the Fund. The Board management fees of the AIM Funds, and other factors, the Board concluded
considered the contractual nature of including the Fund. The Board noted that that AIM and its affiliates were
this fee waiver/expense limitation and the Senior Officer's written evaluation qualified to continue to provide
noted that it remains in effect until had been relied upon by the Board in non-investment advisory services to the
April 30, 2008. The Board considered the this regard in lieu of a competitive Fund, including administrative, transfer
effect this fee waiver/expense bidding process. In determining whether agency and distribution services, and
limitation would have on the Fund's to continue the Advisory Agreement for that AIM and its affiliates currently
estimated expenses and concluded that the Fund, the Board considered the are providing satisfactory
the levels of fee waivers/expense Senior Officer's written evaluation. non-investment advisory services.
limitations for the Fund were fair and
reasonable. o Profitability of AIM and its o Other factors and current trends. The
affiliates. The Board reviewed Board considered the steps that AIM and
o Breakpoints and economies of scale. information concerning the profitability its affiliates have taken over the last
The Board reviewed the structure of the of AIM's (and its affiliates') several years, and continue to take, in
Fund's advisory fee under the Advisory investment advisory and other activities order to improve the quality and
Agreement, noting that it includes one and its financial condition. The Board efficiency of the services they provide
breakpoint. The Board reviewed the level considered the overall profitability of to the Funds in the areas of investment
of the Fund's advisory fees, and noted AIM, as well as the profitability of AIM performance, product line
that such fees, as a percentage of the in connection with managing the Fund. diversification, distribution, fund
Fund's net assets, have decreased as net The Board noted that AIM's operations operations, shareholder services and
assets increased because the Advisory remain profitable, although increased compliance. The Board concluded that
Agreement includes a breakpoint. The expenses in recent years have reduced these steps taken by AIM have improved,
Board concluded that the Fund's fee AIM's profitability. Based on the review and are likely to continue to improve,
levels under the Advisory Agreement of the profitability of AIM's and its the quality and efficiency of the
therefore reflect economies of scale and affiliates' investment advisory and services AIM and its affiliates provide
that it was not necessary to change the other activities and its financial to the Fund in each of these areas, and
advisory fee breakpoints in the Fund's condition, the Board concluded that the support the Board's approval of the
advisory fee schedule. compensation to be paid by the Fund to continuance of the Advisory Agreement
AIM under its Advisory Agreement was not for the Fund.
o Investments in affiliated money market excessive.
funds. The Board also took into account
the fact that uninvested cash and cash o Benefits of soft dollars to AIM. The
collateral from securities lending Board considered the benefits realized
arrangements, if any (collectively, by AIM as a result of brokerage
"cash balances") of the Fund may be transactions executed through "soft
invested in money market funds advised dollar" arrangements. Under these
by AIM 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 may be
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 light of
in such money market funds. The Board the Fund's needs. The Board considered
noted that, to the extent the whether AIM is financially sound and has
the resources necessary to per-
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-92.28%
AUSTRALIA-2.66%
BHP Billiton Ltd. (Diversified Metals &
Mining)(a) 393,700 $ 8,479,097
- ------------------------------------------------------------------------
Brambles Industries Ltd. (Diversified
Commercial & Professional Services)(a)(b) 430,488 3,527,410
- ------------------------------------------------------------------------
QBE Insurance Group Ltd. (Property & Casualty
Insurance)(a)(b) 207,100 3,149,618
========================================================================
15,156,125
========================================================================
AUSTRIA-0.37%
OMV A.G. (Integrated Oil & Gas)(a)(b) 35,136 2,090,427
========================================================================
BELGIUM-2.66%
InBev N.V. (Brewers) 161,067 7,901,824
- ------------------------------------------------------------------------
KBC GROEP N.V. (Diversified Banks) 67,822 7,279,273
========================================================================
15,181,097
========================================================================
BRAZIL-0.36%
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar-ADR (Hypermarkets & Super
Centers) 65,200 2,030,328
========================================================================
CANADA-4.99%
Canadian National Railway Co. (Railroads) 124,000 5,416,322
- ------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 95,925 5,303,674
- ------------------------------------------------------------------------
EnCana Corp. (Oil & Gas Exploration &
Production) 76,060 4,005,023
- ------------------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 169,616 5,374,288
- ------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 103,827 8,402,518
========================================================================
28,501,825
========================================================================
CHINA-0.66%
Ping An Insurance (Group) Co. of China Ltd.-
Class H (Life & Health Insurance)(a) 1,227,000 3,740,465
========================================================================
FRANCE-11.48%
Axa (Multi-Line Insurance)(b) 148,589 4,877,516
- ------------------------------------------------------------------------
BNP Paribas (Diversified Banks)(a) 123,393 11,794,870
- ------------------------------------------------------------------------
Capgemini S.A. (IT Consulting & Other
Services)(a)(b) 101,257 5,767,057
- ------------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners)(b) 21,577 4,278,368
- ------------------------------------------------------------------------
Sanofi-Aventis (Pharmaceuticals)(a) 70,060 6,838,160
- ------------------------------------------------------------------------
Societe Generale (Diversified Banks) 52,225 7,683,016
- ------------------------------------------------------------------------
Total S.A. (Integrated Oil & Gas)(a) 150,900 9,898,834
- ------------------------------------------------------------------------
Veolia Environnement (Multi-Utilities) 68,582 3,545,312
- ------------------------------------------------------------------------
Vinci S.A. (Construction & Engineering)(a) 105,065 10,811,020
========================================================================
65,494,153
========================================================================
GERMANY-6.12%
Adidas A.G. (Apparel, Accessories & Luxury
Goods) 82,496 3,944,824
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
GERMANY-(CONTINUED)
Commerzbank A.G. (Diversified Banks) 210,705 $ 7,665,842
- ------------------------------------------------------------------------
Continental A.G. (Tires & Rubber) 35,992 3,679,738
- ------------------------------------------------------------------------
MAN A.G. (Industrial Machinery)(a) 99,653 7,196,290
- ------------------------------------------------------------------------
Merck KGaA (Pharmaceuticals)(a)(b)(c) 56,232 5,108,727
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)(a) 18,879 7,326,314
========================================================================
34,921,735
========================================================================
GREECE-1.18%
OPAP S.A. (Casinos & Gaming)(a) 186,590 6,756,481
========================================================================
HONG KONG-1.16%
Esprit Holdings Ltd. (Apparel Retail) 418,000 3,412,333
- ------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Industrial
Conglomerates)(a) 352,000 3,221,186
========================================================================
6,633,519
========================================================================
HUNGARY-0.79%
OTP Bank Nyrt. (Diversified Banks) 159,844 4,529,202
========================================================================
INDIA-2.50%
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 112,564 2,786,717
- ------------------------------------------------------------------------
Infosys Technologies Ltd. (IT Consulting &
Other Services)(a) 114,980 7,732,802
- ------------------------------------------------------------------------
Maruti Udyog Ltd. (Automobile Manufacturers) 215,968 3,737,222
========================================================================
14,256,741
========================================================================
INDONESIA-0.54%
PT Telekomunikasi Indonesia-Series B
(Integrated Telecommunication Services)(a) 3,835,000 3,061,735
========================================================================
IRELAND-2.54%
Anglo Irish Bank Corp. PLC (Diversified
Banks) 619,049 9,661,405
- ------------------------------------------------------------------------
CRH PLC (Construction Materials) 149,314 4,855,472
========================================================================
14,516,877
========================================================================
ISRAEL-0.55%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 99,376 3,139,288
========================================================================
ITALY-1.57%
Eni S.p.A. (Integrated Oil & Gas)(a) 305,309 8,982,317
========================================================================
JAPAN-14.40%
Canon Inc. (Office Electronics)(a)(b) 198,150 9,692,795
- ------------------------------------------------------------------------
Denso Corp. (Auto Parts & Equipment)(a) 60,700 1,993,038
- ------------------------------------------------------------------------
FANUC Ltd. (Industrial Machinery)(a) 67,500 6,092,554
- ------------------------------------------------------------------------
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
JAPAN-(CONTINUED)
Hitachi High-Technologies Corp. (Trading
Companies & Distributors)(a) 99,000 $ 3,026,507
- ------------------------------------------------------------------------
Hoya Corp. (Electronic Equipment
Manufacturers)(a) 172,000 6,149,689
- ------------------------------------------------------------------------
JSR Corp. (Specialty Chemicals)(a) 154,000 3,908,854
- ------------------------------------------------------------------------
Keyence Corp. (Electronic Equipment
Manufacturers)(a)(b) 22,300 5,703,655
- ------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(a) 238,000 5,036,879
- ------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks)(a) 236 2,007,123
- ------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks) (Acquired 10/24/05; Cost
$2,127,848)(a)(d) 354 3,010,685
- ------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automobile
Manufacturers)(a)(b) 551,000 6,054,265
- ------------------------------------------------------------------------
Nitto Denko Corp. (Specialty Chemicals)(a) 64,200 4,578,693
- ------------------------------------------------------------------------
ORIX Corp. (Consumer Finance)(a) 26,940 6,574,065
- ------------------------------------------------------------------------
SMC Corp. (Industrial Machinery) 19,000 2,688,311
- ------------------------------------------------------------------------
Suzuki Motor Corp. (Automobile
Manufacturers)(a) 190,000 4,126,175
- ------------------------------------------------------------------------
Toyota Motor Corp. (Automobile
Manufacturers)(a) 135,200 7,074,423
- ------------------------------------------------------------------------
Yamaha Motor Co., Ltd. (Motorcycle
Manufacturers)(a) 170,100 4,443,864
========================================================================
82,161,575
========================================================================
MEXICO-2.13%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 151,163 5,027,682
- ------------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 147,784 2,853,709
- ------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series V
(Hypermarkets & Super Centers)(b) 1,547,800 4,253,798
========================================================================
12,135,189
========================================================================
NETHERLANDS-1.62%
ING Groep N.V. (Other Diversified Financial
Services)(a) 142,160 5,578,851
- ------------------------------------------------------------------------
Koninklijke DSM N.V. (Specialty Chemicals)(a) 88,585 3,686,577
========================================================================
9,265,428
========================================================================
NORWAY-1.17%
Petrojarl A.S.A. (Marine)(c)(e) 105,700 696,316
- ------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(c) 105,700 5,961,149
========================================================================
6,657,465
========================================================================
RUSSIA-0.64%
LUKOIL-ADR (Integrated Oil & Gas)(a) 43,879 3,644,914
========================================================================
SINGAPORE-1.26%
Keppel Corp. Ltd. (Industrial
Conglomerates)(a) 461,000 4,281,861
- ------------------------------------------------------------------------
United Overseas Bank Ltd. (Diversified
Banks)(a) 295,000 2,904,984
========================================================================
7,186,845
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SOUTH AFRICA-1.20%
Standard Bank Group Ltd. (Diversified
Banks)(a)(b) 366,470 $ 3,926,012
- ------------------------------------------------------------------------
Telkom South Africa Ltd. (Integrated
Telecommunication Services)(a)(c) 160,200 2,944,011
========================================================================
6,870,023
========================================================================
SOUTH KOREA-3.51%
Daewoo Shipbuilding & Marine Engineering Co.,
Ltd. (Construction & Farm Machinery & Heavy
Trucks) 71,760 2,110,366
- ------------------------------------------------------------------------
Hynix Semiconductor Inc.
(Semiconductors)(a)(c) 92,420 2,985,928
- ------------------------------------------------------------------------
Hyundai Motor Co. (Automobile
Manufacturers)(a) 47,010 4,009,521
- ------------------------------------------------------------------------
Kookmin Bank (Diversified Banks)(a) 45,730 3,785,261
- ------------------------------------------------------------------------
Samsung Electronics Co., Ltd. (Electronic
Equipment Manufacturers)(a) 11,190 7,141,592
========================================================================
20,032,668
========================================================================
SPAIN-3.64%
ACS, Actividades de Construccion y Servicios,
S.A. (Construction & Engineering)(a) 123,756 5,156,251
- ------------------------------------------------------------------------
Banco Santander Central Hispano S.A.
(Diversified Banks)(a) 323,420 4,732,371
- ------------------------------------------------------------------------
Grupo Ferrovial, S.A. (Construction &
Engineering)(a) 49,020 3,737,327
- ------------------------------------------------------------------------
Industria de Diseno Textil, S.A. (Apparel
Retail) 170,077 7,175,492
========================================================================
20,801,441
========================================================================
SWEDEN-1.62%
Atlas Copco A.B.-Class A (Industrial
Machinery) 182,230 5,065,708
- ------------------------------------------------------------------------
Swedish Match A.B. (Tobacco)(a) 259,080 4,173,353
========================================================================
9,239,061
========================================================================
SWITZERLAND-8.41%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)(f) 180,203 8,254,428
- ------------------------------------------------------------------------
Credit Suisse Group (Diversified Capital
Markets)(a) 72,188 4,032,407
- ------------------------------------------------------------------------
Nestle S.A. (Packaged Foods & Meats)(a) 19,659 6,168,220
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 60,164 9,945,805
- ------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(a)(c) 74,843 9,956,596
- ------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets)(a) 88,020 9,626,864
========================================================================
47,984,320
========================================================================
TAIWAN-1.67%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services)(a) 717,043 4,415,381
- ------------------------------------------------------------------------
MediaTek Inc. (Semiconductors)(a) 287,000 2,654,654
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors)(b) 268,146 2,461,580
========================================================================
9,531,615
========================================================================
TURKEY-0.81%
Akbank T.A.S. (Diversified Banks)(a) 972,269 4,631,762
========================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-10.07%
Aviva PLC (Multi-Line Insurance)(a) 382,114 $ 5,401,409
- ------------------------------------------------------------------------
Capita Group PLC (Human Resource & Employment
Services)(a) 442,628 3,772,506
- ------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 244,894 4,288,582
- ------------------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals) 184,038 5,142,560
- ------------------------------------------------------------------------
Imperial Tobacco Group PLC (Tobacco)(a) 289,239 8,916,792
- ------------------------------------------------------------------------
Informa PLC (Publishing)(a) 521,062 4,149,408
- ------------------------------------------------------------------------
International Power PLC (Independent Power
Producers & Energy Traders)(a) 906,041 4,760,414
- ------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(a) 171,534 6,397,048
- ------------------------------------------------------------------------
Shire PLC (Pharmaceuticals) 386,008 5,632,234
- ------------------------------------------------------------------------
Tesco PLC (Food Retail)(a) 878,916 5,423,436
- ------------------------------------------------------------------------
WPP Group PLC (Advertising) 297,460 3,600,357
========================================================================
57,484,746
========================================================================
Total Foreign Common Stocks & Other Equity
Interests (Cost $353,511,771) 526,619,367
========================================================================
PREFERRED STOCKS & OTHER EQUITY
INTERESTS-3.46%
BRAZIL-1.25%
Companhia de Bebidas das Americas-Pfd.-ADR
(Brewers) 94,365 3,892,556
- ------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Pfd.-ADR (Integrated
Oil & Gas) 40,435 3,228,331
========================================================================
7,120,887
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
GERMANY-2.21%
Henkel KGaA-Pfd. (Household Products)(a) 51,564 $ 5,887,815
- ------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobile
Manufacturers)(a) 6,997 6,752,850
========================================================================
12,640,665
========================================================================
Total Preferred Stocks & Other Equity
Interests (Cost $14,303,438) 19,761,552
========================================================================
MONEY MARKET FUNDS-4.17%
Liquid Assets Portfolio-Institutional
Class(g) 11,887,240 11,887,240
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 11,887,240 11,887,240
========================================================================
Total Money Market Funds (Cost $23,774,480) 23,774,480
========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.91% (Cost
$391,589,689) 570,155,399
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.58%
Liquid Assets Portfolio-Institutional
Class(g)(h) 13,061,941 13,061,941
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 13,061,941 13,061,941
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $26,123,882) 26,123,882
========================================================================
TOTAL INVESTMENTS-104.49% (Cost $417,713,571) 596,279,281
========================================================================
OTHER ASSETS LESS LIABILITIES-(4.49)% (25,597,943)
========================================================================
NET ASSETS-100.00% 570,681,338
________________________________________________________________________
========================================================================
</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 June 30, 2006 was $354,881,032, which
represented 62.19% of the Fund's Net Assets. See Note 1A.
(b) All or a portion of this security was out on loan at June 30, 2006.
(c) Non-income producing security.
(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 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 June 30, 2006 represented 0.53% of the Fund's
Net Assets. Unless otherwise indicated, this security is not considered to
be illiquid.
(e) As a result of an initial public offering, the security is subject to a
contractual lockup period until September 28, 2006 and therefore considered
to be illiquid. The value of this security at June 30, 2006 represented
0.12% of the Fund's Net Assets. The Fund is limited to investing 15% of net
assets in illiquid securities at the time of purchase.
(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 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. INTERNATIONAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $367,815,209)* $546,380,919
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $49,898,362) 49,898,362
=============================================================
Total investments (cost $417,713,571) 596,279,281
=============================================================
Foreign currencies, at value (cost $1,547,443) 1,571,378
- -------------------------------------------------------------
Receivables for:
Fund shares sold 1,282,097
- -------------------------------------------------------------
Dividends 761,379
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 57,304
- -------------------------------------------------------------
Other assets 207
=============================================================
Total assets 599,951,646
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,971,248
- -------------------------------------------------------------
Fund shares reacquired 551,245
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 83,140
- -------------------------------------------------------------
Collateral upon return of securities loaned 26,123,882
- -------------------------------------------------------------
Accrued administrative services fees 382,644
- -------------------------------------------------------------
Accrued distribution fees -- Series II 51,065
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 642
- -------------------------------------------------------------
Accrued transfer agent fees 1,531
- -------------------------------------------------------------
Accrued operating expenses 104,911
=============================================================
Total liabilities 29,270,308
=============================================================
Net assets applicable to shares outstanding $570,681,338
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $424,554,670
- -------------------------------------------------------------
Undistributed net investment income 7,639,050
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (40,093,874)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 178,581,492
=============================================================
$570,681,338
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $481,949,489
_____________________________________________________________
=============================================================
Series II $ 88,731,849
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 19,091,476
_____________________________________________________________
=============================================================
Series II 3,546,272
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 25.24
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 25.02
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $25,527,174 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$703,971) $ 6,169,996
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$106,500 after compensation to counterparties
of $816,456) 674,375
- ------------------------------------------------------------
Interest 2,266
============================================================
Total investment income 6,846,637
============================================================
EXPENSES:
Advisory fees 2,008,918
- ------------------------------------------------------------
Administrative services fees 698,222
- ------------------------------------------------------------
Custodian fees 295,015
- ------------------------------------------------------------
Distribution fees -- Series II 91,349
- ------------------------------------------------------------
Transfer agent fees 21,415
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 14,181
- ------------------------------------------------------------
Other 54,620
============================================================
Total expenses 3,183,720
============================================================
Less: Fees waived (2,512)
============================================================
Net expenses 3,181,208
============================================================
Net investment income 3,665,429
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains from
securities sold to affiliates of $145,689
and net of tax on the sale of foreign
investments of $3,733 -- Note 1G) 18,621,022
- ------------------------------------------------------------
Foreign currencies 40,870
============================================================
18,661,892
============================================================
Change in net unrealized appreciation of:
Investment securities 22,084,147
- ------------------------------------------------------------
Foreign currencies 4,386
============================================================
22,088,533
============================================================
Net gain from investment securities and foreign
currencies 40,750,425
============================================================
Net increase in net assets resulting from
operations $44,415,854
____________________________________________________________
============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,665,429 $ 4,447,352
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 18,661,892 27,592,644
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 22,088,533 39,522,580
==========================================================================================
Net increase in net assets resulting from operations 44,415,854 71,562,576
==========================================================================================
Distributions from net investment income:
Series I -- (2,648,284)
- ------------------------------------------------------------------------------------------
Series II -- (290,407)
==========================================================================================
Decrease in net assets resulting from distributions -- (2,938,691)
==========================================================================================
Share transactions-net:
Series I (2,119,982) 35,930,996
- ------------------------------------------------------------------------------------------
Series II 29,119,360 26,609,350
==========================================================================================
Net increase in net assets resulting from share
transactions 26,999,378 62,540,346
==========================================================================================
Net increase in net assets 71,415,232 131,164,231
==========================================================================================
NET ASSETS:
Beginning of period 499,266,106 368,101,875
==========================================================================================
End of period (including undistributed net investment
income of $7,639,050 and $3,973,621, respectively) $570,681,338 $499,266,106
__________________________________________________________________________________________
==========================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. International Growth Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year. AIM did not
waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, 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 six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $68,930 for
accounting and fund administrative services and reimbursed $629,292 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $21,415.
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $91,349.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances and cash collateral from securities lending transactions in affiliated
money market funds. The Fund and the money market funds below have the same
investment advisor and therefore, are considered to be affiliated. The tables
below show the transactions in and earnings from investments in affiliated money
market funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,902,709 $ 53,273,351 $ (52,288,820) $ -- $11,887,240 $283,255 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 11,970,451 (83,211) -- 11,887,240 4,847 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,902,709 53,041,947 (63,944,656) -- -- 279,773 --
==================================================================================================================================
Subtotal $21,805,418 $118,285,749 $(116,316,687) $ -- $23,774,480 $567,875 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $12,938,532 $111,873,541 $(111,750,132) $ -- $13,061,941 $ 53,102 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 12,938,532 116,395,189 (116,271,780) -- 13,061,941 53,398 --
==================================================================================================================================
Subtotal $25,877,064 $228,268,730 $(228,021,912) $ -- $26,123,882 $106,500 $ --
==================================================================================================================================
Total $47,682,482 $346,554,479 $(344,338,599) $ -- $49,898,362 $674,375 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $2,953,290, which resulted in net realized gains
of $145,689 and securities purchases of $143,959.
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 six months ended June 30, 2006, the Fund paid legal fees of
$2,616 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. INTERNATIONAL GROWTH 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 six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $25,527,174 were on
loan to brokers. The loans were secured by cash collateral of $26,123,882
received by the Fund and subsequently invested in an affiliated money market
funds. For the six months ended June 30, 2006, the Fund received dividends on
cash collateral investments of $106,500 for securities lending transactions,
which are net of compensation to counterparties.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. 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 had 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 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $147,420,491 and $101,858,536, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $179,444,374
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,255,240)
==============================================================================
Net unrealized appreciation of investment securities $175,189,134
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $421,090,147.
</Table>
NOTE 10 -- SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(a) DECEMBER 31, 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,446,724 $ 63,114,633 8,088,898 $ 167,053,477
- -----------------------------------------------------------------------------------------------------------------------
Series II 1,428,049 35,529,059 1,749,163 36,041,813
=======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 109,906 2,525,639
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- 12,732 290,407
=======================================================================================================================
Reacquired:
Series I (2,540,601) (65,234,615) (6,547,697) (133,648,120)
- -----------------------------------------------------------------------------------------------------------------------
Series II (258,339) (6,409,699) (479,060) (9,722,870)
=======================================================================================================================
1,075,833 $ 26,999,378 2,933,942 $ 62,540,346
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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 43% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these shareholders are also owned
beneficially.
NOTE 11--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
AIM V.I. INTERNATIONAL 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
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.17 $ 19.77 $ 16.04 $ 12.49 $ 14.91 $ 20.12
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.17 0.23 0.15 0.09 0.06 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.90 3.31 3.70 3.54 (2.40) (4.83)
=================================================================================================================================
Total from investment operations 2.07 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 $ 25.24 $ 23.17 $ 19.77 $ 16.04 $ 12.49 $ 14.91
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.93% 17.93% 24.00% 29.06% (15.67)% (23.53)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $481,949 $444,608 $346,605 $290,680 $247,580 $347,528
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.11%(c) 1.11% 1.14% 1.10% 1.09% 1.05%
=================================================================================================================================
Ratio of net investment income to average net assets 1.35%(c) 1.11% 0.90% 0.69% 0.41% 0.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 19% 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 annualized and based on average daily net assets of
$487,191,414.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12 -- FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------------
SEPTEMBER 19, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ---------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.00 $ 19.65 $ 15.97 $ 12.45 $ 14.90 $ 14.42
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.14 0.18 0.11 0.06 0.03 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.88 3.30 3.66 3.51 (2.40) 0.93
=================================================================================================================================
Total from investment operations 2.02 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 $ 25.02 $ 23.00 $ 19.65 $ 15.97 $ 12.45 $ 14.90
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.78% 17.70% 23.63% 28.68% (15.89)% 6.63%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 88,732 $54,658 $21,497 $10,972 $ 4,751 $ 374
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.36% 1.39% 1.35% 1.31%(d) 1.30%(e)
=================================================================================================================================
Ratio of net investment income to average net
assets 1.10%(c) 0.86% 0.65% 0.44% 0.19% 0.22%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 19% 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 annualized and based on average daily net assets of
$73,684,854.
(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.
(f) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 13 -- LEGAL PROCEEDINGS--(CONTINUED)
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
AIM V.I. LARGE CAP GROWTH FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. LARGE CAP GROWTH FUND seeks to provide long-term growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,
2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, is available at our Web
site. Go to AIMinvestments.com, access the About Us tab, click on Required
Notices and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
================================================================================
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. LARGE CAP GROWTH FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE o Risk assessment--avoid "high risk"
====================================================================================== companies as defined in the following
PERFORMANCE SUMMARY paragraphs:
=========================================
For the six months ended June 30, 2006, FUND VS. INDEXES Our fundamental analysis seeks to
AIM V.I. Large Cap Growth Fund had determine the company's drivers of
negative returns but performed in line CUMULATIVE TOTAL RETURNS, earnings. To accomplish this goal, we
with the Fund's style-specific index, the 12/31/05-6/30/06, EXCLUDING VARIABLE examine financial statements and analyze
Russell 1000 Growth Index. PRODUCT ISSUER CHARGES. trends, growth rates and the competitive
landscape. We also often meet with
The Fund underperformed the broad IF VARIABLE PRODUCT ISSUER CHARGES WERE company management to evaluate
market, as represented by the S&P 500 INCLUDED, RETURNS WOULD BE LOWER. proprietary products and the quality of
Index, largely due to an overweight management. We believe stocks that pass
position and weak stock selection in the Series I Shares -0.63% our quantitative and fundamental screens
health care sector. An overweight are more likely to outperform.
position in the information technology Series II Shares -0.71
sector and an underweight position in the We construct the portfolio using a
energy sector also detracted from the Standard & Poor's Composite bottom-up strategy, focusing on stocks
Fund's performance versus the S&P 500 Index of 500 Stocks (S&P 500 rather than industries or sectors. While
Index. Index) (Broad Market Index) 2.71 there are no formal sector guidelines or
constraints, internal controls and
Your Fund's long-term performance Russell 1000 Growth Index proprietary software help us monitor risk
appears on page 4. (Style-Specific Index) -0.93 levels and sector concentration.
Lipper Large-Cap Growth Fund Our process is designed to avoid high
Index (Peer Group Index) -2.93 risk situations we believe lead to
underperformance. Examples of high risk
SOURCE: LIPPER INC. situations include:
=========================================
====================================================================================== o Deteriorating business prospects
HOW WE INVEST correlated with outperformance in the o Extended valuation
large-cap growth universe, including:
We believe a growth investment strategy o Slowing earnings growth
is an essential component of a o Earnings--focus on companies exhibiting
diversified portfolio. strong growth in earnings, revenue and o Weakened balance sheet
cash flows
Our investment process combines MARKET CONDITIONS AND YOUR FUND
quantitative and fundamental analysis to o Quality--focus on companies with
uncover companies exhibiting long-term, sustainable earnings growth; focus on After posting strong performance during
sustainable earnings and cash flow growth companies with management teams that the first four months of 2006, domestic
that is not yet reflected in investor profitably reinvest shareholder cash flow equities retreated over the last two
expectations or equity valuations. months of the reporting period largely
o Valuation--focus on companies that are due to fears that inflation might lead
Our quantitative model ranks companies attractively valued given their growth the U.S. Federal Reserve Board to
based on factors we have found to be potential continue raising interest rates,
highly potentially challenging continued
economic expansion.
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES TOP 10 EQUITY HOLDINGS
By sector
Industrials 20.5% 1. Aerospace & Defense 9.5% 1. Burlington Northern Santa Fe
Information Technology 19.0 2. Investment Banking & Corp. 2.9%
Financials 17.3 Brokerage 7.0 2. Hewlett-Packard Co. 2.8
Health Care 15.9 3. Communications Equipment 5.6 3. Goldman Sachs Group, Inc. (The) 2.7
Consumer Discretionary 10.2 4. Pharmaceuticals 4.2 4. Lehman Brothers Holdings Inc. 2.4
Energy 5.4 5. Health Care Distributors 3.8 5. Prudential Financial, Inc. 2.4
Consumer Staples 4.1 6. Lockheed Martin Corp. 2.3
Materials 3.1 TOTAL NET ASSETS $125.4 MILLION 7. Boeing Co. (The) 2.2
Telecommunication Services 2.1 TOTAL NUMBER OF HOLDINGS 76 8. America Movil S.A. de C.V.-
U.S. Government Agency Securities Series L-ADR (Mexico) 2.1
Plus Other Assets Less Liabilities 2.4 9. AstraZeneca PLC-ADR
(United Kingdom) 2.0
10. Valero Energy Corp. 1.9
The Fund's portfolio is subject to change, and there is no assurance that the Fund will continue to hold any particular security.
========================================= ========================================= =========================================
</Table>
2
AIM V.I. LARGE CAP GROWTH FUND
<Table>
Small- and mid-cap stocks generally earnings upside to estimates due to large-cap growth stocks, in general, were
outperformed large-cap stocks during the strong sales and margin expansion. attractively priced relative to other
reporting period. Positive performance However, we subsequently sold the stock stocks with less attractive fundamentals.
was broad among S&P 500 sectors with the as we became concerned about future While large-cap growth stocks have lagged
best returns found in energy, growth prospects. Other semiconductor the broad market in recent years,
telecommunication services, industrials holdings that performed well included LAM investors have started to recognize and
and materials. RESEARCH and FREESCALE SEMICONDUCTOR. reward these characteristics. As always,
we thank you for your continued
In this environment, the Fund On the other hand, the Fund investment in AIM V.I. Large Cap Growth
performed in line with the Russell 1000 underperformed versus the Russell 1000 Fund.
Growth Index as strong performance in Growth Index by the widest margin in the
several sectors was offset by weaker health care sector. The Fund's THE VIEWS AND OPINIONS EXPRESSED IN
performance in other sectors. The Fund underperformance in this sector was MANAGEMENT'S DISCUSSION OF FUND
outperformed the Russell 1000 Growth driven primarily by three holdings--ALCON PERFORMANCE ARE THOSE OF A I M ADVISORS,
Index by the widest margins in the INC, UNITEDHEALTH GROUP and AETNA. An INC. THESE VIEWS AND OPINIONS ARE SUBJECT
industrials, financials and information overweight position also hurt performance TO CHANGE AT ANY TIME BASED ON FACTORS
technology sectors. This positive as investors appeared to rotate out of SUCH AS MARKET AND ECONOMIC CONDITIONS.
performance was partially offset by last year's strong performers in the THESE VIEWS AND OPINIONS MAY NOT BE
underperformance in the health care and health care sector to invest in other RELIED UPON AS INVESTMENT ADVICE OR
consumer staples sectors. opportunities. While we sold Alcon, we RECOMMENDATIONS, OR AS AN OFFER FOR A
continued to own both UnitedHealth Group PARTICULAR SECURITY. THE INFORMATION IS
The industrials sector benefited from and Aetna. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
a broad-based rally during the six-month OF ANY MARKET, COUNTRY, INDUSTRY,
reporting period and the Fund The Fund also underperformed in the SECURITY OR THE FUND. STATEMENTS OF FACT
outperformed the Russell 1000 Growth consumer staples sector, primarily due to ARE FROM SOURCES CONSIDERED RELIABLE, BUT
Index in this sector due to strong stock a large underweight position. Within the A I M ADVISORS, INC. MAKES NO
selection. Specific areas of strength for sector, the Fund had underweight REPRESENTATION OR WARRANTY AS TO THEIR
the Fund included the aerospace and positions in some industries that COMPLETENESS OR ACCURACY. ALTHOUGH
defense, electrical equipment and road performed well during the period such as HISTORICAL PERFORMANCE IS NO GUARANTEE OF
and rail industries, each of which beverages and food retailing. FUTURE RESULTS, THESE INSIGHTS MAY HELP
continued to benefit from global economic YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
expansion. Aerospace and defense holdings There were several notable detractors PHILOSOPHY.
that performed particularly well included in the information technology sector
BOEING and LOCKHEED MARTIN. The Fund's including APPLE COMPUTER and MOTOROLA. GEOFFREY V. KEELING,
lone electrical equipment holding, ABB While we sold Apple Computer due to less Chartered Financial
LTD., also made a key contribution to upside-to-earnings estimates, we Analyst, senior
Fund performance. Railroad holding continued to own Motorola due to portfolio manager, is
BURLINGTON NORTHERN SANTA FE was another attractive growth opportunities in the [KEELING co-manager of AIM V.I.
key contributor as the company continued wireless market. PHOTO] Large Cap Growth Fund.
to exceed expectations due to strong Mr. Keeling joined AIM
demand growth and pricing gains. Our investment process led us to in 1995 as an equity
reduce exposure to the health care and analyst specializing
In the financials sector, investment information technology sectors due to in large-cap stocks. Mr. Keeling earned a
banking and brokerage stocks generally less upside to earnings estimates. B.B.A. in finance from The University of
continued to perform well during the Proceeds from these sales were spread Texas at Austin.
reporting period. Our investment process across attractive opportunities in a
led us to an overweight position in this number of sectors including industrials,
area; several of the Fund's holdings financials, consumer discretionary and ROBERT L. SHOSS,
contributed to performance, including consumer staples. All changes to the Fund senior portfolio
GOLDMAN SACHS and BEAR STEARNS. Favorable were based on our bottom-up stock manager, is
capital markets and solid merger and selection process of identifying high [SHOSS co-manager of
acquisition activity continued to drive quality growth companies trading at what PHOTO] AIM V.I. Large Cap
these stocks during the reporting period. we believe are attractive valuations. Growth Fund.
He joined AIM in
Despite posting negative returns IN CLOSING 1995. Mr. Shoss
overall in the information technology earned a B.A. from
sector, the Fund outperformed the Russell During the reporting period, net assets The University of Texas at Austin and an
1000 Growth Index in this sector largely increased due to the AIM V.I. Blue Chip M.B.A. and J.D. from the University of
due to strong stock selection in the Fund merger into AIM V.I. Large Cap Houston.
semiconductor industry. One holding that Growth Fund. In general, large-cap growth
performed well was graphics chip supplier companies boasted healthy cash flows, Assisted by the Large Cap Growth Team
NVIDIA. This company reported significant strong balance sheets and positive
earnings growth. Additionally,
[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 PAGE 4.
</Table>
3
AIM V.I. LARGE CAP GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
=========================================
AVERAGE ANNUAL TOTAL RETURNS PRODUCT PERFORMANCE. PERFORMANCE FIGURES PRODUCT. SALES CHARGES, EXPENSES AND
As of 6/30/06 REFLECT FUND EXPENSES, REINVESTED FEES, WHICH ARE DETERMINED BY THE
DISTRIBUTIONS AND CHANGES IN NET ASSET VARIABLE PRODUCT ISSUERS, WILL VARY AND
SERIES I SHARES VALUE. INVESTMENT RETURN AND PRINCIPAL WILL LOWER THE TOTAL RETURN.
Inception (8/29/03) 8.77% VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE
1 Year 7.81 A GAIN OR LOSS WHEN YOU SELL SHARES. PER NASD REQUIREMENTS, THE MOST RECENT
MONTH-END PERFORMANCE DATA AT THE FUND
SERIES II SHARES AIM V.I. LARGE CAP GROWTH FUND, A LEVEL, EXCLUDING VARIABLE PRODUCT
Inception (8/29/03) 8.60% SERIES PORTFOLIO OF AIM VARIABLE CHARGES, IS AVAILABLE ON THIS AIM
1 Year 7.57 INSURANCE FUNDS, IS CURRENTLY OFFERED AUTOMATED INFORMATION LINE, 866-702-4402.
========================================= THROUGH INSURANCE COMPANIES ISSUING AS MENTIONED ABOVE, FOR THE MOST RECENT
VARIABLE PRODUCTS. YOU CANNOT PURCHASE MONTH-END PERFORMANCE INCLUDING VARIABLE
THE PERFORMANCE OF THE FUND'S SERIES I SHARES OF THE FUND DIRECTLY. PERFORMANCE PRODUCT CHARGES, PLEASE CONTACT YOUR
AND SERIES II SHARE CLASSES WILL DIFFER FIGURES GIVEN REPRESENT THE FUND AND ARE VARIABLE PRODUCT ISSUER OR FINANCIAL
PRIMARILY DUE TO DIFFERENT CLASS NOT INTENDED TO REFLECT ACTUAL VARIABLE ADVISOR.
EXPENSES. PRODUCT VALUES. THEY DO NOT REFLECT SALES
CHARGES, EXPENSES AND FEES ASSESSED IN HAD THE ADVISOR NOT WAIVED FEES AND/OR
THE PERFORMANCE DATA QUOTED REPRESENT CONNECTION WITH A VARIABLE REIMBURSED EXPENSES, PERFORMANCE WOULD
PAST PERFORMANCE AND CANNOT GUARANTEE HAVE BEEN LOWER.
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER.
PLEASE CONTACT YOUR VARIABLE PRODUCT
ISSUER OR FINANCIAL ADVISOR FOR THE MOST
RECENT MONTH-END VARIABLE
PRINCIPAL RISKS OF INVESTING IN THE FUND The unmanaged RUSSELL 1000--Registered financial reporting purposes, and as
Trademark-- GROWTH INDEX is a subset of such, the net asset values for
The Fund may invest a portion of its the unmanaged RUSSELL 1000--Registered shareholder transactions and the returns
assets in synthetic instruments, such as Trademark-- INDEX, which represents the based on those net asset values may
warrants, futures, options, exchange performance of the stocks of differ from the net asset values and
traded funds and American Depositary large-capitalization companies; the returns reported in the Financial
Receipts, the value of which may not Growth subset measures the performance of Highlights. Additionally, the returns and
correlate perfectly with the overall Russell 1000 companies with higher net asset values shown throughout this
securities market. Risks associated with price/book ratios and higher forecasted report are at the Fund level only and do
synthetic instruments may include counter growth values. not include variable product issuer
party risk and sensitivity to interest charges. If such charges were included,
rate changes and market price The Fund is not managed to track the the total returns would be lower.
fluctuations. See the prospectus for more performance of any particular index,
details. including the indexes defined here, and Industry classifications used in this
consequently, the performance of the Fund report are generally according to the
The Fund can invest up to 25% of its may deviate significantly from the Global Industry Classification Standard,
assets in foreign securities that involve performance of the indexes. which was developed by and is the
risks not associated with investing exclusive property and a service mark of
solely in the United States. A direct investment cannot be made in Morgan Stanley Capital International Inc.
an index. Unless otherwise indicated, and Standard & Poor's.
ABOUT INDEXES USED IN THIS REPORT index results include reinvested
dividends, and they do not reflect sales
The unmanaged STANDARD & POOR'S COMPOSITE charges. Performance of an index of funds
INDEX OF 500 STOCKS (the S&P reflects fund expenses; performance of a
500--Registered Trademark-- Index) is an market index does not.
index of common stocks frequently used as
a general measure of U.S. stock market OTHER INFORMATION
performance.
The returns shown in the management's
The unmanaged LIPPER LARGE-CAP GROWTH discussion of Fund performance are based
FUND INDEX represents an average of the on net asset values calculated for
performance of the 30 largest shareholder transactions. Generally
large-capitalization growth funds tracked accepted accounting principles require
by Lipper Inc., an independent mutual adjustments to be made to the net assets
fund performance monitor. of the Fund at period end for
</Table>
4
AIM V.I. LARGE CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months
ongoing costs, including management fees; about actual account values and actual ended June 30, 2006, appear in the table
distribution and/or service fees (12b-1); expenses. You may use the information in "Fund vs. Indexes" on page 2.
and other Fund expenses. This example is this table, together with the amount you
intended to help you understand your invested, to estimate the expenses that THE HYPOTHETICAL ACCOUNT VALUES AND
ongoing costs (in dollars) of investing you paid over the period. Simply divide EXPENSES MAY NOT BE USED TO ESTIMATE THE
in the Fund and to compare these costs your account value by $1,000 (for ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
with ongoing costs of investing in other example, an $8,600 account value divided YOU PAID FOR THE PERIOD. YOU MAY USE THIS
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the INFORMATION TO COMPARE THE ONGOING COSTS
investment of $1,000 invested at the result by the number in the table under OF INVESTING IN THE FUND AND OTHER FUNDS.
beginning of the period and held for the the heading entitled "Actual Expenses TO DO SO, COMPARE THIS 5% HYPOTHETICAL
entire period January 1, 2006, through Paid During Period" to estimate the EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
June 30, 2006. expenses you paid on your account during THAT APPEAR IN THE SHAREHOLDER REPORTS OF
this period. THE OTHER FUNDS.
The actual and hypothetical expenses
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown in
the effect of any fees or other expenses PURPOSES the table are meant to highlight your
assessed in connection with a variable ongoing costs. Therefore, the
product; if they did, the expenses shown The table below also provides information hypothetical information is useful in
would be higher while the ending account about hypothetical account values and comparing ongoing costs only, and will
values shown would be lower. hypothetical expenses based on the Fund's not help you determine the relative total
actual expense ratio and an assumed rate costs of owning different funds.
of return of 5% per year 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $993.70 $5.04 $1,019.74 $5.11 1.02%
Series II 1,000.00 992.90 6.28 1,018.50 6.36 1.27
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
5
AIM V.I. LARGE CAP GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
<Table>
The Board of Trustees of AIM Variable o The nature and extent of the advisory the independent written evaluation of the
Insurance Funds (the "Board") oversees services to be provided by AIM. The Board Fund's Senior Officer (discussed below)
the management of AIM V.I. Large Cap reviewed the services to be provided by only considered Fund performance through
Growth Fund (the "Fund") and, as required AIM under the Advisory Agreement. Based the most recent calendar year, the Board
by law, determines annually whether to on such review, the Board concluded that also reviewed more recent Fund
approve the continuance of the Fund's the range of services to be provided by performance, which did not change their
advisory agreement with A I M Advisors, AIM under the Advisory Agreement was conclusions.
Inc. ("AIM"). Based upon the appropriate and that AIM currently is
recommendation of the Investments providing services in accordance with the o Meetings with the Fund's portfolio
Committee of the Board, at a meeting held terms of the Advisory Agreement. managers and investment personnel. With
on June 27, 2006, the Board, including respect to the Fund, the Board is meeting
all of the independent trustees, approved o The quality of services to be provided periodically with such Fund's portfolio
the continuance of the advisory agreement by AIM. The Board reviewed the managers and/or other investment
(the "Advisory Agreement") between the credentials and experience of the personnel and believes that such
Fund and AIM for another year, effective officers and employees of AIM who will individuals are competent and able to
July 1, 2006. provide investment advisory services to continue to carry out their
the Fund. In reviewing the qualifications responsibilities under the Advisory
The Board considered the factors of AIM to provide investment advisory Agreement.
discussed below in evaluating the services, the Board considered such
fairness and reasonableness of the issues as AIM's portfolio and product o Overall performance of AIM. The Board
Advisory Agreement at the meeting on review process, various back office considered the overall performance of AIM
June 27, 2006 and as part of the Board's support functions provided by AIM and in providing investment advisory and
ongoing oversight of the Fund. In their AIM's equity and fixed income trading portfolio administrative services to the
deliberations, the Board and the operations. Based on the review of these Fund and concluded that such performance
independent trustees did not identify any and other factors, the Board concluded was satisfactory.
particular factor that was controlling, that the quality of services to be
and each trustee attributed different provided by AIM was appropriate and that o Fees relative to those of clients of
weights to the various factors. AIM currently is providing satisfactory AIM with comparable investment
services in accordance with the terms of strategies. The Board reviewed the
One responsibility of the the Advisory Agreement. effective advisory fee rate (before
independent Senior Officer of the Fund is waivers) for the Fund under the Advisory
to manage the process by which the Fund's o The performance of the Fund relative to Agreement. The Board noted that this rate
proposed management fees are negotiated comparable funds. The Board reviewed the was (i) above the effective advisory fee
to ensure that they are negotiated in a performance of the Fund during the past rates (before waivers) for two mutual
manner which is at arms' length and calendar year against the performance of funds advised by AIM with investment
reasonable. To that end, the Senior funds advised by other advisors with strategies comparable to those of the
Officer must either supervise a investment strategies comparable to those Fund; (ii) above the effective advisory
competitive bidding process or prepare an of the Fund. The Board noted that the and sub-advisory fee rates for one
independent written evaluation. The Fund's performance was below the median offshore fund advised by an AIM affiliate
Senior Officer has recommended an performance of such comparable funds for and sub-advised by AIM with investment
independent written evaluation in lieu of the one year period. Based on this review strategies comparable to those of the
a competitive bidding process and, upon and after taking account of all of the Fund; (iv) above the effective
the direction of the Board, has prepared other factors that the Board considered sub-advisory fee rates for two variable
such an independent written evaluation. in determining whether to continue the insurance funds sub-advised by an AIM
Such written evaluation also considered Advisory Agreement for the Fund, the affiliate and offered to insurance
certain of the factors discussed below. Board concluded that no changes should be company separate accounts with investment
In addition, as discussed below, the made to the Fund and that it was not strategies comparable to those of the
Senior Officer made a recommendation to necessary to change the Fund's portfolio Fund, although the total advisory fees
the Board in connection with such written management team at this time. Although for such variable insurance funds were
evaluation. the independent written evaluation of the above those for the Fund; and (v) above
Fund's Senior Officer (discussed below) the total advisory fee rates for 19
The discussion below serves as a only considered Fund performance through separately managed accounts/wrap accounts
summary of the Senior Officer's the most recent calendar year, the Board managed by an AIM affiliate with
independent written evaluation and also reviewed more recent Fund investment strategies comparable to those
recommendation to the Board in connection performance, which did not change their of the Fund. The Board noted that AIM has
therewith, as well as a discussion of the conclusions. agreed to waive advisory fees of the Fund
material factors and the conclusions with and to limit the Fund's total operating
respect thereto that formed the basis for o The performance of the Fund relative to expenses, as discussed below. Based on
the Board's approval of the Advisory indices. The Board reviewed the this review, the Board concluded that the
Agreement. After consideration of all of performance of the Fund during the past advisory fee rate for the Fund under the
the factors below and based on its calendar year against the performance of Advisory Agreement was fair and
informed business judgment, the Board the Lipper Variable Underlying Fund reasonable.
determined that the Advisory Agreement is Large-Cap Growth Index. The Board noted
in the best interests of the Fund and its that the Fund's performance was below the o Fees relative to those of comparable
shareholders and that the compensation to performance of such Index for the one funds with other advisors. The Board
AIM under the Advisory Agreement is fair year period. Based on this review and reviewed the advisory fee rate for the
and reasonable and would have been after taking account of all of the other Fund under the Advisory Agreement. The
obtained through arm's length factors that the Board considered in Board compared effective contractual
negotiations. determining whether to continue the advisory fee rates at a common asset
Advisory Agreement for the Fund, the level at the end of the calendar year and
Unless otherwise stated, information Board concluded that no changes should be noted that the Fund's rate was comparable
presented below is as of June 27, 2006 made to the Fund and that it was not to the median rate of the funds advised
and does not reflect any changes that may necessary to change the Fund's portfolio by other advisors with investment
have occurred since June 27, 2006, management team at this time. Although strategies comparable to those of the
including but not limited to changes to Fund that the Board reviewed. The Board
the Fund's performance, advisory fees, noted that AIM has agreed to waive
expense limitations and/or fee waivers. advisory fees of the Fund and
(continued)
</Table>
6
AIM V.I. LARGE CAP GROWTH FUND
<Table>
to limit the Fund's total operating exemptive order. The Board found that the Advisory Agreement was not excessive.
expenses, as discussed below. Based on Fund may realize certain benefits upon
this review, the Board concluded that the investing cash balances in AIM advised o Benefits of soft dollars to AIM. The
advisory fee rate for the Fund under the money market funds, including a higher Board considered the benefits realized by
Advisory Agreement was fair and net return, increased liquidity, AIM as a result of brokerage transactions
reasonable. increased diversification or decreased executed through "soft dollar"
transaction costs. The Board also found arrangements. Under these arrangements,
o Expense limitations and fee waivers. that the Fund will not receive reduced brokerage commissions paid by the Fund
The Board noted that AIM has services if it invests its cash balances and/or other funds advised by AIM are
contractually agreed to waive advisory in such money market funds. The Board used to pay for research and execution
fees of the Fund through December 31, noted that, to the extent the Fund services. This research may be used by
2009 to the extent necessary so that the invests uninvested cash in affiliated AIM in making investment decisions for
advisory fees payable by the Fund do not money market funds, AIM has voluntarily the Fund. The Board concluded that such
exceed a specified maximum advisory fee agreed to waive a portion of the advisory arrangements were appropriate.
rate, which maximum rate includes fees it receives from the Fund
breakpoints and is based on net asset attributable to such investment. The o AIM's financial soundness in light of
levels. The Board considered the Board further determined that the the Fund's needs. The Board considered
contractual nature of this fee waiver and proposed securities lending program and whether AIM is financially sound and has
noted that it remains in effect until related procedures with respect to the the resources necessary to perform its
December 31, 2009. The Board noted that lending Fund is in the best interests of obligations under the Advisory Agreement,
AIM has contractually agreed to waive the lending Fund and its respective and concluded that AIM has the financial
fees and/or limit expenses of the Fund shareholders. The Board therefore resources necessary to fulfill its
through April 30, 2008 in an amount concluded that the investment of cash obligations under the Advisory Agreement.
necessary to limit total annual operating collateral received in connection with
expenses to a specified percentage of the securities lending program in the o Historical relationship between the
average daily net assets for each class money market funds according to the Fund and AIM. In determining whether to
of the Fund. The Board considered the procedures is in the best interests of continue the Advisory Agreement for the
contractual nature of this fee the lending Fund and its respective Fund, the Board also considered the prior
waiver/expense limitation and noted that shareholders. relationship between AIM and the Fund, as
it remains in effect until April 30, well as the Board's knowledge of AIM's
2008. The Board considered the effect o Independent written evaluation and operations, and concluded that it was
these fee waivers/expense limitations recommendations of the Fund's Senior beneficial to maintain the current
would have on the Fund's estimated Officer. The Board noted that, upon their relationship, in part, because of such
expenses and concluded that the levels of direction, the Senior Officer of the knowledge. The Board also reviewed the
fee waivers/expense limitations for the Fund, who is independent of AIM and AIM's general nature of the non-investment
Fund were fair and reasonable. affiliates, had prepared an independent advisory services currently performed by
written evaluation in order to assist the AIM and its affiliates, such as
o Breakpoints and economies of scale. The Board in determining the reasonableness administrative, transfer agency and
Board reviewed the structure of the of the proposed management fees of the distribution services, and the fees
Fund's advisory fee under the Advisory AIM Funds, including the Fund. The Board received by AIM and its affiliates for
Agreement, noting that it includes two noted that the Senior Officer's written performing such services. In addition to
breakpoints. The Board reviewed the level evaluation had been relied upon by the reviewing such services, the trustees
of the Fund's advisory fees, and noted Board in this regard in lieu of a also considered the organizational
that such fees, as a percentage of the competitive bidding process. In structure employed by AIM and its
Fund's net assets, would decrease as net determining whether to continue the affiliates to provide those services.
assets increase because the Advisory Advisory Agreement for the Fund, the Based on the review of these and other
Agreement includes breakpoints. The Board Board considered the Senior Officer's factors, the Board concluded that AIM and
noted that, due to the Fund's asset written evaluation and the recommendation its affiliates were qualified to continue
levels at the end of the past calendar made by the Senior Officer to the Board to provide non-investment advisory
year and the way in which the advisory that the Board consider whether the services to the Fund, including
fee breakpoints have been structured, the advisory fee waivers for certain equity administrative, transfer agency and
Fund has yet to benefit from the AIM Funds, including the Fund, should be distribution services, and that AIM and
breakpoints. The Board noted that AIM has simplified. The Board concluded that it its affiliates currently are providing
contractually agreed to waive advisory would be advisable to consider this issue satisfactory non-investment advisory
fees of the Fund through December 31, and reach a decision prior to the services.
2009 to the extent necessary so that the expiration date of such advisory fee
advisory fees payable by the Fund do not waivers. o Other factors and current trends. The
exceed a specified maximum advisory fee Board considered the steps that AIM and
rate, which maximum rate includes o Profitability of AIM and its its affiliates have taken over the last
breakpoints and is based on net asset affiliates. The Board reviewed several years, and continue to take, in
levels. The Board concluded that the information concerning the profitability order to improve the quality and
Fund's fee levels under the Advisory of AIM's (and its affiliates') investment efficiency of the services they provide
Agreement therefore would reflect advisory and other activities and its to the Funds in the areas of investment
economies of scale at higher asset levels financial condition. The Board considered performance, product line
and that it was not necessary to change the overall profitability of AIM, as well diversification, distribution, fund
the advisory fee breakpoints in the as the profitability of AIM in connection operations, shareholder services and
Fund's advisory fee schedule. with managing the Fund. The Board noted compliance. The Board concluded that
that AIM's operations remain profitable, these steps taken by AIM have improved,
o Investments in affiliated money market although increased expenses in recent and are likely to continue to improve,
funds. The Board also took into account years have reduced AIM's profitability. the quality and efficiency of the
the fact that uninvested cash and cash Based on the review of the profitability services AIM and its affiliates provide
collateral from securities lending of AIM's and its affiliates' investment to the Fund in each of these areas, and
arrangements, if any (collectively, "cash advisory and other activities and its support the Board's approval of the
balances") of the Fund may be invested in financial condition, the Board concluded continuance of the Advisory Agreement for
money market funds advised by AIM that the compensation to be paid by the the Fund.
pursuant to the terms of an SEC Fund to AIM under its
</Table>
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-80.66%
AEROSPACE & DEFENSE-9.46%
Boeing Co. (The) 33,281 $ 2,726,047
- ------------------------------------------------------------------------
General Dynamics Corp. 26,116 1,709,553
- ------------------------------------------------------------------------
Lockheed Martin Corp. 39,828 2,857,261
- ------------------------------------------------------------------------
Northrop Grumman Corp. 25,789 1,652,043
- ------------------------------------------------------------------------
Precision Castparts Corp. 22,710 1,357,150
- ------------------------------------------------------------------------
Raytheon Co. 35,046 1,562,000
========================================================================
11,864,054
========================================================================
AGRICULTURAL PRODUCTS-0.89%
Archer-Daniels-Midland Co. 27,055 1,116,830
========================================================================
APPLICATION SOFTWARE-2.08%
Amdocs Ltd.(a) 35,500 1,299,300
- ------------------------------------------------------------------------
BEA Systems, Inc.(a) 99,815 1,306,578
========================================================================
2,605,878
========================================================================
BIOTECHNOLOGY-1.52%
Gilead Sciences, Inc.(a) 32,336 1,912,998
========================================================================
COMMUNICATIONS EQUIPMENT-4.43%
Cisco Systems, Inc.(a) 103,424 2,019,871
- ------------------------------------------------------------------------
Motorola, Inc. 111,348 2,243,662
- ------------------------------------------------------------------------
Tellabs, Inc.(a) 97,484 1,297,512
========================================================================
5,561,045
========================================================================
COMPUTER & ELECTRONICS RETAIL-2.25%
Best Buy Co., Inc. 23,220 1,273,385
- ------------------------------------------------------------------------
Circuit City Stores, Inc. 56,737 1,544,381
========================================================================
2,817,766
========================================================================
COMPUTER HARDWARE-2.77%
Hewlett-Packard Co. 109,639 3,473,364
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.78%
Joy Global Inc. 18,721 975,177
========================================================================
CONSUMER FINANCE-0.89%
SLM Corp. 21,171 1,120,369
========================================================================
DEPARTMENT STORES-2.66%
J.C. Penney Co., Inc. 22,824 1,540,848
- ------------------------------------------------------------------------
Nordstrom, Inc. 49,098 1,792,077
========================================================================
3,332,925
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-1.89%
Phelps Dodge Corp. 28,807 $ 2,366,783
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.76%
Agilent Technologies, Inc.(a) 30,126 950,777
========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.62%
Waste Management, Inc. 56,737 2,035,724
========================================================================
HEALTH CARE DISTRIBUTORS-3.83%
AmerisourceBergen Corp. 35,000 1,467,200
- ------------------------------------------------------------------------
Cardinal Health, Inc. 23,378 1,503,907
- ------------------------------------------------------------------------
McKesson Corp. 38,823 1,835,551
========================================================================
4,806,658
========================================================================
HEALTH CARE SERVICES-1.91%
Caremark Rx, Inc. 23,028 1,148,406
- ------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 20,000 1,244,600
========================================================================
2,393,006
========================================================================
HOME IMPROVEMENT RETAIL-0.72%
Home Depot, Inc. (The) 25,290 905,129
========================================================================
HOUSEHOLD PRODUCTS-0.82%
Procter & Gamble Co. (The) 18,492 1,028,155
========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.75%
Manpower Inc. 14,500 936,700
========================================================================
INDUSTRIAL CONGLOMERATES-1.13%
McDermott International, Inc.(a) 31,083 1,413,344
========================================================================
INTEGRATED OIL & GAS-2.57%
Marathon Oil Corp. 16,286 1,356,624
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 18,177 1,864,051
========================================================================
3,220,675
========================================================================
INTERNET SOFTWARE & SERVICES-1.84%
Google Inc.-Class A(a) 5,504 2,307,992
========================================================================
INVESTMENT BANKING & BROKERAGE-6.98%
Bear Stearns Cos. Inc. (The) 9,130 1,278,930
- ------------------------------------------------------------------------
Charles Schwab Corp. (The) 69,941 1,117,657
- ------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 22,201 3,339,697
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 46,436 3,025,305
========================================================================
8,761,589
========================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.63%
Accenture Ltd.-Class A 72,024 $ 2,039,720
========================================================================
LIFE & HEALTH INSURANCE-2.41%
Prudential Financial, Inc. 38,908 3,023,152
========================================================================
LIFE SCIENCES TOOLS & SERVICES-0.77%
Applera Corp.-Applied Biosystems Group 30,000 970,500
========================================================================
MANAGED HEALTH CARE-3.66%
Aetna Inc. 44,909 1,793,216
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 35,134 1,573,301
- ------------------------------------------------------------------------
WellPoint Inc.(a) 16,882 1,228,503
========================================================================
4,595,020
========================================================================
MOVIES & ENTERTAINMENT-1.01%
News Corp.-Class A 66,000 1,265,880
========================================================================
MULTI-LINE INSURANCE-1.23%
Assurant, Inc. 32,000 1,548,800
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.92%
Devon Energy Corp. 19,223 1,161,261
========================================================================
OIL & GAS REFINING & MARKETING-1.92%
Valero Energy Corp. 36,283 2,413,545
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.83%
JPMorgan Chase & Co. 24,691 1,037,022
========================================================================
PROPERTY & CASUALTY INSURANCE-0.86%
Chubb Corp. (The) 21,655 1,080,585
========================================================================
RAILROADS-3.74%
Burlington Northern Santa Fe Corp. 45,254 3,586,380
- ------------------------------------------------------------------------
CSX Corp. 15,760 1,110,134
========================================================================
4,696,514
========================================================================
RESTAURANTS-0.97%
Darden Restaurants, Inc. 30,937 1,218,918
========================================================================
SEMICONDUCTOR EQUIPMENT-1.01%
Lam Research Corp.(a) 27,064 1,261,724
========================================================================
SEMICONDUCTORS-1.00%
Freescale Semiconductor Inc.-Class A(a) 1,680 48,720
- ------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 40,883 1,201,960
========================================================================
1,250,680
========================================================================
SOFT DRINKS-1.35%
PepsiCo, Inc. 28,255 1,696,430
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALIZED FINANCE-1.08%
CIT Group, Inc. 26,000 $ 1,359,540
========================================================================
SPECIALTY STORES-1.42%
Office Depot, Inc.(a) 46,755 1,776,690
========================================================================
SYSTEMS SOFTWARE-2.30%
Microsoft Corp. 87,599 2,041,057
- ------------------------------------------------------------------------
Red Hat, Inc.(a) 36,050 843,570
========================================================================
2,884,627
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $91,315,187) 101,187,546
========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-16.88%
BRAZIL-1.20%
Unibanco-Uniao de Bancos Brasileiros S.A.-ADR
(Diversified Banks) 22,607 1,500,879
========================================================================
FINLAND-1.15%
Nokia Oyj-ADR (Communications Equipment) 71,410 1,446,767
========================================================================
JAPAN-3.33%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(b) 92,000 1,843,333
- ------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(b) 68,000 1,439,108
- ------------------------------------------------------------------------
ORIX Corp. (Consumer Finance)(b) 3,690 900,456
========================================================================
4,182,897
========================================================================
MEXICO-2.09%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 78,715 2,618,061
========================================================================
SOUTH KOREA-1.11%
Kookmin Bank (Diversified Banks)(b) 16,770 1,388,122
========================================================================
SWITZERLAND-3.77%
ABB Ltd. (Heavy Electrical Equipment) 150,983 1,963,641
- ------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 24,925 1,343,956
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 8,616 1,424,325
========================================================================
4,731,922
========================================================================
UNITED KINGDOM-4.23%
AstraZeneca PLC-ADR (Pharmaceuticals) 41,500 2,482,530
- ------------------------------------------------------------------------
Diageo PLC (Distillers & Vintners)(b) 75,000 1,260,201
- ------------------------------------------------------------------------
Rio Tinto PLC-ADR (Diversified Metals &
Mining) 7,489 1,570,518
========================================================================
5,313,249
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $19,590,573) 21,181,897
========================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-0.96%
FEDERAL FARM CREDIT BANK-0.96%
Disc. Notes, 4.95%, 07/03/06(c) $1,200,000 $ 1,199,670
========================================================================
Total U.S. Government Agency Securities
(Cost $1,199,670) 1,199,670
========================================================================
TOTAL INVESTMENTS-98.50% (Cost $112,105,430) 123,569,113
========================================================================
OTHER ASSETS LESS LIABILITIES-1.50% 1,876,749
========================================================================
NET ASSETS-100.00% $125,445,862
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
Disc. - Discounted
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 June 30, 2006 was $6,831,220, which
represented 5.45% of the Fund's Net Assets. See Note 1A.
(c) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $112,105,430) $123,569,113
- -------------------------------------------------------------
Foreign currencies, at value (cost $640) 6,906
- -------------------------------------------------------------
Cash 10,357
- -------------------------------------------------------------
Receivables for:
Investments sold 2,736,938
- -------------------------------------------------------------
Fund shares sold 27,232
- -------------------------------------------------------------
Dividends 66,567
- -------------------------------------------------------------
Fund expenses absorbed 82,015
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 30,089
=============================================================
Total assets 126,529,217
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 885,710
- -------------------------------------------------------------
Fund shares reacquired 26,950
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 35,638
- -------------------------------------------------------------
Accrued administrative services fees 14,590
- -------------------------------------------------------------
Accrued distribution fees-Series II 569
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,462
- -------------------------------------------------------------
Accrued transfer agent fees 650
- -------------------------------------------------------------
Accrued operating expenses 117,786
=============================================================
Total liabilities 1,083,355
=============================================================
Net assets applicable to shares outstanding $125,445,862
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $116,194,147
- -------------------------------------------------------------
Undistributed net investment income (loss) (23,384)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (2,190,491)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 11,465,590
=============================================================
$125,445,862
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $123,509,552
_____________________________________________________________
=============================================================
Series II $ 1,936,310
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,776,187
_____________________________________________________________
=============================================================
Series II 153,937
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.63
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.58
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$897) $ 59,326
- -------------------------------------------------------------
Interest 14,327
=============================================================
Total investment income 73,653
=============================================================
EXPENSES:
Advisory fees 67,682
- -------------------------------------------------------------
Administrative services fees 42,385
- -------------------------------------------------------------
Custodian fees 15,768
- -------------------------------------------------------------
Distribution fees-Series II 976
- -------------------------------------------------------------
Transfer agent fees 1,094
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 9,289
- -------------------------------------------------------------
Professional services fees 28,438
- -------------------------------------------------------------
Other 9,855
=============================================================
Total expenses 175,487
=============================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangement (83,032)
=============================================================
Net expenses 92,455
=============================================================
Net investment income (loss) (18,802)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (2,150,726)
- -------------------------------------------------------------
Foreign currencies 3,485
=============================================================
(2,147,241)
=============================================================
Change in net unrealized appreciation of:
Investment securities 5,318,296
- -------------------------------------------------------------
Foreign currencies 1,283
=============================================================
5,319,579
=============================================================
Net gain from investment securities and foreign
currencies 3,172,338
=============================================================
Net increase in net assets resulting from
operations $ 3,153,536
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (18,802) $ (2,758)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (2,147,241) (43,281)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 5,319,579 316,169
==========================================================================================
Net increase in net assets resulting from operations 3,153,536 270,130
==========================================================================================
Distributions to shareholders from net realized gains:
Series I -- (5,480)
- ------------------------------------------------------------------------------------------
Series II -- (828)
==========================================================================================
Total distributions from net realized gains -- (6,308)
==========================================================================================
Share transactions-net:
Series I 116,035,996 3,533,583
- ------------------------------------------------------------------------------------------
Series II 1,268,283 828
==========================================================================================
Net increase in net assets resulting from share
transactions 117,304,279 3,534,411
==========================================================================================
Net increase in net assets 120,457,815 3,798,233
__________________________________________________________________________________________
==========================================================================================
NET ASSETS:
Beginning of period 4,988,047 1,189,814
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(23,384) and $(4,582), respectively) $125,445,862 $4,988,047
__________________________________________________________________________________________
==========================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Large Cap Growth Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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 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 April 30, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $67,682 and
reimbursed expenses of $14,474.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $17,590 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $1,094.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $976.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $876.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,777 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 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. The
amount does not include the effects on the capital loss carryforward of the
reorganization of the AIM V.I. Blue Chip Fund into the Fund on June 12, 2006,
as it occurred after the Fund's most recent fiscal year end. To the extent
that unrealized gains as of June 12, 2006, the date of the reorganization of
AIM V.I. Blue Chip Fund into the Fund are realized on securities held in the
Fund at such date of reorganization, the capital loss carryforward may be
further limited for up to five years from the date of the reorganization.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $53,971,360 and $6,453,871, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $12,358,438
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,116,358)
===============================================================================
Net unrealized appreciation of investment securities $10,242,080
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $113,327,033.
</Table>
NOTE 8--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Series I 636,323 $ 8,073,050 330,217 $3,990,691
- -----------------------------------------------------------------------------------------------------------------
Series II 4 84 -- --
=================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 423 5,480
- -----------------------------------------------------------------------------------------------------------------
Series II -- -- 64 828
=================================================================================================================
Issued in connection with acquisitions:(b)
Series I 9,167,026 112,588,851 -- --
- -----------------------------------------------------------------------------------------------------------------
Series II 104,182 1,274,141 -- --
=================================================================================================================
Reacquired:
Series I (369,447) (4,625,905) (38,554) (462,588)
- -----------------------------------------------------------------------------------------------------------------
Series II (487) (5,942) -- --
=================================================================================================================
9,537,601 $117,304,279 292,150 $3,534,411
_________________________________________________________________________________________________________________
=================================================================================================================
</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 87% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
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, 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 opening of business on June 12, 2006, the Fund acquired all the
net assets of AIM V.I. Blue Chip Fund pursuant to plans of
reorganization approved by the Trustees of the Fund on November 14, 2005
and by shareholders of AIM V.I. Blue Chip Fund on April 4, 2006. The
acquisition was accomplished by a tax-free exchange of 9,271,208 shares
of the Fund for 16,731,926 shares of AIM V.I. Blue Chip Fund outstanding
as of the close of business on June 9, 2006. AIM V.I. Blue Chip Fund's
net assets at that date of $113,862,992 including $5,643,661 of
unrealized appreciation were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$9,848,334.
NOTE 9--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------- DECEMBER 31,
2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.71 $11.86 $10.90 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.01)(a) (0.04)(b) (0.03)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07) 0.88 1.03 0.95
=============================================================================================================================
Total from investment operations (0.08) 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 $ 12.63 $12.71 $11.86 $10.90
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) (0.63)% 7.30% 9.08% 9.16%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,510 $4,352 $ 596 $ 546
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.02%(d) 1.13% 1.33% 1.33%(e)
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.93%(d) 7.30% 9.88% 14.54%(e)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.20)%(d) (0.06)% (0.35)%(b) (0.73)%(e)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(f) 50% 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 income (loss) to average net assets excluding the special
dividend were $(0.06) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$17,411,336.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is 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
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------- DECEMBER 31,
2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.67 $11.84 $10.90 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.03)(a) (0.06)(b) (0.03)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.06) 0.88 1.03 0.94
=========================================================================================================================
Total from investment operations (0.09) 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 $12.58 $12.67 $11.84 $10.90
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) (0.71)% 7.15% 8.89% 9.11%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,936 $ 636 $ 594 $ 546
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.27%(d) 1.33% 1.48% 1.48%(e)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.18%(d) 7.55% 10.13% 14.79%(e)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.45)%(d) (0.26)% (0.50)%(b) (0.88)%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(f) 50% 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 income (loss) to average net assets excluding the special
dividend were $(0.08) and (0.66)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of $786,858.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
TERMS USED IN THE LEGAL PROCEEDINGS NOTE ARE DEFINED TERMS SOLELY FOR THE
PURPOSE OF THIS NOTE.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. LARGE CAP GROWTH FUND
AIM V.I. LEISURE FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. LEISURE FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE portfolio turnover. We manage risk by
diversifying the Fund's holdings across
=================================================================================== a variety of leisure-related stocks,
including those of cable television
PERFORMANCE SUMMARY companies, satellite programming
======================================== companies, publishers, cruise lines,
We are pleased to report that for the advertising agencies, hotels, casinos,
six months ended June 30, 2006, and FUND VS. INDEXES electronic game and toy manufacturers
excluding variable product issuer and entertainment companies.
charges, AIM V.I. Leisure Fund delivered CUMULATIVE TOTAL RETURNS,
positive returns to shareholders that 12/31/05-6/30/06, EXCLUDING VARIABLE We consider selling or trimming a
exceeded those of the broad U.S. stock PRODUCT ISSUER CHARGES. IF VARIABLE stock when:
market, as represented by the S&P 500 PRODUCT ISSUER CHARGES WERE INCLUDED,
Index. The Fund benefited from strong RETURNS WOULD BE LOWER. o There is a change in the company's
stock selection, allowing it to fundamental business prospects.
outperform the consumer discretionary Series I Shares 5.90%
sector of the S&P 500 Index, which o A stock reaches its target price.
returned just 2.48%. In particular, the Series II Shares 5.74
Fund's media, hotel and restaurant MARKET CONDITIONS AND YOUR FUND
holdings outperformed those of the Standard & Poor's Composite Index
index. of 500 Stocks (S&P 500 Index) After performing strongly during the
(Broad Market Index / Style- first four months of 2006, the U.S.
Specific Index) 2.71 stock market retreated over the last two
months of the reporting period largely
SOURCE: LIPPER INC. due to concerns about persistently high
energy prices and rising interest
rates--and the potential impact of both
Your Fund's long-term performance on economic growth and inflation. During
appears on page 4. the reporting period, the U.S. Federal
======================================= Reserve Board continued its tightening
policy, raising the key federal funds
================================================================================== target rate to 5.25%.
HOW WE INVEST five-year strategic plan and their Against this backdrop, energy and
corresponding financial goals. We then telecommunication services were the
We focus on companies that profit from evaluate whether the company has the best-performing sectors of the S&P 500
consumer spending on leisure activities right management in place, appropriate Index for the reporting period. Although
(products and/or services purchased with competitive position and adequate the consumer discretionary sector posted
consumers' discretionary dollars) and resources to realize their vision. positive returns, it was one of the
that are growing their market share, weaker performing sectors of the broad
cash flow and earnings at rates greater o Valuation analysis involves using market. There was some evidence that
than the broad market. financial models for each company in an historically high energy and gasoline
effort to estimate its fair valuation prices caused consumers to reduce their
We perform both fundamental and over the next two to three years based discretionary spending, therefore
valuation analysis: primarily on our expectations for free hurting the profits of many consumer
cash flow growth. discre-
o Fundamental research includes
interviews with company managements, Just as we look for managements
buyers, customers and competitors. We with long-term visions, we maintain a
ask company management teams to detail long-term investment horizon, resulting
their three- to in relatively low
======================================= ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $51.0 MILLION
TOTAL NUMBER OF HOLDINGS* 80
By industry 1. Harrah's Entertainment, Inc. 6.1%
The Fund's holdings are subject to
Hotels, Resorts & Cruise Lines 17.8% 2. Omnicom Group Inc. 5.8 change, and there is no assurance that
the Fund will continue to hold any
Broadcasting & Cable TV 13.7 3. News Corp.--Class A 5.1 particular security.
Movies & Entertainment 10.5 4. Groupe Bruxelles Lambert S.A. *Excluding money market fund holdings.
(Belgium) 3.9
Casinos & Gaming 9.6
5. Hilton Hotels Corp. 3.3
Advertising 8.9
6. Starwood Hotels & Resorts
Multi-Sector Holdings 5.5 Worldwide, Inc. 3.2
Apparel, Accessories & Luxury 7. Carnival Corp. 3.1
Goods 5.0
8. Walt Disney Co. (The) 2.5
Brewers 4.2
9. Time Warner Inc. 2.3
Publishing 3.1
10. Marriott International, Inc.
17 Other Industries, Each with -Class A 2.3
Less than 3% of Total Net Assets 20.5
Money Market Funds Plus Other
Assets Less Liabilities 1.2
======================================= ======================================== ========================================
2
AIM V.I. LEISURE FUND
tionary companies. It is important to proceeds to initiate positions in MARK D. GREENBERG,
emphasize that we do not make KOHL'S, ABERCROMBIE & FITCH and [GREENBERG Chartered Financial Analyst,
investments or position the Fund on the COACH--three stocks in which we saw PHOTO] senior portfolio manager, is
basis of short-term outlooks for such strong fundamentals and attractive manager of AIM V.I. Leisure
economic factors as changes in energy valuations. Fund. Mr. Greenberg began
prices. We remind shareholders that our his career in 1980, and media and
time horizon for the stocks in the Fund At the close of the reporting entertainment stocks became his focus in
is two to three years. period, we were comfortable with the 1983. He joined the Fund's advisor in
quality of the companies that we had 1996. Mr. Greenberg attended City
For the reporting period, the selected for inclusion in AIM V.I. University in London, England, and
Fund's media holdings were among the top Leisure Fund. The Fund was positioned in earned his B.S.B.A. in economics with a
contributors to Fund performance. NEWS line with its mandate and had exposure specialization in finance from Marquette
CORP. and CABLEVISION--both long-term to a variety of leisure-related University.
Fund holdings--were strong contributors. industries based on our bottom-up,
As a group, media stocks struggled for stock-by-stock approach to investing.
much of last year as investors worried
that broadcast advertising revenues IN CLOSING
might weaken, given economic uncertainty
and a continued shift from traditional We were pleased that excluding variable
advertising to online advertising. product issuer charges the Fund
However, during the reporting period, outperformed the S&P 500 Index.
News Corp. was a standout performer as Nonetheless, in good years and bad, we
its MySpace.com Web site and its motion have reminded investors that sectors go
pictures were well received and in and out favor--and we have explained
continued to generate solid revenue that there will be years in which the
growth. Cablevision operates some of the Fund will outperform the broad market,
most attractive cable assets in the and years in which it will lag the broad
country and the company issued a $10 market. While no one can predict the
per-share dividend on April 24 for all future, we take comfort in the fact that
investors holding the stock on April 18. over four decades, spending on
leisure-related activities grew faster
On the other hand, Fund holdings than the overall market. That is why we
CARNIVAL, YAHOO! and EXPEDIA maintain a long-term investment
underperformed during the reporting perspective, and why we urge you to do
period. Despite short-term weakness in the same. As always, we thank you for
these stocks, we remained committed to your continuing investment in AIM V.I.
our investments. We have already visited Leisure Fund.
these companies this year and have spent
significant time researching their THE VIEWS AND OPINIONS EXPRESSED IN
businesses. Based on our deep MANAGEMENT'S DISCUSSION OF FUND
fundamental understanding of these PERFORMANCE ARE THOSE OF A I M ADVISORS,
companies and the industries in which INC. THESE VIEWS AND OPINIONS ARE
they operate, we remained confident in SUBJECT TO CHANGE AT ANY TIME BASED ON
our long-term investment thesis. FACTORS SUCH AS MARKET AND ECONOMIC
CONDITIONS. THESE VIEWS AND OPINIONS MAY
Portfolio changes are usually a NOT BE RELIED UPON AS INVESTMENT ADVICE
result of insight that comes from our OR RECOMMENDATIONS, OR AS AN OFFER FOR A
bottom-up investment process and PARTICULAR SECURITY. THE INFORMATION IS
long-term investment horizon. This NOT A COMPLETE ANALYSIS OF EVERY ASPECT
long-term investment horizon is one OF ANY MARKET, COUNTRY, INDUSTRY,
reason for the Fund's low portfolio SECURITY OR THE FUND. STATEMENTS OF FACT
turnover rate. During the reporting ARE FROM SOURCES CONSIDERED RELIABLE,
period, we took profits and sold our BUT A I M ADVISORS, INC. MAKES NO
position in CBRL GROUP and CENDANT. We REPRESENTATION OR WARRANTY AS TO THEIR
used the COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE [RIGHT ARROW GRAPHIC]
OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT FOR A DISCUSSION OF THE RISKS OF
MANAGEMENT PHILOSOPHY. INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGE 4.
3
AIM V.I. LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=======================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED SALES CHARGES, EXPENSES AND FEES
As of 6/30/06 REPRESENT PAST PERFORMANCE AND CANNOT ASSESSED IN CONNECTION WITH A VARIABLE
GUARANTEE COMPARABLE FUTURE RESULTS; PRODUCT. SALES CHARGES, EXPENSES AND
SERIES I SHARES CURRENT PERFORMANCE MAY BE LOWER OR FEES, WHICH ARE DETERMINED BY THE
Inception (4/30/02) 6.51% HIGHER. PLEASE CONTACT YOUR VARIABLE VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 6.88 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR WILL LOWER THE TOTAL RETURN.
THE MOST RECENT MONTH-END VARIABLE
SERIES II SHARES PRODUCT PERFORMANCE. PERFORMANCE FIGURES PER NASD REQUIREMENTS, THE MOST
Inception 6.28% REFLECT FUND EXPENSES, REINVESTED RECENT MONTH-END PERFORMANCE DATA AT THE
1 Year 6.62 DISTRIBUTIONS AND CHANGES IN NET ASSET FUND LEVEL, EXCLUDING VARIABLE PRODUCT
VALUE. INVESTMENT RETURN AND PRINCIPAL CHARGES, IS AVAILABLE ON THIS AIM
======================================= VALUE WILL FLUCTUATE SO THAT YOU MAY AUTOMATED INFORMATION LINE,
HAVE A GAIN OR LOSS WHEN YOU SELL 866-702-4402. AS MENTIONED ABOVE, FOR
SERIES II SHARES' INCEPTION DATE IS SHARES. THE MOST RECENT MONTH-END PERFORMANCE
APRIL 30, 2004. RETURNS SINCE THAT DATE INCLUDING VARIABLE PRODUCT CHARGES,
ARE HISTORICAL. ALL OTHER RETURNS ARE AIM V.I. LEISURE FUND, A SERIES PLEASE CONTACT YOUR VARIABLE PRODUCT
THE BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE ISSUER OR FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE FUNDS, IS CURRENTLY OFFERED THROUGH
THEIR INCEPTION AND THE RESTATED INSURANCE COMPANIES ISSUING VARIABLE HAD THE ADVISOR NOT WAIVED FEES
HISTORICAL PERFORMANCE OF SERIES I PRODUCTS. YOU CANNOT PURCHASE SHARES OF AND/OR REIMBURSED EXPENSES, PERFORMANCE
SHARES (FOR PERIODS PRIOR TO INCEPTION THE FUND DIRECTLY. PERFORMANCE FIGURES WOULD HAVE BEEN LOWER.
OF SERIES II SHARES) ADJUSTED TO REFLECT GIVEN REPRESENT THE FUND AND ARE NOT
THE RULE 12b-1 FEES APPLICABLE TO THE INTENDED TO REFLECT ACTUAL VARIABLE
SERIES II SHARES. THE INCEPTION DATE OF PRODUCT VALUES. THEY DO NOT REFLECT
SERIES I SHARES IS APRIL 30, 2002. THE
PERFORMANCE OF THE FUND'S SERIES I AND
SERIES II SHARE CLASSES WILL DIFFER
PRIMARILY DUE TO DIFFERENT CLASS
EXPENSES.
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT to the net assets of the Fund at period
end for financial reporting purposes,
The Fund can invest up to 25% of its The unmanaged STANDARD & POOR'S and as such, the net asset values for
assets in foreign securities that COMPOSITE INDEX OF 500 STOCKS (the S&P shareholder transactions and the returns
involve risks not associated with 500--Registered Trademark-- Index) is an based on those net asset values may
investing solely in the United States. index of common stocks frequently used differ from the net asset values and
These include risks relating to as a general measure of U.S. stock returns reported in the Financial
fluctuations in the value of the U.S. market performance. Highlights. Additionally, the returns
dollar relative to the values of other and net asset values shown throughout
currencies, the custody arrangements The Fund is not managed to track this report are at the Fund level only
made for the Fund's foreign holdings, the performance of any particular index, and do not include variable product
differences in accounting, political including the index defined here, and issuer charges. If such charges were
risks and the lesser degree of public consequently, the performance of the included, the total returns would be
information required to be provided by Fund may deviate significantly from the lower.
non-U.S. companies. performance of the index.
Industry classifications used in
Investing in a single-sector or A direct investment cannot be made this report are generally according to
single-region mutual fund involves in an index. Unless otherwise indicated, the Global Industry Classification
greater risk and potential reward than index results include reinvested Standard, which was developed by and is
investing in a more diversified fund. dividends, and they do not reflect sales the exclusive property and a service
charges. mark of Morgan Stanley Capital
Investing in smaller companies International Inc. and Standard &
involves greater risk than investing in OTHER INFORMATION Poor's.
more established companies, such as
business risk, significant stock price The returns shown in the management's
fluctuations and illiquidity. discussion of Fund performance are based
on net asset values calculated for
shareholder transactions. Generally
accepted accounting principles require
adjustments to be made
4
AIM V.I. LEISURE 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 June 30, 2006, appear in the table
fees; distribution and/or service fees expenses. You may use the information in "Fund vs. Indexes" on page 2.
(12b-1); and other Fund expenses. This this table, together with the amount you
example is intended to help you invested, to estimate the expenses that THE HYPOTHETICAL ACCOUNT VALUES AND
understand your ongoing costs (in you paid over the period. Simply divide EXPENSES MAY NOT BE USED TO ESTIMATE THE
dollars) of investing in the Fund and to your account value by $1,000 (for ACTUAL ENDING ACCOUNT BALANCE OR
compare these costs with ongoing costs example, an $8,600 account value divided EXPENSES YOU PAID FOR THE PERIOD. YOU
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the MAY USE THIS INFORMATION TO COMPARE THE
example is based on an investment of result by the number in the table under ONGOING COSTS OF INVESTING IN THE FUND
$1,000 invested at the beginning of the the heading entitled "Actual Expenses AND OTHER FUNDS. TO DO SO, COMPARE THIS
period and held for the entire period Paid During Period" to estimate the 5% HYPOTHETICAL EXAMPLE WITH THE 5%
January 1, 2006, through June 30, 2006. expenses you paid on your account during HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
this period. SHAREHOLDER REPORTS OF THE OTHER FUNDS.
The actual and hypothetical
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown
represent the effect of any fees or COMPARISON PURPOSES in the table are meant to highlight your
other expenses assessed in connection ongoing costs. Therefore, the
with a variable product; if they did, The table below also provides hypothetical information is useful in
the expenses shown would be higher while information about hypothetical account comparing ongoing costs only, and will
the ending account values shown would be values and hypothetical expenses based not help you determine the relative
lower. on the Fund's actual expense ratio and total costs of owning different funds.
an assumed rate of return of 5% per year
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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,059.00 $5.16 $1,019.79 $5.06 1.01%
Series II 1,000.00 1,057.40 6.43 1,018.55 6.31 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. LEISURE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the for the Fund, the Board concluded that
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and no changes should be made to the Fund
the management of AIM V.I. Leisure Fund that AIM currently is providing services and that it was not necessary to change
(the "Fund") and, as required by law, in accordance with the terms of the the Fund's portfolio management team at
determines annually whether to approve Advisory Agreement. this time. However, due to the Fund's
the continuance of the Fund's advisory under-performance, the Board also
agreement with A I M Advisors, Inc. o The quality of services to be provided concluded that it would be appropriate
("AIM"). Based upon the recommendation by AIM. The Board reviewed the for the Board to continue to closely
of the Investments Committee of the credentials and experience of the monitor and review the performance of
Board, at a meeting held on June 27, officers and employees of AIM who will the Fund. Although the independent
2006, the Board, including all of the provide investment advisory services to written evaluation of the Fund's Senior
independent trustees, approved the the Fund. In reviewing the Officer (discussed below) only
continuance of the advisory agreement qualifications of AIM to provide considered Fund performance through the
(the "Advisory Agreement") between the investment advisory services, the Board most recent calendar year, the Board
Fund and AIM for another year, effective considered such issues as AIM's also reviewed more recent Fund
July 1, 2006. portfolio and product review process, performance, which did not change their
various back office support functions conclusions.
The Board considered the factors provided by AIM and AIM's equity and
discussed below in evaluating the fixed income trading operations. Based o Meetings with the Fund's portfolio
fairness and reasonableness of the on the review of these and other managers and investment personnel. With
Advisory Agreement at the meeting on factors, the Board concluded that the respect to the Fund, the Board is
June 27, 2006 and as part of the Board's quality of services to be provided by meeting periodically with such Fund's
ongoing oversight of the Fund. In their AIM was appropriate and that AIM portfolio managers and/or other
deliberations, the Board and the currently is providing satisfactory investment personnel and believes that
independent trustees did not identify services in accordance with the terms of such individuals are competent and able
any particular factor that was the Advisory Agreement. to continue to carry out their
controlling, and each trustee attributed responsibilities under the Advisory
different weights to the various o The performance of the Fund relative Agreement.
factors. to comparable funds. The Board reviewed
the performance of the Fund during the o Overall performance of AIM. The Board
One responsibility of the past one and three calendar years considered the overall performance of
independent Senior Officer of the Fund against the performance of funds advised AIM in providing investment advisory and
is to manage the process by which the by other advisors with investment portfolio administrative services to the
Fund's proposed management fees are strategies comparable to those of the Fund and concluded that such performance
negotiated to ensure that they are Fund. The Board noted that the Fund's was satisfactory.
negotiated in a manner which is at arms' performance was above the median
length and reasonable. To that end, the performance of such comparable funds for o Fees relative to those of clients of
Senior Officer must either supervise a the one year period and below such AIM with comparable investment
competitive bidding process or prepare median performance for the three year strategies. The Board reviewed the
an independent written evaluation. The period. The Board also noted that AIM effective advisory fee rate (before
Senior Officer has recommended an began serving as investment advisor to waivers) for the Fund under the Advisory
independent written evaluation in lieu the Fund in April 2004. Based on this Agreement. The Board noted that this
of a competitive bidding process and, review and after taking account of all rate was (i) above the effective
upon the direction of the Board, has of the other factors that the Board advisory fee rate (before waivers) for
prepared such an independent written considered in determining whether to one mutual fund advised by AIM with
evaluation. Such written evaluation also continue the Advisory Agreement for the investment strategies comparable to
considered certain of the factors Fund, the Board concluded that no those of the Fund; (ii) the same as the
discussed below. In addition, as changes should be made to the Fund and effective advisory fee rates (before
discussed below, the Senior Officer made that it was not necessary to change the waivers) for three variable insurance
a recommendation to the Board in Fund's portfolio management team at this funds advised by AIM and offered to
connection with such written evaluation. time. However, due to the Fund's insurance company separate accounts with
under-performance, the Board also investment strategies comparable to
The discussion below serves as a concluded that it would be appropriate those of the Fund; and (iii) above the
summary of the Senior Officer's for the Board to continue to closely effective sub-advisory fee rates for two
independent written evaluation and monitor and review the performance of offshore funds advised and sub-advised
recommendation to the Board in the Fund. Although the independent by AIM affiliates with investment
connection therewith, as well as a written evaluation of the Fund's Senior strategies comparable to those of the
discussion of the material factors and Officer (discussed below) only Fund, although the total advisory fees
the conclusions with respect thereto considered Fund performance through the for one such offshore fund were above
that formed the basis for the Board's most recent calendar year, the Board those for the Fund and the total
approval of the Advisory Agreement. also reviewed more recent Fund advisory fees for the other offshore
After consideration of all of the performance, which did not change their fund were comparable to those for the
factors below and based on its informed conclusions. Fund. The Board noted that AIM has
business judgment, the Board determined agreed to waive advisory fees of the
that the Advisory Agreement is in the o The performance of the Fund relative Fund and to limit the Fund's total
best interests of the Fund and its to indices. The Board reviewed the operating expenses, as discussed below.
shareholders and that the compensation performance of the Fund during the past Based on this review, the Board
to AIM under the Advisory Agreement is one and three calendar years against the concluded that the advisory fee rate for
fair and reasonable and would have been performance of the S&P 500 Index. The the Fund under the Advisory Agreement
obtained through arm's length Board noted that the Fund's performance was fair and reasonable.
negotiations. was below the performance of such Index
for the one year period and comparable o Fees relative to those of comparable
Unless otherwise stated, to such Index for the three year period. funds with other advisors. The Board
information presented below is as of The Board also noted that the reviewed the advisory fee rate for the
June 27, 2006 and does not reflect any performance of such Index does not Fund under the Advisory Agreement. The
changes that may have occurred since reflect fees, while the performance of Board compared effective contractual
June 27, 2006, including but not limited the Fund does reflect fees. The Board advisory fee rates at a common asset
to changes to the Fund's performance, also noted that AIM began serving as level at the end of the past calendar
advisory fees, expense limitations investment advisor to the Fund in April year and noted that the Fund's rate was
and/or fee waivers. 2004. Based on this review and after below the median rate of the funds
taking account of all of the other advised by other advisors with
o The nature and extent of the advisory factors that the Board considered in investment strategies comparable to
services to be provided by AIM. The determining whether to continue the those of the Fund that the Board
Board reviewed the services to be Advisory Agreement reviewed. The Board noted that AIM has
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
6
AIM V.I. LEISURE FUND
agreed to waive advisory fees of the advised by AIM pursuant to the terms of o Benefits of soft dollars to AIM. The
Fund and to limit the Fund's total an SEC exemptive order. The Board found Board considered the benefits realized
operating expenses, as discussed below. that the Fund may realize certain by AIM as a result of brokerage
Based on this review, the Board benefits upon investing cash balances in transactions executed through "soft
concluded that the advisory fee rate for AIM advised money market funds, dollar" arrangements. Under these
the Fund under the Advisory Agreement including a higher net return, increased arrangements, brokerage commissions paid
was fair and reasonable. liquidity, increased diversification or by the Fund and/or other funds advised
decreased transaction costs. The Board by AIM are used to pay for research and
o Expense limitations and fee waivers. also found that the Fund will not execution services. This research may be
The Board noted that AIM has receive reduced services if it invests used by AIM in making investment
contractually agreed to waive advisory its cash balances in such money market decisions for the Fund. The Board
fees of the Fund through April 30, 2008 funds. The Board noted that, to the concluded that such arrangements were
to the extent necessary so that the extent the Fund invests uninvested cash appropriate.
advisory fees payable by the Fund do not in affiliated money market funds, AIM
exceed a specified maximum advisory fee has voluntarily agreed to waive a o AIM's financial soundness in light of
rate, which maximum rate includes portion of the advisory fees it receives the Fund's needs. The Board considered
breakpoints and is based on net asset from the Fund attributable to such whether AIM is financially sound and has
levels. The Board considered the investment. The Board further determined the resources necessary to perform its
contractual nature of this fee waiver that the proposed securities lending obligations under the Advisory
and noted that it remains in effect program and related procedures with Agreement, and concluded that AIM has
until April 30, 2008. The Board noted respect to the lending Fund is in the the financial resources necessary to
that AIM has contractually agreed to best interests of the lending Fund and fulfill its obligations under the
waive fees and/or limit expenses of the its respective shareholders. The Board Advisory Agreement.
Fund through April 30, 2008 in an amount therefore concluded that the investment
necessary to limit total annual of cash collateral received in o Historical relationship between the
operating expenses to a specified connection with the securities lending Fund and AIM. In determining whether to
percentage of average daily net assets program in the money market funds continue the Advisory Agreement for the
for each class of the Fund. The Board according to the procedures is in the Fund, the Board also considered the
considered the contractual nature of best interests of the lending Fund and prior relationship between AIM and the
this fee waiver/expense limitation and its respective shareholders. Fund, as well as the Board's knowledge
noted that it remains in effect until of AIM's operations, and concluded that
April 30, 2008. The Board considered the o Independent written evaluation and it was beneficial to maintain the
effect these fee waivers/expense recommendations of the Fund's Senior current relationship, in part, because
limitations would have on the Fund's Officer. The Board noted that, upon of such knowledge. The Board also
estimated expenses and concluded that their direction, the Senior Officer of reviewed the general nature of the
the levels of fee waivers/expense the Fund, who is independent of AIM and non-investment advisory services
limitations for the Fund were fair and AIM's affiliates, had prepared an currently performed by AIM and its
reasonable. independent written evaluation in order affiliates, such as administrative,
to assist the Board in determining the transfer agency and distribution
o Breakpoints and economies of scale. reasonableness of the proposed services, and the fees received by AIM
The Board reviewed the structure of the management fees of the AIM Funds, and its affiliates for performing such
Fund's advisory fee under the Advisory including the Fund. The Board noted that services. In addition to reviewing such
Agreement, noting that it does not the Senior Officer's written evaluation services, the trustees also considered
include any breakpoints. The Board had been relied upon by the Board in the organizational structure employed by
considered whether it would be this regard in lieu of a competitive AIM and its affiliates to provide those
appropriate to add advisory fee bidding process. In determining whether services. Based on the review of these
breakpoints for the Fund or whether, due to continue the Advisory Agreement for and other factors, the Board concluded
to the nature of the Fund and the the Fund, the Board considered the that AIM and its affiliates were
advisory fee structures of comparable Senior Officer's written evaluation and qualified to continue to provide
funds, it was reasonable to structure the recommendation made by the Senior non-investment advisory services to the
the advisory fee without breakpoints. Officer to the Board that the Board Fund, including administrative, transfer
Based on this review, the Board consider whether the advisory fee agency and distribution services, and
concluded that it was not necessary to waivers for certain equity AIM Funds, that AIM and its affiliates currently
add advisory fee breakpoints to the including the Fund, should be are providing satisfactory
Fund's advisory fee schedule. The Board simplified. The Board concluded that it non-investment advisory services.
reviewed the level of the Fund's would be advisable to consider this
advisory fees, and noted that such fees, issue and reach a decision prior to the o Other factors and current trends. The
as a percentage of the Fund's net expiration date of such advisory fee Board considered the steps that AIM and
assets, would remain constant under the waivers. its affiliates have taken over the last
Advisory Agreement because the Advisory several years, and continue to take, in
Agreement does not include any o Profitability of AIM and its order to improve the quality and
breakpoints. The Board noted that AIM affiliates. The Board reviewed efficiency of the services they provide
has contractually agreed to waive information concerning the profitability to the Funds in the areas of investment
advisory fees of the Fund through April of AIM's (and its affiliates') performance, product line
30, 2008 to the extent necessary so that investment advisory and other activities diversification, distribution, fund
the advisory fees payable by the Fund do and its financial condition. The Board operations, shareholder services and
not exceed a specified maximum advisory considered the overall profitability of compliance. The Board concluded that
fee rate, which maximum rate includes AIM, as well as the profitability of AIM these steps taken by AIM have improved,
breakpoints and is based on net asset in connection with managing the Fund. and are likely to continue to improve,
levels. The Board concluded that the The Board noted that AIM's operations the quality and efficiency of the
Fund's fee levels under the Advisory remain profitable, although increased services AIM and its affiliates provide
Agreement therefore would not reflect expenses in recent years have reduced to the Fund in each of these areas, and
economies of scale, although the AIM's profitability. Based on the review support the Board's approval of the
advisory fee waiver reflects economies of the profitability of AIM's and its continuance of the Advisory Agreement
of scale. affiliates' investment advisory and for the Fund.
other activities and its financial
o Investments in affiliated money market condition, the Board concluded that the
funds. The Board also took into account compensation to be paid by the Fund to
the fact that uninvested cash and cash AIM under its Advisory Agreement was not
collateral from securities lending excessive.
arrangements, if any (collectively,
"cash balances") of the Fund may be
invested in money market funds
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-76.87%
ADVERTISING-6.42%
Harte-Hanks, Inc. 12,077 $ 309,654
- ---------------------------------------------------------------------
Omnicom Group Inc. 33,324 2,968,835
=====================================================================
3,278,489
=====================================================================
APPAREL RETAIL-0.84%
Abercrombie & Fitch Co.-Class A 7,722 428,030
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-3.79%
Carter's, Inc.(a) 21,677 572,923
- ---------------------------------------------------------------------
Coach, Inc.(a) 8,810 263,419
- ---------------------------------------------------------------------
Polo Ralph Lauren Corp. 19,986 1,097,232
=====================================================================
1,933,574
=====================================================================
BREWERS-1.09%
Anheuser-Busch Cos., Inc. 12,233 557,703
=====================================================================
BROADCASTING & CABLE TV-12.04%
Cablevision Systems Corp.-Class A 47,570 1,020,376
- ---------------------------------------------------------------------
CBS Corp.-Class A 4,181 113,138
- ---------------------------------------------------------------------
CBS Corp.-Class B 4,181 113,096
- ---------------------------------------------------------------------
Clear Channel Communications, Inc. 19,915 616,369
- ---------------------------------------------------------------------
Comcast Corp.-Class A(a) 31,034 1,016,053
- ---------------------------------------------------------------------
Discovery Holding Co.-Class A(a) 16,079 235,236
- ---------------------------------------------------------------------
EchoStar Communications Corp.-Class A(a) 21,940 675,971
- ---------------------------------------------------------------------
Liberty Global, Inc.-Class A(a) 12,622 271,373
- ---------------------------------------------------------------------
Liberty Global, Inc.-Series C(a) 12,801 263,317
- ---------------------------------------------------------------------
Liberty Media Holding Corp.-Capital
Group-Series A(a) 6,689 560,338
- ---------------------------------------------------------------------
Liberty Media Holding Corp.-Capital
Group-Series B(a) 635 51,911
- ---------------------------------------------------------------------
NTL Inc. 9,075 225,968
- ---------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 8,650 373,161
- ---------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 30,338 259,693
- ---------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A(a) 16,433 83,973
- ---------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 7,914 265,119
=====================================================================
6,145,092
=====================================================================
CASINOS & GAMING-9.64%
Aztar Corp.(a) 7,700 400,092
- ---------------------------------------------------------------------
Harrah's Entertainment, Inc. 43,534 3,098,750
- ---------------------------------------------------------------------
International Game Technology 21,570 818,366
- ---------------------------------------------------------------------
MGM MIRAGE(a) 14,778 602,942
=====================================================================
4,920,150
=====================================================================
CATALOG RETAIL-1.10%
Liberty Media Holding Corp.-Interactive
Group- Series A(a) 32,448 560,053
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
DEPARTMENT STORES-0.62%
Kohl's Corp.(a) 5,311 $ 313,986
=====================================================================
FOOTWEAR-0.74%
NIKE, Inc.-Class B 4,677 378,837
=====================================================================
GENERAL MERCHANDISE STORES-0.87%
Target Corp. 9,120 445,694
=====================================================================
HOME ENTERTAINMENT SOFTWARE-0.31%
Electronic Arts Inc.(a) 3,722 160,195
=====================================================================
HOME IMPROVEMENT RETAIL-1.38%
Home Depot, Inc. (The) 19,625 702,379
=====================================================================
HOTELS, RESORTS & CRUISE LINES-13.05%
Carnival Corp.(b) 38,113 1,590,837
- ---------------------------------------------------------------------
Hilton Hotels Corp. 59,143 1,672,564
- ---------------------------------------------------------------------
Marriott International, Inc.-Class A 30,402 1,158,924
- ---------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 15,442 590,656
- ---------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 27,267 1,645,291
=====================================================================
6,658,272
=====================================================================
HYPERMARKETS & SUPER CENTERS-0.36%
Wal-Mart Stores, Inc. 3,793 182,709
=====================================================================
INTERNET RETAIL-1.00%
Blue Nile, Inc.(a) 8,919 286,835
- ---------------------------------------------------------------------
Expedia, Inc.(a) 14,955 223,876
=====================================================================
510,711
=====================================================================
INTERNET SOFTWARE & SERVICES-2.23%
Yahoo! Inc.(a) 34,471 1,137,543
=====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-2.17%
iShares Russell 3000 Index Fund 5,000 368,550
- ---------------------------------------------------------------------
iShares S&P 500 Index Fund 2,859 364,665
- ---------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 2,920 371,658
=====================================================================
1,104,873
=====================================================================
LEISURE FACILITIES-0.26%
Cedar Fair, L.P. 5,012 133,019
=====================================================================
LEISURE PRODUCTS-0.42%
Marvel Entertainment, Inc.(a) 20 400
- ---------------------------------------------------------------------
Polaris Industries Inc. 4,900 212,170
=====================================================================
212,570
=====================================================================
MOVIES & ENTERTAINMENT-10.51%
News Corp.-Class A 136,079 2,609,995
- ---------------------------------------------------------------------
Time Warner Inc. 67,760 1,172,248
- ---------------------------------------------------------------------
Viacom Inc.-Class A(a) 4,181 150,307
- ---------------------------------------------------------------------
</Table>
AIM V.I. LEISURE FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
MOVIES & ENTERTAINMENT-(CONTINUED)
Viacom Inc.-Class B(a) 4,181 $ 149,847
- ---------------------------------------------------------------------
Walt Disney Co. (The) 42,777 1,283,310
=====================================================================
5,365,707
=====================================================================
PUBLISHING-3.13%
Belo Corp.-Class A 22,316 348,130
- ---------------------------------------------------------------------
Gannett Co., Inc. 6,421 359,126
- ---------------------------------------------------------------------
McClatchy Co. (The)-Class A 8,696 348,883
- ---------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 10,798 542,384
=====================================================================
1,598,523
=====================================================================
RESTAURANTS-2.36%
Burger King Holdings Inc.(a) 9,818 154,633
- ---------------------------------------------------------------------
McDonald's Corp. 11,000 369,600
- ---------------------------------------------------------------------
Ruth's Chris Steak House, Inc.(a) 16,797 342,995
- ---------------------------------------------------------------------
Yum! Brands, Inc. 6,659 334,748
=====================================================================
1,201,976
=====================================================================
SOFT DRINKS-1.14%
PepsiCo, Inc. 9,700 582,388
=====================================================================
SPECIALTY STORES-1.40%
PetSmart, Inc. 27,959 715,750
=====================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $35,595,318) 39,228,223
=====================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-21.93%
BELGIUM-5.27%
Compagnie Nationale a Portefeuille
(Multi-Sector Holdings) 692 238,838
- ---------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector
Holdings)(c) 18,984 1,988,921
- ---------------------------------------------------------------------
InBev N.V. (Brewers) 9,369 459,636
=====================================================================
2,687,395
=====================================================================
BRAZIL-1.26%
Companhia de Bebidas das Americas-ADR
(Brewers) 17,566 642,915
=====================================================================
CANADA-1.09%
Intrawest Corp. (Hotels, Resorts & Cruise
Lines) 17,422 555,065
=====================================================================
DENMARK-0.98%
Carlsberg A.S.-Class B (Brewers)(c) 6,860 500,911
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
FRANCE-3.55%
Accor S.A. (Hotels, Resorts & Cruise Lines) 15,248 $ 928,291
- ---------------------------------------------------------------------
JC Decaux S.A. (Advertising) 13,923 367,975
- ---------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners) 2,600 515,538
=====================================================================
1,811,804
=====================================================================
HONG KONG-0.17%
Television Broadcasts Ltd.-ADR (Broadcasting
& Cable TV)(d) 6,976 86,223
=====================================================================
JAPAN-0.36%
Sony Corp.-ADR (Consumer Electronics) 4,141 182,370
=====================================================================
NETHERLANDS-1.52%
Jetix Europe N.V. (Broadcasting & Cable
TV)(a)(c) 32,033 778,381
=====================================================================
SWITZERLAND-2.26%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods) 13,214 605,284
- ---------------------------------------------------------------------
Pargesa Holding S.A. (Multi-Sector
Holdings)(c) 5,800 549,332
=====================================================================
1,154,616
=====================================================================
UNITED KINGDOM-5.47%
Diageo PLC (Distillers & Vintners)(c) 56,273 945,537
- ---------------------------------------------------------------------
InterContinental Hotels Group PLC (Hotels,
Resorts & Cruise Lines)(c) 53,900 941,428
- ---------------------------------------------------------------------
WPP Group PLC (Advertising) 74,907 906,650
=====================================================================
2,793,615
=====================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $7,475,604) 11,193,295
=====================================================================
MONEY MARKET FUNDS-1.47%
Liquid Assets Portfolio-Institutional
Class(e) 375,839 375,839
- ---------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 375,839 375,839
=====================================================================
Total Money Market Funds
(Cost $751,678) 751,678
=====================================================================
TOTAL INVESTMENTS-100.27%
(Cost $43,822,600) 51,173,196
=====================================================================
OTHER ASSETS LESS LIABILITIES-(0.27)% (137,812)
=====================================================================
NET ASSETS-100.00% $51,035,384
_____________________________________________________________________
=====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Each unit represents one common share and one trust share.
(c) 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 June 30, 2006 was
$5,704,510, which represented 11.18% of the Fund's Net Assets. See Note
1A.
(d) 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 June 30, 2006
represented 0.17% 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. LEISURE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $43,070,922) $50,421,518
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $751,678) 751,678
============================================================
Total investments (cost $43,822,600) 51,173,196
============================================================
Foreign currencies, at value (cost $52,749) 51,116
- ------------------------------------------------------------
Dividends receivable 53,659
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 6,536
============================================================
Total assets 51,284,507
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 17,334
- ------------------------------------------------------------
Fund shares reacquired 149,115
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 7,852
- ------------------------------------------------------------
Accrued administrative services fees 33,377
- ------------------------------------------------------------
Accrued distribution fees-Series II 7
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,299
- ------------------------------------------------------------
Accrued transfer agent fees 91
- ------------------------------------------------------------
Accrued operating expenses 40,048
============================================================
Total liabilities 249,123
============================================================
Net assets applicable to shares outstanding $51,035,384
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $39,489,382
- ------------------------------------------------------------
Undistributed net investment income 242,486
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 3,954,131
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 7,349,385
============================================================
$51,035,384
____________________________________________________________
============================================================
NET ASSETS:
Series I $51,023,704
____________________________________________________________
============================================================
Series II $ 11,680
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,062,114
____________________________________________________________
============================================================
Series II 933
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 12.56
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 12.52
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$15,357) $ 956,941
- ------------------------------------------------------------
Dividends from affiliated money market funds 31,112
============================================================
Total investment income 988,053
============================================================
EXPENSES:
Advisory fees 200,732
- ------------------------------------------------------------
Administrative services fees 91,621
- ------------------------------------------------------------
Custodian fees 9,635
- ------------------------------------------------------------
Distribution fees-Series II 14
- ------------------------------------------------------------
Transfer agent fees 505
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 9,082
- ------------------------------------------------------------
Professional services fees 20,955
- ------------------------------------------------------------
Other 7,846
============================================================
Total expenses 340,390
============================================================
Less: Fees waived (70,080)
============================================================
Net expenses 270,310
============================================================
Net investment income 717,743
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 1,438,208
- ------------------------------------------------------------
Foreign currencies 12,004
============================================================
1,450,212
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 953,126
- ------------------------------------------------------------
Foreign currencies (883)
============================================================
952,243
============================================================
Net gain from investment securities and
foreign currencies 2,402,455
============================================================
Net increase in net assets resulting from
operations $3,120,198
____________________________________________________________
============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 717,743 $ 178,719
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 1,450,212 2,638,687
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 952,243 (3,487,830)
============================================================================================
Net increase (decrease) in net assets resulting from
operations 3,120,198 (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 (6,287,408) 552,129
- --------------------------------------------------------------------------------------------
Series II -- 328
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (6,287,408) 552,457
============================================================================================
Net increase (decrease) in net assets (3,167,210) (1,775,963)
============================================================================================
NET ASSETS:
Beginning of period 54,202,594 55,978,557
============================================================================================
End of period (including undistributed net investment
income of $242,486 and $(475,257), respectively) $51,035,384 $54,202,594
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LEISURE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. LEISURE 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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 April 30, 2008. 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
net annual 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
AIM V.I. LEISURE FUND
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. To the extent
that the annualized expense ratio does not exceed the expense limitation, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursement
prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $70,080.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $66,826 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $505.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $14.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 519,776 $ (143,937) $ -- $375,839 $ 166 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class 1,045,340 6,719,241 (7,388,742) -- 375,839 30,946 --
==================================================================================================================================
Total $1,045,340 $7,239,017 $(7,532,679) $ -- $751,678 $31,112 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities purchases of $162,180.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,860 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 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 six months
ended June 30, 2006 was $4,910,445 and $10,023,995, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 8,149,904
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,849,460)
===============================================================================
Net unrealized appreciation of investment securities $ 6,300,444
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $44,872,752.
</Table>
AIM V.I. LEISURE FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(a) DECEMBER 31, 2005
----------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Series I 95,358 $ 1,158,820 1,039,602 $ 12,511,490
- -------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
===================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 139,417 1,657,668
- -------------------------------------------------------------------------------------------------------------------
Series II -- -- 28 328
===================================================================================================================
Reacquired:
Series I (602,952) (7,446,228) (1,128,588) (13,617,029)
- -------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
===================================================================================================================
(507,594) $(6,287,408) 50,459 $ 552,457
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 99.5% 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 sell units of interest in separate accounts funding variable
products that are invested in the Fund. The Fund, AIM, and/or AIM
affiliates may make payments to this entity, which are considered to be
related to the Fund, for providing services to the Fund, AIM and/or AIM
affiliates including but not limited to services such as, securities
brokerage, third party record keeping 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 are also owned
beneficially.
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
------------------------------------------------------------------
APRIL 30, 2002
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ----------------------------- DECEMBER 31,
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.86 $ 12.38 $ 10.96 $ 8.52 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.16 0.04 0.00 (0.00) (0.00)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.54 (0.19) 1.47 2.44 (1.48)
================================================================================================================================
Total from investment operations 0.70 (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 $ 12.56 $ 11.86 $ 12.38 $ 10.96 $ 8.52
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 5.90% (1.19)% 13.40% 28.64% (14.80)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,024 $54,192 $55,967 $34,424 $ 6,097
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.01%(c) 1.16% 1.29% 1.26% 1.29%(d)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(c) 1.31% 1.34% 1.64% 3.96%(d)
================================================================================================================================
Ratio of net investment income (loss) to average net assets 2.68%(c) 0.34% 0.00% (0.14)% (0.30)%(d)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 9% 32% 15% 22% 15%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(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 annualized and based on average daily net assets of
$53,960,643.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. LEISURE FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.84 $12.37 $11.09
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.15 0.02 (0.02)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.53 (0.19) 1.35
=============================================================================================================
Total from investment operations 0.68 (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 $12.52 $11.84 $12.37
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(a) 5.74% (1.37)% 11.98%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 12 $ 11 $ 11
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(b) 1.36% 1.45%(c)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.52%(b) 1.56% 1.60%(c)
=============================================================================================================
Ratio of net investment income (loss) to average net assets 2.43%(b) 0.14% (0.16)%(c)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(d) 9% 32% 15%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $11,518.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory,
AIM V.I. LEISURE FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. LEISURE FUND
AIM V.I. MID CAP CORE EQUITY FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. MID CAP CORE EQUITY FUND seeks to provide long-term
growth of capital.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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
===================================================================================== quality of the business and its
management. Both business and capital
PERFORMANCE SUMMARY analysis serve as a basis to construct
======================================== the valuation models used to estimate a
For the six-month period ended June 30, company's value. The three primary
2006, AIM V.I. Mid Cap Core Equity Fund FUND VS. INDEXES valuation techniques used include
produced a positive return but discounted cash flow, traditional
underperformed its style-specific CUMULATIVE TOTAL RETURNS, valuation multiples and net asset value.
benchmark, the Russell Midcap Index. 12/31/05-6/30/06, EXCLUDING VARIABLE
Overall, positive performance was driven PRODUCT ISSUER CHARGES. The components of our investment
primarily by investments in the consumer IF VARIABLE PRODUCT ISSUER CHARGES WERE process are the building blocks of our
staples and energy sectors. Relative INCLUDED, RETURNS WOULD BE LOWER. risk management framework. We diversify
underperformance was largely across industries and business themes
attributable to holdings in the Series I Shares 1.76% and generally limit positions to less
financials and industrials sectors. The than 5% of the portfolio. We will
cash weighting of the Fund detracted Series II Shares 1.63 consider selling a stock when it exceeds
from performance during the market rally our target price, has not demonstrated
early in 2006, but benefited the Fund Standard & Poor's Composite Index an improvement in fundamentals or when
during the turbulent market environment of 500 Stocks (S&P 500 Index) there is a more compelling investment
toward the end of the reporting period. (Broad Market Index) 2.71 opportunity.
Russell Midcap Index MARKET CONDITIONS AND YOUR FUND
(Style-Specific Index) 4.84
The first half of 2006 was the tale of
Lipper Mid-Cap Core Fund Index two markets but the defining macro
(Peer Group Index) 4.31 economic themes were the same. The year
started off on a positive note with most
SOURCE: LIPPER INC. major market indexes posting respectable
======================================== gains. The market quickly turned as
investors became concerned over the
Your Fund's long-term performance effects of higher interest rates and
appears on page 4 of this report. inflation pressures. During the
===================================================================================== reporting period, the U.S. Federal
Reserve Board (the Fed) continued its
HOW WE INVEST The phases of the investment process tightening policy, raising the key
include: federal funds rate to 5.25% as Ben
We manage your Fund as a core fund, Bernanke settled into his new role as
seeking to provide upside potential as o Business analysis: competitive Fed Chairman. The Fed has continued to
well as a measure of protection in positioning raise interest rates due in part to
difficult markets. The Fund can be used inflation concerns. The Consumer Price
as a long-term allocation to mid-cap o Capital analysis: ROIC and capital Index rose 5.2% at a seasonally adjusted
investments within your overall allocation annual rate for the first five months of
portfolio through a full market cycle. 2006 compared to 3.4% for all of
o Valuation
Through fundamental research we
attempt to gain a thorough understanding The business analysis allows us to
of the prospects for each business, its identify the key drivers of the company,
appreciation potential and its return on understand industry challenges and
invested capital (ROIC). evaluate the sustainability of
competitive advantages. Capital analysis
provides vital insight into historical
and potential ROIC, which are indicators
of the
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Sigma-Aldrich Corp. 2.6%
Information Technology 14.0% 1. Specialty Chemicals 6.1% 2. Cadbury Schweppes PLC
(United Kingdom) 2.4
Consumer Discretionary 13.6 2. Industrial Machinery 4.9
3. Estee Lauder Cos. Inc. (The)
Industrials 12.0 3. Life Sciences Tools & -Class A 2.4
Services 4.4
Consumer Staples 11.0 4. Xerox Corp. 2.3
4. Personal Products 4.3
Health Care 10.7 5. Avon Products, Inc. 1.9
5. Specialized Consumer
Materials 8.4 Services 4.2 6. International Flavors &
Fragrances Inc. 1.9
Financials 7.8 TOTAL NET ASSETS $620.5 MILLION
TOTAL NUMBER OF HOLDINGS* 72 7. Service Corp. International 1.8
Energy 5.6
8. PerkinElmer, Inc. 1.7
Utilities 3.0
9. Rentokil Initial PLC
Telecommunications Services 1.2 (United Kingdom) 1.7
Money Market Funds 10. Pall Corp. 1.7
Plus Other Assets Less Liabilities 12.7
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.
======================================== ======================================== ========================================
2
AIM V.I. MID CAP CORE EQUITY FUND
2005. Home sales, under the effects of The company also announced plans to buy THE VIEWS AND OPINIONS EXPRESSED IN
high interest rates, also showed signs back up to one million of its MANAGEMENT'S DISCUSSION OF FUND
of weakening. outstanding shares over the course of PERFORMANCE ARE THOSE OF A I M ADVISORS,
this year. INC. THESE VIEWS AND OPINIONS ARE
During the reporting period, Fund SUBJECT TO CHANGE AT ANY TIME BASED ON
performance benefited from an overweight Consumer discretionary was one of FACTORS SUCH AS MARKET AND ECONOMIC
in consumer staples as the markets the poorer performing market sectors CONDITIONS. THESE VIEWS AND OPINIONS MAY
tended to favor traditionally defensive during the period as investors continued NOT BE RELIED UPON AS INVESTMENT ADVICE
sectors toward the end of the period. to express concerns over the OR RECOMMENDATIONS, OR AS AN OFFER FOR A
The Fund also benefited from strong sustainability of consumer spending and PARTICULAR SECURITY. THE INFORMATION IS
stock selection in the energy sector as inflation pressures. One of the larger NOT A COMPLETE ANALYSIS OF EVERY ASPECT
it continued to produce strong gains detractors from Fund performance was OF ANY MARKET, COUNTRY, INDUSTRY,
relative to the broad market. RADIOSHACK CORP. Share value of SECURITY OR THE FUND. STATEMENTS OF FACT
Conversely, consumer discretionary and RadioShack declined in response to ARE FROM SOURCES CONSIDERED RELIABLE,
information technology were two of the analyst downgrades for the second BUT A I M ADVISORS, INC. MAKES NO
worst-performing sectors and detracted quarter. The firm's profits have sagged REPRESENTATION OR WARRANTY AS TO THEIR
from overall performance of the Fund. since the company announced turnaround COMPLETENESS OR ACCURACY. ALTHOUGH
initiatives in February. Investors have HISTORICAL PERFORMANCE IS NO GUARANTEE
Consumer staples represented one of remained skeptical of these initiatives OF FUTURE RESULTS, THESE INSIGHTS MAY
the largest contributors to overall and the likelihood of their successful HELP YOU UNDERSTAND OUR INVESTMENT
performance due to holdings such as implementation. MANAGEMENT PHILOSOPHY.
HEINEKEN NV. As one of the largest beer
producers in the world, Heineken has During the reporting period, we took RONALD S. SLOAN,
been successful in purchasing smaller advantage of the strength in various [SLOAN Chartered Financial
regional brewers in Europe. In February, energy names by trimming the Fund's PHOTO] Analyst, senior
the company announced that revenues for exposure to the sector based on portfolio manager, is
2005 increased by 7.3% and profit growth valuation concerns. Some of these lead manager of AIM V.I.
increased by 18.5%. Heineken also profits were invested in select consumer Mid Cap Core Equity Fund. Mr. Sloan
announced a cost-cutting plan, which staples and health care sector holdings joined AIM in 1998 and has been in the
will extend through 2008, that may help we believed offered a better risk/reward investment industry since 1971. Mr.
to preserve operating margins if beer profile. We also reduced exposure to the Sloan attended the University of
consumption rates decline. financials sector as the management Missouri where he earned both a B.S. in
team's fundamental research raised business administration and an M.B.A.
Energy was one of the concerns over the prospects of various
best-performing sectors during the first holdings in an increasing interest rate Assisted by the Mid/Large Cap Core Team
half of 2006 as demand across the world environment.
continued to be strong. A top
contributor within the sector was At the end of the reporting period,
TENARIS SA, a producer of tubular steel the impact of market movements and
products used in off-shore deep well allocation decisions resulted in the
oil and gas drilling. The company has portfolio being overweight primarily in
become the premier supplier of drilling consumer staples and materials, while
pipe to the international exploration financials and utilities represented the
and production community, partly due to most significantly underweight sectors
its integrated steel production versus the Russell Midcap Index.
facilities that allow for greater
quality control and customization. IN CLOSING
Having this capability in-house, which
supports one of the fastest growing We continually strive to provide a core
areas in energy production, has portfolio holding that can add stability
permitted the company to grow its and consistency to more aggressive
revenues and margins. equity investments. We believe we can
provide shareholders this type of fund
Overall, the industrials sector by identifying stocks that are
benefited the Fund but select holdings temporarily undervalued compared to
such as BRIGGS & STRATTON detracted from long-term fundamentals and that have
relative performance. Briggs & Stratton strong cash flow, clean balance sheets
is a leading producer of two and four and management teams with successful [RIGHT ARROW GRAPHIC]
cycle engines for lawn and power capital allocation practices. As always,
equipment. In mid-January, the company we thank you for your continued FOR A DISCUSSION OF THE RISKS OF
guided net income lower for the second investment in AIM V.I. Mid Cap Core INVESTING IN YOUR FUND, INDEXES USED IN
half of its fiscal year. This Equity Fund. THIS REPORT AND YOUR FUND'S LONG-TERM
disappointment was reflected in a PERFORMANCE, PLEASE TURN TO PAGE 4.
significant drop in the company's stock
price.
3
AIM V.I. MID CAP CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
======================================== THE MOST RECENT MONTH-END VARIABLE REFLECT SALES CHARGES, EXPENSES AND FEES
AVERAGE ANNUAL TOTAL RETURNS PRODUCT PERFORMANCE. PERFORMANCE FIGURES ASSESSED IN CONNECTION WITH A VARIABLE
As of 6/30/06 REFLECT FUND EXPENSES, REINVESTED PRODUCT. SALES CHARGES, EXPENSES AND
SERIES I SHARES DISTRIBUTIONS AND CHANGES IN NET ASSET FEES, WHICH ARE DETERMINED BY THE
Inception (09/10/01) 9.03% VALUE. INVESTMENT RETURN AND PRINCIPAL VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 7.54 VALUE WILL FLUCTUATE SO THAT YOU MAY WILL LOWER THE TOTAL RETURN.
HAVE A GAIN OR LOSS WHEN YOU SELL
SERIES II SHARES SHARES. PER NASD REQUIREMENTS, THE MOST
Inception (09/10/01) 8.77% RECENT MONTH-END PERFORMANCE DATA AT THE
1 Year 7.20 AIM V.I. MID CAP CORE EQUITY FUND, A FUND LEVEL, EXCLUDING VARIABLE PRODUCT
======================================== SERIES PORTFOLIO OF AIM VARIABLE CHARGES, IS AVAILABLE ON THIS AIM
INSURANCE FUNDS, IS CURRENTLY OFFERED AUTOMATED INFORMATION LINE,
THE PERFORMANCE OF THE FUND'S SERIES I THROUGH INSURANCE COMPANIES ISSUING 866-702-4402. AS MENTIONED ABOVE, FOR
AND SERIES II SHARE CLASSES WILL DIFFER VARIABLE PRODUCTS. YOU CANNOT PURCHASE THE MOST RECENT MONTH-END PERFORMANCE
PRIMARILY DUE TO DIFFERENT CLASS SHARES OF THE FUND DIRECTLY. PERFORMANCE INCLUDING VARIABLE PRODUCT CHARGES,
EXPENSES. FIGURES GIVEN REPRESENT THE FUND AND ARE PLEASE CONTACT YOUR VARIABLE PRODUCT
NOT INTENDED TO REFLECT ACTUAL VARIABLE ISSUER OR FINANCIAL ADVISOR.
THE PERFORMANCE DATA QUOTED PRODUCT VALUES. THEY DO NOT
REPRESENT PAST PERFORMANCE AND CANNOT
GUARANTEE COMPARABLE FUTURE RESULTS;
CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER. PLEASE CONTACT YOUR VARIABLE
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR
PRINCIPAL RISKS OF INVESTING IN THE FUND core funds tracked by Lipper Inc., an transactions. Generally accepted
independent mutual fund performance accounting principles require
The Fund may not reach its objective if monitor. adjustments to be made to the net assets
the manager chooses to maintain a of the Fund at period end for financial
significant amount of cash in a rising The unmanaged RUSSELL reporting purposes, and as such, the net
market. MIDCAP--Registered Trademark-- INDEX asset values for shareholder
represents the performance of the stocks transactions and the returns based on
Investing in smaller companies of domestic mid-capitalization those net asset values may differ from
involves greater risk than investing in companies. the net asset values and returns
more established companies, such as reported in the Financial Highlights.
business risk, significant stock price The Fund is not managed to track the Additionally, the returns and net asset
fluctuations and illiquidity. performance of any particular index, values shown throughout this report are
including the indexes defined here, and at the Fund level only and do not
The Fund can invest up to 25% of its consequently, the performance of the include variable product issuer charges.
assets in foreign securities that Fund may deviate significantly from the If such charges were included, the total
involve risks not associated with performance of the indexes. returns would be lower.
investing solely in the United States.
A direct investment cannot be made Industry classifications used in
ABOUT INDEXES USED IN THIS REPORT in an index. Unless otherwise indicated, this report are generally according to
index results include reinvested the Global Industry Classification
The unmanaged STANDARD & POOR'S dividends, and they do not reflect sales Standard, which was developed by and is
COMPOSITE INDEX OF 500 STOCKS (the S&P charges. Performance of an index of the exclusive property and a service
500--Registered Trademark-- Index) is funds reflects fund expenses; mark of Morgan Stanley Capital
an index of common stocks frequently performance of a market index does not. International Inc. and Standard &
used as a general measure of U.S. stock Poor's.
market performance. OTHER INFORMATION
The unmanaged LIPPER MID-CAP CORE The returns shown in the management's
FUND INDEX represents an average of the discussion of Fund performance are based
performance of the 30 largest on net asset values calculated for
mid-capitalization shareholder
4
AIM V.I. MID CAP CORE 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,017.60 $5.15 $1,019.69 $5.16 1.03%
Series II 1,000.00 1,016.30 6.40 1,018.45 6.41 1.28
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. MID CAP CORE EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the other factors that the Board considered
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and in determining whether to continue the
the management of AIM V.I. Mid Cap Core that AIM currently is providing services Advisory Agreement for the Fund, the
Equity Fund (the "Fund") and, as in accordance with the terms of the Board concluded that no changes should
required by law, determines annually Advisory Agreement. be made to the Fund and that it was not
whether to approve the continuance of necessary to change the Fund's portfolio
the Fund's advisory agreement with A I M o The quality of services to be provided management team at this time. However,
Advisors, Inc. ("AIM"). Based upon the by AIM. The Board reviewed the due to the Fund's under-performance, the
recommendation of the Investments credentials and experience of the Board also concluded that it would be
Committee of the Board, at a meeting officers and employees of AIM who will appropriate for the Board to continue to
held on June 27, 2006, the Board, provide investment advisory services to closely monitor and review the
including all of the independent the Fund. In reviewing the performance of the Fund. Although the
trustees, approved the continuance of qualifications of AIM to provide independent written evaluation of the
the advisory agreement (the "Advisory investment advisory services, the Board Fund's Senior Officer (discussed below)
Agreement") between the Fund and AIM for considered such issues as AIM's only considered Fund performance through
another year, effective July 1, 2006. portfolio and product review process, the most recent calendar year, the Board
various back office support functions also reviewed more recent Fund
The Board considered the factors provided by AIM and AIM's equity and performance, which did not change their
discussed below in evaluating the fixed income trading operations. Based conclusions.
fairness and reasonableness of the on the review of these and other
Advisory Agreement at the meeting on factors, the Board concluded that the o Meetings with the Fund's portfolio
June 27, 2006 and as part of the Board's quality of services to be provided by managers and investment personnel. With
ongoing oversight of the Fund. In their AIM was appropriate and that AIM respect to the Fund, the Board is
deliberations, the Board and the currently is providing satisfactory meeting periodically with such Fund's
independent trustees did not identify services in accordance with the terms of portfolio managers and/or other
any particular factor that was the Advisory Agreement. investment personnel and believes that
controlling, and each trustee attributed such individuals are competent and able
different weights to the various o The performance of the Fund relative to continue to carry out their
factors. to comparable funds. The Board reviewed responsibilities under the Advisory
the performance of the Fund during the Agreement.
One responsibility of the past one and three calendar years
independent Senior Officer of the Fund against the performance of funds advised o Overall performance of AIM. The Board
is to manage the process by which the by other advisors with investment considered the overall performance of
Fund's proposed management fees are strategies comparable to those of the AIM in providing investment advisory and
negotiated to ensure that they are Fund. The Board noted that the Fund's portfolio administrative services to the
negotiated in a manner which is at arms' performance in such periods was below Fund and concluded that such performance
length and reasonable. To that end, the the median performance of such was satisfactory.
Senior Officer must either supervise a comparable funds. The Board also noted
competitive bidding process or prepare that, in response to their request o Fees relative to those of clients of
an independent written evaluation. The regarding the Fund's under-performance, AIM with comparable investment
Senior Officer has recommended an management had agreed to undertake strategies. The Board reviewed the
independent written evaluation in lieu further study to ensure that the Fund's effective advisory fee rate (before
of a competitive bidding process and, investment philosophy is properly waivers) for the Fund under the Advisory
upon the direction of the Board, has positioned and marketed. Based on this Agreement. The Board noted that this
prepared such an independent written review and after taking account of all rate was (i) below the effective
evaluation. Such written evaluation also of the other factors that the Board advisory fee rates (before waivers) for
considered certain of the factors considered in determining whether to two mutual funds advised by AIM with
discussed below. In addition, as continue the Advisory Agreement for the investment strategies comparable to
discussed below, the Senior Officer made Fund, the Board concluded that no those of the Fund and comparable to the
a recommendation to the Board in changes should be made to the Fund and effective advisory fee rate (before
connection with such written evaluation. that it was not necessary to change the waivers) for a third mutual fund advised
Fund's portfolio management team at this by AIM with investment strategies
The discussion below serves as a time. However, due to the Fund's comparable to those of the Fund; (ii)
summary of the Senior Officer's under-performance, the Board also comparable to the effective advisory fee
independent written evaluation and concluded that it would be appropriate rate (before waivers) for a variable
recommendation to the Board in for the Board to continue to closely insurance fund advised by AIM and
connection therewith, as well as a monitor and review the performance of offered to insurance company separate
discussion of the material factors and the Fund. Although the independent accounts with investment strategies
the conclusions with respect thereto written evaluation of the Fund's Senior comparable to those of the Fund; (iii)
that formed the basis for the Board's Officer (discussed below) only above the effective sub-advisory fee
approval of the Advisory Agreement. considered Fund performance through the rate for one Canadian mutual fund
After consideration of all of the most recent calendar year, the Board advised by an AIM affiliate and
factors below and based on its informed also reviewed more recent Fund sub-advised by AIM with investment
business judgment, the Board determined performance, which did not change their strategies comparable to those of the
that the Advisory Agreement is in the conclusions. Fund, although the total advisory fees
best interests of the Fund and its for such Canadian mutual fund were above
shareholders and that the compensation o The performance of the Fund relative those for the Fund; (iv) above the
to AIM under the Advisory Agreement is to indices. The Board reviewed the effective sub-advisory fee rates for two
fair and reasonable and would have been performance of the Fund during the past variable insurance funds sub-advised by
obtained through arm's length one and three calendar years against the an AIM affiliate and offered to
negotiations. performance of the Lipper Variable insurance company separate accounts with
Underlying Fund Mid-Cap Core Index. The investment strategies comparable to
Unless otherwise stated, information Board noted that the Fund's performance those of the Fund, although the total
presented below is as of June 27, 2006 in such periods was below the advisory fees for such variable
and does not reflect any changes that performance of such Index. The Board insurance funds were above those for the
may have occurred since June 27, 2006, also noted that, in response to their Fund; and (v) comparable to or below the
including but not limited to changes to request regarding the Fund's total advisory fee rates for six
the Fund's performance, advisory fees, under-performance, management had agreed separately managed accounts/wrap
expense limitations and/or fee waivers. to undertake further study to ensure accounts managed by an AIM affiliate
that the Fund's investment philosophy is with investment strategies comparable to
o The nature and extent of the advisory properly positioned and marketed. Based those of the Fund and above the total
services to be provided by AIM. The on this review and after taking account advisory fee rates for 26 separately
Board reviewed the services to be of all of the
provided by AIM under the Advisory (continued)
Agreement. Based on such review, the
Board concluded that the range of
6
AIM V.I. MID CAP CORE EQUITY FUND
managed accounts/wrap accounts managed realize certain benefits upon investing o AIM's financial soundness in light of
by an AIM affiliate with investment cash balances in AIM advised money the Fund's needs. The Board considered
strategies comparable to those of the market funds, including a higher net whether AIM is financially sound and has
Fund. The Board noted that AIM has return, increased liquidity, increased the resources necessary to perform its
agreed to limit the Fund's total diversification or decreased transaction obligations under the Advisory
operating expenses, as discussed below. costs. The Board also found that the Agreement, and concluded that AIM has
Based on this review, the Board Fund will not receive reduced services the financial resources necessary to
concluded that the advisory fee rate for if it invests its cash balances in such fulfill its obligations under the
the Fund under the Advisory Agreement money market funds. The Board noted Advisory Agreement.
was fair and reasonable. that, to the extent the Fund invests
uninvested cash in affiliated money o Historical relationship between the
o Fees relative to those of comparable market funds, AIM has voluntarily agreed to Fund and AIM. In determining whether to
funds with other advisors. The Board waive a portion of the advisory fees it continue the Advisory Agreement for the
reviewed the advisory fee rate for the receives from the Fund attributable to Fund, the Board also considered the
Fund under the Advisory Agreement. The such investment. The Board further prior relationship between AIM and the
Board compared effective contractual determined that the proposed securities Fund, as well as the Board's knowledge
advisory fee rates at a common asset lending program and related procedures of AIM's operations, and concluded that
level at the end of the calendar year with respect to the lending Fund is in it was beneficial to maintain the
and noted that the Fund's rate was the best interests of the lending Fund current relationship, in part, because of
comparable to the median rate of the and its respective shareholders. The such knowledge. The Board also reviewed
funds advised by other advisors with Board therefore concluded that the the general nature of the non-investment
investment strategies comparable to investment of cash collateral received advisory services currently performed by
those of the Fund that the Board in connection with the securities AIM and its affiliates, such as
reviewed. The Board noted that AIM has lending program in the money market administrative, transfer agency and
agreed to limit the Fund's total funds according to the procedures is in distribution services, and the fees
operating expenses, as discussed below. the best interests of the lending Fund received by AIM and its affiliates for
Based on this review, the Board and its respective shareholders. performing such services. In addition to
concluded that the advisory fee rate for reviewing such services, the trustees
the Fund under the Advisory Agreement o Independent written evaluation and also considered the organizational
was fair and reasonable. recommendations of the Fund's Senior structure employed by AIM and its
Officer. The Board noted that, upon affiliates to provide those services.
o Expense limitations and fee waivers. their direction, the Senior Officer of Based on the review of these and other
The Board noted that AIM has the Fund, who is independent of AIM and factors, the Board concluded that AIM
contractually agreed to waive fees AIM's affiliates, had prepared an and its affiliates were qualified to
and/or limit expenses of the Fund independent written evaluation in order continue to provide non-investment
through April 30, 2008 in an amount to assist the Board in determining the advisory services to the Fund, including
necessary to limit total annual reasonableness of the proposed administrative, transfer agency and
operating expenses to a specified management fees of the AIM Funds, distribution services, and that AIM and
percentage of average daily net assets including the Fund. The Board noted that its affiliates currently are providing
for each class of the Fund. The Board the Senior Officer's written evaluation satisfactory non-investment advisory
considered the contractual nature of had been relied upon by the Board in services.
this fee waiver/expense limitation and this regard in lieu of a competitive
noted that it remains in effect until bidding process. In determining whether o Other factors and current trends. The
April 30, 2008. The Board considered the to continue the Advisory Agreement for Board considered the steps that AIM and
effect this fee waiver/expense the Fund, the Board considered the its affiliates have taken over the last
limitation would have on the Fund's Senior Officer's written evaluation. several years, and continue to take, in
estimated expenses and concluded that order to improve the quality and
the levels of fee waivers/expense o Profitability of AIM and its efficiency of the services they provide
limitations for the Fund were fair and affiliates. The Board reviewed to the Funds in the areas of investment
reasonable. information concerning the profitability performance, product line
of AIM's (and its affiliates') diversification, distribution, fund
o Breakpoints and economies of scale. investment advisory and other activities operations, shareholder services and
The Board reviewed the structure of the and its financial condition. The Board compliance. The Board concluded that
Fund's advisory fee under the Advisory considered the overall profitability of these steps taken by AIM have improved,
Agreement, noting that it includes three AIM, as well as the profitability of AIM and are likely to continue to improve,
breakpoints. The Board reviewed the in connection with managing the Fund. the quality and efficiency of the
level of the Fund's advisory fees, and The Board noted that AIM's operations services AIM and its affiliates provide
noted that such fees, as a percentage of remain profitable, although increased to the Fund in each of these areas, and
the Fund's net assets, have decreased as expenses in recent years have reduced support the Board's approval of the
net assets increased because the AIM's profitability. Based on the review continuance of the Advisory Agreement
Advisory Agreement includes breakpoints. of the profitability of AIM's and its for the Fund.
The Board noted that, due to the Fund's affiliates' investment advisory and
asset levels at the end of the past other activities and its financial
calendar year and the way in which the condition, the Board concluded that the
advisory fee breakpoints have been compensation to be paid by the Fund to
structured, the Fund has yet to fully AIM under its Advisory Agreement was not
benefit from the breakpoints. The Board excessive.
concluded that the Fund's fee levels
under the Advisory Agreement therefore o Benefits of soft dollars to AIM. The
reflect economies of scale and that it Board considered the benefits realized
was not necessary to change the advisory by AIM as a result of brokerage
fee breakpoints in the Fund's advisory transactions executed through "soft
fee schedule. dollar" arrangements. Under these
arrangements, brokerage commissions paid
o Investments in affiliated money market by the Fund and/or other funds advised
funds. The Board also took into account by AIM are used to pay for research and
the fact that uninvested cash and cash execution services. This research may be
collateral from securities lending used by AIM in making investment
arrangements, if any (collectively, decisions for the Fund. The Board
"cash balances") of the Fund may be concluded that such arrangements were
invested in money market funds advised appropriate.
by AIM pursuant to the terms of an SEC
exemptive order. The Board found that
the Fund may
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-74.56%
ADVERTISING-1.19%
Omnicom Group Inc. 82,719 $ 7,369,436
========================================================================
AEROSPACE & DEFENSE-1.35%
Goodrich Corp. 208,178 8,387,492
========================================================================
APPAREL RETAIL-1.06%
Gap, Inc. (The) 377,528 6,568,987
========================================================================
APPLICATION SOFTWARE-2.21%
Cadence Design Systems, Inc.(a) 489,265 8,390,895
- ------------------------------------------------------------------------
Fair Isaac Corp. 147,320 5,349,189
========================================================================
13,740,084
========================================================================
BIOTECHNOLOGY-0.61%
ImClone Systems Inc.(a) 98,702 3,813,845
========================================================================
BROADCASTING & CABLE TV-1.39%
Scripps Co. (E.W.) (The)-Class A 199,626 8,611,866
========================================================================
BUILDING PRODUCTS-1.62%
Masco Corp. 339,596 10,065,625
========================================================================
COAL & CONSUMABLE FUELS-0.79%
Massey Energy Co. 136,393 4,910,148
========================================================================
COMMUNICATIONS EQUIPMENT-1.13%
ADTRAN, Inc. 175,951 3,946,581
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 191,842 3,067,554
========================================================================
7,014,135
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.90%
RadioShack Corp. 399,279 5,589,906
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.22%
Sabre Holdings Corp.-Class A 344,740 7,584,280
========================================================================
DISTRIBUTORS-1.12%
Genuine Parts Co. 166,715 6,945,347
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.31%
Mettler-Toledo International Inc.(a) 134,436 8,142,789
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
ENVIRONMENTAL & FACILITIES SERVICES-1.36%
Republic Services, Inc. 209,873 $ 8,466,277
========================================================================
FOOD RETAIL-1.23%
Kroger Co. (The) 349,908 7,648,989
========================================================================
GAS UTILITIES-1.65%
UGI Corp. 415,632 $ 10,232,860
========================================================================
GENERAL MERCHANDISE STORES-1.24%
99 Cents Only Stores(a) 363,566 3,802,900
- ------------------------------------------------------------------------
Dollar General Corp. 279,000 3,900,420
========================================================================
7,703,320
========================================================================
HEALTH CARE EQUIPMENT-2.11%
Biomet, Inc. 198,529 6,211,972
- ------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 155,417 6,861,661
========================================================================
13,073,633
========================================================================
HEALTH CARE FACILITIES-1.06%
Health Management Associates, Inc.-Class A 332,602 6,555,585
========================================================================
HOME IMPROVEMENT RETAIL-1.01%
Sherwin-Williams Co. (The) 132,496 6,290,910
========================================================================
HOMEFURNISHING RETAIL-1.07%
Bed Bath & Beyond Inc.(a) 200,211 6,640,999
========================================================================
INDUSTRIAL MACHINERY-4.88%
Briggs & Stratton Corp. 206,087 6,411,366
- ------------------------------------------------------------------------
Dover Corp. 190,125 9,397,879
- ------------------------------------------------------------------------
Pall Corp. 367,642 10,293,976
- ------------------------------------------------------------------------
Parker Hannifin Corp. 53,941 4,185,822
========================================================================
30,289,043
========================================================================
INSURANCE BROKERS-1.38%
Marsh & McLennan Cos., Inc. 317,444 8,536,069
========================================================================
LIFE SCIENCES TOOLS & SERVICES-4.37%
PerkinElmer, Inc. 512,206 10,705,105
- ------------------------------------------------------------------------
Techne Corp.(a) 123,190 6,272,835
- ------------------------------------------------------------------------
Waters Corp.(a) 228,883 10,162,405
========================================================================
27,140,345
========================================================================
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
METAL & GLASS CONTAINERS-1.32%
Pactiv Corp.(a) 331,061 $ 8,193,760
========================================================================
MULTI-LINE INSURANCE-1.23%
Genworth Financial Inc.-Class A 218,804 7,623,131
========================================================================
MULTI-UTILITIES-1.35%
Wisconsin Energy Corp. 207,486 8,361,686
========================================================================
OFFICE ELECTRONICS-2.34%
Xerox Corp.(a) 1,042,343 14,498,991
========================================================================
OFFICE SERVICES & SUPPLIES-1.07%
Pitney Bowes Inc. 160,516 6,629,311
========================================================================
OIL & GAS DRILLING-0.84%
Noble Corp. 69,921 5,203,521
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.32%
FMC Technologies, Inc.(a) 103,161 6,959,241
- ------------------------------------------------------------------------
Smith International, Inc. 166,689 7,412,660
========================================================================
14,371,901
========================================================================
PAPER PRODUCTS-1.04%
MeadWestvaco Corp. 229,994 6,423,732
========================================================================
PERSONAL PRODUCTS-4.33%
Avon Products, Inc. 389,802 12,083,862
- ------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 382,076 14,774,879
========================================================================
26,858,741
========================================================================
PHARMACEUTICALS-2.55%
Forest Laboratories, Inc.(a) 256,382 9,919,419
- ------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 252,910 5,887,745
========================================================================
15,807,164
========================================================================
PROPERTY & CASUALTY INSURANCE-2.54%
Axis Capital Holdings Ltd. 235,245 6,730,359
- ------------------------------------------------------------------------
XL Capital Ltd.-Class A 147,723 9,055,420
========================================================================
15,785,779
========================================================================
PUBLISHING-0.46%
McClatchy Co. (The)-Class A 70,823 2,841,419
========================================================================
REGIONAL BANKS-1.55%
Marshall & Ilsley Corp. 138,444 6,332,429
- ------------------------------------------------------------------------
SVB Financial Group(a) 71,755 3,261,982
========================================================================
9,594,411
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-3.54%
Analog Devices, Inc. 190,836 $ 6,133,469
- ------------------------------------------------------------------------
Linear Technology Corp. 190,565 6,382,022
- ------------------------------------------------------------------------
Microchip Technology Inc. 113,153 3,796,283
- ------------------------------------------------------------------------
Xilinx, Inc. 250,041 5,663,429
========================================================================
21,975,203
========================================================================
SPECIALIZED CONSUMER SERVICES-4.21%
H&R Block, Inc. 409,982 9,782,171
- ------------------------------------------------------------------------
Service Corp. International 1,363,972 11,102,732
- ------------------------------------------------------------------------
ServiceMaster Co. (The) 510,161 5,269,963
========================================================================
26,154,866
========================================================================
SPECIALTY CHEMICALS-6.07%
International Flavors & Fragrances Inc. 328,409 11,573,133
- ------------------------------------------------------------------------
Rohm and Haas Co. 194,893 9,768,037
- ------------------------------------------------------------------------
Sigma-Aldrich Corp. 224,922 16,338,334
========================================================================
37,679,504
========================================================================
SYSTEMS SOFTWARE-0.54%
McAfee Inc.(a) 137,644 3,340,620
========================================================================
Total Domestic Common Stocks (Cost
$438,513,485) 462,665,710
========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-11.37%
ARGENTINA-1.02%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 156,275 6,327,575
========================================================================
BELGIUM-1.08%
Groupe Bruxelles Lambert S.A. (Multi-Sector
Holdings)(b) 64,167 6,722,666
========================================================================
FRANCE-0.88%
Business Objects S.A.-ADR (Application
Software)(a) 199,359 5,422,565
========================================================================
JAPAN-1.49%
Japan Petroleum Exploration Co., Ltd. (Oil &
Gas Exploration & Production)(b) 62,400 3,962,425
- ------------------------------------------------------------------------
Nintendo Co., Ltd. (Home Entertainment
Software)(b) 31,200 5,253,286
========================================================================
9,215,711
========================================================================
NETHERLANDS-1.56%
Heineken N.V. (Brewers)(b) 228,948 9,701,359
========================================================================
SOUTH KOREA-1.24%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 329,365 7,713,728
========================================================================
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-4.10%
Cadbury Schweppes PLC (Packaged Foods &
Meats)(b) 1,557,820 $ 14,999,162
- ------------------------------------------------------------------------
Rentokil Initial PLC (Environmental &
Facilities Services)(b) 3,621,120 10,446,337
========================================================================
25,445,499
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $65,274,900) 70,549,103
========================================================================
PREFERRED STOCKS-1.41%
HOUSEHOLD PRODUCTS-1.41%
Henkel KGaA-Pfd. (Germany)(b) 76,809 8,770,405
========================================================================
Total Preferred Stocks (Cost $9,076,159) 8,770,405
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-12.91%
Liquid Assets Portfolio-Institutional
Class(c) 40,045,212 $ 40,045,212
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 40,045,212 40,045,212
========================================================================
Total Money Market Funds (Cost $80,090,424) 80,090,424
========================================================================
TOTAL INVESTMENTS-100.25% (Cost $592,954,968) 622,075,642
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.25)% (1,527,857)
========================================================================
NET ASSETS-100.00% $620,547,785
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</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 June 30, 2006 was $59,855,640, which
represented 9.65% 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. MID CAP CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $512,864,544) $541,985,218
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $80,090,424) 80,090,424
=============================================================
Total investments (cost $592,954,968) 622,075,642
=============================================================
Foreign currencies, at value (cost $76,795) 77,245
- -------------------------------------------------------------
Receivables for:
Fund shares sold 260,078
- -------------------------------------------------------------
Dividends 856,708
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 21,397
=============================================================
Total assets 623,291,070
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 743,712
- -------------------------------------------------------------
Fund shares reacquired 1,464,908
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 41,034
- -------------------------------------------------------------
Accrued administrative services fees 403,791
- -------------------------------------------------------------
Accrued distribution fees -- Series II 34,156
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 662
- -------------------------------------------------------------
Accrued transfer agent fees 1,959
- -------------------------------------------------------------
Accrued operating expenses 53,063
=============================================================
Total liabilities 2,743,285
=============================================================
Net assets applicable to shares outstanding $620,547,785
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $515,800,129
- -------------------------------------------------------------
Undistributed net investment income 2,956,294
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 72,669,834
- -------------------------------------------------------------
Undistributed unrealized appreciation of
investment securities, foreign currencies and
option contracts 29,121,528
=============================================================
$620,547,785
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $566,927,643
_____________________________________________________________
=============================================================
Series II $ 53,620,142
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 40,946,940
_____________________________________________________________
=============================================================
Series II 3,902,264
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.85
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.74
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$48,453) $ 4,070,289
- -------------------------------------------------------------
Dividends from affiliated money market funds 2,305,518
- -------------------------------------------------------------
Interest 19,663
=============================================================
Total investment income 6,395,470
=============================================================
EXPENSES:
Advisory fees 2,321,984
- -------------------------------------------------------------
Administrative services fees 875,105
- -------------------------------------------------------------
Custodian fees 53,567
- -------------------------------------------------------------
Distribution fees -- Series II 66,784
- -------------------------------------------------------------
Transfer agent fees 15,080
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 16,421
- -------------------------------------------------------------
Other 66,950
=============================================================
Total expenses 3,415,891
=============================================================
Less: Fees waived and expense offset
arrangement (10,264)
=============================================================
Net expenses 3,405,627
=============================================================
Net investment income 2,989,843
=============================================================
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
$1,532,225) 54,327,524
- -------------------------------------------------------------
Foreign currencies 48,998
=============================================================
54,376,522
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (46,817,032)
- -------------------------------------------------------------
Foreign currencies 1,172
- -------------------------------------------------------------
Option contracts written 425,649
=============================================================
(46,390,211)
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 7,986,311
=============================================================
Net increase in net assets resulting from
operations $ 10,976,154
_____________________________________________________________
=============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,989,843 $ 2,801,650
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 54,376,522 28,846,914
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (46,390,211) 11,957,849
==========================================================================================
Net increase in net assets resulting from operations 10,976,154 43,606,413
==========================================================================================
Distributions to shareholders from net investment income:
Series I -- (2,944,117)
- ------------------------------------------------------------------------------------------
Series II -- (141,476)
==========================================================================================
Total distributions from net investment income -- (3,085,593)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I -- (17,996,436)
- ------------------------------------------------------------------------------------------
Series II -- (1,538,860)
==========================================================================================
Total distributions from net realized gains -- (19,535,296)
==========================================================================================
Decrease in net assets resulting from distributions -- (22,620,889)
==========================================================================================
Share transactions-net:
Series I (28,179,381) 68,779,573
- ------------------------------------------------------------------------------------------
Series II 2,511,090 15,373,802
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (25,668,291) 84,153,375
==========================================================================================
Net increase (decrease) in net assets (14,692,137) 105,138,899
==========================================================================================
NET ASSETS:
Beginning of period 635,239,922 530,101,023
- ------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,956,294 and $(33,549), respectively) $620,547,785 $635,239,922
__________________________________________________________________________________________
==========================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Mid Cap Core Equity Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. MID CAP CORE EQUITY FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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 $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, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year. AIM did not
waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $9,827.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $79,216 for
accounting and fund administrative services and reimbursed $795,889 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $15,080.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $66,784.
AIM V.I. MID CAP CORE EQUITY FUND
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $38,264,645 $ 88,529,749 $ (86,749,182) $ -- $40,045,212 $1,150,005 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 40,208,549 (163,337) -- 40,045,212 16,561 --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 38,264,645 88,387,726 (126,652,371) -- -- 1,138,952 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total $76,529,290 $217,126,024 $(213,564,890) $ -- $80,090,424 $2,305,518 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $11,794,273, which resulted in net realized gains
of $1,532,225 and securities purchases of $2,983,418.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $437.
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 six months ended June 30, 2006, the Fund paid legal fees of
$2,849 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
AIM V.I. MID CAP CORE EQUITY FUND
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 period 6,280 $ 444,230
- ------------------------------------------------------------------------------------
Exercised (6,280) (444,230)
====================================================================================
End of period -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 six months
ended June 30, 2006 was $283,173,113 and $308,004,863, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 47,355,890
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,554,270)
==============================================================================
Net unrealized appreciation of investment securities $ 28,801,620
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $593,274,022.
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,131,162 $ 15,963,123 9,458,916 $125,305,035
- ----------------------------------------------------------------------------------------------------------------------
Series II 574,461 8,033,242 2,245,440 29,655,326
======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 1,516,110 20,907,159
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- 122,653 1,680,336
======================================================================================================================
Reacquired:
Series I (3,157,312) (44,142,504) (5,875,151) (77,432,621)
- ----------------------------------------------------------------------------------------------------------------------
Series II (397,468) (5,522,152) (1,212,147) (15,961,860)
======================================================================================================================
(1,849,157) $(25,668,291) 6,255,821 $ 84,153,375
______________________________________________________________________________________________________________________
======================================================================================================================
</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, third party record keeping and account
servicing and administrative services. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------------------------
SEPTEMBER 10,
2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.61 $ 13.11 $ 12.06 $ 9.53 $ 10.72 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.06 0.03(a) 0.00(a) (0.02)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.17 0.94 1.63 2.60 (1.17) 0.74
=================================================================================================================================
Total from investment operations 0.24 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 $ 13.85 $ 13.61 $ 13.11 $ 12.06 $ 9.53 $10.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.76% 7.62% 13.82% 27.31% (11.10)% 7.37%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $566,928 $584,860 $496,606 $293,162 $68,271 $9,500
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.04%(c) 1.03% 1.04% 1.07% 1.30% 1.27%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.95%(c) 0.50% 0.25% 0.01% (0.22)% (0.08)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 52% 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 annualized and based on average daily net assets of
$597,195,158.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 5.16%.
(f) Portfolio turnover is calculated at the fund level and is 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
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.52 $ 13.04 $ 12.01 $ 9.51 $ 10.71 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.03 (0.00)(a) (0.03)(a) (0.04)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.17 0.92 1.62 2.60 (1.16) 0.73
=================================================================================================================================
Total from investment operations 0.22 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 $ 13.74 $ 13.52 $ 13.04 $12.01 $ 9.51 $10.71
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.63% 7.27% 13.57% 27.05% (11.20)% 7.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $53,620 $50,380 $33,495 $4,874 $ 1,214 $ 536
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.29%(c) 1.28% 1.29% 1.32% 1.45%(d) 1.44%(d)(e)
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.70%(c) 0.25% (0.00)% (0.24)% (0.37)% (0.25)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 52% 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 annualized and based on average daily net assets of
$53,869,593.
(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 September 10, 2001 (Date operations commenced) to
December 31, 2001, respectively.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
AIM V.I. MONEY MARKET FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. MONEY MARKET FUND seeks to provide as high a level of current
income as is consistent with the preservation of capital and liquidity.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, is available at our Web
site. Go to AIMinvestments.com, access the About Us tab, click on Required
Notices and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
================================================================================
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
-- REGISTERED TRADEMARK -- -- REGISTERED TRADEMARK --
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. MONEY MARKET FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE YOUR FUND
==================================================================================== Regardless of economic conditions or Fed
PERFORMANCE SUMMARY policy, your Fund continues to focus on
three objectives:
Yields on shares of AIM V.I. Money Market Yields for the Fund's Series II
Fund rose steadily during the six months shares rose from 3.62% at the start of o Safety of principal
ended June 30, 2006. The seven-day SEC the reporting period to 4.07% at its
yield on the Fund's Series I shares rose close. As of June 30, 2006, the Fund's o Liquidity
from 3.87% at the beginning of the total net assets stood at $50.4 million
reporting period to 4.32% at its close. and the Fund's weighted average maturity o The highest possible yield consistent
was 24 days. with safety of principal
==================================================================================== Your Fund invests only in high
quality U.S. dollar denominated
MARKET CONDITIONS action, the Fed said that "some short-term fixed-income obligations.
inflation risks remain" even though it Although a money market fund seeks to
The U.S. economy expanded briskly in the was likely that a moderation in economic maintain the value of your investment at
first quarter of 2006, according to growth would likely limit inflation $1.00 per share, it is possible to lose
government figures. Gross domestic pressures over time. Historically, Fed money by investing in the Fund.
product, the broadest measure of U.S. rate increases are reflected fairly
economic activity, grew at an annualized rapidly in the yields of short-term Thank you for your continued
rate of 5.6% in the first quarter--the securities such as money market funds, investment in AIM V.I. Money Market
fastest pace in nearly three years. and that was the case during the Fund.
There was some concern that such robust reporting period.
growth--together with a relatively weak THE VIEWS AND OPINIONS EXPRESSED IN
dollar, historically high oil prices Strong economic growth and MANAGEMENT'S DISCUSSION OF FUND
and, for most of the reporting period, a corporate profits propelled the U.S. PERFORMANCE ARE THOSE OF A I M ADVISORS,
continued strong housing market--could stock market higher for the first four INC. THESE VIEWS AND OPINIONS ARE
cause inflation to rise. months of the year; inflation concerns SUBJECT TO CHANGE AT ANY TIME BASED ON
caused it to falter in the final two FACTORS SUCH AS MARKET AND ECONOMIC
The U.S. Federal Reserve Board (the months of the reporting period. For the CONDITIONS. THESE VIEWS AND OPINIONS MAY
Fed) worked to prevent inflation from reporting period, the S&P 500 Index, NOT BE RELIED UPON AS INVESTMENT ADVICE
getting out of hand. At their June 28-29 which represents the performance of the OR RECOMMENDATIONS, OR AS AN OFFER FOR A
monetary policy meeting, Fed officials broad U.S. stock market, rose 2.71%. The PARTICULAR SECURITY. THE INFORMATION IS
raised the key federal funds target Lehman Aggregate, which represents the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
rate to 5.25%. It was the 17th performance of U.S. investment-grade OF ANY MARKET, COUNTRY, INDUSTRY,
consecutive rate increase over the past fixed-income investments, declined 0.72% SECURITY OR THE FUND. STATEMENTS OF FACT
two years, and the fourth consecutive for the reporting period. ARE FROM SOURCES CONSIDERED RELIABLE,
rate increase during the reporting BUT A I M ADVISORS, INC. MAKES NO
period. In announcing its REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
Team Managed by A I M Advisors, Inc.
========================================
PORTFOLIO COMPOSITION BY MATURITY The performance data quoted represent directly. Performance figures given
past performance and cannot guarantee represent the Fund and are not intended
Maturity distribution of Fund holdings comparable future results; current to reflect actual variable product
In days, as of 6/30/06 performance may be lower or higher. values. They do not reflect sales
Please see your variable product issuer charges, expenses and fees assessed in
1-7 69.3% or financial advisor for the most recent connection with a variable product.
month-end variable product performance. Sales charges, expenses and fees, which
8-30 16.6 Performance figures reflect fund are determined by the variable product
expenses, reinvested distributions and issuers, will vary and will lower the
31-90 2.9 changes in net asset value. Investment total return.
return and principal value will
91-120 0.0 fluctuate so that you may have a gain or Per NASD requirements, the most
loss when you sell shares. recent month-end performance data at the
121-180 11.2 Fund level, excluding variable product
AIM V.I. Money Market Fund, a charges, is available on this AIM
181+ 0.0 series portfolio of AIM Variable automated information line,
Insurance Funds, is currently offered 866-702-4402. As mentioned above, for
The number of days to maturity of each through insurance companies issuing the most recent month-end performance
holding is determined in accordance with variable products. You cannot purchase including variable product charges,
the provisions of Rule 2a-7 of the shares of the Fund please contact your variable product
Investment Company Act of 1940, as issuer or financial advisor.
amended.
========================================
</Table>
2
AIM V.I. MONEY MARKET FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
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.
January 1, 2006, through June 30, 2006. expenses you paid on your account during
this period. Please note that the expenses shown
The actual and hypothetical in the table are meant to highlight your
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
represent the effect of any fees or PURPOSES hypothetical information is useful in
other expenses assessed in connection comparing ongoing costs, and will not
with a variable product; if they did, The table below also provides help you determine the relative total
the expenses shown would be higher while information about hypothetical account costs of owning different funds.
the ending account values shown would be values and hypothetical expenses based
lower. 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,019.40 $4.51 $1,020.33 $4.51 0.90%
Series II 1,000.00 1,018.10 5.75 1,019.09 5.76 1.15
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, 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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
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. A direct investment cannot be made
AGGREGATE BOND INDEX (the Lehman in an index. Unless otherwise indicated,
Aggregate), which represents the U.S. index results include reinvested
investment-grade fixed-rate bond market dividends, and they do not reflect sales
(including government and corporate charges.
securities, mortgage pass-through
securities and asset-backed securities), The Fund is not managed to track
is compiled by Lehman Brothers, a global the performance of any particular index,
investment bank. including the indexes defined here, and
consequently, the performance of the
Fund may deviate significantly from the
performance of the indexes.
</Table>
3
AIM V.I. MONEY MARKET FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
<Table>
The Board of Trustees of AIM Variable o The nature and extent of the advisory Board considered in determining whether
Insurance Funds (the "Board") oversees services to be provided by AIM. The to continue the Advisory Agreement for
the management of AIM V.I. Money Market Board reviewed the services to be the Fund, the Board concluded that no
Fund (the "Fund") and, as required by provided by AIM under the Advisory changes should be made to the Fund and
law, determines annually whether to Agreement. Based on such review, the that it was not necessary to change the
approve the continuance of the Fund's Board concluded that the range of Fund's portfolio management team at this
advisory agreement with A I M Advisors, services to be provided by AIM under the time. However, due to the Fund's
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and under-performance, the Board also
recommendation of the Investments that AIM currently is providing services concluded that it would be appropriate
Committee of the Board, at a meeting in accordance with the terms of the for the Board to continue to closely
held on June 27, 2006, the Board, Advisory Agreement. monitor and review the performance of
including all of the independent the Fund. Although the independent
trustees, approved the continuance of o The quality of services to be provided written evaluation of the Fund's Senior
the advisory agreement (the "Advisory by AIM. The Board reviewed the Officer (discussed below) only
Agreement") between the Fund and AIM for credentials and experience of the considered Fund performance through the
another year, effective July 1, 2006. officers and employees of AIM who will most recent calendar year, the Board
provide investment advisory services to also reviewed more recent Fund
The Board considered the factors the Fund. In reviewing the performance, which did not change their
discussed below in evaluating the qualifications of AIM to provide conclusions.
fairness and reasonableness of the investment advisory services, the Board
Advisory Agreement at the meeting on considered such issues as AIM's o Meetings with the Fund's portfolio
June 27, 2006 and as part of the Board's portfolio and product review process, managers and investment personnel. With
ongoing oversight of the Fund. In their AIM's legal and compliance function, respect to the Fund, the Board is
deliberations, the Board and the AIM's use of technology, AIM's portfolio meeting periodically with such Fund's
independent trustees did not identify administration function and the quality portfolio managers and/or other
any particular factor that was of AIM's investment research. Based on investment personnel and believes that
controlling, and each trustee attributed the review of these and other factors, such individuals are competent and able
different weights to the various the Board concluded that the quality of to continue to carry out their
factors. services to be provided by AIM was responsibilities under the Advisory
appropriate and that AIM currently is Agreement.
One responsibility of the providing satisfactory services in
independent Senior Officer of the Fund accordance with the terms of the o Overall performance of AIM. The Board
is to manage the process by which the Advisory Agreement. considered the overall performance of
Fund's proposed management fees are AIM in providing investment advisory and
negotiated to ensure that they are o The performance of the Fund relative portfolio administrative services to the
negotiated in a manner which is at arms' to comparable funds. The Board reviewed Fund and concluded that such performance
length and reasonable. To that end, the the performance of the Fund during the was satisfactory.
Senior Officer must either supervise a past one, three and five calendar years
competitive bidding process or prepare against the performance of funds advised o Fees relative to those of clients of
an independent written evaluation. The by other advisors with investment AIM with comparable investment
Senior Officer has recommended an strategies comparable to those of the strategies. The Board reviewed the
independent written evaluation in lieu Fund. The Board noted that the Fund's effective advisory fee rate (before
of a competitive bidding process and, performance in such periods was below waivers) for the Fund under the Advisory
upon the direction of the Board, has the median performance of such Agreement. The Board noted that this
prepared such an independent written comparable funds. Based on this review rate was (i) above the effective
evaluation. Such written evaluation also and after taking account of all of the advisory fee rate (before waivers) for a
considered certain of the factors other factors that the Board considered mutual fund advised by AIM with
discussed below. In addition, as in determining whether to continue the investment strategies comparable to
discussed below, the Senior Officer made Advisory Agreement for the Fund, the those of the Fund (which mutual fund has
a recommendation to the Board in Board concluded that no changes should an "all-in" fee structure whereby AIM
connection with such written evaluation. be made to the Fund and that it was not pays all of the fund's ordinary
necessary to change the Fund's portfolio operating expenses) and the same as the
The discussion below serves as a management team at this time. However, effective advisory fee rate (before
summary of the Senior Officer's due to the Fund's under-performance, the waivers) for a second mutual fund
independent written evaluation and Board also concluded that it would be advised by AIM with investment
recommendation to the Board in appropriate for the Board to continue to strategies comparable to those of the
connection therewith, as well as a closely monitor and review the Fund; and (ii) above the effective
discussion of the material factors and performance of the Fund. Although the advisory and sub-advisory fee rates for
the conclusions with respect thereto independent written evaluation of the one Canadian mutual fund advised by an
that formed the basis for the Board's Fund's Senior Officer (discussed below) AIM affiliate and sub-advised by AIM
approval of the Advisory Agreement. only considered Fund performance through with investment strategies comparable to
After consideration of all of the the most recent calendar year, the Board those of the Fund. The Board noted that
factors below and based on its informed also reviewed more recent Fund AIM has agreed to limit the Fund's total
business judgment, the Board determined performance, which did not change their operating expenses, as discussed below.
that the Advisory Agreement is in the conclusions. Based on this review, the Board
best interests of the Fund and its concluded that the advisory fee rate for
shareholders and that the compensation o The performance of the Fund relative the Fund under the Advisory Agreement
to AIM under the Advisory Agreement is to indices. The Board reviewed the was fair and reasonable.
fair and reasonable and would have been performance of the Fund during the past
obtained through arm's length one, three and five calendar years o Fees relative to those of comparable
negotiations. against the performance of the Lipper funds with other advisors. The Board
Variable Underlying Fund Money Market reviewed the advisory fee rate for the
Unless otherwise stated, Index. The Board noted that the Fund's Fund under the Advisory Agreement. The
information presented below is as of performance in such periods was below Board compared effective contractual
June 27, 2006 and does not reflect any the performance of such Index. Based on advisory fee rates at a common asset
changes that may have occurred since this review and after taking account of level at the end of the past calendar
June 27, 2006, including but not limited all of the other factors that the year and noted that the Fund's rate was
to changes to the Fund's performance, comparable to the median rate of the
advisory fees, expense limitations funds advised by
and/or fee waivers.
(continued)
</Table>
4
AIM V.I. MONEY MARKET FUND
<Table>
other advisors with investment attributable to such investment. The o Historical relationship between the
strategies comparable to those of the Board further determined that the Fund and AIM. In determining whether to
Fund that the Board reviewed. The Board proposed securities lending program and continue the Advisory Agreement for the
noted that AIM has agreed to limit the related procedures with respect to the Fund, the Board also considered the
Fund's total operating expenses, as lending Fund is in the best interests of prior relationship between AIM and the
discussed below. Based on this review, the lending Fund and its respective Fund, as well as the Board's knowledge
the Board concluded that the advisory shareholders. The Board therefore of AIM's operations, and concluded that
fee rate for the Fund under the Advisory concluded that the investment of cash it was beneficial to maintain the
Agreement was fair and reasonable. collateral received in connection with current relationship, in part, because
the securities lending program in the of such knowledge. The Board also
o Expense limitations and fee waivers. money market funds according to the reviewed the general nature of the
The Board noted that AIM has procedures is in the best interests of non-investment advisory services
contractually agreed to waive fees the lending Fund and its respective currently performed by AIM and its
and/or limit expenses of the Fund shareholders. affiliates, such as administrative,
through April 30, 2008 so that total transfer agency and distribution
annual operating expenses are limited to o Independent written evaluation and services, and the fees received by AIM
a specified percentage of average daily recommendations of the Fund's Senior and its affiliates for performing such
net assets for each class of the Fund. Officer. The Board noted that, upon services. In addition to reviewing such
The Board considered the contractual their direction, the Senior Officer of services, the trustees also considered
nature of this fee waiver and noted that the Fund, who is independent of AIM and the organizational structure employed by
it remains in effect until April 30, AIM's affiliates, had prepared an AIM and its affiliates to provide those
2008. The Board considered the effect independent written evaluation in order services. Based on the review of these
this fee waiver/expense limitation would to assist the Board in determining the and other factors, the Board concluded
have on the Fund's estimated expenses reasonableness of the proposed that AIM and its affiliates were
and concluded that the levels of fee management fees of the AIM Funds, qualified to continue to provide
waivers/expense limitations for the Fund including the Fund. The Board noted that non-investment advisory services to the
were fair and reasonable. the Senior Officer's written evaluation Fund, including administrative, transfer
had been relied upon by the Board in agency and distribution services, and
o Breakpoints and economies of scale. this regard in lieu of a competitive that AIM and its affiliates currently
The Board reviewed the structure of the bidding process. In determining whether are providing satisfactory
Fund's advisory fee under the Advisory to continue the Advisory Agreement for non-investment advisory services.
Agreement, noting that it includes one the Fund, the Board considered the
breakpoint. The Board reviewed the level Senior Officer's written evaluation. o Other factors and current trends. The
of the Fund's advisory fees, and noted Board considered the steps that AIM and
that such fees, as a percentage of the o Profitability of AIM and its its affiliates have taken over the last
Fund's net assets, would decrease as net affiliates. The Board reviewed several years, and continue to take, in
assets increase because the Advisory information concerning the profitability order to improve the quality and
Agreement includes a breakpoint. The of AIM's (and its affiliates') efficiency of the services they provide
Board noted that, due to the Fund's investment advisory and other activities to the Funds in the areas of investment
asset levels at the end of the past and its financial condition. The Board performance, product line
calendar year and the way in which the considered the overall profitability of diversification, distribution, fund
advisory fee breakpoint has been AIM, as well as the profitability of AIM operations, shareholder services and
structured, the Fund has yet to benefit in connection with managing the Fund. compliance. The Board concluded that
from the breakpoint. The Board concluded The Board noted that AIM's operations these steps taken by AIM have improved,
that the Fund's fee levels under the remain profitable, although increased and are likely to continue to improve,
Advisory Agreement therefore would expenses in recent years have reduced the quality and efficiency of the
reflect economies of scale at higher AIM's profitability. Based on the review services AIM and its affiliates provide
asset levels and that it was not of the profitability of AIM's and its to the Fund in each of these areas, and
necessary to change the advisory fee affiliates' investment advisory and support the Board's approval of the
breakpoints in the Fund's advisory fee other activities and its financial continuance of the Advisory Agreement
schedule. condition, the Board concluded that the for the Fund.
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, if any (collectively, Board considered the benefits realized
"cash balances") of the Fund may be by AIM as a result of brokerage
invested in money market funds advised transactions executed through "soft
by AIM 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 other funds advised by AIM are used
upon investing cash balances in AIM to pay for research and execution
advised money market funds, including a services. This research may be used by
higher net return, increased liquidity, AIM in making investment decisions for
increased diversification or decreased the Fund. The Board concluded that such
transaction costs. The Board also found arrangements were appropriate.
that the Fund will not receive reduced
services if it invests its cash balances o AIM's financial soundness in light of
in such money market funds. The Board the Fund's needs. The Board considered
noted that, to the extent the Fund whether AIM is financially sound and has
invests uninvested cash in affiliated the resources necessary to perform its
money market funds, AIM has voluntarily obligations under the Advisory
agreed to waive a portion of the Agreement, and concluded that AIM has
advisory fees it receives from the Fund the financial resources necessary to
fulfill its obligations under the
Advisory Agreement.
</Table>
5
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
COMMERCIAL PAPER-27.63%(a)
ASSET-BACKED SECURITIES-FULLY BACKED-6.82%
Concord Minutemen Capital Co., LLC, Series A
(Multi CEP's-Liberty Hampshire Co., LLC;
agent) (Acquired 03/08/06; Cost $487,474)
4.88%(b) 09/11/06 $ 500 $ 495,260
- ----------------------------------------------------------------------------------
Crown Point Capital Co., LLC, Series A (Multi
CEP's-Liberty Hampshire Co., LLC; agent)
(Acquired 05/16/06; Cost $1,800,055)
5.04%(b)(c) 07/07/06 1,813 1,811,985
- ----------------------------------------------------------------------------------
Kitty Hawk Funding Corp. (CEP-Bank of
America, N.A.) (Acquired 06/29/06; Cost
$1,129,299)
5.33%(b) 07/27/06 1,134 1,129,971
==================================================================================
3,437,216
==================================================================================
ASSET-BACKED SECURITIES- MULTI-PURPOSE-6.44%
Jupiter Securitization Corp. (Acquired
06/01/06; Cost $1,241,053)
5.05%(b) 07/05/06 1,247 1,246,650
- ----------------------------------------------------------------------------------
Yorktown Capital LLC
5.24% 07/19/06 2,000 1,995,342
==================================================================================
3,241,992
==================================================================================
ASSET-BACKED SECURITIES-SECURITY INVESTMENT
VEHICLES-10.97%
Grampian Funding Ltd./LLC, (Acquired
05/11/06; Cost $974,500)
5.10%(b)(c) 11/07/06 1,000 982,008
- ----------------------------------------------------------------------------------
(Acquired 05/25/06; Cost $977,463)
5.14%(b)(c) 10/30/06 1,000 983,026
- ----------------------------------------------------------------------------------
Sigma Finance Inc. (Acquired 04/03/06; Cost
$982,370)
4.92%(b)(c) 08/10/06 1,000 994,807
- ----------------------------------------------------------------------------------
Tierra Alta Funding, Ltd./Corp. (Acquired
06/19/06; Cost $2,561,857
5.25%(b) 07/25/06 2,575 2,562,732
==================================================================================
5,522,573
==================================================================================
REGIONAL BANKS-3.40%
Bank of Ireland 5.17%(c) 11/22/06 1,750 1,714,313
- ----------------------------------------------------------------------------------
Total Commercial Paper (Cost $13,916,094) 13,916,094
==================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
<Caption>
VARIABLE RATE DEMAND NOTES-20.65%(D)
INSURED-0.46%(E)
Omaha (City of), Nebraska; Special Tax
Redevelopment, Series 2002 B, Taxable RB
(INS-Ambac Assurance Corp.)
5.45%(f)(g) 02/01/13 $ 230 $ 230,000
==================================================================================
LETTER OF CREDIT ENHANCED-20.19%
Albany (City of), New York Industrial
Development Agency
(Albany Medical Center Hospital), Series
2006 B, Taxable IDR
(LOC-Citizens Bank N.A.)
5.35%(f)(g) 05/01/35 1,000 1,000,000
- ----------------------------------------------------------------------------------
Albuquerque (City of), New Mexico (Ktech
Corp. Project), Series 2002, Taxable IDR
(LOC-Wells Fargo Bank N.A.)
5.37%(g) 11/01/22 700 700,000
- ----------------------------------------------------------------------------------
Corp. Finance Managers Inc., Floating Rate
Notes
(LOC-Wells Fargo Bank, N.A.)
5.37%(f)(g) 02/02/43 1,825 1,825,000
- ----------------------------------------------------------------------------------
EPC Allentown, LLC, Series 2005, Floating
Rate Bonds
(LOC-Wachovia Bank, N.A.)
5.35%(f)(g) 07/01/30 2,000 2,000,000
- ----------------------------------------------------------------------------------
Folk Financial Services Inc., Series A,
Floating Rate Loan Program Notes
(LOC-National City Bank)
5.49%(g) 10/15/27 35 35,000
- ----------------------------------------------------------------------------------
Lehigh (County of), Pennsylvania Industrial
Development Authority (Bouras Industries),
Series 2002 C, Taxable IDR
(LOC-Wachovia Bank, N.A.)
5.35%(f)(g) 11/01/13 635 635,000
- ----------------------------------------------------------------------------------
Moon (City of), Pennsylvania Industrial
Development Authority (One Thorn Run
Associates Project), Series 1995 B, Taxable
IDR
(LOC-National City Bank of Pennsylvania)
5.45%(f)(g) 11/01/15 770 770,000
- ----------------------------------------------------------------------------------
Roman Catholic Diocese of Charlotte, Series
2002, Floating Rate Bonds
(LOC-Wachovia Bank, N.A.)
5.35%(f)(g) 05/01/14 1,200 1,200,000
- ----------------------------------------------------------------------------------
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
LETTER OF CREDIT ENHANCED-(CONTINUED)
Thomasville (City of), Georgia Payroll
Development Authority
(American Fresh Foods L.P.), Series 2005 B,
Taxable RB
(LOC-Wachovia Bank, N.A.)
5.40%(f)(g) 09/01/17 $ 2,000 $ 2,000,000
==================================================================================
10,165,000
==================================================================================
Total Variable Rate Demand Notes (Cost
$10,394,999) 10,395,000
==================================================================================
MEDIUM-TERM NOTES-5.36%
Metropolitan Life Global Funding I, Floating
Rate MTN (Acquired 11/10/04; Cost $700,525)
5.44%(b)(h) 06/28/07 700 700,277
- ----------------------------------------------------------------------------------
Societe Generale S.A., Unsec. Floating Rate
MTN (Acquired 10/26/05; Cost $2,000,000)
5.08%(b)(c)(h) 07/02/07 2,000 2,000,000
==================================================================================
Total Medium-Term Notes (Cost $2,700,277) 2,700,277
==================================================================================
CERTIFICATES OF DEPOSIT-3.97%
Svenska Handelsbanken A. B.
4.77% 12/19/06 1,000 1,000,000
- ----------------------------------------------------------------------------------
UniCredito Italiano S.p.A.
(United Kingdom)
5.28% 11/24/06 1,000 1,000,000
==================================================================================
Total Certificates of Deposit (Cost
$2,000,000) 2,000,000
==================================================================================
MASTER NOTE AGREEMENT-3.97%
Merrill Lynch Mortgage Capital, Inc.
(Acquired 05/16/06; Cost $2,000,000)
5.44%(b)(f)(i) 07/19/06 2,000 2,000,000
==================================================================================
ASSET-BACKED SECURITIES-3.97%
FULLY BACKED-1.98%
RACERS Trust,-Series 2004-6-MM, Floating Rate
Notes (CEP-Lehman Brothers Holdings Inc.)
(Acquired 04/13/04; Cost $1,000,000)
5.31%(b)(h) 12/22/06 1,000 1,000,000
==================================================================================
STRUCTURED-1.99%
Permanent Financing PLC, Series 9A, Class 1A,
Floating Rate Bonds (Acquired 03/15/06;
Cost $1,000,000) 5.14%(b)(c)(j) 03/10/07 1,000 1,000,000
==================================================================================
Total Asset-Backed Securities (Cost
$2,000,000) 2,000,000
==================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
<Caption>
FUNDING AGREEMENT-1.99%
New York Life Insurance Co. (Acquired
04/05/07; Cost $1,000,000) 5.06%(b)(j)(k) 04/05/07 $ 1,000 $ 1,000,000
==================================================================================
TOTAL INVESTMENTS (excluding Repurchase
Agreements)-67.54% (Cost $34,011,371) 34,011,371
==================================================================================
</Table>
<Table>
<Caption>
REPURCHASE
AMOUNT
----------
REPURCHASE AGREEMENTS-33.16%(L)
Banc of America Securities LLC, Joint
agreement dated 06/30/06, aggregate
maturing value $1,000,437,500
(collateralized by U.S. Government
obligations valued at $1,020,000,000;
5.50%, 12/01/34)5.25%, 07/03/06 2,000,875 2,000,000
- -----------------------------------------------------------------------
Barclays Capital Inc., Joint agreement dated
06/30/06, aggregate maturing value
$500,218,750 (collateralized by U.S.
Government obligations valued at
$510,000,001;
0%-6.53%, 05/01/08-07/01/36)
5.25%, 07/03/06 2,000,875 2,000,000
- -----------------------------------------------------------------------
Bear, Stearns & Co., Inc., Joint agreement
dated 06/30/06, aggregate maturing value
$250,109,583 (collateralized by U.S.
Government obligations valued at
$255,002,221;
4.00%-9.50%, 01/01/14-07/01/36)
5.26%, 07/03/06 2,000,877 2,000,000
- -----------------------------------------------------------------------
Deutsche Bank Securities Inc., Joint
agreement dated 06/30/06, aggregate
maturing value $500,217,917 (collateralized
by U.S. Government obligations valued at
$510,000,001;
3.73%-6.03%, 05/01/09-01/01/36)
5.23%, 07/03/06 2,000,872 2,000,000
- -----------------------------------------------------------------------
Greenwich Capital Markets, Inc., Joint
agreement dated 06/30/06, aggregate
maturing value $800,354,000 (collateralized
by U.S. Government obligations valued at
$816,001,274;
0%-7.39%, 08/09/06-03/15/31)
5.31%, 07/03/06 4,700,833 4,699,753
- -----------------------------------------------------------------------
Morgan Stanley & Co., Joint agreement dated
06/30/06, aggregate maturing value
$500,218,750 (collateralized by U.S.
Government obligations valued at
$512,188,462;
0%-6.50%, 05/01/34-07/01/36)
5.25%, 07/03/06 2,000,875 2,000,000
- -----------------------------------------------------------------------
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
REPURCHASE
AMOUNT VALUE
- -----------------------------------------------------------------------
REPURCHASE AGREEMENTS-(CONTINUED)
Wachovia Capital Markets, LLC, Joint
agreement dated 06/30/06, aggregate
maturing value $250,109,583 (collateralized
by U.S. Government obligations valued at
$255,001,033;
3.64%-7.82%, 06/01/07-11/15/42)
5.26%, 07/03/06 $2,000,877 $ 2,000,000
=======================================================================
Total Repurchase Agreements (Cost
$16,699,753) 16,699,753
=======================================================================
TOTAL INVESTMENTS(m)-100.70% (Cost
$50,711,124)(m)(n) 50,711,124
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.70)% (353,349)
=======================================================================
NET ASSETS-100.00% $50,357,775
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
CEP - Credit Enhancement Provider
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
MTN - Medium-Term Notes
RACERS - Restructured Asset Certificates with Enhanced ReturnS
RB - Revenue Bonds
INS - Insurer
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold 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 June 30, 2006 was $17,910,723,
which represented 35.57% 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. The foreign credit exposure to countries other than the United
States of America (as a percentage of net assets) is summarized as follows:
United Kingdom: 9.85%; other countries less than 5%: 10.97%.
(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
June 30, 2006.
(h) Interest rate is redetermined monthly. Rate shown is the rate in effect on
June 30, 2006.
(i) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice depending upon the
timing of the demand. Interest rates on master notes are redetermined daily.
Rate shown is the rate in effect on June 30, 2006.
(j) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
June 30, 2006.
(k) 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 June 30, 2006 represented 1.99% of the
Fund's Net Assets.
(l) Principal amount equals value at period end. See Note 1G.
(m) 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 is not primarily responsible for the issuer's obligations but may be
called upon to satisfy the issuer's obligations.
<Table>
<Caption>
ENTITIES PERCENTAGE
--------------------------------------------------------------------------
Wachovia Bank, N.A 11.6%
--------------------------------------------------------------------------
Tierra Alta Funding, Ltd./Corp. 5.1
--------------------------------------------------------------------------
Wells Fargo Bank N.A 5.0
--------------------------------------------------------------------------
Other Entities Less than 5% each 45.8
__________________________________________________________________________
==========================================================================
</Table>
(n) 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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, excluding repurchase agreements,
at value (cost $34,011,371) $34,011,371
- -----------------------------------------------------------
Repurchase agreements (cost $16,699,753) 16,699,753
===========================================================
Total investments (cost $50,711,124) 50,711,124
===========================================================
Interest receivable 115,510
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 47,351
===========================================================
Total assets 50,873,985
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 420,256
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 53,397
- -----------------------------------------------------------
Accrued administrative services fees 22,576
- -----------------------------------------------------------
Accrued distribution fees -- Series II 1,479
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 425
- -----------------------------------------------------------
Accrued operating expenses 18,077
===========================================================
Total liabilities 516,210
===========================================================
Net assets applicable to shares outstanding $50,357,775
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $50,351,431
- -----------------------------------------------------------
Undistributed net investment income 6,344
===========================================================
$50,357,775
___________________________________________________________
===========================================================
NET ASSETS:
Series I $48,133,569
___________________________________________________________
===========================================================
Series II $ 2,224,206
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 48,132,225
___________________________________________________________
===========================================================
Series II 2,224,124
___________________________________________________________
===========================================================
Series I
Net asset value per share $ 1.00
___________________________________________________________
===========================================================
Series II
Net asset value per share $ 1.00
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $1,132,390
===========================================================
EXPENSES:
Advisory fees 94,588
- -----------------------------------------------------------
Administrative services fees 69,311
- -----------------------------------------------------------
Custodian fees 1,791
- -----------------------------------------------------------
Distribution Fees -- Series II 3,282
- -----------------------------------------------------------
Transfer agent fees 3,038
- -----------------------------------------------------------
Trustees' and officer's fees and benefits 8,133
- -----------------------------------------------------------
Professional services fees 24,907
- -----------------------------------------------------------
Other 10,327
===========================================================
Total expenses 215,377
===========================================================
Net investment income 917,013
===========================================================
Net increase in net assets resulting from
operations $ 917,013
___________________________________________________________
===========================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 917,013 $ 1,334,306
============================================================================================
Distributions to shareholders from net investment income:
Series I (869,641) (1,235,959)
- --------------------------------------------------------------------------------------------
Series II (47,372) (98,347)
============================================================================================
Decrease in net assets resulting from distributions (917,013) (1,334,306)
============================================================================================
Share transactions-net:
Series I 3,211,022 (9,084,618)
- --------------------------------------------------------------------------------------------
Series II (855,411) (2,996,593)
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 2,355,611 (12,081,211)
============================================================================================
Net increase (decrease) in net assets 2,355,611 (12,081,211)
============================================================================================
NET ASSETS:
Beginning of period 48,002,164 60,083,375
============================================================================================
End of period (including undistributed net investment
income of $6,344 and $6,344, respectively) $50,357,775 $ 48,002,164
____________________________________________________________________________________________
============================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Money Market Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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 and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. 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
AIM V.I. MONEY MARKET FUND
collateral are U.S. Government Securities, U.S. Government Agency
Securities and/or Investment Grade Debt Securities. Collateral consisting
of U.S. Government Securities and U.S. Government Agency Securities is
marked to market daily to ensure its market value is at least 102% of the
sales price of the repurchase agreement. Collateral consisting of
Investment Grade Debt Securities is marked to market daily to ensure its
market value is at least 105% of the sales price of the repurchase
agreement. The investments in some repurchase agreements, pursuant to
procedures approved by the Board of Trustees, are through participation
with other mutual funds, private accounts and certain non-registered
investment companies managed by the investment advisor or its affiliates
("Joint repurchase agreements"). The principal amount of the repurchase
agreement is equal to the value at period-end. 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 collateral and loss of income.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM 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, 2008. 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
net annual 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. To the extent that the annualized
expense ratio does not exceed the expense limitation, AIM will retain its
ability to be reimbursed for such fee waivers or reimbursements prior to the end
of each fiscal year. AIM did not waive fees and/or reimburse expenses during the
period under this expense limitation.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $44,516 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $3,038.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $3,282.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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
AIM V.I. MONEY MARKET FUND
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,852 for services to rendered by Kramer, Levin, Naaftalis & Frankel LLP as
counsel to the Independent Trustees. A member of that firm is a Trustee of the
Trust.
NOTE 4--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. The Fund did not borrow or
lend under the facility during the six months ended June 30, 2006.
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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2005.
NOTE 6--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006(a) 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 17,091,870 $17,091,870 55,383,109 $ 55,383,109
- -----------------------------------------------------------------------------------------------------------------------
Series II 485,276 485,276 10,356,640 10,356,640
=======================================================================================================================
Issued as reinvestment of dividends:
Series I 869,590 869,590 1,235,959 1,235,959
- -----------------------------------------------------------------------------------------------------------------------
Series II 47,372 47,372 98,347 98,347
=======================================================================================================================
Reacquired:
Series I (14,750,438) (14,750,438) (65,703,686) (65,703,686)
- -----------------------------------------------------------------------------------------------------------------------
Series II (1,388,059) (1,388,059) (13,451,580) (13,451,580)
=======================================================================================================================
2,355,611 $ 2,355,611 (12,081,211) $(12,081,211)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 85% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units 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 7--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
AIM V.I. MONEY MARKET FUND
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.02 0.01 0.01 0.01 0.04
=================================================================================================================================
Less dividends from net investment income (0.02) (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 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 1.94% 2.51% 0.69% 0.58% 1.19% 3.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,134 $44,923 $54,008 $77,505 $119,536 $128,277
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.90%(b) 0.82% 0.75% 0.66% 0.67% 0.64%
=================================================================================================================================
Ratio of net investment income to average net assets 3.89%(b) 2.46% 0.67% 0.59% 1.18% 3.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Total returns are not annualized for periods less than one year and do
not reflect charges assessed in connection with a variable product,
which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of
$45,038,065.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------
DECEMBER 16, 2001
SIX MONTHS (DATE SALES
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------------- DECEMBER 31,
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.02 0.004 0.003 0.01 0.001
=================================================================================================================================
Less dividends from net investment income (0.02) (0.02) (0.004) (0.003) (0.01) (0.001)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 1.81% 2.26% 0.44% 0.33% 0.93% 0.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,224 $3,080 $ 6,076 $ 2,382 $7,831 $ 997
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.15%(b) 1.07% 1.00% 0.91% 0.92% 0.89%(c)
=================================================================================================================================
Ratio of net investment income to average net
assets 3.64%(b) 2.21% 0.42% 0.34% 0.93% 3.11%(c)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Total returns are not annualized for periods less than one year and do
not reflect charges assessed in connection with a variable product,
which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of
$2,647,731.
(c) Annualized.
NOTE 9--LEGAL PROCEEDINGS
TERMS USED IN THE LEGAL PROCEEDINGS NOTE ARE DEFINED TERMS SOLELY FOR THE
PURPOSE OF THIS NOTE.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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. MONEY MARKET FUND
NOTE 9--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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary
Mark H. Williamson and Chief Legal Officer CUSTODIAN
The Bank of New York
Sidney M. Dilgren 2 Hanson Place
Vice President, Treasurer Brooklyn, NY 11217-1431
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. MONEY MARKET FUND
AIM V.I. REAL ESTATE FUND
Semiannual Report to Shareholders o June 30,2006
EFFECTIVE JULY 3, 2006, AFTER THE CLOSE OF THE REPORTING PERIOD, AIM V.I. REAL
ESTATE FUND WAS RENAMED AIM V.I. GLOBAL REAL ESTATE FUND.
AIM V.I. REAL ESTATE FUND seeks to achieve high total return.
Effective July 3, 2006, after the close of the reporting period, and in
connection with the name change to AIM V.I. Global Real Estate Fund, the Fund
seeks to achieve high total return through growth of capital and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006,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 (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE FUND)
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE MARKET CONDITIONS AND YOUR FUND
During the first four months of 2006,
PERFORMANCE SUMMARY equity markets generated positive
======================================== returns. However, in May and June, the
We are pleased to report that AIM V.I. FUND VS. INDEXES equity markets retreated as investors
Real Estate Fund outperformed all of its were concerned about persistently high
benchmark indexes and once again CUMULATIVE TOTAL RETURNS, energy prices and rising interest rates
provided shareholders with positive 12/31/05-6/30/06, EXCLUDING VARIABLE and the potential impact of both on
returns during the reporting period. The PRODUCT ISSUER CHARGES. economic growth and inflation. During
Real Estate Investment Trust (REIT) IF VARIABLE PRODUCT ISSUER CHARGES WERE the reporting period, the U.S. Federal
market outperformed the broad market INCLUDED, RETURNS WOULD BE LOWER. Reserve Board (the Fed) continued its
index (S&P 500 Index) as real estate was tightening policy, raising the key
among the top performing markets for the Series I Shares 13.91% federal funds target rate to 5.25%.
period. Favorable security selection
within the office and apartment sector Series II Shares 13.82 The REIT market was among the top
contributed most to the Fund's performing markets for the reporting
performance. Standard & Poor's Composite Index period, easily outpacing the broad
of 500 Stocks (S&P 500 Index) market as measured by the S&P 500 Index.
Your Fund's long-term performance (Broad Market Index) 2.71 REIT performance was positive during the
appears on page 4. first quarter of 2006 but retreated in
Morgan Stanley Capital International April and May. The market rebounded in
(MSCI) U.S. REIT Index June to end the period with solid
(Style-Specific Index) 13.47 performance. The group's favorable
relative performance was driven by a
Lipper Real Estate Fund Index number of recurring themes, including
(Peer Group Index) 11.49 ongoing REIT privatization activity;
improving real estate operating
SOURCE: LIPPER INC., BLOOMBERG L.P. fundamentals; inclusion of two large-cap
REIT names into the S&P 500 Index and
======================================== growing demand for stable,
income-producing assets and real estate
===================================================================================== in general.
HOW WE INVEST o Attractive valuations relative to peer Stock selection within the office
investment alternatives. sector contributed the most to Fund
Your Fund holds primarily real performance. Our top contributor was SL
estate-oriented securities. We focus on We attempt to control risk by Green Realty Corp., which owns and
public companies whose value is driven diversifying property types and operates a portfolio of commercial
by tangible assets. Our goal is to geographic location as well as limiting office properties in Midtown Manhattan.
create a Fund focused on total return the size of any one holding. SL Green Realty Corp. shares
that will perform at or above index
levels with a comparable level of risk. We will consider selling a holding
We use a fundamentals-driven investment when:
process, including property market cycle
analysis, property evaluation and o Relative valuation falls below desired
management review to identify securities levels.
with:
o Risk/return relationships change
o Quality underlying properties. significantly.
o Solid management teams. o Company fundamentals change (property
type, geography or management changes).
o A more attractive investment
opportunity is identified.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 HOLDINGS* TOTAL NET ASSETS $122.7 MILLION
TOTAL NUMBER OF HOLDINGS* 62
By property type 1. Simon Property Group, Inc. 6.1%
Office 23.6% 2. Vornado Realty Trust 5.4
Retail 20.2 3. Host Hotels & Resorts Inc. 5.1
Diversified 14.9 4. Equity Residential 4.7
Hotels 11.0 5. Developers Diversified Realty
Corp. 3.3
Residential 12.6
6. Equity Office Properties Trust 3.3
Industrials 4.2
7. SL Green Realty Corp. 3.0
Money Market Funds
Plus Other Assets Less Liabilities 13.5 8. Hilton Hotels Corp. 2.9
9. ProLogis 2.8
10. Land Securities Group PLC
(United Kingdom) 2.7
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.
======================================== ======================================== ========================================
2
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE FUND)
increased after the REIT announced plans IN CLOSING JOE V. RODRIGUEZ, JR.,
to sell some of its properties in New [RODRIGUEZ Director of Securities
York City. Shares of another office We were encouraged by the resiliency of PHOTO] Management, INVESCO Real
REIT, Chicago-based TRIZEC PROPERTIES, the REIT market during the period. We Estate, is lead manager of
rose on news of its potential believe REIT prices largely reflected AIM V.I. Real Estate Fund. He oversees
acquisition by BROOKFIELD PROPERTIES fair levels relative to the value of all phases of the unit including
CORP. Once complete, the commercial their underlying holdings. Although REIT securities research and administration.
property deal could create one of North prices increased, we believe occupancy Mr. Rodriguez began his investment
America's largest office landlords. and rental rates have supported that career in 1983 and joined INVESCO in
growth and that REIT fundamentals 1990. He has served on the editorial
Also during the period, our positions continued to improve. We believe future boards of the National Association of
within the residential sector improvement in share prices may be Real Estate Investment Trusts (NAREIT)
contributed positively to Fund dependent on the strength of gross as well as the Institutional Real Estate
performance. ARCHSTONE-SMITH TRUST, a domestic product expansion and its Securities Newsletter. Mr. Rodriguez
company engaged in the development and subsequent positive influence on real earned his B.B.A. in economics and
operation of apartment communities in estate fundamentals. Also important will finance as well as his M.B.A. in finance
the United States, shares increased on be investor sentiment toward the from Baylor University
recent news of plans to expand into interaction of economic growth against
Germany through the acquisition of the backdrop of the Fed interest rate MARK D. BLACKBURN,
DEUTSCHE WOHNANLAGE. Select apartment policy. [BLACKBURN Chartered Financial Analyst,
REITs also performed well, particularly PHOTO] Director of Investments,
those that focused their operations in We appreciate your continued INVESCO Real Estate, is
coastal, high barrier-to-entry markets. participation in AIM V.I. Real Estate manager of AIM V.I. Real Estate Fund. He
Apartment operating fundamentals have Fund. joined INVESCO in 1998 and has
improved as condo conversions reduce approximately 19 years of experience in
supply and landlords have gained modest THE VIEWS AND OPINIONS EXPRESSED IN institutional investing and risk
degrees of pricing power. MANAGEMENT'S DISCUSSION OF FUND management. Mr. Blackburn earned a B.S.
PERFORMANCE ARE THOSE OF A I M ADVISORS, in accounting from Louisiana State
Despite positive performance by the INC. THESE VIEWS AND OPINIONS ARE University and an M.B.A. from Southern
REIT market during the period, a few SUBJECT TO CHANGE AT ANY TIME BASED ON Methodist University. He is a certified
holdings detracted from our performance. FACTORS SUCH AS MARKET AND ECONOMIC public accountant.
U-STORE IT TRUST, a REIT that engages in CONDITIONS. THESE VIEWS AND OPINIONS MAY
the development and operation of NOT BE RELIED UPON AS INVESTMENT ADVICE JAMES COWEN, portfolio
self-storage facilities in the U.S., OR RECOMMENDATIONS, OR AS AN OFFER FOR A [COWEN manager, INVESCO Real
detracted the most from performance on PARTICULAR SECURITY. THE INFORMATION IS PHOTO] Estate, is manager of AIM
news of a surprise fourth-quarter 2005 NOT A COMPLETE ANALYSIS OF EVERY ASPECT V.I. Real Estate Fund. He
loss. We sold our position during the OF ANY MARKET, COUNTRY, INDUSTRY, joined INVESCO in 2001. He has eight
reporting period. Another detractor from SECURITY OR THE FUND. STATEMENTS OF FACT years of real estate experience. Mr.
performance was GENERAL GROWTH ARE FROM SOURCES CONSIDERED RELIABLE, Cowen earned a B.A. in town and country
PROPERTIES, a REIT that operates in BUT A I M ADVISORS, INC. MAKES NO planning from The University of
retail regional malls and master planned REPRESENTATION OR WARRANTY AS TO THEIR Manchester and a master of philosophy
communities. Shares of General Growth COMPLETENESS OR ACCURACY. ALTHOUGH degree from the University of Cambridge.
Properties fell due to an over reaction HISTORICAL PERFORMANCE IS NO GUARANTEE
to its relatively small community OF FUTURE RESULTS, THESE INSIGHTS MAY JAMES W. TROWBRIDGE,
development business and its variable HELP YOU UNDERSTAND OUR INVESTMENT [TROWBRIDGE portfolio manager, INVESCO
interest rate exposure. We do not MANAGEMENT PHILOSOPHY. PHOTO] Real Estate, is manager of
believe that the U.S. consumer will AIM V.I. Real Estate Fund.
materially alter their long-term retail Mr. Trowbridge joined INVESCO Real
spending habits and interest rate Estate in 1989. With 31 years of real
increases by the Fed may soon come to a estate investment experience for major
halt. We have trimmed our position in institutional investors, Mr. Trowbridge
General Growth Properties because of the ======================================== is responsible for integrating his
current interest rate environment, but knowledge into INVESCO's publicly traded
have not altered our long-term view of EFFECTIVE JULY 3, 2006, AIM V.I. REAL REIT investments. Mr. Trowbridge earned
management's ability to add value. ESTATE FUND CHANGED ITS NAME TO AIM V.I. his B.S. in finance from Indiana
GLOBAL REAL ESTATE FUND. IN CONNECTION University.
During the reporting period, there WITH THIS NAME CHANGE, THE FUND'S
were no major changes to the portfolio INVESTMENT OBJECTIVE CHANGED TO HIGH PING YING WANG, Chartered
or strategy. We remained well TOTAL RETURN THROUGH GROWTH OF CAPITAL [WANG Financial Analyst, portfolio
diversified both by property type and AND CURRENT INCOME. PHOTO] manager, INVESCO Real
geographic location. Estate, is manager of AIM
======================================== V.I. Real Estate Fund. She has nine
years of real estate experience. She
earned a B.S. in international finance
FOR A DISCUSSION OF THE RISKS OF from the People's University of China
INVESTING IN YOUR FUND, INDEXES USED IN and a Ph.D. in finance from The
THIS REPORT AND YOUR FUND'S LONG-TERM University of Texas at Dallas.
PERFORMANCE, PLEASE TURN TO PAGE 4.
Assisted by the Real Estate Team
3
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE FUND)
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS SERIES I AND II SHARE CLASSES WILL NOT INTENDED TO REFLECT ACTUAL VARIABLE
DIFFER PRIMARILY DUE TO DIFFERENT CLASS PRODUCT VALUES. THEY DO NOT REFLECT
As of 6/30/06 EXPENSES. SALES CHARGES, EXPENSES AND FEES
ASSESSED IN CONNECTION WITH A VARIABLE
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT. SALES CHARGES, EXPENSES AND
Inception (3/31/98) 13.43% PAST PERFORMANCE AND CANNOT GUARANTEE FEES, WHICH ARE DETERMINED BY THE
5 Years 21.03 COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
1 Year 23.42 PERFORMANCE MAY BE LOWER OR HIGHER. WILL LOWER THE TOTAL RETURN.
PLEASE CONTACT YOUR VARIABLE PRODUCT
SERIES II SHARES ISSUER OR FINANCIAL ADVISOR FOR THE MOST PER NASD REQUIREMENTS, THE MOST
Inception 13.16% RECENT MONTH-END VARIABLE PRODUCT RECENT MONTH-END PERFORMANCE DATA AT THE
5 Years 20.75 PERFORMANCE. PERFORMANCE FIGURES REFLECT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 23.13 FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, IS AVAILABLE ON THIS AIM
AND CHANGES IN NET ASSET VALUE. AUTOMATED INFORMATION LINE,
======================================== INVESTMENT RETURN AND PRINCIPAL VALUE 866-702-4402. AS MENTIONED ABOVE, FOR
WILL FLUCTUATE SO THAT YOU MAY HAVE A THE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES' INCEPTION DATE IS GAIN OR LOSS WHEN YOU SELL SHARES. INCLUDING VARIABLE PRODUCT CHARGES,
APRIL 30, 2004. RETURNS SINCE THAT DATE PLEASE CONTACT YOUR VARIABLE PRODUCT
ARE HISTORICAL. ALL OTHER RETURNS ARE AIM V.I. REAL ESTATE FUND, A SERIES ISSUER OR FINANCIAL ADVISOR.
THE BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE
PERFORMANCE OF SERIES II SHARES SINCE FUNDS, IS CURRENTLY OFFERED THROUGH HAD THE ADVISOR NOT WAIVED FEES
THEIR INCEPTION AND THE RESTATED INSURANCE COMPANIES ISSUING VARIABLE AND/OR REIMBURSED EXPENSES, PERFORMANCE
HISTORICAL PERFORMANCE OF SERIES I PRODUCTS. YOU CANNOT PURCHASE SHARES OF WOULD HAVE BEEN LOWER.
SHARES (FOR PERIODS PRIOR TO INCEPTION THE FUND DIRECTLY. PERFORMANCE FIGURES
OF SERIES II SHARES) ADJUSTED TO REFLECT GIVEN REPRESENT THE FUND AND ARE
THE RULE 12b-1 FEES APPLICABLE TO SERIES
II SHARES. THE INCEPTION DATE OF
SERIES I SHARES IS MARCH 31, 1998. THE
PERFORMANCE OF THE FUND'S
PRINCIPAL RISKS OF INVESTING IN THE FUND and local economic conditions, changes ABOUT INDEXES USED IN THIS REPORT
in the climate for real estate,
Investing in emerging markets involves increases in taxes, expenses and costs, The unmanaged STANDARD & POOR'S
greater risk and potential reward than changes in laws, casualty and COMPOSITE INDEX OF 500 STOCKS (the S&P
investing in more established markets. condemnation losses, rent control 500--Registered Trademark-- Index) is an
limitation and increases in interest index of common stocks frequently used
Foreign securities have additional rates. as a general measure of U.S. stock
risks, including exchange rate changes, market performance.
political and economic developments, the The values of the convertible
relative lack of information about these securities will be affected by market The MSCI U.S. REIT INDEX is a
companies, relatively low market interest rates, and the value of the total-return index composed of the most
liquidity and the potential lack of underlying common stock into which these actively traded real estate investment
strict financial and accounting controls securities may be converted. trusts and is designed to be a measure
and standards. of real estate equity performance. The
The prices of securities held by the index was developed with a base value of
The Fund may invest a portion of its Fund may decline in response to market 200 as of December 31, 1994. It is
assets in synthetic instruments, such as risks, changes in interest rates, compiled by Morgan Stanley Capital
warrants, futures, options, exchange effective maturities and credit ratings International.
traded funds and American Depository of those securities.
Receipts, the value of which may not The unmanaged LIPPER REAL ESTATE FUND
correlate perfectly with the overall If the seller of a repurchase INDEX represents an average of the
securities market. Risks associated with agreement in which the Fund invests performance of the 30 largest real
synthetic instruments may include defaults or declares bankruptcy, the estate funds tracked by Lipper Inc., an
counter party risk and sensitivity to Fund may experience delays in selling independent mutual fund performance
interest rate changes and market price the securities underlying the repurchase monitor.
fluctuations. See the prospectus for agreement. As a result, the Fund may
more details. experience losses, reduced levels of The Fund is not managed to track the
income and additional expenses. performance of any particular index,
Investing in a single-sector or including the indexes defined here, and
single-region mutual fund involves The prices of initial public offering consequently, the performance of the
greater risk and potential reward than (IPO) securities may go up and down more Fund may deviate significantly from the
investing in a more diversified fund. than prices of equity securities of performance of the indexes.
The Fund invests substantial assets in companies with longer trading histories.
REITs that involve risks relating to In addition, companies offering A direct investment cannot be made in
direct ownership in real estate, securities in IPOs may have less an index. Unless otherwise indicated,
including difficulties in valuing and experienced management or limited index results include reinvested
trading real estate, declines in value operating histories. There can be no dividends, and they do not reflect sales
of the properties, risks relating to assurance that the Fund will have charges. Performance of an index of
general favorable IPO investment opportunities. funds reflects fund expenses;
performance of a market index does not.
OTHER INFORMATION
The returns shown in management's
discussion of Fund performance are based
on net asset values calculated for
shareholder transactions. Generally
accepted accounting principles require
adjustments to be made to the net assets
of the Fund at period end for financial
reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
Additionally, the returns and net asset
values shown throughout this report are
at the Fund level only and do not
include variable product issuer charges.
If such charges were included, the total
returns would be lower.
4
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE 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 June 30, 2006, appear in
(12b-1); and other Fund expenses. This this table, together with the amount you the table "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. expenses you paid on your account during 5% HYPOTHETICAL EXAMPLE WITH THE 5%
The actual and hypothetical expenses in this period. HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
the examples below do not represent the SHAREHOLDER REPORTS OF THE OTHER FUNDS.
effect of any fees or other expenses HYPOTHETICAL EXAMPLE FOR COMPARISON
assessed in connection with a variable PURPOSES Please note that the expenses shown
product; if they did, the expenses shown in the table are meant to highlight your
would be higher while the ending account The table below also provides ongoing costs. Therefore, the
values shown would be lower. information about hypothetical account hypothetical information is useful in
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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,139.10 $6.15 $1,019.04 $5.81 1.16%
Series II 1,000.00 1,138.20 7.48 1,017.80 7.05 1.41
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June
30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
Continued from page 4
Property type classifications used in
this report are generally according to
the FTSE EPRA/NAREIT Global Real Estate
Index which is exclusively owned by the
FTSE group, the European Public Real
Estate Association (EPRA), National
Association of Real Estate Investment
Trusts (NAREIT) and Euronext Indices BV.
5
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE FUND)
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable terms of the Advisory Agreement. advisors. The Board reviewed the
Insurance Funds (the "Board") oversees advisory fee rate for the Fund under the
the management of AIM V.I. Global Real o The performance of the Fund relative Advisory Agreement. The Board compared
Estate Fund (formerly named "AIM V.I. to comparable funds. The Board reviewed effective contractual advisory fee rates
Real Estate Fund") (the "Fund") and, as the performance of the Fund during the at a common asset level at the end of
required by law, determines annually past one, three and five calendar years the past calendar year and noted that
whether to approve the continuance of against the performance of funds advised the Fund's rate was above the median
the Fund's advisory agreement with A I M by other advisors with investment rate of the funds advised by other
Advisors, Inc. ("AIM"). Based upon the strategies comparable to those of the advisors with investment strategies
recommendation of the Investments Fund. The Board noted that the Fund's comparable to those of the Fund that the
Committee of the Board, at a meeting performance was below the median Board reviewed. The Board noted that AIM
held on June 27, 2006, the Board, performance of such comparable funds for has agreed to waive advisory fees of the
including all of the independent the one and five year periods and above Fund and to limit the Fund's total
trustees, approved the continuance of such median performance for the three operating expenses, as discussed below.
the advisory agreement (the "Advisory year period. The Board also noted that Based on this review, the Board
Agreement") between the Fund and AIM for AIM began serving as investment advisor concluded that the advisory fee rate for
another year, effective July 1, 2006. to the Fund in April 2004. Based on this the Fund under the Advisory Agreement
review and after taking account of all was fair and reasonable.
The Board considered the factors of the other factors that the Board
discussed below in evaluating the considered in determining whether to o Expense limitations and fee waivers.
fairness and reasonableness of the continue the Advisory Agreement for the The Board noted that AIM has
Advisory Agreement at the meeting on Fund, the Board concluded that no contractually agreed to waive advisory
June 27, 2006 and as part of the Board's changes should be made to the Fund and fees of the Fund through April 30, 2008
ongoing oversight of the Fund. In their that it was not necessary to change the to the extent necessary so that the
deliberations, the Board and the Fund's portfolio management team at this advisory fees payable by the Fund do not
independent trustees did not identify time. Although the independent written exceed a specified maximum advisory fee
any particular factor that was evaluation of the Fund's Senior Officer rate, which maximum rate includes
controlling, and each trustee attributed (discussed below) only considered Fund breakpoints and is based on net asset
different weights to the various performance through the most recent levels. The Board considered the
factors. calendar year, the Board also reviewed contractual nature of this fee waiver
more recent Fund performance, which did and noted that it remains in effect
One responsibility of the independent not change their conclusions. until April 30, 2008. The Board also
Senior Officer of the Fund is to manage noted that AIM has contractually agreed
the process by which the Fund's proposed o The performance of the Fund relative to waive fees and/or limit expenses of
management fees are negotiated to ensure to indices. The Board reviewed the the Fund through April 30, 2008 so that
that they are negotiated in a manner performance of the Fund during the past total annual operating expenses are
which is at arms' length and reasonable. one, three and five calendar years limited to a specified percentage of
To that end, the Senior Officer must against the performance of the Lipper average daily net assets for each class
either supervise a competitive bidding Variable Underlying Fund Real Estate of the Fund. The Board considered the
process or prepare an independent Index. The Board noted that the Fund's contractual nature of this fee
written evaluation. The Senior Officer performance in such periods was waiver/expense limitation and noted it
has recommended an independent written comparable to the performance of such remains in effect until April 30, 2008.
evaluation in lieu of a competitive Index. The Board also noted that AIM The Board considered the effect these
bidding process and, upon the direction began serving as investment advisor to fee waivers/expense reimbursements would
of the Board, has prepared such an the Fund in April 2004. Based on this have on the Fund's estimated expenses
independent written evaluation. Such review and after taking account of all and concluded that the levels of fee
written evaluation also considered of the other factors that the Board waivers/expense reimbursements for the
certain of the factors discussed below. considered in determining whether to Fund were fair and reasonable.
In addition, as discussed below, the continue the Advisory Agreement for the
Senior Officer made a recommendation to Fund, the Board concluded that no o Breakpoints and economies of scale.
the Board in connection with such changes should be made to the Fund and The Board reviewed the structure of the
written evaluation. that it was not necessary to change the Fund's advisory fee under the Advisory
Fund's portfolio management team at this Agreement, noting that it does not
The discussion below serves as a time. Although the independent written include any breakpoints. The Board
summary of the Senior Officer's evaluation of the Fund's Senior Officer considered whether it would be
independent written evaluation and (discussed below) only considered Fund appropriate to add advisory fee
recommendation to the Board in performance through the most recent breakpoints for the Fund or whether, due
connection therewith, as well as a calendar year, the Board also reviewed to the nature of the Fund and the
discussion of the material factors and more recent Fund performance, which did advisory fee structures of comparable
the conclusions with respect thereto not change their conclusions. funds, it was reasonable to structure
that formed the basis for the Board's the advisory fee without breakpoints.
approval of the Advisory Agreement. o Meetings with the Fund's portfolio Based on this review, the Board
After consideration of all of the managers and investment personnel. With concluded that it was not necessary to
factors below and based on its informed respect to the Fund, the Board is add advisory fee breakpoints to the
business judgment, the Board determined meeting periodically with such Fund's Fund's advisory fee schedule. The Board
that the Advisory Agreement is in the portfolio managers and/or other reviewed the level of the Fund's
best interests of the Fund and its investment personnel and believes that advisory fees, and noted that such fees,
shareholders and that the compensation such individuals are competent and able as a percentage of the Fund's net
to AIM under the Advisory Agreement is to continue to carry out their assets, would remain constant under the
fair and reasonable and would have been responsibilities under the Advisory Advisory Agreement because the Advisory
obtained through arm's length Agreement. Agreement does not include any
negotiations. breakpoints. The Board noted that AIM
o Overall performance of AIM. The Board has contractually agreed to waive
Unless otherwise stated, information considered the overall performance of advisory fees of the Fund through April
presented below is as of June 27, 2006 AIM in providing investment advisory and 30, 2008 to the extent necessary so that
and does not reflect any changes that portfolio administrative services to the the advisory fees payable by the Fund do
may have occurred since June 27, 2006, Fund and concluded that such performance not exceed a specified maximum advisory
including but not limited to changes to was satisfactory. fee rate, which maximum rate includes
the Fund's performance, advisory fees, breakpoints and is based on net asset
expense limitations and/or fee waivers. o Fees relative to those of client of levels. The Board concluded that the
AIM with comparable investment Fund's fee levels under the Advisory
o The nature and extent of the advisory strategies. The Board reviewed the Agreement therefore would not reflect
services to be provided by AIM. The effective advisory fee rate (before economies of scale, although the
Board reviewed the services to be waivers) for the Fund under the Advisory advisory fee waiver reflects economies
provided by AIM under the Advisory Agreement. The Board noted that this of scale.
Agreement. Based on such review, the rate was (i) the same as the effective
Board concluded that the range of advisory fee rate (before waivers) for o Investments in affiliated money market
services to be provided by AIM under the one mutual fund advised by AIM with funds. The Board also took into account
Advisory Agreement was appropriate and investment strategies comparable to the fact that uninvested cash and cash
that AIM currently is providing services those of the Fund and above the collateral from securities lending
in accordance with the terms of the effective advisory fee rate (before arrangements, if any (collectively,
Advisory Agreement. waivers) for a second mutual fund "cash balances") of the Fund may be
advised by AIM with investment invested in money market funds advised
o The quality of services to be provided strategies comparable to those of the by AIM pursuant to the terms of an SEC
by AIM. The Board reviewed the Fund; and (ii) above the effective exemptive order. The Board found that
credentials and experience of the sub-advisory fee rate for one variable the Fund may realize certain benefits
officers and employees of AIM who will insurance fund sub-advised by an AIM upon investing cash balances in AIM
provide investment advisory services to affiliate and offered to insurance advised money market funds, including a
the Fund. In reviewing the company separate accounts with higher net return, increased liquidity,
qualifications of AIM to provide investment strategies comparable to increased diversification or decreased
investment advisory services, the Board those of the Fund. The Board noted that transaction costs. The Board also found
considered such issues as AIM's AIM has agreed to waive advisory fees of that the Fund will not receive reduced
portfolio and product review process, the Fund and to limit the Fund's total services if it invests its cash balances
various back office support functions operating expenses, as discussed below. in such money market funds. The Board
provided by AIM and AIM's equity and Based on this review, the Board noted that, to the extent the Fund
fixed income trading operations. Based concluded that the advisory fee rate for invests uninvested cash in affiliated
on the review of these and other the Fund under the Advisory Agreement money market funds, AIM has voluntarily
factors, the Board concluded that the was fair and reasonable. agreed to waive a portion of the
quality of services to be provided by advisory fees it receives from the Fund
AIM was appropriate and that AIM o Fees relative to those of comparable attributable to such investment. The
currently is providing satisfactory funds with other Board further
services in accordance with the
(continued)
6
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006,
AIM V.I. GLOBAL REAL ESTATE FUND)
determined that the proposed securities Funds in the areas of investment the Board also reviewed more recent Fund
lending program and related procedures performance, product line performance, which did not change their
with respect to the lending Fund is in diversification, distribution, fund conclusions.
the best interests of the lending Fund operations, shareholder services and
and its respective shareholders. The compliance. The Board concluded that o The performance of the Fund relative
Board therefore concluded that the these steps taken by AIM have improved, to indices. The Board reviewed the
investment of cash collateral received and are likely to continue to improve, performance of the Fund during the past
in connection with the securities the quality and efficiency of the one, three and five calendar years
lending program in the money market services AIM and its affiliates provide against the performance of the Lipper
funds according to the procedures is in to the Fund in each of these areas, and Variable Underlying Fund Real Estate
the best interests of the lending Fund support the Board's approval of the Index. The Board noted that the Fund's
and its respective shareholders. continuance of the Advisory Agreement performance in such periods was
for the Fund. comparable to the performance of such
o Independent written evaluation and Index. The Board also noted that AIM
recommendations of the Fund's Senior APPROVAL OF SUB-ADVISORY AGREEMENT began serving as investment advisor to
Officer. The Board noted that, upon the Fund in April 2004. Based on this
their direction, the Senior Officer of The Board oversees the management of the review and after taking account of all
the Fund, who is independent of AIM and Fund and, as required by law, determines of the other factors that the Board
AIM's affiliates, had prepared an annually whether to approve the considered in determining whether to
independent written evaluation in order continuance of the Fund's sub-advisory continue the Advisory Agreement for the
to assist the Board in determining the agreement. Based upon the recommendation Fund, the Board concluded that no
reasonableness of the proposed of the Investments Committee of the changes should be made to the Fund and
management fees of the AIM Funds, Board, at a meeting held on June 27, that it was not necessary to change the
including the Fund. The Board noted that 2006, the Board, including all of the Fund's portfolio management team at this
the Senior Officer's written evaluation independent trustees, approved the time. Although the independent written
had been relied upon by the Board in continuance of the sub-advisory evaluation of the Fund's Senior Officer
this regard in lieu of a competitive agreement (the "Sub-Advisory Agreement") (discussed below) only considered Fund
bidding process. In determining whether between INVESCO Institutional (N.A.), performance through the most recent
to continue the Advisory Agreement for Inc. (the "Sub-Advisor") and AIM with calendar year, the Board also reviewed
the Fund, the Board considered the respect to the Fund for another year, more recent Fund performance, which did
Senior Officer's written evaluation and effective July 1, 2006. not change their conclusions.
the recommendation made by the Senior
Officer to the Board that the Board The Board considered the factors o Meetings with the Fund's portfolio
consider whether the advisory fee discussed below in evaluating the managers and investment personnel. The
waivers for certain equity AIM Funds, fairness and reasonableness of the Board is meeting periodically with the
including the Fund, should be Sub-Advisory Agreement at the meeting on Fund's portfolio managers and/or other
simplified. The Board concluded that it June 27, 2006 and as part of the Board's investment personnel and believes that
would be advisable to consider this ongoing oversight of the Fund. In their such individuals are competent and able
issue and reach a decision prior to the deliberations, the Board and the to continue to carry out their
expiration date of such advisory fee independent trustees did not identify responsibilities under the Sub-Advisory
waivers. any particular factor that was Agreement.
controlling, and each trustee attributed
o Profitability of AIM and its different weights to the various o Overall performance of the
affiliates. The Board reviewed factors. Sub-Advisor. The Board considered the
information concerning the profitability overall performance of the Sub-Advisor
of AIM's (and its affiliates') The discussion below serves as a in providing investment advisory
investment advisory and other activities discussion of the material factors and services to the Fund and concluded that
and its financial condition. The Board the conclusions with respect thereto such performance was satisfactory.
considered the overall profitability of that formed the basis for the Board's
AIM, as well as the profitability of AIM approval of the Sub-Advisory Agreement. o Fees relative to those of clients of
in connection with managing the Fund. After consideration of all of the the Sub-Advisor with comparable
The Board noted that AIM's operations factors below and based on its informed investment strategies. The Board
remain profitable, although increased business judgment, the Board determined reviewed the sub-advisory fee rate for
expenses in recent years have reduced that the Sub-Advisory Agreement is in the Fund under the Sub-Advisory
AIM's profitability. Based on the review the best interests of the Fund and its Agreement and the sub-advisory fees paid
of the profitability of AIM's and its shareholders and that the compensation thereunder. The Board noted that this
affiliates' investment advisory and to the Sub-Advisor under the rate was (i) the same as the
other activities and its financial Sub-Advisory Agreement is fair and sub-advisory fee rate for one mutual
condition, the Board concluded that the reasonable. fund sub-advised by the Sub-Advisor with
compensation to be paid by the Fund to investment strategies comparable to
AIM under its Advisory Agreement was not Unless otherwise stated, information those of the Fund and comparable to the
excessive. presented below is as of June 27, 2006 sub-advisory fee rate for a second
and does not reflect any changes that mutual fund sub-advised by the
o Benefits of soft dollars to AIM. The may have occurred since June 27, 2006, Sub-Advisor with investment strategies
Board considered the benefits realized including but not limited to changes to comparable to those of the Fund; and
by AIM as a result of brokerage the Fund's performance. (ii) below the sub-advisory fee rate for
transactions executed through "soft one variable insurance fund sub-advised
dollar" arrangements. Under these o The nature and extent of the advisory by the Sub-Advisor and offered to
arrangements, brokerage commissions paid services to be provided by the insurance company separate accounts with
by the Fund and/or other funds advised Sub-Advisor. The Board reviewed the investment strategies comparable to
by AIM are used to pay for research and services to be provided by the those of the Fund. The Board noted that
execution services. This research may be Sub-Advisor under the Sub-Advisory AIM has agreed to waive advisory fees of
used by AIM in making investment Agreement. Based on such review, the the Fund. The Board also considered the
decisions for the Fund. The Board Board concluded that the range of services to be provided by the
concluded that such arrangements were services to be provided by the Sub-Advisor pursuant to the Sub-Advisory
appropriate. Sub-Advisor under the Sub-Advisory Agreement and the services to be
Agreement was appropriate and that the provided by AIM pursuant to the Advisory
o AIM's financial soundness in light of Sub-Advisor currently is providing Agreement, as well as the allocation of
the Fund's needs. The Board considered services in accordance with the terms of fees between AIM and the Sub-Advisor
whether AIM is financially sound and has the Sub-Advisory Agreement. pursuant to the Sub-Advisory Agreement.
the resources necessary to perform its The Board noted that the sub-advisory
obligations under the Advisory o The quality of services to be fees have no direct effect on the Fund
Agreement, and concluded that AIM has provided by the Sub-Advisor. The Board or its shareholders, as they are paid by
the financial resources necessary to reviewed the credentials and experience AIM to the Sub-Advisor, and that AIM and
fulfill its obligations under the of the officers and employees of the the Sub-Advisor are affiliates. Based on
Advisory Agreement. Sub-Advisor who will provide investment this review, the Board concluded that
advisory services to the Fund. Based on the sub-advisory fee rate under the
o Historical relationship between the the review of these and other factors, Sub-Advisory Agreement was fair and
Fund and AIM. In determining whether to the Board concluded that the quality of reasonable.
continue the Advisory Agreement for the services to be provided by the
Fund, the Board also considered the Sub-Advisor was appropriate, and that o Profitability of AIM and its
prior relationship between AIM and the the Sub-Advisor currently is providing affiliates. The Board reviewed
Fund, as well as the Board's knowledge satisfactory services in accordance with information concerning the profitability
of AIM's operations, and concluded that the terms of the Sub-Advisory Agreement. of AIM's (and its affiliates')
it was beneficial to maintain the investment advisory and other activities
current relationship, in part, because o The performance of the Fund relative and its financial condition. The Board
of such knowledge. The Board also to comparable funds. The Board reviewed considered the overall profitability of
reviewed the general nature of the the performance of the Fund during the AIM, as well as the profitability of AIM
non-investment advisory services past one, three and five calendar years in connection with managing the Fund.
currently performed by AIM and its against the performance of funds advised The Board noted that AIM's operations
affiliates, such as administrative, by other advisors with investment remain profitable, although increased
transfer agency and distribution strategies comparable to those of the expenses in recent years have reduced
services, and the fees received by AIM Fund. The Board noted that the Fund's AIM's profitability. Based on the review
and its affiliates for performing such performance was below the median of the profitability of AIM's and its
services. In addition to reviewing such performance of such comparable funds for affiliates' investment advisory and
services, the trustees also considered the one and five year periods and above other activities and its financial
the organizational structure employed by such median performance for the three condition, the Board concluded that the
AIM and its affiliates to provide those year period. The Board also noted that compensation to be paid by the Fund to
services. Based on the review of these AIM began serving as investment advisor AIM under its Advisory Agreement was not
and other factors, the Board concluded to the Fund in April 2004. Based on this excessive.
that AIM and its affiliates were review and after taking account of all
qualified to continue to provide of the other factors that the Board o The Sub-Advisor's financial soundness
non-investment advisory services to the considered in determining whether to in light of the Fund's needs. The Board
Fund, including administrative, transfer continue the Advisory Agreement for the considered whether the Sub-Advisor is
agency and distribution services, and Fund, the Board concluded that no financially sound and has the resources
that AIM and its affiliates currently changes should be made to the Fund and necessary to perform its obligations
are providing satisfactory that it was not necessary to change the under the Sub-Advisory Agreement, and
non-investment advisory services. Fund's portfolio management team at this concluded that the Sub-Advisor has the
time. Although the independent written financial resources necessary to fulfill
o Other factors and current trends. The evaluation of the Fund's Senior Officer its obligations under the Sub-Advisory
Board considered the steps that AIM and (discussed below) only considered Fund Agreement.
its affiliates have taken over the last performance through the most recent
several years, and continue to take, in calendar year,
order to improve the quality and
efficiency of the services they provide
to the
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC REAL ESTATE INVESTMENT TRUSTS,
COMMON STOCKS & OTHER EQUITY
INTERESTS-66.07%
DIVERSIFIED-4.79%
Colonial Properties Trust 22,000 $ 1,086,800
- -----------------------------------------------------------------------
Public Storage, Inc. 36,700 2,785,530
- -----------------------------------------------------------------------
Ventas, Inc. 59,300 2,009,084
=======================================================================
5,881,414
=======================================================================
HOTELS-11.01%
DiamondRock Hospitality Co. 38,100 564,261
- -----------------------------------------------------------------------
Hilton Hotels Corp. 127,700 3,611,356
- -----------------------------------------------------------------------
Host Hotels & Resorts Inc. 286,389 6,263,327
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 50,700 3,059,238
=======================================================================
13,498,182
=======================================================================
INDUSTRIALS-3.58%
AMB Property Corp. 18,400 930,120
- -----------------------------------------------------------------------
ProLogis 66,314 3,456,286
=======================================================================
4,386,406
=======================================================================
OFFICE-19.59%
Alexandria Real Estate Equities, Inc. 5,400 478,872
- -----------------------------------------------------------------------
Boston Properties, Inc. 27,800 2,513,120
- -----------------------------------------------------------------------
Brandywine Realty Trust 56,721 1,824,715
- -----------------------------------------------------------------------
Equity Office Properties Trust 109,500 3,997,845
- -----------------------------------------------------------------------
Reckson Associates Realty Corp. 64,400 2,664,872
- -----------------------------------------------------------------------
SL Green Realty Corp. 34,000 3,721,980
- -----------------------------------------------------------------------
Trizec Properties, Inc. 75,700 2,168,048
- -----------------------------------------------------------------------
Vornado Realty Trust 68,200 6,652,910
=======================================================================
24,022,362
=======================================================================
RESIDENTIAL-11.28%
Archstone-Smith Trust 43,300 2,202,671
- -----------------------------------------------------------------------
AvalonBay Communities, Inc. 10,400 1,150,448
- -----------------------------------------------------------------------
Camden Property Trust 20,500 1,507,775
- -----------------------------------------------------------------------
Equity Residential 127,400 5,698,602
- -----------------------------------------------------------------------
Essex Property Trust, Inc. 24,300 2,713,338
- -----------------------------------------------------------------------
Mid-America Apartment Communities, Inc. 10,000 557,500
=======================================================================
13,830,334
=======================================================================
RETAIL-15.82%
CBL & Associates Properties, Inc. 17,400 677,382
- -----------------------------------------------------------------------
Developers Diversified Realty Corp. 77,600 4,049,168
- -----------------------------------------------------------------------
Federal Realty Investment Trust 15,600 1,092,000
- -----------------------------------------------------------------------
General Growth Properties, Inc. 35,400 1,595,124
- -----------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
RETAIL-(CONTINUED)
Kimco Realty Corp. 31,500 $ 1,149,435
- -----------------------------------------------------------------------
Macerich Co. (The) 25,800 1,811,160
- -----------------------------------------------------------------------
Regency Centers Corp. 25,700 1,597,255
- -----------------------------------------------------------------------
Simon Property Group, Inc. 89,600 7,431,424
=======================================================================
19,402,948
=======================================================================
Total Domestic Real Estate Investment
Trusts, Common Stocks & Other Equity
Interests (Cost $59,096,571) 81,021,646
=======================================================================
FOREIGN REAL ESTATE INVESTMENT TRUSTS, COMMON
STOCKS & OTHER EQUITY INTERESTS-20.41%
AUSTRALIA-5.36%
CFS Retail Property Trust (Retail) 926,200 1,280,162
- -----------------------------------------------------------------------
GPT Group (Diversified)(a) 426,500 1,376,329
- -----------------------------------------------------------------------
Stockland (Diversified)(a) 528,400 2,758,606
- -----------------------------------------------------------------------
Westfield Group (Retail)(a) 89,600 1,153,309
=======================================================================
6,568,406
=======================================================================
CANADA-0.71%
Boardwalk Real Estate Investment Trust
(Residential) 33,500 769,753
- -----------------------------------------------------------------------
Primaris Retail Real Estate Investment Trust
(Retail) 7,300 106,266
=======================================================================
876,019
=======================================================================
FINLAND-0.36%
Citycon Oyj (Retail)(a) 96,300 444,420
=======================================================================
FRANCE-0.36%
Unibail (Diversified) 2,500 435,904
=======================================================================
HONG KONG-4.70%
China Overseas Land & Investment Ltd.
(Office)(a) 868,000 527,722
- -----------------------------------------------------------------------
China Overseas Land & Investment Ltd.-Wts.,
expiring 07/18/07 (Office)(b)(c) 108,500 3,143
- -----------------------------------------------------------------------
Great Eagle Holdings Ltd. (Office)(a) 157,000 537,411
- -----------------------------------------------------------------------
Hang Lung Properties Ltd. (Retail)(a) 122,000 219,011
- -----------------------------------------------------------------------
Hongkong Land Holdings Ltd. (Office)(a) 621,000 2,277,065
- -----------------------------------------------------------------------
Hysan Development Co. Ltd. (Diversified)(a) 400,000 1,133,630
- -----------------------------------------------------------------------
Sino Land Co. Ltd. (Diversified)(a) 374,000 596,827
- -----------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Residential)(a) 46,000 468,945
=======================================================================
5,763,754
=======================================================================
JAPAN-1.08%
AEON Mall Co., Ltd. (Retail) 3,900 163,941
- -----------------------------------------------------------------------
Diamond City Co., Ltd (Retail)(a) 4,200 166,707
- -----------------------------------------------------------------------
</Table>
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
JAPAN-(CONTINUED)
Sumitomo Realty & Development Co., Ltd.
(Diversified)(a) 7,000 $ 173,457
- -----------------------------------------------------------------------
Tokyo Tatemono Co., Ltd. (Diversified)(a) 76,000 819,179
=======================================================================
1,323,284
=======================================================================
SINGAPORE-1.31%
Ascendas Real Estate Investment Trust
(Industrials) 115,000 139,491
- -----------------------------------------------------------------------
Capitacommercial Trust (Office) 135,900 142,520
- -----------------------------------------------------------------------
Capitaland Ltd. (Residential)(a) 126,000 359,322
- -----------------------------------------------------------------------
CapitaMall Trust (Retail) 293,000 392,419
- -----------------------------------------------------------------------
Keppel Land Ltd. (Office)(a) 143,000 363,790
- -----------------------------------------------------------------------
Macquarie MEAG Prime REIT (Diversified) 365,000 210,989
=======================================================================
1,608,531
=======================================================================
UNITED KINGDOM-6.53%
British Land Co. PLC (Diversified) 64,900 1,515,847
- -----------------------------------------------------------------------
Brixton PLC (Industrials)(a) 61,600 545,146
- -----------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
UNITED KINGDOM-(CONTINUED)
Capital & Regional PLC (Retail) 81,100 $ 1,517,030
- -----------------------------------------------------------------------
Derwent Valley Holdings PLC (Office) 38,600 1,119,285
- -----------------------------------------------------------------------
Land Securities Group PLC (Diversified) 99,900 3,314,326
=======================================================================
8,011,634
=======================================================================
Total Foreign Real Estate Investment
Trusts, Common Stocks & Other Equity
Interests (Cost $24,625,857) 25,031,952
=======================================================================
MONEY MARKET FUNDS-9.60%
Liquid Assets Portfolio-Institutional
Class(d) 5,884,129 5,884,129
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 5,884,128 5,884,128
=======================================================================
Total Money Market Funds (Cost
$11,768,257) 11,768,257
=======================================================================
TOTAL INVESTMENTS-96.08% (Cost $95,490,685) 117,821,855
=======================================================================
OTHER ASSETS LESS LIABILITIES-3.92% 4,806,429
=======================================================================
NET ASSETS-100.00% $122,628,284
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
REIT - Real Estate Investment Trust
Wts. - Warrants
</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 June 30, 2006 was $13,920,876, which
represented 11.35% of the Fund's Net Assets. See Note 1A.
(b) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June 30,
2006 represented 0.00% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security acquired through a corporate action.
(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. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $83,722,428) $106,053,598
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $11,768,257) 11,768,257
=============================================================
Total investments (cost $95,490,685) 117,821,855
=============================================================
Receivables for:
Investments sold 4,221,565
- -------------------------------------------------------------
Fund shares sold 699,320
- -------------------------------------------------------------
Dividends 536,132
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,240
=============================================================
Total assets 123,287,112
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 445,246
- -------------------------------------------------------------
Fund shares reacquired 67,554
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 10,455
- -------------------------------------------------------------
Accrued administrative services fees 85,611
- -------------------------------------------------------------
Accrued distribution fees--Series II 68
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 122
- -------------------------------------------------------------
Accrued transfer agent fees 1,715
- -------------------------------------------------------------
Accrued operating expenses 48,057
=============================================================
Total liabilities 658,828
=============================================================
Net assets applicable to shares outstanding $122,628,284
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 80,344,858
- -------------------------------------------------------------
Undistributed net investment income 2,186,931
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 17,761,472
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 22,335,023
=============================================================
$122,628,284
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $122,484,405
_____________________________________________________________
=============================================================
Series II $ 143,879
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,105,081
_____________________________________________________________
=============================================================
Series II 6,023
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 23.99
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 23.89
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$28,966) $ 1,086,595
- ------------------------------------------------------------
Dividends from affiliated money market funds 105,405
============================================================
Total investment income 1,192,000
============================================================
EXPENSES:
Advisory fees 499,175
- ------------------------------------------------------------
Administrative services fees 149,040
- ------------------------------------------------------------
Custodian fees 17,702
- ------------------------------------------------------------
Distribution fees--Series II 122
- ------------------------------------------------------------
Transfer agent fees 7,592
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 8,580
- ------------------------------------------------------------
Other 42,350
============================================================
Total expenses 724,561
============================================================
Less: Fees waived and expense offset
arrangement (84,369)
============================================================
Net expenses 640,192
============================================================
Net investment income 551,808
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 11,551,621
- ------------------------------------------------------------
Foreign currencies 17,240
============================================================
11,568,861
============================================================
Change in net unrealized appreciation of:
Investment securities 2,077,796
- ------------------------------------------------------------
Foreign currencies 3,884
============================================================
2,081,680
============================================================
Net gain from investment securities and foreign
currencies 13,650,541
============================================================
Net increase in net assets resulting from
operations $14,202,349
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 551,808 $ 1,645,886
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 11,568,861 6,325,916
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 2,081,680 3,518,916
=============================================================================================
Net increase in net assets resulting from operations 14,202,349 11,490,718
=============================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,018,056)
- ---------------------------------------------------------------------------------------------
Series II -- (468)
=============================================================================================
Total distributions from net investment income -- (1,018,524)
=============================================================================================
Distributions to shareholders from net realized gains:
Series I -- (2,594,476)
- ---------------------------------------------------------------------------------------------
Series II -- (1,222)
=============================================================================================
Total distributions from net realized gains -- (2,595,698)
=============================================================================================
Decrease in net assets resulting from distributions -- (3,614,222)
=============================================================================================
Share transactions-net:
Series I 8,316,820 12,711,422
- ---------------------------------------------------------------------------------------------
Series II 70,277 46,237
=============================================================================================
Net increase in net assets resulting from share
transactions 8,387,097 12,757,659
=============================================================================================
Net increase in net assets 22,589,446 20,634,155
=============================================================================================
NET ASSETS:
Beginning of period 100,038,838 79,404,683
=============================================================================================
End of period (including undistributed net investment
income of $2,186,931 and $1,635,123, respectively) $122,628,284 $100,038,838
_____________________________________________________________________________________________
=============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Real Estate Fund (effective July 3, 2006, AIM V.I. Global 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-five 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
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
day. Securities traded in the over-the-counter market (but not securities
reported on the NASDAQ National Market System) are valued based on the
prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs and domestic and foreign index futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
The Fund recharacterizes distributions received from REIT investments
based on information provided by the REIT into the following categories:
ordinary income, long-term and short-term capital gains, and return of
capital. If information is not available timely from the REIT, the
recharacterization will be based on available information which may include
the previous year's allocation. If new or additional information becomes
available from the REIT at a later date, a recharacterization will be made
in the following year. The Fund records as dividend income the amount
recharacterized as ordinary income and as realized gain the amount
recharacterized as capital gain in the Statement of Operations, and the
amount recharacterized as return of capital in the Statement of Changes in
Net Assets. These recharacterizations are reflected in the accompanying
financial statements.
C. 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.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's
average daily net assets.
Through April 30, 2008, 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 Real Estate) ("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, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year. AIM did not
waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
For the six months ended June 30, 2006, AIM waived fees of $83,584.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $124,246 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $7,592.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $122.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS, INVESCO and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------
Liquid
Assets
Portfolio-
Institutional
Class $ -- $ 5,884,129 $ -- $ -- $5,884,129 $ 2,401 $ --
- -----------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,533,127 29,143,577 (28,792,576) -- 5,884,128 103,004 --
=======================================================================================================================
Total $5,533,127 $35,027,706 $(28,792,576) $ -- $11,768,257 $105,405 $ --
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30 ,2006 the Fund received credits from this arrangement, which resulted in
the reduction of the Fund's total expenses of $785.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,941 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 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 six months
ended June 30, 2006 was $50,924,170 and $51,870,263, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $22,644,261
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (390,896)
===============================================================================
Net unrealized appreciation of investment securities $22,253,365
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $95,568,490.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,079,714 $ 24,961,779 2,014,083 $ 39,818,911
- ---------------------------------------------------------------------------------------------------------------------
Series II 3,210 73,338 2,307 48,084
=====================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 171,210 3,612,532
- ---------------------------------------------------------------------------------------------------------------------
Series II -- -- 81 1,690
=====================================================================================================================
Reacquired:
Series I (722,424) (16,644,959) (1,587,102) (30,720,021)
- ---------------------------------------------------------------------------------------------------------------------
Series II (136) (3,061) (172) (3,537)
=====================================================================================================================
360,364 $ 8,387,097 600,407 $ 12,757,659
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) There are seven 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.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
NOTE 10--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.06 $ 19.13 $ 14.34 $ 10.49 $ 9.97 $10.15
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11(a) 0.38(a) 0.32(a) 0.20 0.14 0.20
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.82 2.34 4.92 3.87 0.50 (0.28)
=================================================================================================================================
Total from investment operations 2.93 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 $ 23.99 $ 21.06 $ 19.13 $ 14.34 $ 10.49 $ 9.97
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.91% 14.24% 36.58% 38.82% 6.37% (0.76)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,484 $99,977 $79,391 $26,087 $12,869 $4,723
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%(c) 1.21% 1.31% 1.35% 1.36% 1.38%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.31%(c) 1.36% 1.42% 1.62% 1.89% 2.70%
=================================================================================================================================
Ratio of net investment income to average net assets 1.00%(c) 1.91% 1.96% 3.02% 4.53% 4.35%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 48% 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, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$111,749,148.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.98 $19.12 $13.96
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.08 0.34 0.20
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.83 2.31 5.41
=============================================================================================================
Total from investment operations 2.91 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 $23.89 $20.98 $19.12
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 13.87% 13.85% 40.23%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 144 $ 62 $ 14
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.41%(c) 1.45% 1.45%(d)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.56%(c) 1.61% 1.66%(d)
=============================================================================================================
Ratio of net investment income to average net assets 0.75%(c) 1.67% 1.82%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(e) 48% 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 annualized and based on average daily net assets of $98,027.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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 (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary
Mark H. Williamson and Chief Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
SUB-ADVISOR
INVESCO Institutional (N.A.), Inc.
INVESCO Realty Advisors Division
Three Galleria Tower
Suite 500
13155 Noel Road
Dallas, TX 75240
</Table>
AIM V.I. REAL ESTATE FUND (EFFECTIVE JULY 3, 2006, AIM V.I. GLOBAL REAL ESTATE
FUND)
AIM V.I. SMALL CAP EQUITY FUND
Semiannual Report to Shareholders o June 30,2006
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
JUNE 30,2006,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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington,D.C. 20549.
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
033-57340. 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 30,2006,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.]
--Registered Trademark--
[AIM INVESTMENTS LOGO]
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE --Registered Trademark--
AIM V.I. SMALL CAP EQUITY FUND
<Table>
MANAGEMENT'S DISCUSSION analysis to make sure there are no signs
OF FUND PERFORMANCE of stock deterioration. This also serves
as a risk management measure that helps us
======================================================================================= confirm our high conviction candidates.
PERFORMANCE SUMMARY We consider selling or trimming a stock
========================================== when:
For the six months ended June 30,2006, AIM
V.I. Small Cap Equity Fund had positive FUND VS. INDEXES o The company's fundamental business
returns and, excluding variable product prospects deteriorate.
issuer charges, outperformed the broad CUMULATIVE TOTAL RETURNS 12/31/05-6/30/06,
market, as measured by the S&P 500 Index, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. o A stock reaches its target price.
and the Fund's style-specific index, the IF VARIABLE PRODUCT ISSUER CHARGES WERE
Russell 2000 Index. INCLUDED, RETURNS WOULD BE LOWER o The company's technical profile
deteriorates.
Solid stock selection and relatively Series I Shares 9.88%
strong performance by small-cap stocks MARKET CONDITIONS AND YOUR FUND
enabled the Fund to outperform the Series II Shares 9.69
large-cap-oriented S&P 500 Index. Stock After posting strong performance during
selection across sectors also enabled the Standard & Poor's Composite Index the first four months of 2006, domestic
Fund to outperform the Russell 2000 Index. of 500 Stocks (The S&P 500) equities retreated over the last two
(Broad Market Index) 2.71 months and the reporting period largely
Your Fund's long-term performance due to concerns about the sustainability
appears on page 4. Russell 2000 Index of corporate profits and fears that
(Style-Specific Index) 8.21 inflation might lead the U.S. Federal
Reserve Board to continue raising interest
Lipper Small-Cap Core Fund Index rates. While small-cap stocks were the
(Peer Group Index) 6.30 hardest hit in May and June, they
outperformed large- and mid-cap stocks
SOURCE: LIPPER INC. during the reporting period. Positive
performance was broad among the Russell
========================================== 2000 Index's economic sectors, with the
best returns found in the materials,
======================================================================================= telecommunication services and energy
sectors.
HOW WE INVEST STOCK SELECTION: We select stocks based
on an analysis of individual companies. The Fund benefited from positive
We focus on small-cap companies with Our three-step selection process includes absolute performance in all 10 economic
visible and long-term growth sectors, with the highest positive impact
opportunities, as demonstrated by 1. Fundamental analysis. Building on performance coming from holdings in the
consistent and accelerating earnings financial models and conducting in-depth financials, industrials and energy
growth. Our investment philosophy interviews with company management. sectors. On a relative basis, the Fund
involves: outperformed the Russell 2000 Index in
2. Valuation analysis. Identifying seven out of 10 sectors, with the widest
PORTFOLIO CONSTRUCTION: We align the attractively valued stocks given their margin of outperformance in the consumer
Fund with the S&P 600 Index, the benchmark growth potential over a one- to two-year discretionary, financials and energy
we believe represents the small-cap-core horizon. sectors.
asset class. We seek to control risk by
keeping the Fund's sector weightings in 3. Technical analysis. Identifying the
line with the benchmark by staying fully "timeliness" of a stock purchase. We
diversified in all those sectors. review trading volume characteristics and
trend
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
Industrials 21.6% 1. Regional Banks 5.9% 1. Oceaneering International, Inc. 1.5%
Financials 17.7 2. Property & Casualty Insurance 3.9 2. Genlyte Group Inc. (The) 1.3
Information Technology 14.7 3. Industrial Machinery 3.7 3. Transactions Systems
Health Care 13.2 4. Oil & Gas Exploration & Architects, Inc. 1.3
Consumer Discretionary 9.8 Production 3.6 4. Wright Express Corp. 1.2
Energy 7.2 5. Application Software 3.1 5. CyberSource Corp. 1.1
Materials 4.0 6. Amedisys,Inc. 1.1
Consumer Staples 3.6 7. NTELOS Holdings Corp. 1.1
Utilities 1.7 TOTAL NET ASSETS $68.7 MILLION 8. Penn Virginia Corp. 1.1
Telecommunication Services 1.1 TOTAL NUMBER OF HOLDINGS* 114 9. World Acceptance Corp. 1.1
Money Market Funds 10. Jones Lang LaSalle Inc. 1.1
Plus Other Assets Less Liabilities 5.4
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
</Table>
2
AIM V.I. SMALL CAP EQUITY FUND
<Table>
The Fund outperformed the Russell 2000 repair services. The stock price THE VIEWS AND OPINIONS EXPRESSED IN
Index in the consumer discretionary sector appreciated significantly during the MANAGEMENT'S DISCUSSION OF FUND
primarily due to solid stock selection in period as unprecedented growth in the PERFORMANCE ARE THOSE OF A I M ADVISORS,
retailing stocks. Fund holding GYMBOREE, a deepwater drilling markets led to strong INC. THESE VIEWS AND OPINIONS ARE SUBJECT
children's apparel retailer, was up more revenue and earnings growth. FMC TO CHANGE AT ANY TIME BASED ON FACTORS
than 50% during the reporting period as TECHNOLOGIES, a company that also offers SUCH AS MARKET AND ECONOMIC CONDITIONS.
the company's strategy to broaden its underwater drilling products and services, THESE VIEWS AND OPINIONS MAY NOT BE RELIED
assortment of merchandise led to strong also performed well during the period. UPON AS INVESTMENT ADVICE OR
sales growth. Other retailing holdings RECOMMENDATIONS, OR AS AN OFFER FOR A
that made key contributions included The Fund underperformed relative to the PARTICULAR SECURITY. THE INFORMATION IS
CHRISTOPHER & BANKS. An underweight Russell 2000 Index in the information NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
position in media stocks also drove technology and materials sectors. In the ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
outperformance, as many broadcast and information technology (IT) sector, Fund THE FUND. STATEMENTS OF FACT ARE FROM
publishing stocks had negative returns performance was hindered by several SOURCES CONSIDERED RELIABLE, BUT A I M
during the period. software holdings, including INTERGRAPH, ADVISORS, INC. MAKES NO REPRESENTATION OR
EPICOR SOFTWARE and HYPERION SOLUTIONS. WARRANTY AS TO THEIR COMPLETENESS OR
After beginning to recover in early 2006 ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
Oil prices reached new following disappointing fourth quarter IS NO GUARANTEE OF FUTURE RESULTS, THESE
highs during the first 2005 results, the stock price of each of INSIGHTS MAY HELP YOU UNDERSTAND OUR
six months of 2006, these companies began to fall when the INVESTMENT MANAGEMENT PHILOSOPHY.
driving the performance small-cap market started to decline in
of many holdings early May.
in the energy sector JULIET ELLIS,
In the materials sector, [ELLIS Chartered Financial
underperformance versus the Russell 2000 PHOTO] Analyst, senior
Solid stock selection in the financials Index was largely due to an underweight portfolio manager, is
sector also drove outperformance relative position in metals and mining stocks. Many lead manager of AIM
to the Russell 2000 Index. We had of these stocks had strong performance V.I. Small Cap Equity Fund. Ms. Ellis
particular success with a number of bank during the reporting period. joined AIM in 2004. She previously served
stocks, including HANCOCK HOLDINGS, a as senior portfolio manager of two
leading provider of commercial and Overall positioning of the Fund was small-cap funds for another company and
consumer banking services along the Gulf little changed during the period. Exposure was responsible for the management of more
Coasts of Mississippi and Louisiana. This was added to the industrials and health than $2 billion in assets. Ms. Ellis began
bank has benefited from strong earnings care sectors, and reduced in the IT and her investment career in 1981 as a
growth as a result of increased deposits financials sectors. All changes to the financial consultant. She is a Cum Laude
associated with the rebuilding efforts Fund were based on our bottom-up stock and Phi Beta Kappa graduate of Indiana
along the Gulf Coast. Commercial real selection process of identifying what we University with a B.A. in economics and
estate services provider JONES LANG consider high quality growth companies political science.
LASALLE also made a significant trading at what we believe are attractive
contribution to Fund performance. This valuations. JUAN HARTSFIELD,
company delivered strong results in all [HARTSFIELD Chartered Financial
business segments, exceeding sales and IN CLOSING PHOTO] Analyst, portfolio
earnings expectations in the fourth manager, is manager of
quarter of 2005 and the first quarter of Although we are pleased to have provided AIM V.I. Small Cap
2006. positive returns for our investors for the Equity Fund. Prior to joining AIM in 2004,
reporting period, we are always striving he began his investment career in 2000 as
Oil prices reached new highs during the to improve performance and help you meet an equity analyst and most recently served
first six months of 2006, driving the your financial goals. We remain committed as a portfolio manager. Mr. Hartsfield
performance of many holdings in the energy to our investment process of focusing on earned a B.S. in petroleum engineering
sector. Within this sector, several of the the attractively priced stocks of from The University of Texas and an M.B.A.
Fund's oil service holdings performed small-cap companies with growing cash flow from the University of Michigan.
well. The top contributor to Fund and earnings.
performance during the reporting period Assisted by the Small Cap Core/Growth Team
was OCEANEERING INTERNATIONAL, a company We thank you for your commitment to AIM
that provides offshore oil companies with V.I. Small Cap Equity Fund.
underwater drilling support, construction, [RIGHT ARROW GRAPHIC]
inspection and
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.
</Table>
3
AIM V.I. SMALL CAP EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
========================================== REINVESTED DISTRIBUTIONS AND CHANGES IN PER NASD REQUIREMENTS, THE MOST RECENT
NET ASSET VALUE. INVESTMENT RETURN AND MONTH-END PERFORMANCE DATA AT THE FUND
AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
MAY HAVE A GAIN OR LOSS WHEN YOU SELL IS AVAILABLE ON THIS AIM AUTOMATED
As of 6/30/06 SHARES. INFORMATION LINE, 866-702-4402. AS
SERIES I SHARES MENTIONED ABOVE, FOR THE MOST RECENT
Inception (8/29/03) 14.81% AIM V.I. SMALL CAP EQUITY FUND, A MONTH-END PERFORMANCE INCLUDING VARIABLE
1 Year 18.41 SERIES PORTFOLIO OF AIM VARIABLE INSURANCE PRODUCT CHARGES, PLEASE CONTACT YOUR
FUNDS, IS CURRENTLY OFFERED THROUGH VARIABLE PRODUCT ISSUER OR FINANCIAL
SERIES II SHARES INSURANCE COMPANIES ISSUING VARIABLE ADVISOR.
Inception (8/29/03) 14.60% PRODUCTS. YOU CANNOT PURCHASE SHARES OF
1 Year 18.14 THE FUND DIRECTLY. PERFORMANCE FIGURES HAD THE ADVISOR NOT WAIVED FEES AND/OR
GIVEN REPRESENT THE FUND AND ARE NOT REIMBURSED EXPENSES, PERFORMANCE WOULD
========================================== INTENDED TO REFLECT ACTUAL VARIABLE HAVE BEEN LOWER.
PRODUCT VALUES. THEY DO NOT REFLECT SALES
THE PERFORMANCE OF THE FUND'S SERIES I AND CHARGES, EXPENSES AND FEES ASSESSED IN
SERIES II SHARE CLASSES WILL DIFFER CONNECTION WITH A VARIABLE PRODUCT. SALES
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. CHARGES, EXPENSES AND FEES, WHICH ARE
DETERMINED BY THE VARIABLE PRODUCT
THE PERFORMANCE DATA QUOTED REPRESENT ISSUERS, WILL VARY AND WILL LOWER THE
PAST PERFORMANCE AND CANNOT GUARANTEE TOTAL RETURN.
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
CONTACT YOUR VARIABLE PRODUCT ISSUER OR
FINANCIAL ADVISOR FOR THE MOST RECENT
MONTH-END VARIABLE PRODUCT PERFORMANCE.
PERFORMANCE FIGURES REFLECT FUND EXPENSES,
PRINCIPAL RISKS OF INVESTING IN THE FUND rate changes and market price of an index of funds reflects fund
fluctuations. See the prospectus for more expenses; performance of a market index
Investing in smaller companies involves details. does not.
greater risk than investing in more
established companies, such as business Although the Fund's return during OTHER INFORMATION
risk, significant stock price fluctuations certain periods was positively impacted by
and illiquidity. its investments in initial public The returns shown in the management's
offerings (IPOs), there can be no discussion of Fund performance are based
The Fund may invest up to 25% of its assurance that the Fund will have on net asset values calculated for
assets in the securities of non-U.S. favorable IPO investment opportunities in shareholder transactions. Generally
issuers. Securities of Canadian issuers the future. accepted accounting principles require
and American Depositary Receipts are not adjustments to be made to the net assets
subject to this 25% limitation. ABOUT INDEXES USED IN THIS REPORT of the Fund at period end for financial
International investing presents risks not reporting purposes, and as such, the net
associated with investing solely in the The unmanaged STANDARD & POOR'S COMPOSITE asset value for shareholder transactions
United States. These include risks INDEX OF 500 STOCKS (the S&P 500(R) Index) and the returns based on those net asset
relating to the fluctuation in the value is an index of common stocks frequently values may differ from the net asset
of the U.S. dollar relative to the values used as a general measure of U.S. stock values and returns reported in the
of the currencies, the custody market performance. Financial Highlights. Additionally, the
arrangements made for the Fund's foreign returns and net asset values shown
holdings, differences in accounting, The unmanaged STANDARD & POOR'S throughout this report are at the fund
political risks and the lesser degree of COMPOSITE INDEX OF 600 STOCKS (the S&P 600 level only and do not include variable
public information required to be provided Index) is an index of common stocks product issuer charges. If such charges
by non-U.S. companies. frequently used as a general measure of were included, the total returns would be
the small company segment of the U.S. lower.
The Fund may invest a portion of its stock market.
assets in synthetic instruments, such as Industry classifications used in this
warrants, futures, options, exchange The unmanaged LIPPER SMALL-CAP CORE report are generally according to the
traded funds and American Depositary FUND INDEX represents an average of the Global Industry Classification Standard,
Receipts, the value of which may not performance of the 30 largest which was developed by and is the
correlate perfectly with the overall small-capitalization core funds tracked by exclusive property and a service mark of
securities market. Risks associated with Lipper, Inc., an independent mutual fund Morgan Stanley Capital International Inc.
synthetic instruments may include counter performance monitor. and Standard & Poor's.
party risk and sensitivity to interest
The unmanaged RUSSELL 2000(R) INDEX
represents the performance of the stocks
of domestic small-capitalization
companies.
The Fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
consequently, the performance of the Fund
may deviate significantly from the
performance of the indexes.
A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not reflect sales
charges. Performance
</Table>
4
AIM V.I. SMALL CAP EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
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 June 30, 2006, appear in the table
and other Fund expenses. This example is together with the amount you invested, to "Fund vs. Indexes" on page 2.
intended to help you understand your estimate the expenses that you paid over
ongoing costs (in dollars) of investing in the period. Simply divide your account THE HYPOTHETICAL ACCOUNT VALUES AND
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 EXPENSES MAY NOT BE USED TO ESTIMATE THE
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), ACTUAL ENDING ACCOUNT BALANCE OR EXPENSES
funds. The example is based on an then multiply the result by the number in YOU PAID FOR THE PERIOD. YOU MAY USE THIS
investment of $1,000 invested at the the table under the heading entitled INFORMATION TO COMPARE THE ONGOING COSTS
beginning of the period and held for the "Actual Expenses Paid During Period" to OF INVESTING IN THE FUND AND OTHER FUNDS.
entire period January 1, 2006, through estimate the expenses you paid on your TO DO SO, COMPARE THIS 5% HYPOTHETICAL
June 30, 2006. account during this period. EXAMPLE WITH THE 5% HYPOTHETICAL EXAMPLES
THAT APPEAR IN THE SHAREHOLDER REPORTS OF
The actual and hypothetical expenses in HYPOTHETICAL EXAMPLE FOR COMPARISON THE OTHER FUNDS.
the examples below do not represent the PURPOSES
effect of any fees or other expenses Please note that the expenses shown in
assessed in connection with a variable The table below also provides information the table are meant to highlight your
product; if they did, the expenses shown about hypothetical account values and ongoing costs. Therefore, the hypothetical
would be higher while the ending account hypothetical expenses based on the Fund's information is useful in comparing ongoing
values shown would be lower. actual expense ratio and an assumed rate costs, and will not help you determine the
of return of 5% per 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,098.80 $5.98 $1,019.09 $5.76 1.15%
Series II 1,000.00 1,096.90 7.28 1,017.85 7.00 1.40
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
5
AIM V.I. SMALL CAP EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
<Table>
The Board of Trustees of AIM Variable provided by AIM under the Advisory Board also reviewed more recent Fund
Insurance Funds (the "Board") oversees the Agreement. Based on such review, the Board performance, which did not change their
management of AIM V.I. Small Cap Equity concluded that the range of services to be conclusions.
Fund (the "Fund") and, as required by law, provided by AIM under the Advisory
determines annually whether to approve the Agreement was appropriate and that AIM o Meetings with the Fund's portfolio
continuance of the Fund's advisory currently is providing services in managers and investment personnel. With
agreement with A I M Advisors, Inc. accordance with the terms of the Advisory respect to the Fund, the Board is meeting
("AIM"). Based upon the recommendation of Agreement. periodically with such Fund's portfolio
the Investments Committee of the Board, at managers and/or other investment personnel
a meeting held on June 27, 2006, the o The quality of services to be provided and believes that such individuals are
Board, including all of the independent by AIM. The Board reviewed the credentials competent and able to continue to carry
trustees, approved the continuance of the and experience of the officers and out their responsibilities under the
advisory agreement (the "Advisory employees of AIM who will provide Advisory Agreement.
Agreement") between the Fund and AIM for investment advisory services to the Fund.
another year, effective July 1, 2006. In reviewing the qualifications of AIM to o Overall performance of AIM. The Board
provide investment advisory services, the considered the overall performance of AIM
The Board considered the factors Board considered such issues as AIM's in providing investment advisory and
discussed below in evaluating the fairness portfolio and product review process, portfolio administrative services to the
and reasonableness of the Advisory various back office support functions Fund and concluded that such performance
Agreement at the meeting on June 27, 2006 provided by AIM and AIM's equity and fixed was satisfactory.
and as part of the Board's ongoing income trading operations. Based on the
oversight of the Fund. In their review of these and other factors, the o Fees relative to those of clients of AIM
deliberations, the Board and the Board concluded that the quality of with comparable investment strategies. The
independent trustees did not identify any services to be provided by AIM was Board reviewed the effective advisory fee
particular factor that was controlling, appropriate and that AIM currently is rate (before waivers) for the Fund under
and each trustee attributed different providing satisfactory services in the Advisory Agreement. The Board noted
weights to the various factors. accordance with the terms of the Advisory that this rate was (i) the same as the
Agreement. effective advisory fee rates (before
One responsibility of the independent waivers) for two mutual funds advised by
Senior Officer of the Fund is to manage o The performance of the Fund relative to AIM with investment strategies comparable
the process by which the Fund's proposed comparable funds. The Board reviewed the to those of the Fund and below the
management fees are negotiated to ensure performance of the Fund during the past effective advisory fee rate (before
that they are negotiated in a manner which calendar year against the performance of waivers) for a third mutual fund advised
is at arms' length and reasonable. To that funds advised by other advisors with by AIM with investment strategies
end, the Senior Officer must either investment strategies comparable to those comparable to those of the Fund; and (ii)
supervise a competitive bidding process or of the Fund. The Board noted that the above the effective sub-advisory fee rate
prepare an independent written evaluation. Fund's performance was above the median for one Canadian mutual fund sub-advised
The Senior Officer has recommended an performance of such comparable funds for by an AIM affiliate with investment
independent written evaluation in lieu of the one year period. Based on this review strategies comparable to those of the
a competitive bidding process and, upon and after taking account of all of the Fund. The Board noted that AIM has agreed
the direction of the Board, has prepared other factors that the Board considered in to waive advisory fees of the Fund and to
such an independent written evaluation. determining whether to continue the limit the Fund's total operating expenses,
Such written evaluation also considered Advisory Agreement for the Fund, the Board as discussed below. Based on this review,
certain of the factors discussed below. In concluded that no changes should be made the Board concluded that the advisory fee
addition, as discussed below, the Senior to the Fund and that it was not necessary rate for the Fund under the Advisory
Officer made a recommendation to the Board to change the Fund's portfolio management Agreement was fair and reasonable.
in connection with such written team at this time. Although the
evaluation. independent written evaluation of the o Fees relative to those of comparable
Fund's Senior Officer (discussed below) funds with other advisors. The Board
The discussion below serves as a only considered Fund performance through reviewed the advisory fee rate for the
summary of the Senior Officer's the most recent calendar year, the Board Fund under the Advisory Agreement. The
independent written evaluation and also reviewed more recent Fund Board compared effective contractual
recommendation to the Board in connection performance, which did not change their advisory fee rates at a common asset level
therewith, as well as a discussion of the conclusions. at the end of the past calendar year and
material factors and the conclusions with noted that the Fund's rate was comparable
respect thereto that formed the basis for o The performance of the Fund relative to to the median rate of the funds advised by
the Board's approval of the Advisory indices. The Board reviewed the other advisors with investment strategies
Agreement. After consideration of all of performance of the Fund during the past comparable to those of the Fund that the
the factors below and based on its calendar year against the performance of Board reviewed. The Board noted that AIM
informed business judgment, the Board the Lipper Variable Underlying Fund has agreed to waive advisory fees of the
determined that the Advisory Agreement is Small-Cap Core Index. The Board noted that Fund and to limit the Fund's total
in the best interests of the Fund and its the Fund's performance was above the operating expenses, as discussed below.
shareholders and that the compensation to performance of such Index for the one year Based on this review, the Board concluded
AIM under the Advisory Agreement is fair period. Based on this review and after that the advisory fee rate for the Fund
and reasonable and would have been taking account of all of the other factors under the Advisory Agreement was fair and
obtained through arm's length that the Board considered in determining reasonable.
negotiations. whether to continue the Advisory Agreement
for the Fund, the Board concluded that no o Expense limitations and fee waivers. The
Unless otherwise stated, information changes should be made to the Fund and Board noted that AIM has contractually
presented below is as of June 27, 2006 and that it was not necessary to change the agreed to waive advisory fees of the Fund
does not reflect any changes that may have Fund's portfolio management team at this through April 30, 2008 to the extent
occurred since June 27, 2006, including time. Although the independent written necessary so that the advisory fees
but not limited to changes to the Fund's evaluation of the Fund's Senior Officer payable by the Fund do not exceed a
performance, advisory fees, expense (discussed below) only considered Fund specified maximum advisory fee rate, which
limitations and/or fee waivers. performance through the most recent maximum rate includes breakpoints and is
calendar year, the based on net asset levels. The Board
o The nature and extent of the advisory considered the contractual nature of this
services to be provided by AIM. The Board fee waiver and noted
reviewed the services to be
(continued)
</Table>
6
AIM V.I.S MALL CAP EQUITY FUND
<Table>
that it remains in effect until April 30, of the advisory fees it receives from the o AIM's financial soundness in light of
2008. The Board noted that AIM has Fund attributable to such investment. The the Fund's needs. The Board considered
contractually agreed to waive fees and/or Board further determined that the proposed whether AIM is financially sound and has
limit expenses of the Fund through April securities lending program and related the resources necessary to perform its
30, 2008 in an amount necessary to limit procedures with respect to the lending obligations under the Advisory Agreement,
total annual operating expenses to a Fund is in the best interests of the and concluded that AIM has the financial
specified percentage of average daily net lending Fund and its respective resources necessary to fulfill its
assets for each class of the Fund. The shareholders. The Board therefore obligations under the Advisory Agreement.
Board considered the contractual nature of concluded that the investment of cash
this fee waiver/expense limitation and collateral received in connection with the o Historical relationship between the Fund
noted that it remains in effect until securities lending program in the money and AIM. In determining whether to
April 30, 2008. The Board considered the market funds according to the procedures continue the Advisory Agreement for the
effect these fee waivers/expense is in the best interests of the lending Fund, the Board also considered the prior
limitations would have on the Fund's Fund and its respective shareholders. relationship between AIM and the Fund, as
estimated expenses and concluded that the well as the Board's knowledge of AIM's
levels of fee waivers/expense limitations o Independent written evaluation and operations, and concluded that it was
for the Fund were fair and reasonable. recommendations of the Fund's Senior beneficial to maintain the current
Officer. The Board noted that, upon their relationship, in part, because of such
o Breakpoints and economies of scale. The direction, the Senior Officer of the Fund, knowledge. The Board also reviewed the
Board reviewed the structure of the Fund's who is independent of AIM and AIM's general nature of the non-investment
advisory fee under the Advisory Agreement, affiliates, had prepared an independent advisory services currently performed by
noting that it does not include any written evaluation in order to assist the AIM and its affiliates, such as
breakpoints. The Board considered whether Board in determining the reasonableness of administrative, transfer agency and
it would be appropriate to add advisory the proposed management fees of the AIM distribution services, and the fees
fee breakpoints for the Fund or whether, Funds, including the Fund. The Board noted received by AIM and its affiliates for
due to the nature of the Fund and the that the Senior Officer's written performing such services. In addition to
advisory fee structures of comparable evaluation had been relied upon by the reviewing such services, the trustees also
funds, it was reasonable to structure the Board in this regard in lieu of a considered the organizational structure
advisory fee without breakpoints. Based on competitive bidding process. In employed by AIM and its affiliates to
this review, the Board concluded that it determining whether to continue the provide those services. Based on the
was not necessary to add advisory fee Advisory Agreement for the Fund, the Board review of these and other factors, the
breakpoints to the Fund's advisory fee considered the Senior Officer's written Board concluded that AIM and its
schedule. The Board reviewed the level of evaluation and the recommendation made by affiliates were qualified to continue to
the Fund's advisory fees, and noted that the Senior Officer to the Board that the provide non-investment advisory services
such fees, as a percentage of the Fund's Board consider whether the advisory fee to the Fund, including administrative,
net assets, would remain constant under waivers for certain equity AIM Funds, transfer agency and distribution services,
the Advisory Agreement because the including the Fund should be simplified. and that AIM and its affiliates currently
Advisory Agreement does not include any The Board concluded that it would be are providing satisfactory non-investment
breakpoints. The Board noted that AIM has advisable to consider this issue and reach advisory services.
contractually agreed to waive advisory a decision prior to the expiration date of
fees of the Fund through April 30, 2008 to such advisory fee waivers. o Other factors and current trends. The
the extent necessary so that the advisory Board considered the steps that AIM and
fees payable by the Fund do not exceed a o Profitability of AIM and its affiliates. its affiliates have taken over the last
specified maximum advisory fee rate, which The Board reviewed information concerning several years, and continue to take, in
maximum rate includes breakpoints and is the profitability of AIM's (and its order to improve the quality and
based on net asset levels. The Board affiliates') investment advisory and other efficiency of the services they provide to
concluded that the Fund's fee levels under activities and its financial condition. the Funds in the areas of investment
the Advisory Agreement therefore would not The Board considered the overall performance, product line diversification,
reflect economies of scale, although the profitability of AIM, as well as the distribution, fund operations, shareholder
advisory fee waiver reflects economies of profitability of AIM in connection with services and compliance. The Board
scale. managing the Fund. The Board noted that concluded that these steps taken by AIM
AIM's operations remain profitable, have improved, and are likely to continue
o Investments in affiliated money market although increased expenses in recent to improve, the quality and efficiency of
funds. The Board also took into account years have reduced AIM's profitability. the services AIM and its affiliates
the fact that uninvested cash and cash Based on the review of the profitability provide to the Fund in each of these
collateral from securities lending of AIM's and its affiliates' investment areas, and support the Board's approval of
arrangements, if any (collectively, "cash advisory and other activities and its the continuance of the Advisory Agreement
balances") of the Fund may be invested in financial condition, the Board concluded for the Fund.
money market funds advised by AIM pursuant that the compensation to be paid by the
to the terms of an SEC exemptive order. Fund to AIM under its Advisory Agreement
The Board found that the Fund may realize was not excessive.
certain benefits upon investing cash
balances in AIM advised money market o Benefits of soft dollars to AIM. The
funds, including a higher net return, Board considered the benefits realized by
increased liquidity, increased AIM as a result of brokerage transactions
diversification or decreased transaction executed through "soft dollar"
costs. The Board also found that the Fund arrangements. Under these arrangements,
will not receive reduced services if it brokerage commissions paid by the Fund
invests its cash balances in such money and/or other funds advised by AIM are used
market funds. The Board noted that, to the to pay for research and execution
extent the Fund invests uninvested cash in services. This research may be used by AIM
affiliated money market funds, AIM has in making investment decisions for the
voluntarily agreed to waive a portion Fund. The Board concluded that such
arrangements were appropriate.
</Table>
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.57%
AEROSPACE & DEFENSE-0.93%
Curtiss-Wright Corp. 20,698 $ 639,154
======================================================================
AIR FREIGHT & LOGISTICS-0.74%
UTi Worldwide, Inc. 20,241 510,680
======================================================================
APPAREL RETAIL-2.73%
Christopher & Banks Corp. 22,371 648,759
- ----------------------------------------------------------------------
Gymboree Corp. (The)(a) 19,038 661,761
- ----------------------------------------------------------------------
Stage Stores, Inc. 17,086 563,838
======================================================================
1,874,358
======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.36%
Volcom, Inc.(a) 7,629 244,052
======================================================================
APPLICATION SOFTWARE-3.11%
Epicor Software Corp.(a) 48,573 511,474
- ----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 15,210 419,796
- ----------------------------------------------------------------------
Intergraph Corp.(a) 10,693 336,722
- ----------------------------------------------------------------------
Transaction Systems Architects, Inc.(a) 20,809 867,527
======================================================================
2,135,519
======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.82%
Affiliated Managers Group, Inc.(a) 6,443 559,832
======================================================================
AUTOMOTIVE RETAIL-0.83%
Midas, Inc.(a) 31,160 573,344
======================================================================
BIOTECHNOLOGY-0.76%
Cubist Pharmaceuticals, Inc.(a) 14,758 371,607
- ----------------------------------------------------------------------
CV Therapeutics, Inc.(a) 10,857 151,672
======================================================================
523,279
======================================================================
BUILDING PRODUCTS-1.88%
Goodman Global, Inc.(a) 38,742 588,103
- ----------------------------------------------------------------------
NCI Building Systems, Inc.(a) 10,035 533,561
- ----------------------------------------------------------------------
Quixote Corp. 9,378 168,992
======================================================================
1,290,656
======================================================================
CASINOS & GAMING-0.69%
Pinnacle Entertainment, Inc.(a) 15,506 475,259
======================================================================
CATALOG RETAIL-0.75%
PetMed Express, Inc.(a) 46,673 512,003
======================================================================
COMMUNICATIONS EQUIPMENT-1.39%
Black Box Corp. 13,154 504,193
- ----------------------------------------------------------------------
Packeteer, Inc.(a) 39,569 448,712
======================================================================
952,905
======================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
COMPUTER STORAGE & PERIPHERALS-0.54%
Emulex Corp.(a) 22,956 $ 373,494
======================================================================
CONSTRUCTION & ENGINEERING-2.13%
Infrasource Services Inc.(a) 34,434 627,043
- ----------------------------------------------------------------------
URS Corp.(a) 14,699 617,358
- ----------------------------------------------------------------------
Williams Scotsman International Inc.(a) 10,022 218,881
======================================================================
1,463,282
======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.83%
Manitowoc Co., Inc. (The) 12,807 569,912
======================================================================
CONSUMER FINANCE-1.11%
World Acceptance Corp.(a) 21,371 759,098
======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.13%
BISYS Group, Inc. (The)(a) 44,676 612,061
- ----------------------------------------------------------------------
Wright Express Corp.(a) 29,587 850,331
======================================================================
1,462,392
======================================================================
DIVERSIFIED CHEMICALS-1.02%
FMC Corp. 10,885 700,885
======================================================================
DIVERSIFIED METALS & MINING-0.95%
Compass Minerals International, Inc. 26,240 654,688
======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.01%
Genlyte Group Inc. (The)(a) 12,131 878,649
- ----------------------------------------------------------------------
Hubbell Inc.-Class B 10,568 503,565
======================================================================
1,382,214
======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.90%
Park Electrochemical Corp. 24,119 621,064
======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.85%
Rollins, Inc. 31,435 617,383
- ----------------------------------------------------------------------
Waste Connections, Inc.(a) 18,000 655,200
======================================================================
1,272,583
======================================================================
FOOD RETAIL-0.90%
Ruddick Corp. 25,173 616,990
======================================================================
GAS UTILITIES-1.06%
Energen Corp. 18,870 724,797
======================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.86%
Owens & Minor, Inc. 20,630 $ 590,018
======================================================================
HEALTH CARE EQUIPMENT-2.39%
STERIS Corp. 25,191 575,866
- ----------------------------------------------------------------------
Vital Signs, Inc. 13,975 692,182
- ----------------------------------------------------------------------
Volcano Corp.(a) 41,447 375,095
======================================================================
1,643,143
======================================================================
HEALTH CARE FACILITIES-1.07%
LCA-Vision Inc. 13,939 737,513
======================================================================
HEALTH CARE SERVICES-1.13%
Amedisys, Inc.(a) 20,505 777,140
======================================================================
HEALTH CARE SUPPLIES-2.03%
DJO Inc.(a) 19,625 722,789
- ----------------------------------------------------------------------
Haemonetics Corp.(a) 14,435 671,372
======================================================================
1,394,161
======================================================================
HEALTH CARE TECHNOLOGY-1.77%
Computer Programs and Systems, Inc. 13,599 543,416
- ----------------------------------------------------------------------
Phase Forward Inc.(a) 58,536 674,335
======================================================================
1,217,751
======================================================================
HOTELS, RESORTS & CRUISE LINES-0.97%
Red Lion Hotels Corp.(a) 60,600 663,570
======================================================================
HOUSEHOLD APPLIANCES-1.03%
Snap-on Inc. 17,501 707,390
======================================================================
HOUSEHOLD PRODUCTS-0.76%
Central Garden & Pet Co.(a) 12,097 520,776
======================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.63%
Heidrick & Struggles International, Inc.(a) 19,539 661,200
- ----------------------------------------------------------------------
Kenexa Corp.(a) 14,292 455,200
======================================================================
1,116,400
======================================================================
INDUSTRIAL MACHINERY-3.67%
Kadant Inc.(a) 26,641 612,743
- ----------------------------------------------------------------------
Middleby Corp. (The)(a) 8,065 698,106
- ----------------------------------------------------------------------
RBC Bearings Inc.(a) 31,799 721,837
- ----------------------------------------------------------------------
Valmont Industries, Inc. 10,477 487,076
======================================================================
2,519,762
======================================================================
INSURANCE BROKERS-0.84%
Hilb Rogal and Hobbs Co. 15,555 579,735
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.12%
NTELOS Holdings Corp.(a) 53,461 772,511
======================================================================
INTERNET SOFTWARE & SERVICES-1.63%
CyberSource Corp.(a) 66,899 782,718
- ----------------------------------------------------------------------
DealerTrack Holdings Inc.(a) 15,323 338,792
======================================================================
1,121,510
======================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
INVESTMENT BANKING & BROKERAGE-0.34%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $20,000)(a)(b)(c) 200 $ 4,106
- ----------------------------------------------------------------------
Thomas Weisel Partners Group, Inc.(a) 12,199 231,903
======================================================================
236,009
======================================================================
LIFE SCIENCES TOOLS & SERVICES-1.59%
Dionex Corp.(a) 12,094 661,058
- ----------------------------------------------------------------------
ICON PLC-ADR (United Kingdom)(a) 7,804 431,561
======================================================================
1,092,619
======================================================================
METAL & GLASS CONTAINERS-0.92%
AptarGroup, Inc. 12,718 630,940
======================================================================
MULTI-UTILITIES-0.59%
Avista Corp. 17,741 405,027
======================================================================
OFFICE REIT'S-0.95%
Alexandria Real Estate Equities, Inc. 7,318 648,960
======================================================================
OFFICE SERVICES & SUPPLIES-1.66%
Brady Corp.-Class A 13,155 484,630
- ----------------------------------------------------------------------
PeopleSupport Inc.(a) 48,506 652,891
======================================================================
1,137,521
======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.51%
FMC Technologies, Inc.(a) 10,543 711,231
- ----------------------------------------------------------------------
Oceaneering International, Inc.(a) 22,076 1,012,184
======================================================================
1,723,415
======================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.63%
Berry Petroleum Co.-Class A 9,249 306,604
- ----------------------------------------------------------------------
Comstock Resources, Inc.(a) 23,706 707,861
- ----------------------------------------------------------------------
Penn Virginia Corp. 10,871 759,666
- ----------------------------------------------------------------------
Warren Resources Inc.(a) 49,849 715,832
======================================================================
2,489,963
======================================================================
OIL & GAS REFINING & MARKETING-1.09%
Alon USA Energy, Inc. 23,678 745,147
======================================================================
PACKAGED FOODS & MEATS-1.95%
Flowers Foods, Inc. 25,384 726,998
- ----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 25,659 612,993
======================================================================
1,339,991
======================================================================
PHARMACEUTICALS-1.52%
Aspreva Pharmaceuticals Corp. (Canada)(a) 22,351 606,606
- ----------------------------------------------------------------------
ViroPharma Inc.(a) 50,678 436,845
======================================================================
1,043,451
======================================================================
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-3.92%
Assured Guaranty Ltd. 26,580 $ 674,335
- ----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 17,294 670,142
- ----------------------------------------------------------------------
Ohio Casualty Corp. 22,802 677,903
- ----------------------------------------------------------------------
Philadelphia Consolidated Holding Corp.(a) 22,091 670,683
======================================================================
2,693,063
======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.10%
Jones Lang LaSalle Inc. 8,628 755,381
======================================================================
REGIONAL BANKS-5.94%
Alabama National BanCorp. 7,892 537,840
- ----------------------------------------------------------------------
Columbia Banking System, Inc. 15,165 566,868
- ----------------------------------------------------------------------
Hancock Holding Co. 9,948 557,088
- ----------------------------------------------------------------------
MB Financial, Inc. 12,118 428,493
- ----------------------------------------------------------------------
Signature Bank(a) 14,773 478,350
- ----------------------------------------------------------------------
Sterling Bancshares, Inc. 22,991 431,081
- ----------------------------------------------------------------------
Sterling Financial Corp. 14,044 428,482
- ----------------------------------------------------------------------
United Community Banks, Inc. 21,514 654,886
======================================================================
4,083,088
======================================================================
RESTAURANTS-2.48%
O'Charley's Inc.(a) 39,605 673,285
- ----------------------------------------------------------------------
Papa John's International, Inc.(a) 17,590 583,988
- ----------------------------------------------------------------------
Steak n Shake Co. (The)(a) 29,395 445,040
======================================================================
1,702,313
======================================================================
SEMICONDUCTOR EQUIPMENT-1.45%
ATMI, Inc.(a) 22,598 556,363
- ----------------------------------------------------------------------
Nextest Systems Corp.(a) 27,196 440,847
======================================================================
997,210
======================================================================
SEMICONDUCTORS-2.68%
DSP Group, Inc.(a) 23,621 586,982
- ----------------------------------------------------------------------
Hittite Microwave Corp.(a) 15,570 563,011
- ----------------------------------------------------------------------
Micrel, Inc.(a) 45,308 453,533
- ----------------------------------------------------------------------
Semtech Corp.(a) 16,344 236,171
======================================================================
1,839,697
======================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
SPECIALIZED REIT'S-2.67%
Global Signal Inc. 14,632 $ 677,754
- ----------------------------------------------------------------------
LaSalle Hotel Properties 15,650 724,595
- ----------------------------------------------------------------------
Universal Health Realty Income Trust 13,785 432,160
======================================================================
1,834,509
======================================================================
SPECIALTY CHEMICALS-1.10%
A. Schulman, Inc. 15,122 346,143
- ----------------------------------------------------------------------
H.B. Fuller Co. 9,470 412,608
======================================================================
758,751
======================================================================
TECHNOLOGY DISTRIBUTORS-0.89%
Agilysys, Inc. 34,065 613,170
======================================================================
TRADING COMPANIES & DISTRIBUTORS-2.20%
H&E Equipment Services, Inc.(a) 13,072 384,970
- ----------------------------------------------------------------------
UAP Holding Corp. 33,031 720,406
- ----------------------------------------------------------------------
Watsco, Inc. 6,779 405,520
======================================================================
1,510,896
======================================================================
TRUCKING-2.07%
Landstar System, Inc. 14,468 683,323
- ----------------------------------------------------------------------
Marten Transport, Ltd.(a) 34,047 740,182
======================================================================
1,423,505
======================================================================
Total Common Stocks & Other Equity
Interests (Cost $57,991,472) 64,958,446
======================================================================
MONEY MARKET FUNDS-5.41%
Liquid Assets Portfolio-Institutional
Class(d) 1,856,776 1,856,776
- ----------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 1,856,776 1,856,776
======================================================================
Total Money Market Funds (Cost
$3,713,552) 3,713,552
======================================================================
TOTAL INVESTMENTS-99.98% (Cost $61,705,024) 68,671,998
======================================================================
OTHER ASSETS LESS LIABILITIES-0.02% 15,249
======================================================================
NET ASSETS-100.00% $68,687,247
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2006 represented 0.01% 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 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 June 30, 2006
represented 0.01% 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.
(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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $57,991,472) $64,958,446
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $3,713,552) 3,713,552
============================================================
Total investments (cost $61,705,024) 68,671,998
============================================================
Receivables for:
Investments sold 163,052
- ------------------------------------------------------------
Fund shares sold 1,483,993
- ------------------------------------------------------------
Dividends 39,571
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 6,480
============================================================
Total assets 70,365,094
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,087,740
- ------------------------------------------------------------
Fund shares reacquired 509,173
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 7,033
- ------------------------------------------------------------
Accrued administrative services fees 38,766
- ------------------------------------------------------------
Accrued distribution fees -- Series II 352
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 377
- ------------------------------------------------------------
Accrued transfer agent fees 427
- ------------------------------------------------------------
Accrued operating expenses 33,979
============================================================
Total liabilities 1,677,847
============================================================
Net assets applicable to shares outstanding $68,687,247
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $59,722,602
- ------------------------------------------------------------
Undistributed net investment income (loss) (148,665)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 2,146,336
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 6,966,974
============================================================
$68,687,247
____________________________________________________________
============================================================
NET ASSETS:
Series I $67,925,530
____________________________________________________________
============================================================
Series II $ 761,717
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,593,303
____________________________________________________________
============================================================
Series II 51,755
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 14.79
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 14.72
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 190,007
- ------------------------------------------------------------
Dividends from affiliated money market funds 56,129
============================================================
Total investment income 246,136
============================================================
EXPENSES:
Advisory fees 236,664
- ------------------------------------------------------------
Administrative services fees 93,602
- ------------------------------------------------------------
Custodian fees 11,263
- ------------------------------------------------------------
Distribution fees -- Series II 923
- ------------------------------------------------------------
Transfer agent fees 2,273
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 8,090
- ------------------------------------------------------------
Professional services fees 20,660
- ------------------------------------------------------------
Other 8,901
============================================================
Total expenses 382,376
============================================================
Less: Fees waived and expense offset arrangement (61,439)
============================================================
Net expenses 320,937
============================================================
Net investment income (loss) (74,801)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities
(includes gains from securities sold to
affiliates of $49,560) 2,704,333
============================================================
Change in net unrealized appreciation of
investment securities 1,561,498
============================================================
Net gain from investment securities 4,265,831
============================================================
Net increase in net assets resulting from
operations $4,191,030
____________________________________________________________
============================================================
</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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (74,801) $ (144,314)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 2,704,333 662,270
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 1,561,498 2,398,286
=========================================================================================
Net increase in net assets resulting from operations 4,191,030 2,916,242
=========================================================================================
Share transactions-net:
Series I 21,048,825 13,921,136
- -----------------------------------------------------------------------------------------
Series II 16,521 7,329
=========================================================================================
Net increase in net assets resulting from share
transactions 21,065,346 13,928,465
=========================================================================================
Net increase in net assets 25,256,376 16,844,707
=========================================================================================
NET ASSETS:
Beginning of period 43,430,871 26,586,164
=========================================================================================
End of period (including undistributed net investment
income (loss) of $(148,665) and $(73,864), respectively) $68,687,247 $43,430,871
_________________________________________________________________________________________
=========================================================================================
</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
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Cap Equity Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
twenty-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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. SMALL CAP EQUITY FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the Fund's
average daily net assets.
Through April 30, 2008, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.745%
- ----------------------------------------------------------------------
Next $250 million 0.73%
- ----------------------------------------------------------------------
Next $500 million 0.715%
- ----------------------------------------------------------------------
Next $1.5 billion 0.70%
- ----------------------------------------------------------------------
Next $2.5 billion 0.685%
- ----------------------------------------------------------------------
Next $2.5 billion 0.67%
- ----------------------------------------------------------------------
Next $2.5 billion 0.655%
- ----------------------------------------------------------------------
Over $10 billion 0.64%
_____________________________________________________________________
======================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.15% and Series
II shares to 1.40% of average daily net assets, through April 30, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $61,124.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $68,807 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $2,273.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $923.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances in affiliated money market funds. The Fund and the money market funds
below have the same investment advisor and therefore, are considered to be
affiliated. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the six months ended June 30,
2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,164,526 $12,993,246 $(12,300,996) $ -- $1,856,776 $27,990 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 1,856,776 -- -- 1,856,776 687 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,164,526 12,460,323 (13,624,849) -- -- 27,452 --
==================================================================================================================================
Total $2,329,052 $27,310,345 $(25,925,845) $ -- $3,713,552 $56,129 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $306,329, which resulted in net realized gains of
$49,560 and securities purchases of $3,499,995.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $315.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,845 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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. SMALL CAP EQUITY 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 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 six months
ended June 30, 2006 was $39,178,058 and $19,146,382, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 9,123,541
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,267,877)
===============================================================================
Net unrealized appreciation of investment securities $ 6,855,664
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $61,816,334.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(a) DECEMBER 31, 2005
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,064,441 $30,496,556 1,778,336 $22,484,880
- ------------------------------------------------------------------------------------------------------------------
Series II 1,152 16,924 807 10,132
==================================================================================================================
Reacquired:
Series I (646,716) (9,447,731) (688,338) (8,563,744)
- ------------------------------------------------------------------------------------------------------------------
Series II (28) (403) (224) (2,803)
==================================================================================================================
1,418,849 $21,065,346 1,090,581 $13,928,465
__________________________________________________________________________________________________________________
==================================================================================================================
</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 96% 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.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 11--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------- DECEMBER 31,
2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.46 $ 12.45 $ 11.38 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.06)(a) (0.06)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.35 1.07 1.13 1.41
===========================================================================================================================
Total from investment operations 1.33 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 $ 14.79 $ 13.46 $ 12.45 $11.38
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 9.88% 8.11% 9.41% 13.94%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,926 $42,752 $25,964 $2,231
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.15%(c) 1.22% 1.30% 1.32%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.37%(c) 1.57% 2.01% 12.86%(d)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.27)%(c) (0.44)% (0.56)% (0.44)%(d)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 35% 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 annualized and based on average daily net assets of
$55,402,930.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------- DECEMBER 31,
2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.41 $12.43 $11.38 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.08)(a) (0.08)(a) (0.02)
- -------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.35 1.06 1.13 1.41
=========================================================================================================================
Total from investment operations 1.31 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 $14.72 $13.41 $12.43 $11.38
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 9.77% 7.88% 9.23% 13.88%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 762 $ 679 $ 622 $ 569
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.40%(c) 1.42% 1.45% 1.47%(d)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.62%(c) 1.82% 2.26% 13.11%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)%(c) (0.64)% (0.71)% (0.59)%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 35% 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 annualized and based on average daily net assets of $744,174.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds, including those formerly advised by
IFG, and failed to disclose these arrangements in the prospectuses for such
Funds, 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, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
AIM V.I. SMALL CAP EQUITY FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. SMALL CAP EQUITY FUND
AIM V.I. SMALL COMPANY GROWTH FUND
Semiannual Report to Shareholders o June 30, 2006
EFFECTIVE JULY 3, 2006, AFTER THE CLOSE OF THE REPORTING PERIOD,
AIM V.I. SMALL COMPANY GROWTH FUND WAS RENAMED AIM V.I. SMALL CAP GROWTH FUND.
AIM V.I. SMALL COMPANY GROWTH FUND seeks long-term capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006, 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 (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 3. TECHNICAL ANALYSIS. Identifying the
====================================================================================== "timeliness" of a stock purchase. We
PERFORMANCE SUMMARY review trading volume characteristics and
========================================= trend analysis to make sure there are no
For the six months ended June 30, 2006, FUND VS. INDEXES signs of the stock deterioration. This
and excluding variable product issuer also serves as a risk management measure
charges, AIM V.I. Small Company Growth CUMULATIVE TOTAL RETURNS that helps us confirm our high conviction
Fund had positive returns and 12/31/05-6/30/06, EXCLUDING VARIABLE candidates.
outperformed the broad market index, as PRODUCT ISSUER CHARGES. IF VARIABLE
measured by the S&P 500 Index, and the PRODUCT ISSUER CHARGES WERE INCLUDED, We consider selling or trimming a
Fund's style-specific index, the Russell RETURNS WOULD BE LOWER. stock when:
2000 Growth Index.
Series I Shares 6.48% o The company's fundamental business
Solid stock selection and relatively prospects deteriorate.
strong performance by small-cap stocks Series II Shares 6.37
enabled the Fund to outperform the o A stock reaches its target price.
large-cap-oriented S&P 500 Index. Standard & Poor's Composite
Favorable stock selection across sectors Index Of 500 Stocks (S&P 500 o The company's technical profile
also enabled the Fund to outperform the Index) (Broad Market Index) 2.71 deteriorates.
Russell 2000 Growth Index.
Russell 2000 Growth Index MARKET CONDITIONS AND YOUR FUND
Your Fund's long-term performance (Style-Specific Index) 6.07
appears on page 4. After posting strong performance during
Lipper Small-Cap Growth the first four months of 2006, domestic
Fund Index (Peer Group Index) 4.71 equities retreated over the last two
months of the reporting period largely
SOURCE: LIPPER INC. due to concerns about the sustainability
========================================= of corporate profits and fears that
inflation might lead the U.S. Federal
====================================================================================== Reserve Board to continue raising
interest rates. While small-cap stocks
HOW WE INVEST line with the benchmark by staying fully were the hardest hit during this market
diversified in all those sectors. pullback, they generally outperformed
We focus on small-cap growth companies mid- and large-cap stocks during the
with visible and long-term growth STOCK SELECTION: We select stocks six-month reporting period. Positive
opportunities, as demonstrated by based on an analysis of individual performance was broad among the Russell
consistent and accelerating earnings companies. Our three-step selection 2000 Growth Index's economic sectors,
growth. Our investment philosophy process includes: with the best returns found in the
involves: telecommunication services, industrials,
1. FUNDAMENTAL ANALYSIS. Building consumer staples and energy sectors.
PORTFOLIO CONSTRUCTION: We align the financial models and conducting in-depth
Fund with the Russell 2000 Growth Index, interviews with company management. The Fund benefited from positive
the benchmark we believe represents the absolute performance in seven out of 10
small-cap-growth asset class. We seek to 2. VALUATION ANALYSIS. Identifying economic sectors, with the highest
control risk by keeping the Fund's sector attractively valued stocks given their positive impact on performance coming
weightings in growth potential over a one- to two-year from holdings in the
horizon.
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Application Software 4.2% 1. SBA Communications Corp.
-Class A 1.3%
Information Technology 22.4% 2. Apparel Retail 4.2
2. Regal-Beloit Corp. 1.2
Health Care 19.0 3. Oil & Gas Equipment & 4.2
Services 3. Polycom, Inc. 1.2
Industrials 16.7
4. Health Care Equipment 4.1 4. Euronet Worldwide, Inc. 1.2
Consumer Discretionary 14.0
5. Regional Banks 4.0 5. WESCO International, Inc. 1.1
Energy 9.1
6. Thomas & Betts Corp. 1.1
Financials 9.0
TOTAL NET ASSETS $30.2 MILLION 7. VCA Antech, Inc. 1.1
Consumer Staples 3.1
TOTAL NUMBER OF HOLDINGS* 134 8. Swift Transportation Co., Inc. 1.1
Telecommunication Services 2.2
9. FormFactor Inc. 1.0
Materials 2.1
10. Bill Barrett Corp. 1.0
Money Market Funds
Plus Other Assets Less Liabilities 2.4
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= =========================================
</Table>
2
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
industrials, information technology and contributions to returns included DIONEX THE VIEWS AND OPINIONS EXPRESSED IN
energy sectors. On a relative basis, the and DIGENE, both of which we subsequently MANAGEMENT'S DISCUSSION OF FUND
Fund outperformed the Russell 2000 Growth sold. PERFORMANCE ARE THOSE OF A I M ADVISORS,
Index, with the widest margin of INC. THESE VIEWS AND OPINIONS ARE SUBJECT
outperformance in the industrials, The Fund underperformed relative to TO CHANGE AT ANY TIME BASED ON FACTORS
telecommunication services and health the Russell 2000 Growth Index in the SUCH AS MARKET AND ECONOMIC CONDITIONS.
care sectors. energy and financials sectors. In the THESE VIEWS AND OPINIONS MAY NOT BE
energy sector, an underweight position RELIED UPON AS INVESTMENT ADVICE OR
hurt the Fund's performance relative to RECOMMENDATIONS, OR AS AN OFFER FOR A
THE FUND BENEFITED the Russell 2000 Growth Index as this was PARTICULAR SECURITY. THE INFORMATION IS
FROM STRONG STOCK one of the top-performing areas of the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
SELECTION IN THE market. Several stocks also detracted OF ANY MARKET, COUNTRY, INDUSTRY,
INDUSTRIALS SECTOR from returns, including BILL BARRETT, an SECURITY OR THE FUND. STATEMENTS OF FACT
oil and natural gas exploration and ARE FROM SOURCES CONSIDERED RELIABLE, BUT
The Fund benefited from strong stock production company. The stock price of A I M ADVISORS, INC. MAKES NO
selection in the industrials sector. the company was negatively affected by REPRESENTATION OR WARRANTY AS TO THEIR
Specific areas of strength included falling natural gas prices, as the COMPLETENESS OR ACCURACY. ALTHOUGH
capital goods and transportation company has more than 90% of its reserves HISTORICAL PERFORMANCE IS NO GUARANTEE OF
holdings. Within capital goods, holdings in natural gas. FUTURE RESULTS, THESE INSIGHTS MAY HELP
that made significant contributions to YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
Fund performance included electrical In the financials sector, PHILOSOPHY.
distributor WESCO INTERNATIONAL and underperformance was driven by weak
construction equipment manufacturer performance of several holdings, including JULIET ELLIS,
TEREX. Both companies benefited from an NATIONAL FINANCIAL PARTNERS. National Chartered Financial
acceleration in non-residential Financial Partners is a financial advisory Analyst, senior
construction activity and internal and life insurance broker that portfolio manager, is
programs to control costs and improve underperformed due to concerns about lead manager of AIM
profit margins. We sold Terex. In the slowing sales growth in the second half of [ELLIS V.I. Small Company
transportation industry, SWIFT 2006 and profit margin pressure from PHOTO] Growth Fund. Ms.
TRANSPORTATION, one of the largest expansion of its lower margin wholesale Ellis joined AIM in
publicly held trucking companies in the business. Other detractors included SVB 2004. She previously
U.S., appreciated after reporting higher FINANCIAL GROUP and GREENHILL & CO. We served as senior
than expected earnings. This company is continued to own these three holdings. portfolio manager of
led by a new management team that two small-cap funds for another company
successfully implemented a strategy Overall positioning of the Fund was and was responsible for the management of
focused on improving profit margins and little changed during the period. more than $2 billion in assets. Ms. Ellis
earnings growth. Exposure was added to the health care, began her investment career in 1981 as a
energy, consumer discretionary and financial consultant. She is a Cum Laude
Solid stock selection in the consumer staples sectors. These purchases and Phi Beta Kappa graduate of Indiana
telecommunication services sector also were funded by reducing exposure to the University with a B.A. in economics and
drove outperformance versus the Russell industrials and materials sectors. All political science.
2000 Growth Index. Fund holding SBA changes to the Fund were based on our
COMMUNICATIONS made a significant bottom-up stock selection process of JUAN HARTSFIELD,
contribution to Fund performance. This identifying what we consider high quality Chartered Financial
company is an independent owner and growth companies trading at what we Analyst, portfolio
operator of wireless communications towers believe are attractive valuations. manager, is manager
in the eastern third of the U.S. The stock of AIM V.I. Small
price increased after the company reported IN CLOSING [HARTSFIELD Company Growth Fund.
growth in revenue and earnings due to PHOTO] Prior to joining AIM
strong leasing demand from wireless Although we are pleased to have provided in 2004, he began his
service providers. positive returns for our investors for investment career in
the reporting period, we are always 2000 as an equity
In the health care sector, the Fund striving to improve performance and help analyst and most
benefited from an underweight position you meet your financial goals. We remain recently served as a
relative to the Russell 2000 Growth Index committed to our investment process of portfolio manager. Mr. Hartsfield earned a
as many health care stocks struggled focusing on attractively priced stocks of B.S. in petroleum engineering from The
during the period. Additionally, stock small-cap growth companies with growing University of Texas and an M.B.A. from the
selection in the pharmaceuticals and cash flow and earnings. University of Michigan.
biotechnology industries contributed to
performance. Holdings that made key We thank you for your commitment to Assisted by the Small Company Growth/Core
AIM V.I. Small Company Growth Fund. 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 PAGE 4.
</Table>
3
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS AND SERIES II SHARE CLASSES WILL DIFFER SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 6/30/06 PRIMARILY DUE TO DIFFERENT CLASS FIGURES GIVEN REPRESENT THE FUND AND ARE
EXPENSES. NOT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (8/22/97) 6.79% THE PERFORMANCE DATA QUOTED REPRESENT CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 0.76 PAST PERFORMANCE AND CANNOT GUARANTEE CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 13.33 COMPARABLE FUTURE RESULTS; CURRENT CHARGES, EXPENSES AND FEES, WHICH ARE
PERFORMANCE MAY BE LOWER OR HIGHER. DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES PLEASE CONTACT YOUR VARIABLE PRODUCT ISSUERS, WILL VARY AND WILL LOWER THE
Inception 6.54% ISSUER OR FINANCIAL ADVISOR FOR THE MOST TOTAL RETURN.
5 Years 0.53 RECENT MONTH-END VARIABLE PRODUCT
1 Year 13.09 PERFORMANCE. PERFORMANCE FIGURES REFLECT PER NASD REQUIREMENTS, THE MOST RECENT
========================================= FUND EXPENSES, REINVESTED DISTRIBUTIONS MONTH-END PERFORMANCE DATA AT THE FUND
AND CHANGES IN NET ASSET VALUE. LEVEL, EXCLUDING VARIABLE PRODUCT
SERIES II SHARES' INCEPTION DATE IS APRIL INVESTMENT RETURN AND PRINCIPAL VALUE CHARGES, IS AVAILABLE ON THIS AIM
30, 2004. RETURNS SINCE THAT DATE ARE WILL FLUCTUATE SO THAT YOU MAY HAVE A AUTOMATED INFORMATION LINE, 866-702-4402.
HISTORICAL. ALL OTHER RETURNS ARE THE GAIN OR LOSS WHEN YOU SELL SHARES. AS MENTIONED ABOVE, FOR THE MOST RECENT
BLENDED RETURNS OF THE HISTORICAL MONTH-END PERFORMANCE INCLUDING VARIABLE
PERFORMANCE OF SERIES II SHARES SINCE AIM V.I. SMALL COMPANY GROWTH FUND, A PRODUCT CHARGES, PLEASE CONTACT YOUR
THEIR INCEPTION AND THE RESTATED SERIES PORTFOLIO OF AIM VARIABLE VARIABLE PRODUCT ISSUER OR FINANCIAL
HISTORICAL PERFORMANCE OF SERIES I SHARES INSURANCE FUNDS, IS CURRENTLY OFFERED ADVISOR.
(FOR PERIODS PRIOR TO INCEPTION OF SERIES THROUGH INSURANCE COMPANIES ISSUING
II SHARES) ADJUSTED TO REFLECT THE RULE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
12b-1 FEES APPLICABLE TO THE SERIES II
SHARES. THE INCEPTION DATE OF SERIES I
SHARES IS AUGUST 22, 1997. THE
PERFORMANCE OF THE FUND'S SERIES I
PRINCIPAL RISKS OF INVESTING IN THE FUND no assurance that the Fund will have A direct investment cannot be made in
favorable IPO investment opportunities in an index. Unless otherwise indicated,
Investing in micro and small companies the future. Moreover, the price of IPO index results include reinvested
involves risks not associated with securities may go up and down more than dividends, and they do not reflect sales
investing in more established companies, prices of equity securities of companies charges. Performance of an index of funds
such as business risk, significant stock with longer trading histories. In reflects fund expenses; performance of a
price fluctuations and illiquidity. addition, companies offering securities market index does not.
in IPOs may have less experienced
The Fund may invest up to 25% of its management or limited operating OTHER INFORMATION
assets in the securities of non-U.S. histories. For additional information
issuers. International investing presents about the Fund's performance, please see The returns shown in the Management's
risks not associated with investing solely the Fund's prospectus. Discussion of Fund Performance are based
in the United States. These include risks on net asset values calculated for
relating to the fluctuation in the value ABOUT INDEXES USED IN THIS REPORT shareholder transactions. Generally
of the U.S. dollar relative to the values accepted accounting principles require
of the currencies, the custody The unmanaged STANDARD & POOR'S COMPOSITE adjustments to be made to the net assets
arrangements made for the Fund's foreign INDEX OF 500 STOCKS (the S&P of the Fund at period end for financial
holdings, differences in accounting, 500--Registered Trademark-- Index) is an reporting purposes, and as such, the net
political risks and the lesser degree of index of common stocks frequently used as asset value for shareholder transactions
public information required to be provided a general measure of U.S. stock market and the returns based on those net asset
by non-U.S. companies. performance. values may differ from the net asset
values and returns reported in the
Portfolio turnover is greater than The unmanaged LIPPER SMALL-CAP GROWTH Financial Highlights. Additionally, the
that of most funds, which may affect FUND INDEX represents an average of the returns and net asset values shown
performance. performance of the 30 largest throughout this report are at the Fund
small-capitalization growth funds tracked level only and do not include variable
At any given time, the Fund may be by Lipper Inc., an independent mutual product issuer charges. If such charges
subject to sector risk, which means a fund performance monitor. were included, the total returns would be
certain sector may underperform other lower.
sectors or the market as a whole. The Fund The unmanaged RUSSELL 2000--Registered
is not limited with respect to the sectors Trademark-- GROWTH INDEX is a subset of Industry classifications used in this
in which it can invest. the unmanaged Russell 2000--Registered report are generally according to the
Trademark-- Index, which represents the Global Industry Classification Standard,
The Fund's return during certain performance of the stocks of which was developed by and is the
periods was positively impacted by its small-capitalization companies; the exclusive property and a service mark of
investments in initial public offerings Growth subset measures the performance of Morgan Stanley Capital International Inc.
(IPOs). There can be Russell 2000 companies with higher price/ and Standard & Poor's.
book ratios and higher forecasted growth
values.
The Fund is not managed to track the
performance of any particular index,
including the indexes defined here, and
consequently, the performance of the Fund
may deviate significantly from the
performance of the indexes.
</Table>
4
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES 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 fees; about actual account values and actual asset value after expenses for the six
distribution and/or service fees (12b-1); expenses. You may use the information in months ended June 30, 2006, appear in the
and other Fund expenses. This example is this table, together with the amount you table "Fund vs. Indexes" on page 2.
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 January 1, 2006, through Paid During Period" to estimate the To do so, compare this 5% hypothetical
June 30, 2006. 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 COMPARISON
the effect of any fees or other expenses 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% 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,064.80 $6.14 $1,018.84 $6.01 1.20%
Series II 1,000.00 1,063.70 7.42 1,017.60 7.25 1.45
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through
June 30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's
expense ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset
value after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
5
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
<Table>
The Board of Trustees of AIM Variable on such review, the Board concluded that results but need more time to be
Insurance Funds (the "Board") oversees the range of services to be provided by evaluated before a conclusion can be made
the management of AIM V.I. Small Cap AIM under the Advisory Agreement was that the changes have addressed the
Growth Fund (formerly named "AIM V.I. appropriate and that AIM currently is Fund's under-performance. Based on this
Small Company Growth Fund") (the "Fund") providing services in accordance with the review and after taking account of all of
and, as required by law, determines terms of the Advisory Agreement. the other factors that the Board
annually whether to approve the considered in determining whether to
continuance of the Fund's advisory o The quality of services to be provided continue the Advisory Agreement for the
agreement with A I M Advisors, Inc. by AIM. The Board reviewed the Fund, the Board concluded that no changes
("AIM"). Based upon the recommendation of credentials and experience of the should be made to the Fund and that it
the Investments Committee of the Board, officers and employees of AIM who will was not necessary to change the Fund's
at a meeting held on June 27, 2006, the provide investment advisory services to portfolio management team at this time.
Board, including all of the independent the Fund. In reviewing the qualifications Although the independent written
trustees, approved the continuance of the of AIM to provide investment advisory evaluation of the Fund's Senior Officer
advisory agreement (the "Advisory services, the Board considered such (discussed below) only considered Fund
Agreement") between the Fund and AIM for issues as AIM's portfolio and product performance through the most recent
another year, effective July 1, 2006. review process, various back office calendar year, the Board also reviewed
support functions provided by AIM and more recent Fund performance, which did
The Board considered the factors AIM's equity and fixed income trading not change their conclusions.
discussed below in evaluating the operations. Based on the review of these
fairness and reasonableness of the and other factors, the Board concluded o Meetings with the Fund's portfolio
Advisory Agreement at the meeting on June that the quality of services to be managers and investment personnel. With
27, 2006 and as part of the Board's provided by AIM was appropriate and that respect to the Fund, the Board is meeting
ongoing oversight of the Fund. In their AIM currently is providing satisfactory periodically with such Fund's portfolio
deliberations, the Board and the services in accordance with the terms of managers and/or other investment
independent trustees did not identify any the Advisory Agreement. personnel and believes that such
particular factor that was controlling, individuals are competent and able to
and each trustee attributed different o The performance of the Fund relative to continue to carry out their
weights to the various factors. comparable funds. The Board reviewed the responsibilities under the Advisory
performance of the Fund during the past Agreement.
One responsibility of the independent one, three and five calendar years
Senior Officer of the Fund is to manage against the performance of funds advised o Overall performance of AIM. The Board
the process by which the Fund's proposed by other advisors with investment considered the overall performance of AIM
management fees are negotiated to ensure strategies comparable to those of the in providing investment advisory and
that they are negotiated in a manner Fund. The Board noted that the Fund's portfolio administrative services to the
which is at arms' length and reasonable. performance in such periods was below the Fund and concluded that such performance
To that end, the Senior Officer must median performance of such comparable was satisfactory.
either supervise a competitive bidding funds. The Board also noted that AIM
process or prepare an independent written began serving as investment advisor to o Fees relative to those of clients of
evaluation. The Senior Officer has the Fund in April 2004. The Board noted AIM with comparable investment
recommended an independent written that AIM has recently made changes to the strategies. The Board reviewed the
evaluation in lieu of a competitive Fund's portfolio management team, which effective advisory fee rate (before
bidding process and, upon the direction appear to be producing encouraging early waivers) for the Fund under the Advisory
of the Board, has prepared such an results but need more time to be Agreement. The Board noted that this rate
independent written evaluation. Such evaluated before a conclusion can be made was (i) above the effective advisory fee
written evaluation also considered that the changes have addressed the rate (before waivers) for a mutual fund
certain of the factors discussed below. Fund's under-performance. Based on this advised by AIM with investment strategies
In addition, as discussed below, the review and after taking account of all of comparable to those of the Fund; and (ii)
Senior Officer made a recommendation to the other factors that the Board above the effective sub-advisory fee
the Board in connection with such written considered in determining whether to rates for four variable insurance funds
evaluation. continue the Advisory Agreement for the sub-advised by an AIM affiliate and
Fund, the Board concluded that no changes offered to insurance company separate
The discussion below serves as a should be made to the Fund and that it accounts with investment strategies
summary of the Senior Officer's was not necessary to change the Fund's comparable to those of the Fund, although
independent written evaluation and portfolio management team at this time. the total advisory fees for such variable
recommendation to the Board in connection Although the independent written insurance funds were above those for the
therewith, as well as a discussion of the evaluation of the Fund's Senior Officer Fund. The Board noted that AIM has agreed
material factors and the conclusions with (discussed below) only considered Fund to waive advisory fees of the Fund and to
respect thereto that formed the basis for performance through the most recent limit the Fund's total operating
the Board's approval of the Advisory calendar year, the Board also reviewed expenses, as discussed below. Based on
Agreement. After consideration of all of more recent Fund performance, which did this review, the Board concluded that the
the factors below and based on its not change their conclusions. advisory fee rate for the Fund under the
informed business judgment, the Board Advisory Agreement was fair and
determined that the Advisory Agreement is o The performance of the Fund relative to reasonable.
in the best interests of the Fund and its indices. The Board reviewed the
shareholders and that the compensation to performance of the Fund during the past o Fees relative to those of comparable
AIM under the Advisory Agreement is fair one, three and five calendar years funds with other advisors. The Board
and reasonable and would have been against the performance of the Lipper reviewed the advisory fee rate for the
obtained through arm's length Variable Underlying Fund Small-Cap Growth Fund under the Advisory Agreement. The
negotiations. Index. The Board noted that the Fund's Board compared effective contractual
performance in such periods was below the advisory fee rates at a common asset
Unless otherwise stated, information performance of such Index. The Board also level at the end of the past calendar
presented below is as of June 27, 2006 noted that AIM began serving as year and noted that the Fund's rate was
and does not reflect any changes that may investment advisor to the Fund in April below the median rate of the funds
have occurred since June 27, 2006, 2004. The Board noted that AIM has advised by other advisors with investment
including but not limited to changes to recently made changes to the Fund's strategies comparable to those of the
the Fund's performance, advisory fees, portfolio management team, which appear Fund that the Board reviewed. The Board
expense limitations and/or fee waivers. to be producing encouraging early noted that AIM has agreed to waive
advisory fees of the Fund and to limit
o The nature and extent of the advisory the Fund's total operating expenses, as
services to be provided by AIM. The Board discussed below. Based on this review,
reviewed the services to be provided by the Board concluded that the
AIM under the Advisory Agreement. Based
(continued)
</Table>
6
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
advisory fee rate for the Fund under the advised by AIM pursuant to the terms of Advisory Agreement was not excessive.
Advisory Agreement was fair and an SEC exemptive order. The Board found
reasonable. that the Fund may realize certain o Benefits of soft dollars to AIM. The
benefits upon investing cash balances in Board considered the benefits realized by
o Expense limitations and fee waivers. AIM advised money market funds, including AIM as a result of brokerage transactions
The Board noted that AIM has a higher net return, increased liquidity, executed through "soft dollar"
contractually agreed to waive advisory increased diversification or decreased arrangements. Under these arrangements,
fees of the Fund through April 30, 2008 transaction costs. The Board also found brokerage commissions paid by the Fund
to the extent necessary so that the that the Fund will not receive reduced and/or other funds advised by AIM are
advisory fees payable by the Fund do not services if it invests its cash balances used to pay for research and execution
exceed a specified maximum advisory fee in such money market funds. The Board services. This research may be used by
rate, which maximum rate includes noted that, to the extent the Fund AIM in making investment decisions for
breakpoints and is based on net asset invests uninvested cash in affiliated the Fund. The Board concluded that such
levels. The Board considered the money market funds, AIM has voluntarily arrangements were appropriate.
contractual nature of this fee waiver and agreed to waive a portion of the advisory
noted that it remains in effect until fees it receives from the Fund o AIM's financial soundness in light of
April 30, 2008. The Board noted that AIM attributable to such investment. The the Fund's needs. The Board considered
has contractually agreed to waive fees Board further determined that the whether AIM is financially sound and has
and/or limit expenses of the Fund through proposed securities lending program and the resources necessary to perform its
April 30, 2008 in an amount necessary to related procedures with respect to the obligations under the Advisory Agreement,
limit total annual operating expenses to lending Fund is in the best interests of and concluded that AIM has the financial
a specified percentage of average daily the lending Fund and its respective resources necessary to fulfill its
net assets for each class of the Fund. shareholders. The Board therefore obligations under the Advisory Agreement.
The Board considered the contractual concluded that the investment of cash
nature of this fee waiver/expense collateral received in connection with o Historical relationship between the
limitation and noted that it remains in the securities lending program in the Fund and AIM. In determining whether to
effect until April 30, 2008. The Board money market funds according to the continue the Advisory Agreement for the
considered the effect these fee procedures is in the best interests of Fund, the Board also considered the prior
waivers/expense limitations would have on the lending Fund and its respective relationship between AIM and the Fund, as
the Fund's estimated expenses and shareholders. well as the Board's knowledge of AIM's
concluded that the levels of fee operations, and concluded that it was
waivers/expense limitations for the Fund o Independent written evaluation and beneficial to maintain the current
were fair and reasonable. recommendations of the Fund's Senior relationship, in part, because of such
Officer. The Board noted that, upon their knowledge. The Board also reviewed the
o Breakpoints and economies of scale. The direction, the Senior Officer of the general nature of the non-investment
Board reviewed the structure of the Fund, who is independent of AIM and AIM's advisory services currently performed by
Fund's advisory fee under the Advisory affiliates, had prepared an independent AIM and its affiliates, such as
Agreement, noting that it does not written evaluation in order to assist the administrative, transfer agency and
include any breakpoints. The Board Board in determining the reasonableness distribution services, and the fees
considered whether it would be of the proposed management fees of the received by AIM and its affiliates for
appropriate to add advisory fee AIM Funds, including the Fund. The Board performing such services. In addition to
breakpoints for the Fund or whether, due noted that the Senior Officer's written reviewing such services, the trustees
to the nature of the Fund and the evaluation had been relied upon by the also considered the organizational
advisory fee structures of comparable Board in this regard in lieu of a structure employed by AIM and its
funds, it was reasonable to structure the competitive bidding process. In affiliates to provide those services.
advisory fee without breakpoints. Based determining whether to continue the Based on the review of these and other
on this review, the Board concluded that Advisory Agreement for the Fund, the factors, the Board concluded that AIM and
it was not necessary to add advisory fee Board considered the Senior Officer's its affiliates were qualified to continue
breakpoints to the Fund's advisory fee written evaluation and the recommendation to provide non-investment advisory
schedule. The Board reviewed the level of made by the Senior Officer to the Board services to the Fund, including
the Fund's advisory fees, and noted that that the Board consider whether the administrative, transfer agency and
such fees, as a percentage of the Fund's advisory fee waivers for certain equity distribution services, and that AIM and
net assets, would remain constant under AIM Funds, including the Fund, should be its affiliates currently are providing
the Advisory Agreement because the simplified. The Board concluded that it satisfactory non-investment advisory
Advisory Agreement does not include any would be advisable to consider this issue services.
breakpoints. The Board noted that AIM has and reach a decision prior to the
contractually agreed to waive advisory expiration date of such advisory fee o Other factors and current trends. The
fees of the Fund through April 30, 2008 waivers. Board considered the steps that AIM and
to the extent necessary so that the its affiliates have taken over the last
advisory fees payable by the Fund do not o Profitability of AIM and its several years, and continue to take, in
exceed a specified maximum advisory fee affiliates. The Board reviewed order to improve the quality and
rate, which maximum rate includes information concerning the profitability efficiency of the services they provide
breakpoints and is based on net asset of AIM's (and its affiliates') investment to the Funds in the areas of investment
levels. The Board concluded that the advisory and other activities and its performance, product line
Fund's fee levels under the Advisory financial condition. The Board considered diversification, distribution, fund
Agreement therefore would not reflect the overall profitability of AIM, as well operations, shareholder services and
economies of scale, although the advisory as the profitability of AIM in connection compliance. The Board concluded that
fee waiver reflects economies of scale. with managing the Fund. The Board noted these steps taken by AIM have improved,
that AIM's operations remain profitable, and are likely to continue to improve,
o Investments in affiliated money market although increased expenses in recent the quality and efficiency of the
funds. The Board also took into account years have reduced AIM's profitability. services AIM and its affiliates provide
the fact that uninvested cash and cash Based on the review of the profitability to the Fund in each of these areas, and
collateral from securities lending of AIM's and its affiliates' investment support the Board's approval of the
arrangements, if any (collectively, "cash advisory and other activities and its continuance of the Advisory Agreement for
balances") of the Fund may be invested in financial condition, the Board concluded the Fund.
money market funds that the compensation to be paid by the
Fund to AIM under its
</Table>
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.55%
AEROSPACE & DEFENSE-1.31%
Ceradyne, Inc.(a) 4,964 $ 245,668
- --------------------------------------------------------------------
United Industrial Corp.(b) 3,295 149,099
====================================================================
394,767
====================================================================
AGRICULTURAL PRODUCTS-0.60%
Delta and Pine Land Co. 6,157 181,016
====================================================================
AIR FREIGHT & LOGISTICS-1.54%
Forward Air Corp. 6,838 278,512
- --------------------------------------------------------------------
Hub Group, Inc.-Class A(a) 7,560 185,447
====================================================================
463,959
====================================================================
APPAREL RETAIL-4.23%
Charlotte Russe Holding Inc.(a) 10,884 260,563
- --------------------------------------------------------------------
Children's Place Retail Stores, Inc. (The)(a) 3,826 229,751
- --------------------------------------------------------------------
DSW Inc.-Class A(a) 8,016 291,943
- --------------------------------------------------------------------
Hot Topic, Inc.(a) 19,956 229,693
- --------------------------------------------------------------------
Jos. A. Bank Clothiers, Inc.(a) 3,652 87,502
- --------------------------------------------------------------------
New York & Co., Inc.(a) 17,967 175,538
====================================================================
1,274,990
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.54%
Warnaco Group, Inc. (The)(a) 8,792 164,235
====================================================================
APPLICATION SOFTWARE-4.23%
ANSYS, Inc.(a) 5,141 245,843
- --------------------------------------------------------------------
Blackboard Inc.(a) 8,696 251,836
- --------------------------------------------------------------------
Epicor Software Corp.(a) 13,759 144,882
- --------------------------------------------------------------------
Informatica Corp.(a) 15,669 206,204
- --------------------------------------------------------------------
Kronos Inc.(a) 6,001 217,296
- --------------------------------------------------------------------
MicroStrategy Inc.-Class A(a) 2,164 211,034
====================================================================
1,277,095
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.73%
Affiliated Managers Group, Inc.(a) 2,545 221,135
====================================================================
BIOTECHNOLOGY-3.14%
Alkermes, Inc.(a) 9,121 172,569
- --------------------------------------------------------------------
CV Therapeutics, Inc.(a) 5,361 74,893
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
BIOTECHNOLOGY-(CONTINUED)
Encysive Pharmaceuticals Inc.(a) 14,257 $ 98,801
- --------------------------------------------------------------------
Human Genome Sciences, Inc.(a) 10,455 111,869
- --------------------------------------------------------------------
Myogen, Inc.(a) 3,420 99,180
- --------------------------------------------------------------------
Myriad Genetics, Inc.(a) 6,966 175,892
- --------------------------------------------------------------------
United Therapeutics Corp.(a) 3,725 215,193
====================================================================
948,397
====================================================================
CATALOG RETAIL-0.73%
Coldwater Creek Inc.(a) 8,282 221,626
====================================================================
COMMUNICATIONS EQUIPMENT-3.63%
F5 Networks, Inc.(a) 4,566 244,190
- --------------------------------------------------------------------
NETGEAR, Inc.(a) 10,731 232,326
- --------------------------------------------------------------------
NICE Systems Ltd.-ADR (Israel)(a) 9,344 262,940
- --------------------------------------------------------------------
Polycom, Inc.(a) 16,176 354,578
====================================================================
1,094,034
====================================================================
COMPUTER STORAGE & PERIPHERALS-0.91%
Emulex Corp.(a) 16,810 273,499
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.74%
JLG Industries, Inc. 9,961 224,122
====================================================================
CONSTRUCTION MATERIALS-0.66%
Eagle Materials Inc. 4,194 199,215
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.77%
Euronet Worldwide, Inc.(a) 9,219 353,733
- --------------------------------------------------------------------
Global Payments Inc. 3,696 179,441
====================================================================
533,174
====================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.74%
Advisory Board Co. (The)(a) 5,129 246,654
- --------------------------------------------------------------------
CoStar Group Inc.(a) 4,704 281,440
- --------------------------------------------------------------------
Pike Electric Corp.(a) 15,574 299,955
====================================================================
828,049
====================================================================
DRUG RETAIL-0.85%
Longs Drug Stores Corp. 5,621 256,430
====================================================================
</Table>
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-3.97%
Acuity Brands, Inc. 5,713 $ 222,293
- --------------------------------------------------------------------
General Cable Corp.(a) 8,178 286,230
- --------------------------------------------------------------------
Regal-Beloit Corp. 8,131 358,983
- --------------------------------------------------------------------
Thomas & Betts Corp.(a) 6,433 330,013
====================================================================
1,197,519
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.54%
Aeroflex Inc.(a) 19,833 231,451
- --------------------------------------------------------------------
Cogent Inc.(a) 8,368 126,106
- --------------------------------------------------------------------
Coherent, Inc.(a) 7,439 250,917
- --------------------------------------------------------------------
Orbotech, Ltd. (Israel)(a) 6,919 158,653
====================================================================
767,127
====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.89%
Trimble Navigation Ltd.(a) 5,997 267,706
====================================================================
FOOD DISTRIBUTORS-0.85%
Performance Food Group Co.(a) 8,411 255,526
====================================================================
HEALTH CARE EQUIPMENT-4.13%
American Medical Systems Holdings, Inc.(a) 12,106 201,565
- --------------------------------------------------------------------
Cyberonics, Inc.(a) 5,675 120,991
- --------------------------------------------------------------------
Integra LifeSciences Holdings(a) 5,618 218,035
- --------------------------------------------------------------------
Mentor Corp. 5,603 243,730
- --------------------------------------------------------------------
NuVasive, Inc.(a) 12,227 222,898
- --------------------------------------------------------------------
Palomar Medical Technologies, Inc.(a) 838 38,238
- --------------------------------------------------------------------
Wright Medical Group, Inc.(a) 9,602 200,970
====================================================================
1,246,427
====================================================================
HEALTH CARE FACILITIES-3.00%
AmSurg Corp.(a) 6,055 137,751
- --------------------------------------------------------------------
Genesis HealthCare Corp.(a) 5,029 238,224
- --------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 6,255 200,973
- --------------------------------------------------------------------
VCA Antech, Inc.(a) 10,227 326,548
====================================================================
903,496
====================================================================
HEALTH CARE SERVICES-0.79%
Pediatrix Medical Group, Inc.(a) 5,242 237,463
====================================================================
HEALTH CARE SUPPLIES-0.71%
Gen-Probe Inc.(a) 3,945 212,951
====================================================================
HEALTH CARE TECHNOLOGY-2.23%
Allscripts Healthcare Solutions, Inc.(a) 10,901 191,313
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
HEALTH CARE TECHNOLOGY-(CONTINUED)
Eclipsys Corp.(a) 11,762 $ 213,598
- --------------------------------------------------------------------
Merge Technologies Inc.(a) 3,485 42,900
- --------------------------------------------------------------------
Per-Se Technologies, Inc.(a) 8,951 225,386
====================================================================
673,197
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.99%
THQ Inc.(a) 13,793 297,929
====================================================================
HOME FURNISHINGS-0.78%
Tempur-Pedic International Inc.(a) 17,398 235,047
====================================================================
HOTELS, RESORTS & CRUISE LINES-1.70%
Choice Hotels International, Inc. 4,247 257,368
- --------------------------------------------------------------------
Four Seasons Hotels Inc. (Canada) 4,142 254,485
====================================================================
511,853
====================================================================
HOUSEHOLD PRODUCTS-0.77%
Church & Dwight Co., Inc. 6,357 231,522
====================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.77%
Korn/Ferry International(a) 11,789 230,946
====================================================================
INDUSTRIAL MACHINERY-1.40%
Actuant Corp.-Class A 3,771 188,362
- --------------------------------------------------------------------
Lincoln Electric Holdings, Inc. 3,756 235,313
====================================================================
423,675
====================================================================
INSURANCE BROKERS-1.81%
Hub International Ltd. (Canada) 10,990 288,048
- --------------------------------------------------------------------
National Financial Partners Corp. 5,844 258,948
====================================================================
546,996
====================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.85%
NeuStar, Inc.-Class A(a) 7,644 257,985
====================================================================
INTERNET SOFTWARE & SERVICES-1.96%
aQuantive, Inc.(a) 10,480 265,458
- --------------------------------------------------------------------
Digitas Inc.(a) 16,454 191,196
- --------------------------------------------------------------------
ValueClick, Inc.(a) 8,702 133,576
====================================================================
590,230
====================================================================
INVESTMENT BANKING & BROKERAGE-0.47%
Greenhill & Co., Inc. 2,332 141,692
====================================================================
IT CONSULTING & OTHER SERVICES-0.69%
MPS Group, Inc.(a) 13,744 206,985
====================================================================
</Table>
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
LEISURE PRODUCTS-1.47%
Marvel Entertainment, Inc.(a) 10,484 $ 209,680
- --------------------------------------------------------------------
RC2 Corp.(a) 6,086 235,285
====================================================================
444,965
====================================================================
LIFE SCIENCES TOOLS & SERVICES-1.79%
Millipore Corp.(a) 2,492 156,971
- --------------------------------------------------------------------
Nektar Therapeutics(a) 8,404 154,129
- --------------------------------------------------------------------
Varian Inc.(a) 5,539 229,924
====================================================================
541,024
====================================================================
MANAGED HEALTH CARE-0.68%
Magellan Health Services, Inc.(a) 4,546 205,979
====================================================================
MARINE-0.70%
Kirby Corp.(a) 5,366 211,957
====================================================================
MULTI-LINE INSURANCE-0.59%
HCC Insurance Holdings, Inc. 6,081 179,025
====================================================================
OFFICE REIT'S-0.54%
BioMed Realty Trust, Inc. 5,468 163,712
====================================================================
OIL & GAS DRILLING-1.52%
Grey Wolf, Inc.(a) 20,587 158,520
- --------------------------------------------------------------------
Unit Corp.(a) 5,249 298,615
====================================================================
457,135
====================================================================
OIL & GAS EQUIPMENT & SERVICES-4.16%
Core Laboratories N.V. (Netherlands)(a) 3,670 224,017
- --------------------------------------------------------------------
FMC Technologies, Inc.(a) 4,023 271,392
- --------------------------------------------------------------------
Hydril(a) 3,645 286,205
- --------------------------------------------------------------------
Superior Energy Services, Inc.(a) 5,634 190,993
- --------------------------------------------------------------------
Veritas DGC Inc.(a) 5,444 280,801
====================================================================
1,253,408
====================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.45%
Bill Barrett Corp.(a) 10,250 303,502
- --------------------------------------------------------------------
Encore Acquisition Co.(a) 7,673 205,867
- --------------------------------------------------------------------
Range Resources Corp. 9,521 258,876
- --------------------------------------------------------------------
Whiting Petroleum Corp.(a) 6,471 270,941
====================================================================
1,039,186
====================================================================
PHARMACEUTICALS-2.52%
Medicines Co. (The)(a) 7,617 148,912
- --------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 10,437 250,488
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-(CONTINUED)
MGI Pharma, Inc.(a) 8,174 $ 175,741
- --------------------------------------------------------------------
Sciele Pharma, Inc.(a) 7,937 184,059
====================================================================
759,200
====================================================================
PROPERTY & CASUALTY INSURANCE-0.81%
ProAssurance Corp.(a) 5,046 243,116
====================================================================
REGIONAL BANKS-4.01%
East West Bancorp, Inc. 6,869 260,404
- --------------------------------------------------------------------
PrivateBancorp, Inc. 3,859 159,801
- --------------------------------------------------------------------
SVB Financial Group(a) 4,764 216,572
- --------------------------------------------------------------------
Texas Capital Bancshares, Inc.(a) 8,387 195,417
- --------------------------------------------------------------------
Texas Regional Bancshares, Inc.-Class A 4,708 178,527
- --------------------------------------------------------------------
UCBH Holdings, Inc. 12,094 200,035
====================================================================
1,210,756
====================================================================
RESTAURANTS-2.74%
Applebee's International, Inc. 12,111 232,774
- --------------------------------------------------------------------
Jack in the Box Inc.(a) 5,170 202,664
- --------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a) 4,688 178,238
- --------------------------------------------------------------------
RARE Hospitality International, Inc.(a) 7,365 211,817
====================================================================
825,493
====================================================================
SEMICONDUCTOR EQUIPMENT-2.30%
FormFactor Inc.(a) 6,990 311,964
- --------------------------------------------------------------------
Tessera Technologies Inc.(a) 7,432 204,380
- --------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 5,473 178,474
====================================================================
694,818
====================================================================
SEMICONDUCTORS-1.88%
Cirrus Logic, Inc.(a) 26,867 218,698
- --------------------------------------------------------------------
Microsemi Corp.(a) 8,387 204,475
- --------------------------------------------------------------------
Power Integrations, Inc.(a) 8,219 143,668
====================================================================
566,841
====================================================================
SPECIALIZED CONSUMER SERVICES-0.98%
Jackson Hewitt Tax Service Inc. 9,466 296,759
====================================================================
SPECIALTY CHEMICALS-0.43%
Rockwood Holdings Inc.(a) 5,678 130,651
====================================================================
SPECIALTY STORES-0.79%
Dick's Sporting Goods, Inc.(a) 6,002 237,679
====================================================================
STEEL-1.01%
Carpenter Technology Corp. 2,627 303,418
====================================================================
</Table>
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
SYSTEMS SOFTWARE-0.66%
MICROS Systems, Inc.(a) 4,543 $ 198,438
====================================================================
TRADING COMPANIES & DISTRIBUTORS-2.47%
TransDigm Group, Inc.(a) 7,172 171,769
- --------------------------------------------------------------------
United Rentals, Inc.(a) 7,144 228,465
- --------------------------------------------------------------------
WESCO International, Inc.(a) 4,987 344,103
====================================================================
744,337
====================================================================
TRUCKING-1.08%
Swift Transportation Co., Inc.(a) 10,216 324,460
====================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.32%
SBA Communications Corp.-Class A(a) 15,223 397,939
====================================================================
Total Common Stocks & Other Equity
Interests (Cost $28,259,447) 29,422,311
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-2.08%
Liquid Assets Portfolio-Institutional
Class(c) 313,954 $ 313,954
- --------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 313,953 313,953
====================================================================
Total Money Market Funds (Cost $627,907) 627,907
====================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.63% (Cost
$28,887,354) 30,050,218
====================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.76%
Premier Portfolio-Institutional Class (Cost
$228,653)(c)(d) 228,654 228,653
====================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $228,653) 228,653
====================================================================
TOTAL INVESTMENTS-100.39% (Cost $29,116,007) 30,278,871
====================================================================
OTHER ASSETS LESS LIABILITIES-(0.39)% (116,949)
====================================================================
NET ASSETS-100.00% $30,161,922
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security was out on loan at June 30, 2006.
(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 commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 7.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $28,259,447)* $29,422,311
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $856,560) 856,560
============================================================
Total investments (cost $29,116,007) 30,278,871
============================================================
Receivables for:
Investments sold 145,865
- ------------------------------------------------------------
Fund shares sold 17,921
- ------------------------------------------------------------
Dividends 14,049
- ------------------------------------------------------------
Fund expenses absorbed 8,060
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,219
============================================================
Total assets 30,472,985
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 7,369
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 9,397
- ------------------------------------------------------------
Collateral upon return of securities loaned 228,653
- ------------------------------------------------------------
Accrued administrative services fees 29,051
- ------------------------------------------------------------
Accrued distribution fees -- Series II 56
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 365
- ------------------------------------------------------------
Accrued transfer agent fees 774
- ------------------------------------------------------------
Accrued operating expenses 35,398
============================================================
Total liabilities 311,063
============================================================
Net assets applicable to shares outstanding $30,161,922
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $26,331,651
- ------------------------------------------------------------
Undistributed net investment income (loss) (124,955)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 2,792,362
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 1,162,864
============================================================
$30,161,922
____________________________________________________________
============================================================
NET ASSETS:
Series I $30,059,944
____________________________________________________________
============================================================
Series II $ 101,978
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 1,741,100
____________________________________________________________
============================================================
Series II 5,932
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 17.26
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 17.19
____________________________________________________________
============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $224,139 were on loan
to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$539) $ 42,321
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of $1,403,
after compensation to counterparties of
$8,565) 28,325
=============================================================
Total investment income 70,646
=============================================================
EXPENSES:
Advisory fees 118,569
- -------------------------------------------------------------
Administrative services fees 64,377
- -------------------------------------------------------------
Custodian fees 6,376
- -------------------------------------------------------------
Distribution fees -- Series II 95
- -------------------------------------------------------------
Transfer agent fees 4,248
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 7,770
- -------------------------------------------------------------
Professional services fees 23,447
- -------------------------------------------------------------
Other 10,510
=============================================================
Total expenses 235,392
=============================================================
Less: Fees waived (45,764)
=============================================================
Net expenses 189,628
=============================================================
Net investment income (loss) (118,982)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities
(includes gains from securities sold to
affiliates of $479,403) 3,208,234
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (1,013,606)
=============================================================
Net gain from investment securities 2,194,628
=============================================================
Net increase in net assets resulting from
operations $ 2,075,646
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (118,982) $ (297,030)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and option contracts 3,208,234 4,994,360
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (1,013,606) (2,857,252)
=========================================================================================
Net increase in net assets resulting from operations 2,075,646 1,840,078
=========================================================================================
Share transactions-net:
Series I (3,153,438) (18,504,692)
- -----------------------------------------------------------------------------------------
Series II 87,289 1,095
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (3,066,149) (18,503,597)
=========================================================================================
Net increase (decrease) in net assets (990,503) (16,663,519)
=========================================================================================
NET ASSETS:
Beginning of period 31,152,425 47,815,944
=========================================================================================
End of period (including undistributed net investment
income (loss) of $(124,955) and $(5,973), respectively) $30,161,922 $ 31,152,425
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Company Growth Fund (effective July 3, 2006, AIM V.I. Small 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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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 COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL 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. 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 (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the Fund's
average daily net assets.
Through April 30, 2008, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.20% and Series
II shares to 1.45% of average daily net assets, through April 30, 2008. 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
net annual 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. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $45,764.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $39,583 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $4,248.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $95.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, to invest daily available cash
balances and cash collateral from securities lending transactions in an
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 six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 313,954 $ -- $ -- $313,954 $ 121 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class 1,615,213 12,557,307 (13,858,567) -- 313,953 26,801 --
==================================================================================================================================
Subtotal $1,615,213 $12,871,261 $(13,858,567) $ -- $627,907 $26,922 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class $ 233,040 $ 8,446,862 $ (8,451,249) $ -- $228,653 $ 1,403 $ --
==================================================================================================================================
Total $1,848,253 $21,318,123 $(22,309,816) $ -- $856,560 $28,325 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities sales of $2,613,182, which resulted in net realized gains
of $479,403 and securities purchases of $414,215.
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 six months ended June 30, 2006, the Fund paid legal fees of
$1,822 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $224,139 were on
loan to brokers. The loans were secured by cash collateral of $228,653 received
by the Fund and subsequently invested in an affiliated money market fund. For
the six months ended June 30, 2006, the Fund received dividends on cash
collateral investments of $1,403 for securities lending transactions, which are
net of compensation to counterparties.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $372,789
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $21,749,741 and $23,701,240, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,988,520
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,837,940)
===============================================================================
Net unrealized appreciation of investment securities $ 1,150,580
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $29,128,291.
</Table>
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
----------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Series I 189,395 $ 3,308,904 513,619 $ 7,854,216
- -------------------------------------------------------------------------------------------------------------------
Series II 5,286 90,211 68 1,095
===================================================================================================================
Reacquired:
Series I (369,183) (6,462,342) (1,694,646) (26,358,908)
- -------------------------------------------------------------------------------------------------------------------
Series II (167) (2,922) -- --
===================================================================================================================
(174,669) $(3,066,149) (1,180,959) $(18,503,597)
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) There are five entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they owns 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.
NOTE 11--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------
2006 2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.21 $ 15.41 $ 13.52 $ 10.14 $ 14.72 $ 18.07
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.11)(a) (0.14) (0.08) (0.00)(b) (0.00)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.12 0.91 2.03 3.46 (4.58) (3.35)
=========================================================================================================================
Total from investment operations 1.05 0.80 1.89 3.38 (4.58) (3.35)
=========================================================================================================================
Net asset value, end of period $ 17.26 $ 16.21 $ 15.41 $ 13.52 $ 10.14 $ 14.72
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 6.48% 5.19% 13.98% 33.33% (31.11)% (18.54)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,060 $31,139 $47,804 $49,598 $32,990 $39,211
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.20%(d) 1.25% 1.28% 1.25% 1.25% 1.25%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.49%(d) 1.39% 1.36% 1.30% 1.31% 1.29%
=========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.75)%(d) (0.70)% (0.96)% (0.75)% (0.87)% (0.48)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 71% 203% 198% 133% 95% 88%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(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, 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
$(0.09) 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 are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$31,803,820.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTE 12-- FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.16 $15.40 $13.42
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.14)(a) (0.10)
- ----------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.12 0.90 2.08
================================================================================================================
Total from investment operations 1.03 0.76 1.98
================================================================================================================
Net asset value, end of period $17.19 $16.16 $15.40
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 6.37% 4.93% 14.75%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 102 $ 13 $ 11
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%(c) 1.45% 1.45%(d)
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.74%(c) 1.64% 1.61%(d)
================================================================================================================
Ratio of net investment income (loss) to average net assets (1.00)%(c) (0.90)% (1.13)%(d)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(e) 71% 203% 198%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $76,579.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
NOTE 13 -- LEGAL PROCEEDINGS--(CONTINUED)
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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 (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. SMALL COMPANY GROWTH FUND (EFFECTIVE JULY 3, 2006, AIM V.I. SMALL CAP
GROWTH FUND)
AIM V.I. TECHNOLOGY FUND
Semiannual Report to Shareholders o June 30,2006
AIM V.I. TECHNOLOGY FUND seeks capital growth.
UNLESS OTHERWISE STATED INFORMATION PRESENTED IN THIS REPORT IS AS OF JUNE 30,
2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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 30,2006, 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 focusing on company fundamentals and
growth prospects in industries such as
====================================================================================== hardware, software, semiconductors,
PERFORMANCE SUMMARY telecommunications equipment and
============================================ services and service-related companies
For the six months ended June 30,2006, in the IT sector.
and excluding variable product issuer FUND VS. INDEXES
charges, AIM V.I. Technology Fund posted We use our proprietary quantitative
slightly negative returns. Although the CUMULATIVE TOTAL RETURNS, 12/31/05--6/30/06, sector model to rank companies based on
Fund underperformed its broad market EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. several factors, such as earnings
index, it held up significantly better IF VARIABLE PRODUCT ISSUER CHARGES WERE growth, cash flow sustainability,
than its style-specific index and peer INCLUDED, RETURNS WOULD BE LOWER. quality of financial metrics and
group indexes. The Fund underperformed valuation. The model serves both as a
the S&P 500 Index because the source of ideas and as a confirmation
information technology (IT) sector was Series I Shares -0.32% tool of our fundamental analysis.
the weakest-performing sector of the
broad market. The Fund held up better Series II Shares -0.48 We then apply our valuation analysis,
than the Goldman Sachs Technology comparing a stock's current valuation to
Composite Index due to strong stock Standard & Poor's Composite Index its historical valuations as well as to
selection in the Internet software and of 500 Stocks (S&P 500 Index) the valuations of its competitors.
services and semiconductors and (Broad Market Index) 2.71
semiconductor equipment industries. The Fund's portfolio normally
Goldman Sachs Technology consists of approximately 65-85 stocks
Composite Index and is constructed to take advantage of
(Style-Specific Index) -5.47 both long- and short-term opportunities.
We typically invest 60-80% of the Fund's
Lipper Science and Technology assets in core holdings--companies that
Fund Index (Peer Group Index -2.91 demonstrate both the fundamental and
quantitative stock selection
SOURCES: LIPPER INC., BLOOMBERG L.P. requirements. The tactical portion of
============================================ the portfolio typically represents
20-40% of the Fund's assets.
Your Fund's long-term performance appears
on page 4. We manage risk through
diversification within the sector and by
====================================================================================== allocating a portion of assets to core
holdings, which generally have more
HOW WE INVEST and the public. favorable return and valuation
characteristics.
We seek attractively valued, Within each industry, we look for:
well-managed companies in the IT sector We may reduce or eliminate exposure
with the potential to generate o Companies addressing growing markets to a stock when:
sustainable earnings and free cash flow with unique product offerings.
growth that is not yet anticipated by o We identify a more attractive
the market. We begin by identifying o Companies with strong and experienced investment opportunity.
industries in the sector we believe may management teams.
benefit over the next 12 to 24 months
from strong fundamentals, such as o Companies that are profitable and that
increased demand, a new product cycle or have, over time, grown their market
greater visibility among investors share.
o Companies with defensible business
models.
We use a bottom-up investment
approach,
======================================== ============================================ ============================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $175.5 MILLION
TOTAL NUMBER OF HOLDINGS* 71
By industry 1. Cisco Systems, Inc. 3.3%
Semiconductors 18.4% 2. Hewlett-Packard Co. 3.0 The Fund's holdings are subject to
change, and there is no assurance that
Communications Equipment 15.6 3. Freescale Semiconductor the Fund will continue to hold any
Inc.-Class B 2.7 particular security.
Application Software 10.4
4. Akamai Technologies, Inc. 2.4 *Excluding money market fund holdings.
Internet Software & Services 8.5
5. Google Inc.-Class A 2.3
Computer Hardware 6.5
6. Oracle Corp. 2.2
Data Processing &
Outsourced Services 5.3 7. Adobe Systems Inc. 2.2
Semiconductor Equipment 5.3 8. Accenture Ltd.-Class A 2.2
IT Consulting & Other Services 4.3 9. Cognizant Technology Solutions
Corp.-Class A 2.2
Systems Software 4.3
10. Amdocs Ltd. 2.1
Computer Storage &
Peripherals 4.2
Wireless Telecommunications
Services 4.0
Seven Other Industries, Each with
Less Than 3% of Total Net Assets 7.5
Money Market Funds Plus
Other Assets Less Liabilities 5.7
======================================== ============================================ ============================================
2
AIM V.I.TECHNOLOGY FUND
o A company's fundamentals change. financial, market and product positions. MICHELLE ESPELIEN
Openwave Systems, which provides open FENTON, Chartered
o A catalyst does not materialize in the standards software products and services [ESPELIEN Financial Analyst,
case of tactical holdings. for the telecommunications industry, PHOTO] portfolio manager,
declined as an expected deal failed to is manager of AIM
o A stock's price target has been met. materialize and as the firm's aggressive V.I. Technology
accounting practices came to light. As a Fund. She began her
MARKET CONDITIONS AND YOUR FUND result, we sold the stock. investment career
in 1995. Before joining the Fund's
After performing strongly during the During the reporting period, we advisor in 1998, she worked as an equity
first four months of 2006, the U.S. increased our exposure to stocks that we analyst at another investment firm. Ms.
stock market retreated over the last two characterize as core holdings. We took Fenton earned her B.A. in finance from
months of the reporting period largely profits and trimmed our holdings in Montana State University.
due to concerns about persistently high Internet software and services stocks
energy prices and rising interest and semiconductor stocks because we were Assisted by the Technology Team
rates--and the potential impact of both concerned inventory buildup in the
on economic growth and inflation. During semiconductor industry. We used the EFFECTIVE MAY 1, 2006, WILLIAM R.
the reporting period, the U.S. Federal proceeds to increase the Fund's exposure KEITHLER RETIRED FROM AIM. EFFECTIVE ON
Reserve Board continued its tightening to software and IT services stocks. THE SAME DATE, MICHELLE ESPELIEN FENTON,
policy, raising the key federal funds ASSISTED BY THE TECHNOLOGY TEAM, ASSUMED
target rate to 5.25%. Early in 2006, we made several MANAGEMENT OF THE FUND.
changes to our investment process. These
Against this backdrop, energy and changes included: refining our stock
telecommunication services were the selection process by incorporating a
best-performing sectors of the S&P 500 proprietary quantitative sector model
Index. The IT sector struggled and was and reducing the number of portfolio
the weakest sector of the broad market. holdings and concentrating on those in
The sector's weakness can generally be which we have greater conviction.
attributed to three main investor
concerns: IN CLOSING
o Backdating of stock options to boost During the reporting period, we
top executives' compensation continued to see some positive trends in
the IT sector, including the evolution
o Inventory buildup in the semiconductor of new communication protocols, growth
and contract manufacturing industries in both emerging and developed markets
that may drive continued demand for
o Seasonally slow summer months consumer electronics products, the
launch of new game consoles and the
Stocks that aided Fund performance ongoing "digital consumer" movement.
included AKAMAI TECHNOLOGIES, FORMFACTOR
and CORNING. Akamai, a leading global As always, we thank you for your
service provider for accelerating continued investment in AIM V.I.
content and business processes online, Technology Fund.
reported favorable financial results.
FormFactor, a manufacturer of THE VIEWS AND OPINIONS EXPRESSED IN
semiconductor wafer cards, benefited MANAGEMENT'S DISCUSSION OF FUND
from growth in FormFactor, a PERFORMANCE ARE THOSE OF A I M ADVISORS,
manufacturer of semiconductor wafer INC. THESE VIEWS AND OPINIONS ARE
cards, benefited from growth in dynamic SUBJECT TO CHANGE AT ANY TIME BASED ON
random access memory (DRAM), the most FACTORS SUCH AS MARKET AND ECONOMIC
common type of random access memory CONDITIONS. THESE VIEWS AND OPINIONS MAY
(RAM) for personal computers and NOT BE RELIED UPON AS INVESTMENT ADVICE
workstations. Corning, which OR RECOMMENDATIONS, OR AS AN OFFER FOR A
manufactures flat-panel glass screens PARTICULAR SECURITY. THE INFORMATION IS
for notebook computers and plasma NOT A COMPLETE ANALYSIS OF EVERY ASPECT
television screens, benefited from OF ANY MARKET, COUNTRY, INDUSTRY,
increased consumer demand for those SECURITY OR THE FUND. STATEMENTS OF FACT
products. ARE FROM SOURCES CONSIDERED RELIABLE,
BUT A I M ADVISORS, INC. MAKES NO
Detractors from Fund performance REPRESENTATION OR WARRANTY AS TO THEIR
included APPLE COMPUTER, YAHOO! and COMPLETENESS OR ACCURACY. ALTHOUGH
OPENWAVE SYSTEMS. Shares of Apple HISTORICAL PERFORMANCE IS NO GUARANTEE
Computer and Yahoo! declined after both OF FUTURE RESULTS, THESE INSIGHTS MAY
companies reported disappointing HELP YOU UNDERSTAND OUR INVESTMENT [RIGHT ARROW GRAPHIC]
financial results that were below MANAGEMENT PHILOSOPHY.
analysts' estimates. At the close of the FOR A DISCUSSION OF THE RISKS OF
reporting period, we still owned the INVESTING IN YOUR FUND, INDEXES USED IN
stocks as we continued to believe that THIS REPORT AND YOUR FUND'S LONG-TERM
these companies have strong PERFORMANCE, PLEASE TURN TO PAGE 4.
3
AIM V.I.TECHNOLOGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS SHARE CLASSES WILL DIFFER PRIMARILY DUE NOT INTENDED TO REFLECT ACTUAL VARIABLE
TO DIFFERENT CLASS EXPENSES. PRODUCT VALUES. THEY DO NOT REFLECT
As of 6/30/06 SALES CHARGES, EXPENSES AND FEES
THE PERFORMANCE DATA QUOTED REPRESENT ASSESSED IN CONNECTION WITH A VARIABLE
SERIES I SHARES PAST PERFORMANCE AND CANNOT GUARANTEE PRODUCT. SALES CHARGES, EXPENSES AND
COMPARABLE FUTURE RESULTS; CURRENT FEES, WHICH ARE DETERMINED BY THE
Inception (5/20/97) 2.71% PERFORMANCE MAY BE LOWER OR HIGHER. VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years -8.05 PLEASE CONTACT YOUR VARIABLE PRODUCT WILL LOWER THE TOTAL RETURN.
1 Year 8.68 ISSUER OR FINANCIAL ADVISOR FOR THE MOST
RECENT MONTH-END VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
SERIES II SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT RECENT MONTH-END PERFORMANCE DATA AT THE
FUND EXPENSES, REINVESTED DISTRIBUTIONS FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Inception 2.43% AND CHANGES IN NET ASSET VALUE. CHARGES, IS AVAILABLE ON THIS AIM
5 Years -8.32 INVESTMENT RETURN AND PRINCIPAL VALUE AUTOMATED INFORMATION LINE,
1 Year 8.28 WILL FLUCTUATE SO THAT YOU MAY HAVE A 866-702-4402. AS MENTIONED ABOVE, FOR
GAIN OR LOSS WHEN YOU SELL SHARES. THE MOST RECENT MONTH-END PERFORMANCE
======================================== INCLUDING VARIABLE PRODUCT CHARGES,
AIM V.I. TECHNOLOGY FUND, A SERIES PLEASE CONTACT YOUR VARIABLE PRODUCT
SERIES II SHARES' INCEPTION DATE IS PORTFOLIO OF AIM VARIABLE INSURANCE ISSUER OR FINANCIAL ADVISOR.
APRIL 30, 2004. RETURNS SINCE THAT DATE FUNDS, IS CURRENTLY OFFERED THROUGH
ARE HISTORICAL. ALL OTHER RETURNS ARE INSURANCE COMPANIES ISSUING VARIABLE
THE BLENDED RETURNS OF THE HISTORICAL PRODUCTS. YOU CANNOT PURCHASE SHARES OF
PERFORMANCE OF SERIES II SHARES SINCE THE FUND DIRECTLY. PERFORMANCE FIGURES
THEIR INCEPTION AND THE RESTATED GIVEN REPRESENT THE FUND AND ARE
HISTORICAL PERFORMANCE OF SERIES I
SHARES (FOR PERIODS PRIOR TO INCEPTION
OF SERIES II SHARES) ADJUSTED TO REFLECT
THE RULE 12b-1 FEES APPLICABLE TO SERIES
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS MAY 20, 1997. THE
PERFORMANCE OF THE FUND'S SERIES I AND
SERIES II
PRINCIPAL RISKS OF INVESTING IN THE FUND Fund will have favorable IPO investment reflect sales charges. Performance of an
opportunities. index of funds reflects fund expenses;
The Fund can invest up to 25% of its performance of a market index does not.
assets in foreign securities that ABOUT INDEXES USED IN THIS REPORT
involve risks not associated with OTHER INFORMATION
investing solely in the United States. The GOLDMAN SACHS TECHNOLOGY COMPOSITE
These include risks relating to INDEX is a modified The returns shown in the management's
fluctuations in the value of the U.S. capitalization-weighted index composed discussion of Fund performance are based
dollar relative to the values of other of companies involved in the technology on net asset values calculated for
currencies, the custody arrangements industry. The index is rebalanced shareholder transactions. Generally
made for the Fund's foreign holdings, semiannually. accepted accounting principles require
differences in accounting, political adjustments to be made to the net assets
risks and the lesser degree of public The unmanaged LIPPER SCIENCE AND of the Fund at period end for financial
information required to be provided by TECHNOLOGY FUND INDEX represents an reporting purposes, and as such, the net
non-U.S. companies. average of the performance of the 30 asset values for shareholder
largest science and technology funds transactions and the returns based on
Investing in a single-sector or tracked by Lipper Inc., an independent those net asset values may differ from
single-region mutual fund involves mutual fund performance monitor. the net asset values and returns
greater risk and potential reward than reported in the Financial Highlights.
investing in a more diversified fund. The unmanaged STANDARD & POOR'S Additionally, the returns and net asset
COMPOSITE INDEX of 500 STOCKS (the S&P values shown throughout this report are
Investing in smaller companies 500--Registered Trademark-- Index) is at the Fund level only and do not
involves greater risk than investing in an index of common stocks frequently include variable product issuer charges.
more established companies, such as used as a general measure of U.S. stock If such charges were included, the total
business risk, significant stock price market performance. returns would be lower.
fluctuations and illiquidity.
The Fund is not managed to track the Industry classifications used in this
Portfolio turnover is greater than performance of any particular index, report are generally according to the
that of most funds, which may affect including the indexes defined here, and Global Industry Classification Standard,
performance. consequently, the performance of the which was developed by and is the
Fund may deviate significantly from the exclusive property and a service mark of
The prices of initial public offering performance of the indexes. Morgan Stanley Capital International
(IPO) securities may go up and down more Inc. and Standard & Poor's.
than prices of equity securities of A direct investment cannot be made in
companies with longer trading histories. an index. Unless otherwise indicated,
In addition, companies offering index results include reinvested
securities in IPOs may have less dividends, and they do not
experienced management or limited
operating histories. There can be no
assurance that the
4
AIM V.I.TECHNOLOGY 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Funds vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $996.80 $5.50 $1,019.29 $5.56 1.11%
Series II 1,000.00 995.20 6.73 1,018.05 6.80 1.36
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through June 30,
2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I.TECHNOLOGY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable services to be provided by AIM under the which need more time to be evaluated
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and before a conclusion can be made that the
the management of AIM V.I. Technology that AIM currently is providing services changes have addressed the Fund's
Fund (the "Fund") and, as required by in accordance with the terms of the under-performance. Based on this review
law, determines annually whether to Advisory Agreement. and after taking account of all of the
approve the continuance of the Fund's other factors that the Board considered
advisory agreement with A I M Advisors, o The quality of services to be provided in determining whether to continue the
Inc. ("AIM"). Based upon the by AIM. The Board reviewed the Advisory Agreement for the Fund, the
recommendation of the Investments credentials and experience of the Board concluded that no changes should
Committee of the Board, at a meeting officers and employees of AIM who will be made to the Fund and that it was not
held on June 27, 2006, the Board, provide investment advisory services to necessary to change the Fund's portfolio
including all of the independent the Fund. In reviewing the management team at this time. However,
trustees, approved the continuance of qualifications of AIM to provide due to the Fund's under-performance, the
the advisory agreement (the "Advisory investment advisory services, the Board Board also concluded that it would be
Agreement") between the Fund and AIM for considered such issues as AIM's appropriate for the Board to continue to
another year, effective July 1, 2006. portfolio and product review process, closely monitor and review the
various back office support functions performance of the Fund. Although the
The Board considered the factors provided by AIM and AIM's equity and independent written evaluation of the
discussed below in evaluating the fixed income trading operations. Based Fund's Senior Officer (discussed below)
fairness and reasonableness of the on the review of these and other only considered Fund performance through
Advisory Agreement at the meeting on factors, the Board concluded that the the most recent calendar year, the Board
June 27, 2006 and as part of the Board's quality of services to be provided by also reviewed more recent Fund
ongoing oversight of the Fund. In their AIM was appropriate and that AIM performance, which did not change their
deliberations, the Board and the currently is providing satisfactory conclusions.
independent trustees did not identify services in accordance with the terms of
any particular factor that was the Advisory Agreement. o Meetings with the Fund's portfolio
controlling, and each trustee attributed managers and investment personnel. With
different weights to the various o The performance of the Fund relative respect to the Fund, the Board is
factors. to comparable funds. The Board reviewed meeting periodically with such Fund's
the performance of the Fund during the portfolio managers and/or other
One responsibility of the independent past one, three and five calendar years investment personnel and believes that
Senior Officer of the Fund is to manage against the performance of funds advised such individuals are competent and able
the process by which the Fund's proposed by other advisors with investment to continue to carry out their
management fees are negotiated to ensure strategies comparable to those of the responsibilities under the Advisory
that they are negotiated in a manner Fund. The Board noted that the Fund's Agreement.
which is at arms' length and reasonable. performance in such periods was below
To that end, the Senior Officer must the median performance of such o Overall performance of AIM. The Board
either supervise a competitive bidding comparable funds. The Board also noted considered the overall performance of
process or prepare an independent that AIM began serving as investment AIM in providing investment advisory and
written evaluation. The Senior Officer advisor to the Fund in April 2004. The portfolio administrative services to the
has recommended an independent written Board noted that AIM has recently made Fund and concluded that such performance
evaluation in lieu of a competitive changes to the Fund's portfolio was satisfactory.
bidding process and, upon the direction management team, which need more time to
of the Board, has prepared such an be evaluated before a conclusion can be o Fees relative to those of clients of
independent written evaluation. Such made that the changes have addressed the AIM with comparable investment
written evaluation also considered Fund's under-performance. Based on this strategies. The Board reviewed the
certain of the factors discussed below. review and after taking account of all effective advisory fee rate (before
In addition, as discussed below, the of the other factors that the Board waivers) for the Fund under the Advisory
Senior Officer made a recommendation to considered in determining whether to Agreement. The Board noted that this
the Board in connection with such continue the Advisory Agreement for the rate was (i) above the effective
written evaluation. Fund, the Board concluded that no advisory fee rate (before waivers) for
changes should be made to the Fund and one mutual fund advised by AIM with
The discussion below serves as a that it was not necessary to change the investment strategies comparable to
summary of the Senior Officer's Fund's portfolio management team at this those of the Fund; (ii) the same as the
independent written evaluation and time. However, due to the Fund's effective advisory fee rates (before
recommendation to the Board in under-performance, the Board also waivers) for three variable insurance
connection therewith, as well as a concluded that it would be appropriate funds advised by AIM and offered to
discussion of the material factors and for the Board to continue to closely insurance company separate accounts with
the conclusions with respect thereto monitor and review the performance of investment strategies comparable to
that formed the basis for the Board's the Fund. Although the independent those of the Fund; and (iii) above the
approval of the Advisory Agreement. written evaluation of the Fund's Senior effective sub-advisory fee rates for two
After consideration of all of the Officer (discussed below) only offshore funds advised and sub-advised
factors below and based on its informed considered Fund performance through the by AIM affiliates with investment
business judgment, the Board determined most recent calendar year, the Board strategies comparable to those of the
that the Advisory Agreement is in the also reviewed more recent Fund Fund, although the total advisory fees
best interests of the Fund and its performance, which did not change their for one such offshore fund were above
shareholders and that the compensation conclusions. those for the Fund and the total
to AIM under the Advisory Agreement is advisory fees for the other offshore
fair and reasonable and would have been o The performance of the Fund relative fund were comparable to those for the
obtained through arm's length to indices. The Board reviewed the Fund. The Board noted that AIM has
negotiations. performance of the Fund during the past agreed to waive advisory fees of the
one, three and five calendar years Fund and to limit the Fund's total
Unless otherwise stated, information against the performance of the Lipper operating expenses, as discussed below.
presented below is as of June 27, 2006 Science & Technology Fund Index. The Based on this review, the Board
and does not reflect any changes that Board noted that the Fund's performance concluded that the advisory fee rate for
may have occurred since June 27, 2006, in such periods was below the the Fund under the Advisory Agreement
including but not limited to changes to performance of such Index. The Board was fair and reasonable.
the Fund's performance, advisory fees, also noted that AIM began serving as
expense limitations and/or fee waivers. investment advisor to the Fund in April o Fees relative to those of comparable
2004. The Board noted that AIM has funds with other advisors. The Board
o The nature and extent of the advisory recently made changes to the Fund's reviewed the advisory fee rate for the
services to be provided by AIM. The portfolio management team, Fund under the Advisory Agreement. The
Board reviewed the services to be
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
6
AIM V.I.TECHNOLOGY FUND
Board compared effective contractual o Investments in affiliated money market financial condition, the Board concluded
advisory fee rates at a common asset funds. The Board also took into account that the compensation to be paid by the
level at the end of the past calendar the fact that uninvested cash and cash Fund to AIM under its Advisory Agreement
year and noted that the Fund's rate was collateral from securities lending was not excessive.
comparable to the median rate of the arrangements, if any (collectively,
funds advised by other advisors with "cash balances") of the Fund may be o Benefits of soft dollars to AIM. The
investment strategies comparable to invested in money market funds advised Board considered the benefits realized
those of the Fund that the Board by AIM pursuant to the terms of an SEC by AIM as a result of brokerage
reviewed. The Board noted that AIM has exemptive order. The Board found that transactions executed through "soft
agreed to waive advisory fees of the the Fund may realize certain benefits dollar" arrangements. Under these
Fund and to limit the Fund's total upon investing cash balances in AIM arrangements, brokerage commissions paid
operating expenses, as discussed below. advised money market funds, including a by the Fund and/or other funds advised
Based on this review, the Board higher net return, increased liquidity, by AIM are used to pay for research and
concluded that the advisory fee rate for increased diversification or decreased execution services. This research may be
the Fund under the Advisory Agreement transaction costs. The Board also found used by AIM in making investment
was fair and reasonable. that the Fund will not receive reduced decisions for the Fund. The Board
services if it invests its cash balances concluded that such arrangements were
o Expense limitations and fee waivers. in such money market funds. The Board appropriate.
The Board noted that AIM has noted that, to the extent the Fund
contractually agreed to waive advisory invests uninvested cash in affiliated o AIM's financial soundness in light of
fees of the Fund through April 30, 2008 money market funds, AIM has voluntarily the Fund's needs. The Board considered
to the extent necessary so that the agreed to waive a portion of the whether AIM is financially sound and has
advisory fees payable by the Fund do not advisory fees it receives from the Fund the resources necessary to perform its
exceed a specified maximum advisory fee attributable to such investment. The obligations under the Advisory
rate, which maximum rate includes Board further determined that the Agreement, and concluded that AIM has
breakpoints and is based on net asset proposed securities lending program and the financial resources necessary to
levels. The Board considered the related procedures with respect to the fulfill its obligations under the
contractual nature of this fee waiver lending Fund is in the best interests of Advisory Agreement.
and noted that it remains in effect the lending Fund and its respective
until April 30, 2008. The Board noted shareholders. The Board therefore o Historical relationship between the
that AIM has contractually agreed to concluded that the investment of cash Fund and AIM. In determining whether to
waive fees and/or limit expenses of the collateral received in connection with continue the Advisory Agreement for the
Fund through April 30, 2008 in an amount the securities lending program in the Fund, the Board also considered the
necessary to limit total annual money market funds according to the prior relationship between AIM and the
operating expenses to a specified procedures is in the best interests of Fund, as well as the Board's knowledge
percentage of average daily net assets the lending Fund and its respective of AIM's operations, and concluded that
for each class of the Fund. The Board shareholders. it was beneficial to maintain the cur-
considered the contractual nature of rent relationship, in part, because of
this fee waiver/expense limitation and o Independent written evaluation and such knowledge. The Board also reviewed
noted that it remains in effect until recommendations of the Fund's Senior the general nature of the non-investment
April 30, 2008. The Board considered the Officer. The Board noted that, upon advisory services currently performed by
effect these fee waivers/expense their direction, the Senior Officer of AIM and its affiliates, such as
limitations would have on the Fund's the Fund, who is independent of AIM and administrative, transfer agency and
estimated expenses and concluded that AIM's affiliates, had prepared an distribution services, and the fees
the levels of fee waivers/expense independent written evaluation in order received by AIM and its affiliates for
limitations for the Fund were fair and to assist the Board in determining the performing such services. In addition to
reasonable. reasonableness of the proposed reviewing such services, the trustees
management fees of the AIM Funds, also considered the organizational
o Breakpoints and economies of scale. including the Fund. The Board noted that structure employed by AIM and its
The Board reviewed the structure of the the Senior Officer's written evaluation affiliates to provide those services.
Fund's advisory fee under the Advisory had been relied upon by the Board in Based on the review of these and other
Agreement, noting that it does not this regard in lieu of a competitive factors, the Board concluded that AIM
include any breakpoints. The Board bidding process. In determining whether and its affiliates were qualified to
considered whether it would be to continue the Advisory Agreement for continue to provide non-investment
appropriate to add advisory fee the Fund, the Board considered the advisory services to the Fund, including
breakpoints for the Fund or whether, due Senior Officer's written evaluation and administrative, transfer agency and
to the nature of the Fund and the the recommendation made by the Senior distribution services, and that AIM and
advisory fee structures of comparable Officer to the Board that the Board its affiliates currently are providing
funds, it was reasonable to structure consider whether the advisory fee satisfactory non-investment advisory
the advisory fee without breakpoints. waivers for certain equity AIM Funds, services.
Based on this review, the Board including the Fund, should be
concluded that it was not necessary to simplified. The Board concluded that it o Other factors and current trends. The
add advisory fee breakpoints to the would be advisable to consider this Board considered the steps that AIM and
Fund's advisory fee schedule. The Board issue and reach a decision prior to the its affiliates have taken over the last
reviewed the level of the Fund's expiration date of such advisory fee several years, and continue to take, in
advisory fees, and noted that such fees, waivers. order to improve the quality and
as a percentage of the Fund's net efficiency of the services they provide
assets, would remain constant under the o Profitability of AIM and its to the Funds in the areas of investment
Advisory Agreement because the Advisory affiliates. The Board reviewed performance, product line
Agreement does not include any information concerning the profitability diversification, distribution, fund
breakpoints. The Board noted that AIM of AIM's (and its affiliates') operations, shareholder services and
has contractually agreed to waive investment advisory and other activities compliance. The Board concluded that
advisory fees of the Fund through and its financial condition. The Board these steps taken by AIM have improved,
April 30, 2008 to the extent necessary considered the overall profitability of and are likely to continue to improve,
so that the advisory fees payable by the AIM, as well as the profitability of AIM the quality and efficiency of the
Fund do not exceed a specified maximum in connection with managing the Fund. services AIM and its affiliates provide
advisory fee rate, which maximum rate The Board noted that AIM's operations to the Fund in each of these areas, and
includes breakpoints and is based on net remain profitable, although increased support the Board's approval of the
asset levels. The Board concluded that expenses in recent years have reduced continuance of the Advisory Agreement
the Fund's fee levels under the Advisory AIM's profitability. Based on the review for the Fund.
Agreement therefore would not reflect of the profitability of AIM's and its
economies of scale, although the affiliates' investment advisory and
advisory fee waiver reflects economies other activities and its
of scale.
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC COMMON STOCKS-77.92%
ALTERNATIVE CARRIERS-0.89%
Time Warner Telecom Inc.-Class A(a) 105,840 $ 1,571,724
=======================================================================
APPLICATION SOFTWARE-9.14%
Adobe Systems Inc.(a) 127,649 3,875,424
- -----------------------------------------------------------------------
Amdocs Ltd.(a) 101,685 3,721,671
- -----------------------------------------------------------------------
Autodesk, Inc.(a) 36,147 1,245,625
- -----------------------------------------------------------------------
BEA Systems, Inc.(a) 66,118 865,485
- -----------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 165,087 2,831,242
- -----------------------------------------------------------------------
Citrix Systems, Inc.(a) 69,700 2,797,758
- -----------------------------------------------------------------------
Quest Software, Inc.(a) 19,953 280,140
- -----------------------------------------------------------------------
Synchronoss Technologies, Inc.(a)(b) 48,369 419,843
=======================================================================
16,037,188
=======================================================================
COMMUNICATIONS EQUIPMENT-10.63%
Cisco Systems, Inc.(a) 296,663 5,793,828
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 20,976 414,696
- -----------------------------------------------------------------------
Corning Inc.(a) 96,351 2,330,731
- -----------------------------------------------------------------------
Motorola, Inc. 151,293 3,048,554
- -----------------------------------------------------------------------
QUALCOMM Inc. 62,537 2,505,858
- -----------------------------------------------------------------------
Redback Networks Inc.(a) 64,559 1,184,012
- -----------------------------------------------------------------------
Tellabs, Inc.(a) 254,569 3,388,313
=======================================================================
18,665,992
=======================================================================
COMPUTER HARDWARE-5.32%
Apple Computer, Inc.(a) 34,654 1,979,436
- -----------------------------------------------------------------------
Hewlett-Packard Co. 163,757 5,187,822
- -----------------------------------------------------------------------
Palm, Inc.(a)(b) 134,429 2,164,307
=======================================================================
9,331,565
=======================================================================
COMPUTER STORAGE & PERIPHERALS-4.15%
EMC Corp.(a) 150,456 1,650,502
- -----------------------------------------------------------------------
Network Appliance, Inc.(a) 75,934 2,680,470
- -----------------------------------------------------------------------
Rackable Systems Inc.(a) 28,902 1,141,340
- -----------------------------------------------------------------------
Seagate Technology(a) 80,248 1,816,815
=======================================================================
7,289,127
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-5.33%
DST Systems, Inc.(a) 46,409 2,761,336
- -----------------------------------------------------------------------
First Data Corp. 70,670 3,182,977
- -----------------------------------------------------------------------
VeriFone Holdings, Inc.(a) 111,807 3,407,877
=======================================================================
9,352,190
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.88%
Amphenol Corp.-Class A 27,671 1,548,469
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-8.45%
Akamai Technologies, Inc.(a) 116,349 $ 4,210,670
- -----------------------------------------------------------------------
Digital River, Inc.(a) 73,435 2,966,040
- -----------------------------------------------------------------------
Google Inc.-Class A(a) 9,650 4,046,535
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 109,333 3,607,989
=======================================================================
14,831,234
=======================================================================
IT CONSULTING & OTHER SERVICES-4.34%
Accenture Ltd.-Class A 134,931 3,821,246
- -----------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class
A(a) 56,394 3,799,264
=======================================================================
7,620,510
=======================================================================
MOVIES & ENTERTAINMENT-0.94%
News Corp.-Class A 86,121 1,651,801
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.77%
BlueStream Ventures L.P. (Acquired
08/03/00-06/23/06; Cost
$2,744,655)(a)(c)(d)(e) 2,868,750 1,344,239
=======================================================================
SEMICONDUCTOR EQUIPMENT-4.20%
Applied Materials, Inc. 110,995 1,806,999
- -----------------------------------------------------------------------
FormFactor Inc.(a) 74,288 3,315,473
- -----------------------------------------------------------------------
Lam Research Corp.(a) 48,157 2,245,079
=======================================================================
7,367,551
=======================================================================
SEMICONDUCTORS-15.48%
Analog Devices, Inc. 39,583 1,272,198
- -----------------------------------------------------------------------
Broadcom Corp.-Class A(a) 42,972 1,291,309
- -----------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a) 11,207 325,003
- -----------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 159,394 4,686,184
- -----------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 143,245 2,031,214
- -----------------------------------------------------------------------
Intel Corp. 131,207 2,486,373
- -----------------------------------------------------------------------
Intersil Corp.-Class A 37,152 863,784
- -----------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 41,037 1,819,170
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc. 44,796 1,438,399
- -----------------------------------------------------------------------
Microchip Technology Inc. 95,880 3,216,774
- -----------------------------------------------------------------------
National Semiconductor Corp. 72,769 1,735,541
- -----------------------------------------------------------------------
NVIDIA Corp.(a) 49,335 1,050,342
- -----------------------------------------------------------------------
PMC-Sierra, Inc.(a) 265,273 2,493,566
- -----------------------------------------------------------------------
SiRF Technology Holdings, Inc.(a) 22,875 737,032
- -----------------------------------------------------------------------
Texas Instruments Inc. 57,053 1,728,135
=======================================================================
27,175,024
=======================================================================
SYSTEMS SOFTWARE-4.35%
Microsoft Corp. 60,507 1,409,813
- -----------------------------------------------------------------------
Oracle Corp.(a) 267,689 3,878,814
- -----------------------------------------------------------------------
Red Hat, Inc.(a) 100,019 2,340,444
=======================================================================
7,629,071
=======================================================================
</Table>
AIM V.I. TECHNOLOGY FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.13%
Arrow Electronics, Inc.(a) 61,369 $ 1,976,082
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.92%
American Tower Corp.-Class A(a) 29,100 905,592
- -----------------------------------------------------------------------
NII Holdings Inc.(a) 43,851 2,472,319
=======================================================================
3,377,911
=======================================================================
Total Domestic Common Stocks (Cost
$127,033,332) 136,769,678
=======================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-16.38%
CANADA-1.47%
Telus Corp. (Integrated Telecommunication
Services) 62,400 2,573,029
=======================================================================
FINLAND-1.99%
Nokia Oyj-ADR (Communications Equipment) 172,704 3,498,983
=======================================================================
FRANCE-1.14%
Silicon-On-Insulator Technologies
(Semiconductors)(a) 67,507 1,997,468
=======================================================================
GERMANY-1.22%
SAP A.G.-ADR (Application Software) 40,692 2,137,144
=======================================================================
ISRAEL-1.65%
NICE Systems Ltd.-ADR (Communications
Equipment)(a) 102,884 2,895,156
=======================================================================
JAPAN-1.23%
Toshiba Corp. (Computer Hardware)(b)(f) 329,000 2,159,265
=======================================================================
MEXICO-2.07%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 109,169 3,630,961
=======================================================================
NETHERLANDS-1.14%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 98,971 2,001,193
=======================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SOUTH KOREA-0.76%
Samsung Electronics Co., Ltd.
(Semiconductors)(f) 2,100 $ 1,340,245
=======================================================================
SWEDEN-1.37%
Telefonaktiebolaget LM Ericsson-ADR
(Communications Equipment) 72,647 2,400,257
=======================================================================
SWITZERLAND-0.99%
STMicroelectronics N.V.-New York Shares
(Semiconductors) 108,662 1,746,198
=======================================================================
TAIWAN-1.35%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services)(f) 385,868 2,376,084
=======================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $25,330,623) 28,755,983
=======================================================================
MONEY MARKET FUNDS-3.53%
Liquid Assets Portfolio-Institutional
Class(g) 3,097,360 3,097,360
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 3,097,361 3,097,361
=======================================================================
Total Money Market Funds (Cost
$6,194,721) 6,194,721
=======================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-97.83% (Cost
$158,558,676) 171,720,382
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.03%
Premier Portfolio-Institutional Class(g)(h) 3,568,903 3,568,903
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,568,903) 3,568,903
=======================================================================
TOTAL INVESTMENTS-99.86% (Cost $162,127,579) 175,289,285
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.14% 246,513
=======================================================================
NET ASSETS-100.00% $175,535,798
_______________________________________________________________________
=======================================================================
</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 was out on loan at June 30, 2006.
(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 value of this security at June 30, 2006 represented 0.77% 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.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June 30,
2006 represented 0.77% of the Fund's Net Assets. See Note 1A.
(e) The Fund has a remaining commitment of $506,250 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of the
limited partnership agreement.
(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 June 30, 2006 was $5,875,594, which
represented 3.35% 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 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. TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $152,363,955)* $165,525,661
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $9,763,624) 9,763,624
=============================================================
Total investments (cost $162,127,579) 175,289,285
=============================================================
Foreign currencies, at value (cost $1,456,513) 1,466,376
- -------------------------------------------------------------
Receivables for:
Investments sold 4,892,160
- -------------------------------------------------------------
Fund shares sold 390,261
- -------------------------------------------------------------
Dividends 62,596
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 41,854
=============================================================
Total assets 182,142,532
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 2,641,414
- -------------------------------------------------------------
Fund shares reacquired 117,476
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 50,287
- -------------------------------------------------------------
Collateral upon return of securities loaned 3,568,903
- -------------------------------------------------------------
Accrued administrative services fees 171,649
- -------------------------------------------------------------
Accrued distribution fees--Series II 94
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 481
- -------------------------------------------------------------
Accrued transfer agent fees 2,625
- -------------------------------------------------------------
Accrued operating expenses 53,805
=============================================================
Total liabilities 6,606,734
=============================================================
Net assets applicable to shares outstanding $175,535,798
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $658,679,219
- -------------------------------------------------------------
Undistributed net investment income (loss) (533,971)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
option contracts (495,780,982)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 13,171,532
=============================================================
$175,535,798
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $175,395,704
_____________________________________________________________
=============================================================
Series II $ 140,094
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,867,340
_____________________________________________________________
=============================================================
Series II 11,150
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.65
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.56
_____________________________________________________________
=============================================================
</Table>
* At June 30, 2006, securities with an aggregate value of $3,171,302 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$34,919) $ 393,659
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$26,609, after compensation to counterparties
of $132,191) 180,319
=============================================================
Total investment income 573,978
=============================================================
EXPENSES:
Advisory fees 718,241
- -------------------------------------------------------------
Administrative services fees 261,217
- -------------------------------------------------------------
Custodian fees 26,997
- -------------------------------------------------------------
Distribution fees--Series II 187
- -------------------------------------------------------------
Transfer agent fees 14,106
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 9,382
- -------------------------------------------------------------
Other 36,347
=============================================================
Total expenses 1,066,477
=============================================================
Less: Fees waived and expense offset
arrangement (960)
=============================================================
Net expenses 1,065,517
=============================================================
Net investment income (loss) (491,539)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS
Net realized gain from:
Investment securities 16,242,860
- -------------------------------------------------------------
Foreign currencies 19,177
- -------------------------------------------------------------
Option contracts written 73,758
=============================================================
16,335,795
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (15,893,806)
- -------------------------------------------------------------
Foreign currencies 7,248
- -------------------------------------------------------------
Option contracts written 85,597
=============================================================
(15,800,961)
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 534,834
=============================================================
Net increase in net assets resulting from
operations $ 43,295
_____________________________________________________________
=============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (491,539) $ (1,077,606)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 16,335,795 7,137,416
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (15,800,961) (2,919,636)
==========================================================================================
Net increase in net assets resulting from operations 43,295 3,140,174
==========================================================================================
Share transactions-net:
Series I (15,347,795) (13,115,433)
- ------------------------------------------------------------------------------------------
Series II (1,555) (26,030)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (15,349,350) (13,141,463)
==========================================================================================
Net increase (decrease) in net assets (15,306,055) (10,001,289)
==========================================================================================
NET ASSETS:
Beginning of period 190,841,853 200,843,142
==========================================================================================
End of period (including undistributed net investment income
(loss) of $(533,971) and $(42,432), respectively) $175,535,798 $190,841,853
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
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-five 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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
AIM V.I. TECHNOLOGY FUND
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
AIM V.I. TECHNOLOGY FUND
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. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. 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 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, 2008. 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
net annual 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. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. AIM did not waive fees
and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $713.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,795 for
accounting and fund administrative services and reimbursed $236,422 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $14,106.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $187.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and
procedures approved by the Board of Trustees, 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
AIM V.I. TECHNOLOGY FUND
same investment advisor and therefore, are considered to be affiliated. The
tables below show the transactions in and earnings from investments in
affiliated money market funds for the six months ended June 30, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 3,399,564 $ (302,204) $ -- $3,097,360 $ 1,259 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 6,911,034 50,511,247 (54,324,920) -- 3,097,361 152,451 --
==================================================================================================================================
Subtotal $6,911,034 $53,910,811 $(54,627,124) $ -- $6,194,721 $153,710 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class $1,989,759 $ 47,363,744 $ (45,784,600) $ -- $3,568,903 $ 26,609 $ --
==================================================================================================================================
Total $8,900,793 $101,274,555 $(100,411,724) $ -- $9,763,624 $180,319 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the six months ended June 30, 2006, the Fund
engaged in securities purchases of $1,793,269.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $247.
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 six months ended June 30, 2006, the Fund paid legal fees of
$2,097 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
AIM V.I. TECHNOLOGY FUND
to the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the six months ended June 30, 2006, 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 any loss on
the collateral invested.
At June 30, 2006, securities with an aggregate value of $3,171,302 were on
loan to brokers. The loans were secured by cash collateral of $3,568,903
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended June 30, 2006, the Fund received dividends on
cash collateral investments of $26,609 for securities lending transactions,
which are net of compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of period 165 $ 39,473
- ------------------------------------------------------------------------------------
Written 1,741 141,297
- ------------------------------------------------------------------------------------
Closed (66) (15,971)
- ------------------------------------------------------------------------------------
Exercised (1,387) (100,285)
- ------------------------------------------------------------------------------------
Expired (453) (64,514)
====================================================================================
End of period -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $506,206,634 of capital loss carryforward in the fiscal
year ended December 31, 2006.
AIM V.I. TECHNOLOGY FUND
The Fund had a capital loss carryforward as of December 31, 2005 which
expires as follows:
<Table>
<Caption>
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
_____________________________________________________________________________
=============================================================================
</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 AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund into the Fund, are realized on securities held in
each fund as 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 six months
ended June 30, 2006 was $102,120,879 and $120,312,218, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 19,916,019
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,120,621)
===============================================================================
Net unrealized appreciation of investment securities $ 13,795,398
===============================================================================
Cost of investments for tax purposes is $161,493,887.
</Table>
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,097,751 $ 14,644,527 4,018,565 $ 48,024,772
- ----------------------------------------------------------------------------------------------------------------------
Series II 401 5,325 11,967 142,892
======================================================================================================================
Reacquired:
Series I (2,258,603) (29,992,322) (5,144,542) (61,140,205)
- ----------------------------------------------------------------------------------------------------------------------
Series II (529) (6,880) (14,093) (168,922)
======================================================================================================================
(1,160,980) $(15,349,350) (1,128,103) $(13,141,463)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in aggregate they own 71% 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--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.69 $ 12.42 $ 11.87 $ 8.17 $ 15.37 $ 28.37
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.07) (0.04)(a) (0.08) (0.00)(b) (0.12)(c)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.00) 0.34 0.59 3.78 (7.20) (12.88)
=============================================================================================================================
Total from investment
operations (0.04) 0.27 0.55 3.70 (7.20) (13.00)
=============================================================================================================================
Net asset value, end of period $ 12.65 $ 12.69 $ 12.42 $ 11.87 $ 8.17 $ 15.37
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(d) (0.32)% 2.17% 4.63% 45.29% (46.84)% (45.82)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $175,396 $190,700 $200,556 $171,546 $105,508 $240,253
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net
assets 1.11%(e) 1.12% 1.15% 1.10% 1.11% 1.07%
=============================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.51)%(e) (0.60)% (0.39)%(a) (0.85)% (0.96)% (0.66)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(f) 55% 114% 137% 89% 92% 88%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 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 the current method, which is before reclassification of net
operating losses, net investment income (loss) per share would have been
$(0.12) for the year ended December 31, 2002.
(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 are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(e) Ratios are annualized and based on average daily net assets of
$192,967,282.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.62 $12.39 $11.09
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.11) (0.05)(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01) 0.34 1.35
=============================================================================================================
Total from investment operations (0.06) 0.23 1.30
=============================================================================================================
Net asset value, end of period $12.56 $12.62 $12.39
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) (0.48)% 1.86% 11.72%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 140 $ 142 $ 166
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.37% 1.40%(d)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.85)% (0.64)%(a)(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(e) 55% 114% 137%
_____________________________________________________________________________________________________________
=============================================================================================================
</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 are $(0.10) and (1.07)%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $150,892.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory,
AIM V.I. TECHNOLOGY FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. TECHNOLOGY FUND
AIM V.I. UTILITIES FUND
Semiannual Report to Shareholders o June 30, 2006
AIM V.I. UTILITIES FUND seeks capital growth. It also seeks income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
JUNE 30, 2006, 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 Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
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
033-57340. 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, 2006,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 greater growth potential, while
regulated firms provide more stable
====================================================================================== dividends and principal.
PERFORMANCE SUMMARY
============================================ o Generally avoiding excessive
An investor preference for concentration of assets in a small
dividend-paying equities boosted the FUND VS. INDEXES number of stocks.
performance of utilities stocks, helping
the Fund post positive returns for the CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06, o Maintaining a reasonable cash position
six-month period ended June EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. to avoid having to sell stocks during
30,2006. Excluding variable product IF VARIABLE PRODUCT ISSUER CHARGES WERE market downturns.
issuer charges, the Fund outperformed INCLUDED, RETURNS WOULD BE LOWER.
the S&P 500 Index due to strong stock We may sell a stock for any of the
selection particularly in electric Series I Shares 7.68% following reasons:
utilities and diversified
telecommunication services. In addition, Series II Shares 7.60 o Earnings growth is threatened by
investors favored utilities stocks deterioration in the firm's fundamentals
because of their generally more Standard & Poor's Composite Index or change in the operating environment
defensive character and their tendency of 500 Stocks (S&P 500 Index)
to pay dividends. (Broad-market index) 2.71 o Valuation becomes too high
Your Fund's long-term performance Lipper Utility Fund Index o Corporate strategy changes
appears on page 4. (Peer Group Index) 7.62
MARKET CONDITIONS AND YOUR FUND
SOURCE: LIPPER INC.
After performing strongly during the
============================================ first four months of 2006, the U.S.
stock market retreated over the last two
====================================================================================== months of the reporting period, largely
due to concerns about persistently high
HOW WE INVEST demand for certain products and energy prices and rising interest
deregulation of state markets, and that rates--and the potential impact of both
We invest primarily in natural gas, are attractively valued relative to the on economic growth and inflation. During
electricity and telecommunication rest of the market. We also monitor and the reporting period, the U.S. Federal
services companies, selecting stocks may adjust industry and position weights Reserve Board (the Fed) continued its
based on our quantitative and according to prevailing economic trends tightening policy, raising the key
fundamental analysis of individual such as gross domestic product (GDP) federal funds target rate to 5.25%.
companies. Our quantitative analysis growth and interest rate changes.
focuses on positive cash flows and Against this backdrop, energy and
predictable earnings. Our fundamental We control risk by: telecommunication services were the
analysis seeks strong balance sheets, best-performing sectors of the S&P 500
competent management and sustainable o Diversifying across most industries Index. Although utilities stocks posted
dividends and distributions. and sub-industries within the utilities positive returns, it was one of the
sector. weaker performing sectors of the broad
We look for companies that could market. Utilities stocks tend to be
potentially benefit from industry o Owning both regulated and unregulated sensitive to interest rate movements
trends, such as increased utilities-unregulated companies provide because they generally pay dividends and
are particularly attractive
======================================== ============================================ ============================================
PORTFOLIO COMPOSITION TOTAL NET ASSETS $110.9 MILLION TOP 10 EQUITY HOLDINGS*
TOTAL NUMBER OF HOLDINGS* 35
By industry 1.TXU Corp. 5.7%
Electric Utilities 29.4% 2.Questar Corp. 5.4
Multi-Utilities 23.9 3.Kinder Morgan, Inc. 5.1
Independent Power Producers 4.Exelon Corp. 5.0
& Energy Traders 12.8
5.Williams Cos., Inc. (The) 4.5
Gas Utilities 10.9
6.NRG Energy, Inc. 4.2
Integrated Telecommunication
Services 10.4 7.Verizon Communications Inc. 4.1
Oil & Gas Storage & 8.AT&T Inc. 4.1
Transportation 9.7
9.Sempra Energy 4.0
Water Utilities 2.0
10.Edison International 3.9
Money Market Funds
Plus Other Assets
Less Liabilities 0.9
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. UTILITIES FUND
when interest rates are low. As the Fed services primarily in the U.S. Shares of JOHN S. SEGNER,
continued its tight monetary policy, it the stock declined after the company portfolio manager,
hurt the performance of utilities reported lower financial results. We [SEGNER is lead manager of
stocks. still own the stock as we believe the PHOTO] AIM V.I. Utilities
company is making progress and acquiring Fund. Mr. Segner has
For the reporting period, our new water systems. more than 20 years
holdings in electric utilities and of experience in the
diversified telecommunication services DOMINION RESOURCES also energy and
companies had the most positive impact underperformed during the period. In investment industries. Before joining
on Fund performance. Rising energy November, the company reported operating the Fund's advisor in 1997, he was
prices had relatively little negative earnings per share below guidance and managing director and principal with an
effect on utilities, particularly those analyst expectations. While not directly investment management company that
that were relatively deregulated and had affecting its utility operations, focused exclusively on publicly-traded
the ability to pass on fuel costs to hurricanes Katrina and Rita damaged the energy stocks. Prior to that, he held
their customers. Indeed, companies with company's exploration and production positions with several energy companies.
this ability were among the better downstream processing facilities. As Mr. Segner earned a B.S. in civil
performing stocks for the Fund. One of company management noted in a recent engineering from the University of
these stocks was TXU CORPORATION, a earnings conference call, the issue is a Alabama and an M.B.A. with a
Texas-based power company and the Fund's timing concern, as earnings lost in 2005 concentration in finance from The
top holding. TXU has made an impressive have the potential to be offset in 2006 University of Texas at Austin.
turnaround through restructuring, going when business interruption insurance
from unprofitable early in 2004 to proceeds could be received. Assisted by the Energy/Gold/Utilities Team
profitable in 2005. TXU benefited from
the deregulation of the electric IN CLOSING
industry in Texas, which enabled it to
increase its customer base. During the reporting period, the 15% tax
rate for qualified dividends, which has
DURING THE PERIOD, made utilities stocks attractive to
THE 15% TAX RATE FOR investors, was extended. However, we
QUALIFIED DIVIDENDS, remained modestly concerned about
WHICH HAS MADE interest rate and inflationary trends.
UTILITIES STOCKS We continued to maintain our focus on
ATTRACTIVE TO INVESTORS, holding the favorably priced stocks of
WAS EXTENDED strong companies with reasonable growth
prospects and attractive dividend
A number of the Fund's diversified yields.
telecommunications holdings performed
well during the period; BELLSOUTH in We thank you for your continued
particular was a notable contributor. investment in AIM V.I. Utilities Fund.
The company provides phone and data
services in nine southeastern states, THE VIEWS AND OPINIONS EXPRESSED IN
and it services about 22 million MANAGEMENT'S DISCUSSION OF FUND
residential and business phone lines. PERFORMANCE ARE THOSE OF A I M ADVISORS,
Recently, the company returned cash to INC. THESE VIEWS AND OPINIONS ARE
shareholders through dividends and an SUBJECT TO CHANGE AT ANY TIME BASED ON
aggressive share repurchase program. The FACTORS SUCH AS MARKET AND ECONOMIC
firm recently announced it had already CONDITIONS. THESE VIEWS AND OPINIONS MAY
completed $600 million of its $2 billion NOT BE RELIED UPON AS INVESTMENT ADVICE
share repurchase plan. In addition, the OR RECOMMENDATIONS, OR AS AN OFFER FOR A
company agreed to be bought by AT&T for PARTICULAR SECURITY. THE INFORMATION IS
$67 billion in stock. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
Detracting from Fund performance was SECURITY OR THE FUND. STATEMENTS OF FACT
AQUA AMERICA, a holding company for ARE FROM SOURCES CONSIDERED RELIABLE,
regulated utilities providing water or BUT A I M ADVISORS, INC. MAKES NO
wastewater REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH [RIGHT ARROW GRAPHIC]
HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT FOR A DISCUSSION OF THE RISKS OF
MANAGEMENT PHILOSOPHY. INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE TURN TO PAGE 4.
3
AIM V.I. UTILITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS AND SERIES II SHARE CLASSES WILL DIFFER VARIABLE PRODUCT VALUES. THEY DO NOT
PRIMARILY DUE TO DIFFERENT CLASS REFLECT SALES CHARGES, EXPENSES AND FEES
As of 6/30/06 EXPENSES. ASSESSED IN CONNECTION WITH A VARIABLE
PRODUCT. SALES CHARGES, EXPENSES AND
SERIES I SHARES THE PERFORMANCE DATA QUOTED REPRESENT FEES, WHICH ARE DETERMINED BY THE
Inception (12/30/94) 7.71% PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
10 Years 7.12 COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
5 Years 3.32 PERFORMANCE MAY BE LOWER OR HIGHER.
1 Year 13.98 PLEASE CONTACT YOUR VARIABLE PRODUCT PER NASD REQUIREMENTS, THE MOST
ISSUER OR FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE
SERIES II SHARES RECENT MONTH-END VARIABLE PRODUCT FUND LEVEL, EXCLUDING VARIABLE PRODUCT
10 Years 6.85% PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, IS AVAILABLE ON THIS AIM
5 Years 3.07 FUND EXPENSES, REINVESTED DISTRIBUTIONS AUTOMATED INFORMATION LINE,
1 Year 13.66 AND CHANGES IN NET ASSET VALUE. 866-702-4402. AS MENTIONED ABOVE, FOR
INVESTMENT RETURN AND PRINCIPAL VALUE THE MOST RECENT MONTH-END PERFORMANCE
======================================== WILL FLUCTUATE SO THAT YOU MAY HAVE A INCLUDING VARIABLE PRODUCT CHARGES,
GAIN OR LOSS WHEN YOU SELL SHARES. PLEASE CONTACT YOUR VARIABLE PRODUCT
SERIES II SHARES' INCEPTION DATE IS ISSUER OR FINANCIAL ADVISOR.
APRIL 30, 2004. RETURNS SINCE THAT DATE AIM V.I. UTILITIES FUND, A SERIES
ARE HISTORICAL. ALL OTHER RETURNS ARE PORTFOLIO OF AIM VARIABLE INSURANCE
THE BLENDED RETURNS OF THE HISTORICAL FUNDS, IS CURRENTLY OFFERED THROUGH
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE COMPANIES ISSUING VARIABLE
THEIR INCEPTION AND THE RESTATED PRODUCTS. YOU CANNOT PURCHASE SHARES
HISTORICAL PERFORMANCE OF SERIES I OF THE FUND DIRECTLY. PERFORMANCE
SHARES (FOR PERIODS PRIOR TO INCEPTION FIGURES GIVEN REPRESENT THE FUND AND
OF SERIES II SHARES) ADJUSTED TO REFLECT ARE NOT INTENDED TO REFLECT ACTUAL
THE RULE 12b-1 FEES APPLICABLE TO SERIES
II SHARES. THE INCEPTION DATE OF SERIES
I SHARES IS DECEMBER 30, 1994. THE
PERFORMANCE OF THE FUND'S 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 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 an on net asset values calculated for
investing in a more diversified fund. index of common stocks frequently used shareholder transactions. Generally
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 values for shareholder
subject to this 25% limitation. largest utility funds tracked by Lipper transactions and the returns based on
International investing presents risks Inc., an independent mutual fund those net asset values may differ from
not associated with investing solely in performance monitor. the net asset values and returns
the United States. These include risks reported in the Financial Highlights.
relating to the fluctuation in the value The Fund is not managed to track the Additionally, the returns and net asset
of the U.S. dollar relative to the performance of any particular index, values shown throughout this report are
values of the currencies, the custody including the indexes defined here, and at the Fund level only and do not
arrangements made for the Fund's foreign consequently, the performance of the include variable product issuer charges.
holdings, differences in accounting, Fund may deviate significantly from the If such charges were included, the total
political risks and the lesser degree of performance of the indexes. returns would be lower.
public information required to be
provided by non-U.S. companies. A direct investment cannot be made in Industry classifications used in this
an index. Unless otherwise indicated, report are generally according to the
Investing in smaller companies index results include reinvested Global Industry Classification Standard,
involves greater risk than investing in dividends, and they do not reflect sales which was developed by and is the
more established companies, such as charges. Performance of an index of exclusive property and a service mark of
business risk, significant stock price funds reflects fund expenses; Morgan Stanley Capital International
fluctuations and illiquidity. performance of a market index does not. Inc. and Standard & Poor's.
By concentrating on a small number of
holdings, the Fund carries greater risk
because each investment has a greater
effect on the Fund's overall
performance.
4
AIM V.I. UTILITIES 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 June 30, 2006, appear in the table
(12b-1); and other Fund expenses. This this table, together with the amount you "Fund vs. Indexes" on page 2.
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
January 1, 2006, through June 30, 2006. 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 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 (1/1/06) (6/30/06)(1) PERIOD(2) (6/30/06) PERIOD(2) RATIO
Series I $1,000.00 $1,076.80 $4.79 $1,020.18 $4.66 0.93%
Series II 1,000.00 1,076.00 6.07 1,018.94 5.91 1.18
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2006, through
June 30, 2006, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's
expense ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset
value after expenses for the six months ended June 30, 2006, appear in the table "Fund vs. Indexes" on page 2.
(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 181/365 to reflect the most recent fiscal half year.
====================================================================================================================================
5
AIM V.I. UTILITIES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable o The nature and extent of the advisory began serving as investment advisor to
Insurance Funds (the "Board") oversees services to be provided by AIM. The the Fund in April 2004. Based on this
the management of AIM V.I. Utilities Board reviewed the services to be review and after taking account of all
Fund (the "Fund") and, as required by provided by AIM under the Advisory of the other factors that the Board
law, determines annually whether to Agreement. Based on such review, the considered in determining whether to
approve the continuance of the Fund's Board concluded that the range of continue the Advisory Agreement for the
advisory agreement with A I M Advisors, services to be provided by AIM under the Fund, the Board concluded that no
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and changes should be made to the Fund and
recommendation of the Investments that AIM currently is providing services that it was not necessary to change the
Committee of the Board, at a meeting in accordance with the terms of the Fund's portfolio management team at this
held on June 27, 2006, the Board, Advisory Agreement. time. Although the independent written
including all of the independent evaluation of the Fund's Senior Officer
trustees, approved the continuance of (discussed below) only considered Fund
the advisory agreement (the "Advisory o The quality of services to be provided performance through the most recent
Agreement") between the Fund and AIM for by AIM. The Board reviewed the calendar year, the Board also reviewed
another year, effective July 1, 2006. credentials and experience of the more recent Fund performance, which did
officers and employees of AIM who will not change their conclusions.
The Board considered the factors provide investment advisory services to
discussed below in evaluating the the Fund. In reviewing the
fairness and reasonableness of the qualifications of AIM to provide o Meetings with the Fund's portfolio
Advisory Agreement at the meeting on investment advisory services, the Board managers and investment personnel. With
June 27, 2006 and as part of the Board's considered such issues as AIM's respect to the Fund, the Board is
ongoing oversight of the Fund. In their portfolio and product review process, meeting periodically with such Fund's
deliberations, the Board and the various back office support functions portfolio managers and/or other
independent trustees did not identify provided by AIM and AIM's equity and investment personnel and believes that
any particular factor that was fixed income trading operations. Based such individuals are competent and able
controlling, and each trustee attributed on the review of these and other to continue to carry out their
different weights to the various factors, the Board concluded that the responsibilities under the Advisory
factors. quality of services to be provided by Agreement.
AIM was appropriate and that AIM
One responsibility of the independent currently is providing satisfactory
Senior Officer of the Fund is to manage services in accordance with the terms of o Overall performance of AIM. The Board
the process by which the Fund's proposed the Advisory Agreement. considered the overall performance of
management fees are negotiated to ensure AIM in providing investment advisory and
that they are negotiated in a manner portfolio administrative services to the
which is at arms' length and reasonable. o The performance of the Fund relative Fund and concluded that such performance
To that end, the Senior Officer must to comparable funds. The Board reviewed was satisfactory.
either supervise a competitive bidding the performance of the Fund during the
process or prepare an independent past one, three and five calendar years
written evaluation. The Senior Officer against the performance of funds advised o Fees relative to those of clients of
has recommended an independent written by other advisors with investment AIM with comparable investment
evaluation in lieu of a competitive strategies comparable to those of the strategies. The Board reviewed the
bidding process and, upon the direction Fund. The Board noted that the Fund's effective advisory fee rate (before
of the Board, has prepared such an performance was above the median waivers) for the Fund under the Advisory
independent written evaluation. Such performance of such comparable funds for Agreement. The Board noted that this
written evaluation also considered the one year period and below such rate was below the effective advisory
certain of the factors discussed below. median performance for the three and fee rate (before waivers) for one mutual
In addition, as discussed below, the five year periods. The Board also noted fund advised by AIM with investment
Senior Officer made a recommendation to that AIM began serving as investment strategies comparable to those of the
the Board in connection with such advisor to the Fund in April 2004. Based Fund. The Board noted that AIM has
written evaluation. on this review and after taking account agreed to limit the Fund's total
of all of the other factors that the operating expenses, as discussed below.
The discussion below serves as a Board considered in determining whether Based on this review, the Board
summary of the Senior Officer's to continue the Advisory Agreement for concluded that the advisory fee rate for
independent written evaluation and the Fund, the Board concluded that no the Fund under the Advisory Agreement
recommendation to the Board in changes should be made to the Fund and was fair and reasonable.
connection therewith, as well as a that it was not necessary to change the
discussion of the material factors and Fund's portfolio management team at this
the conclusions with respect thereto time. Although the independent written o Fees relative to those of comparable
that formed the basis for the Board's evaluation of the Fund's Senior Officer funds with other advisors. The Board
approval of the Advisory Agreement. (discussed below) only considered Fund reviewed the advisory fee rate for the
After consideration of all of the performance through the most recent Fund under the Advisory Agreement. The
factors below and based on its informed calendar year, the Board also reviewed Board compared effective contractual
business judgment, the Board determined more recent Fund performance, which did advisory fee rates at a common asset
that the Advisory Agreement is in the not change their conclusions. level at the end of the past calendar
best interests of the Fund and its year and noted that the Fund's rate was
shareholders and that the compensation below the median rate of the funds
to AIM under the Advisory Agreement is o The performance of the Fund relative advised by other advisors with
fair and reasonable and would have been to indices. The Board reviewed the investment strategies comparable to
obtained through arm's length performance of the Fund during the past those of the Fund that the Board
negotiations. one, three and five calendar years reviewed. The Board noted that AIM has
against the performance of the Lipper agreed to limit the Fund's total
Unless otherwise stated, information Variable Underlying Fund Utility Index. operating expenses, as discussed below.
presented below is as of June 27, 2006 The Board noted that the Fund's Based on this review, the Board
and does not reflect any changes that performance was above the performance of concluded that the advisory fee rate for
may have occurred since June 27, 2006, such Index for the one year period, the Fund under the Advisory Agreement
including but not limited to changes to comparable to such Index for the three was fair and reasonable.
the Fund's performance, advisory fees, year period, and below such Index for
expense limitations and/or fee waivers. the five year period. The Board also
noted that AIM
(continued)
6
AIM V.I. UTILITIES FUND
o Expense limitations and fee waivers. and its respective shareholders. The o Historical relationship between the
The Board noted that AIM has Board therefore concluded that the Fund and AIM. In determining whether to
contractually agreed to waive fees investment of cash collateral received continue the Advisory Agreement for the
and/or limit expenses of the Fund in connection with the securities Fund, the Board also considered the
through April 30, 2008 in an amount lending program in the money market prior relationship between AIM and the
necessary to limit total annual funds according to the procedures is in Fund, as well as the Board's knowledge
operating expenses to a specified the best interests of the lending Fund of AIM's operations, and concluded that
percentage of average daily net assets and its respective shareholders. it was beneficial to maintain the
for each class of the Fund. The Board current relationship, in part, because
considered the contractual nature of o Independent written evaluation and of such knowledge. The Board also
this fee waiver/expense limitation and recommendations of the Fund's Senior reviewed the general nature of the
noted that it remains in effect until Officer. The Board noted that, upon non-investment advisory services
April 30, 2008. The Board considered the their direction, the Senior Officer of currently performed by AIM and its
effect this fee waiver/expense the Fund, who is independent of AIM and affiliates, such as administrative,
limitation would have on the Fund's AIM's affiliates, had prepared an transfer agency and distribution
estimated expenses and concluded that independent written evaluation in order services, and the fees received by AIM
the levels of fee waivers/expense to assist the Board in determining the and its affiliates for performing such
limitations for the Fund were fair and reasonableness of the proposed services. In addition to reviewing such
reasonable. management fees of the AIM Funds, services, the trustees also considered
including the Fund. The Board noted that the organizational structure employed by
o Breakpoints and economies of scale. the Senior Officer's written evaluation AIM and its affiliates to provide those
The Board reviewed the structure of the had been relied upon by the Board in services. Based on the review of these
Fund's advisory fee under the Advisory this regard in lieu of a competitive and other factors, the Board concluded
Agreement, noting that it does not bidding process. In determining whether that AIM and its affiliates were
include any breakpoints. The Board to continue the Advisory Agreement for qualified to continue to provide
considered whether it would be the Fund, the Board considered the non-investment advisory services to the
appropriate to add advisory fee Senior Officer's written evaluation. Fund, including administrative, transfer
breakpoints for the Fund or whether, due agency and distribution services, and
to the nature of the Fund and the o Profitability of AIM and its that AIM and its affiliates currently
advisory fee structures of comparable affiliates. The Board reviewed are providing satisfactory
funds, it was reasonable to structure information concerning the profitability non-investment advisory services.
the advisory fee without breakpoints. of AIM's (and its affiliates')
Based on this review, the Board investment advisory and other activities o Other factors and current trends. The
concluded that it was not necessary to and its financial condition. The Board Board considered the steps that AIM and
add advisory fee breakpoints to the considered the overall profitability of its affiliates have taken over the last
Fund's advisory fee schedule. The Board AIM, as well as the profitability of AIM several years, and continue to take, in
reviewed the level of the Fund's in connection with managing the Fund. order to improve the quality and
advisory fees, and noted that such fees, The Board noted that AIM's operations efficiency of the services they provide
as a percentage of the Fund's net remain profitable, although increased to the Funds in the areas of investment
assets, would remain constant under the expenses in recent years have reduced performance, product line
Advisory Agreement because the Advisory AIM's profitability. Based on the review diversification, distribution, fund
Agreement does not include any of the profitability of AIM's and its operations, shareholder services and
breakpoints. The Board concluded that affiliates' investment advisory and compliance. The Board concluded that
the Fund's fee levels under the Advisory other activities and its financial these steps taken by AIM have improved,
Agreement therefore would not reflect condition, the Board concluded that the and are likely to continue to improve,
economies of scale, although the compensation to be paid by the Fund to the quality and efficiency of the
advisory fee waiver reflects economies AIM under its Advisory Agreement was not services AIM and its affiliates provide
of scale. excessive. to the Fund in each of these areas, and
support the Board's approval of the
o Investments in affiliated money market o Benefits of soft dollars to AIM. The continuance of the Advisory Agreement
funds. The Board also took into account Board considered the benefits realized for the Fund.
the fact that uninvested cash and cash by AIM as a result of brokerage
collateral from securities lending transactions executed through "soft
arrangements, if any (collectively, dollar" arrangements. Under these
"cash balances") of the Fund may be arrangements, brokerage commissions paid
invested in money market funds advised by the Fund and/or other funds advised
by AIM 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 may be
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 uninvested cash in affiliated Agreement, and concluded that AIM has
money market funds, AIM has voluntarily the financial resources necessary to
agreed to waive a portion of the fulfill its obligations under the
advisory fees it receives from the Fund Advisory Agreement.
attributable to such investment. The
Board further determined that the
proposed securities lending program and
related procedures with respect to the
lending Fund is in the best interests of
the lending Fund
7
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-99.14%
ELECTRIC UTILITIES-29.45%
E.ON A.G. (Germany) 25,000 $ 2,878,952
- -------------------------------------------------------------------------
Edison International 110,000 4,290,000
- -------------------------------------------------------------------------
Endesa, S.A. (Spain)(a) 38,000 1,321,735
- -------------------------------------------------------------------------
Enel S.p.A. (Italy)(a) 198,000 1,704,849
- -------------------------------------------------------------------------
Entergy Corp. 47,000 3,325,250
- -------------------------------------------------------------------------
Exelon Corp. 98,000 5,569,340
- -------------------------------------------------------------------------
FirstEnergy Corp. 67,000 3,632,070
- -------------------------------------------------------------------------
FPL Group, Inc. 77,000 3,186,260
- -------------------------------------------------------------------------
PPL Corp. 102,000 3,294,600
- -------------------------------------------------------------------------
Southern Co. (The) 75,000 2,403,750
- -------------------------------------------------------------------------
Westar Energy, Inc. 50,000 1,052,500
=========================================================================
32,659,306
=========================================================================
GAS UTILITIES-10.85%
AGL Resources Inc. 67,000 2,554,040
- -------------------------------------------------------------------------
Equitable Resources, Inc. 80,000 2,680,000
- -------------------------------------------------------------------------
Peoples Energy Corp. 21,000 754,110
- -------------------------------------------------------------------------
Questar Corp. 75,000 6,036,750
=========================================================================
12,024,900
=========================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-12.78%
Constellation Energy Group 60,000 3,271,200
- -------------------------------------------------------------------------
NRG Energy, Inc.(b) 96,000 4,625,280
- -------------------------------------------------------------------------
TXU Corp. 105,000 6,277,950
=========================================================================
14,174,430
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-10.46%
Alaska Communications Systems Group Inc. 200,000 2,530,000
- -------------------------------------------------------------------------
AT&T Inc. 162,000 4,518,180
- -------------------------------------------------------------------------
Verizon Communications Inc. 136,000 4,554,640
=========================================================================
11,602,820
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
MULTI-UTILITIES-23.91%
Ameren Corp. 45,000 $ 2,272,500
- -------------------------------------------------------------------------
Dominion Resources, Inc. 32,000 2,393,280
- -------------------------------------------------------------------------
Duke Energy Corp. 142,000 4,170,540
- -------------------------------------------------------------------------
KeySpan Corp. 26,000 1,050,400
- -------------------------------------------------------------------------
National Grid PLC (United Kingdom)(a) 118,000 1,275,480
- -------------------------------------------------------------------------
OGE Energy Corp. 30,000 1,050,900
- -------------------------------------------------------------------------
PG&E Corp. 107,000 4,202,960
- -------------------------------------------------------------------------
PNM Resources Inc. 42,000 1,048,320
- -------------------------------------------------------------------------
SCANA Corp. 28,000 1,080,240
- -------------------------------------------------------------------------
Sempra Energy 98,000 4,457,040
- -------------------------------------------------------------------------
Veolia Environnement (France) 68,000 3,515,226
=========================================================================
26,516,886
=========================================================================
OIL & GAS STORAGE & TRANSPORTATION-9.67%
Kinder Morgan, Inc. 57,000 $ 5,693,730
- -------------------------------------------------------------------------
Williams Cos., Inc. (The) 215,000 5,022,400
=========================================================================
10,716,130
=========================================================================
WATER UTILITIES-2.02%
Aqua America Inc. 98,000 2,233,420
=========================================================================
Total Common Stocks (Cost $84,656,811) 109,927,892
=========================================================================
MONEY MARKET FUNDS-0.76%
Liquid Assets Portfolio-Institutional
Class(c) 423,048 423,048
- -------------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 423,048 423,048
=========================================================================
Total Money Market Funds (Cost $846,096) 846,096
=========================================================================
TOTAL INVESTMENTS-99.90% (Cost $85,502,907) 110,773,988
=========================================================================
OTHER ASSETS LESS LIABILITIES-0.10% 109,695
=========================================================================
NET ASSETS-100.00% $110,883,683
_________________________________________________________________________
=========================================================================
</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 June 30, 2006 was $4,302,064, which
represented 3.88% of the Fund's Net Assets. See Note 1A.
(b) Non-income producing security.
(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
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $84,656,811) $109,927,892
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $846,096) 846,096
=============================================================
Total investments (cost $85,502,907) 110,773,988
=============================================================
Foreign currencies, at value (cost $93,761) 94,731
- -------------------------------------------------------------
Receivables for:
Investments sold 296,669
- -------------------------------------------------------------
Fund shares sold 43,156
- -------------------------------------------------------------
Dividends 385,119
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 47,400
- -------------------------------------------------------------
Other assets 2,822
=============================================================
Total assets 111,643,885
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 309,374
- -------------------------------------------------------------
Fund shares reacquired 242,334
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 53,030
- -------------------------------------------------------------
Accrued administrative services fees 111,895
- -------------------------------------------------------------
Accrued distribution fees-Series II 932
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 397
- -------------------------------------------------------------
Accrued transfer agent fees 1,581
- -------------------------------------------------------------
Accrued operating expenses 40,659
=============================================================
Total liabilities 760,202
=============================================================
Net assets applicable to shares outstanding $110,883,683
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 76,269,655
- -------------------------------------------------------------
Undistributed net investment income 5,867,799
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 3,473,375
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 25,272,854
=============================================================
$110,883,683
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $109,238,208
_____________________________________________________________
=============================================================
Series II $ 1,645,475
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,689,619
_____________________________________________________________
=============================================================
Series II 86,114
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 19.20
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 19.11
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$65,514) $2,000,050
- ------------------------------------------------------------
Dividends from affiliated money market funds 49,754
============================================================
Total investment income 2,049,804
============================================================
EXPENSES:
Advisory fees 334,134
- ------------------------------------------------------------
Administrative services fees 148,288
- ------------------------------------------------------------
Custodian fees 9,074
- ------------------------------------------------------------
Distribution fees-Series II 1,571
- ------------------------------------------------------------
Transfer agent fees 8,908
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 8,920
- ------------------------------------------------------------
Other 32,786
============================================================
Total expenses 543,681
============================================================
Less: Fees waived (24,119)
============================================================
Net expenses 519,562
============================================================
Net investment income 1,530,242
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized (loss) from:
Investment securities 5,022,295
- ------------------------------------------------------------
Foreign currencies (9,570)
============================================================
5,012,725
============================================================
Change in net unrealized appreciation of:
Investment securities 1,791,872
- ------------------------------------------------------------
Foreign currencies 5,489
============================================================
1,797,361
============================================================
Net gain from investment securities and foreign
currencies 6,810,086
============================================================
Net increase in net assets resulting from
operations $8,340,328
____________________________________________________________
============================================================
</Table>
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 six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,530,242 $ 4,326,573
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 5,012,725 33,099,707
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 1,797,361 (3,902,530)
=============================================================================================
Net increase in net assets resulting from operations 8,340,328 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 (13,113,487) (76,258,358)
- ---------------------------------------------------------------------------------------------
Series II 752,250 118,284
=============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (12,361,237) (76,140,074)
=============================================================================================
Net increase (decrease) in net assets (4,020,909) (45,251,031)
=============================================================================================
NET ASSETS:
Beginning of period 114,904,592 160,155,623
=============================================================================================
End of period (including undistributed net investment
income of $5,867,799 and $4,337,557, respectively) $110,883,683 $114,904,592
_____________________________________________________________________________________________
=============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
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-five 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 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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 value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current 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. UTILITIES FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. 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.
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, 2008. 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
net annual 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
AIM V.I. UTILITIES FUND
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. To the extent
that the annualized expense ratio does not exceed the expense limitation, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursements
prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $24,119.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2006, 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 six months ended June 30, 2006, AIM was paid $24,794 for
accounting and fund administrative services and reimbursed $123,494 for services
provided by insurance companies.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. For the six months
ended June 30, 2006, the Fund paid AIS $8,908.
The Trust has entered into a master distribution agreement with AIM
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 the Rule 12b-1 payment, up to 0.25% of the average daily
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. Pursuant to the Plan, for the six months ended
June 30, 2006, the Series II shares paid $1,571.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS 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
an affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the six months ended June 30, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 647,698 $ (224,650) $ -- $423,048 $ 215 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,216,837 19,325,812 (24,119,601) -- 423,048 49,539 --
==================================================================================================================================
Total $5,216,837 $19,973,510 $(24,344,251) $ -- $846,096 $49,754 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
AIM V.I. UTILITIES 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 six months ended June 30, 2006, the Fund paid legal fees of
$1,962 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2006, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2005 to utilizing $919,643 of capital loss carryforward in the fiscal year
ended December 31, 2006.
The Fund had a capital loss carryforward as of December 31, 2005 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------
December 31, 2008 $ 441,827
- -----------------------------------------------
December 31, 2009 3,236,744
===============================================
Total capital loss carryforward 3,678,571
_______________________________________________
===============================================
</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 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.
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 six months
ended June 30, 2006 was $17,550,023 and $25,975,165, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $25,160,726
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (451,350)
===============================================================================
Net unrealized appreciation of investment securities $24,709,376
_______________________________________________________________________________
===============================================================================
</Table>
Cost of investments for tax purposes is $86,064,612
NOTE 8--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006(A) DECEMBER 31, 2005
-------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 732,760 $ 13,562,804 6,323,063 $ 104,776,537
- -------------------------------------------------------------------------------------------------------------------------
Series II 43,948 806,249 42,862 681,910
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 144,530 2,617,447
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 956 17,260
=========================================================================================================================
Reacquired:
Series I (1,443,756) (26,676,291) (10,289,904) (183,652,342)
- -------------------------------------------------------------------------------------------------------------------------
Series II (2,915) (53,999) (37,379) (580,886)
=========================================================================================================================
(669,963) $(12,361,237) (3,815,872) $ (76,140,074)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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 62% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
NOTE 9--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2006 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.83 $ 15.61 $ 12.95 $ 11.16 $ 14.08 $ 21.06
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25(a) 0.42(a) 0.42(a) 0.33(a) 0.19 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.12 2.21 2.57 1.60 (3.05) (6.83)
=================================================================================================================================
Total from investment operations 1.37 2.63 2.99 1.93 (2.86) (6.83)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.41) (0.33) (0.14) (0.06) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.08)
=================================================================================================================================
Total distributions -- (0.41) (0.33) (0.14) (0.06) (0.15)
=================================================================================================================================
Net asset value, end of period $ 19.20 $ 17.83 $ 15.61 $ 12.95 $ 11.16 $ 14.08
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.68% 16.83% 23.65% 17.38% (20.32)% (32.41)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $109,238 $114,104 $159,554 $62,510 $31,204 $ 20,947
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.93%(c)(d) 0.93%(d) 1.01% 1.08% 1.15% 1.15%
=================================================================================================================================
Ratio of net investment income to average net assets 2.75%(c) 2.49% 3.09% 2.84% 2.59% 1.13%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 16% 49% 52% 58% 102% 33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$111,033,885.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.97% for the six months ended June 30, 2006 and 0.96% for the year
ended December 31, 2005.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. UTILITIES FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED)
JUNE 30, DECEMBER 31, DECEMBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.76 $15.57 $12.63
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23(a) 0.38(a) 0.26(a)
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.12 2.20 2.68
=============================================================================================================
Total from investment operations 1.35 2.58 2.94
=============================================================================================================
Less dividends from net investment income -- (0.39) --
=============================================================================================================
Net asset value, end of period $19.11 $17.76 $15.57
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 7.60% 16.55% 23.28%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,645 $ 801 $ 602
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 1.18%(c)(d) 1.18%(d) 1.28%(e)
=============================================================================================================
Ratio of net investment income to average net assets 2.50%(c) 2.24% 2.82%(e)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(f) 16% 49% 52%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$1,266,998.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.22% for the six months ended June 30, 2006 and 1.21% for the year
ended December 31, 2005.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
TERMS USED IN THE LEGAL PROCEEDINGS NOTE ARE DEFINED TERMS SOLELY FOR THE
PURPOSE OF THIS NOTE.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), 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 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 (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, 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
AIM V.I. UTILITIES FUND
NOTE 11 -- LEGAL PROCEEDINGS--(CONTINUED)
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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
issues 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. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint.
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 security
holders. IFG, AIM and ADI have advised the Fund that they 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
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk TRANSFER AGENT
Lewis F. Pennock Senior Vice President and Senior Officer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Larry Soll John M. Zerr Houston, TX 77210-4739
Raymond Stickel, Jr. Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President, Treasurer Boston, MA 02110-2801
and Principal Financial Officer
COUNSEL TO THE FUND
Lisa O. Brinkley Ballard Spahr
Vice President Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Kevin M. Carome Philadelphia, PA 19103-7599
Vice President
COUNSEL TO THE INDEPENDENT TRUSTEES
J. Philip Ferguson Kramer, Levin, Naftalis & Frankel LLP
Vice President 1177 Avenue of the Americas
New York, NY 10036-2714
Karen Dunn Kelley
Vice President DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
AIM V.I. UTILITIES FUND
ITEM 2. CODE OF ETHICS.
There were no amendments to the Code of Ethics (the "Code") that applies to
the Registrant's Principal Executive Officer ("PEO") and Principal
Financial Officer ("PFO") during the period covered by the report. The
Registrant did not grant any waivers, including implicit waivers, from any
provisions of the Code to the PEO or PFO during the period covered by this
report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part of
the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of June 19, 2006, an evaluation was performed under the supervision and
with the participation of the officers of the Registrant, including the
Principal Executive Officer ("PEO") and Principal Financial Officer
("PFO"), to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of June 19, 2006, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO
and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by the
report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
12(a) (1) Not applicable.
12(a) (2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ Philip A. Taylor
----------------------------------
Philip A. Taylor
Principal Executive Officer
Date: August 25, 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/ Philip A. Taylor
----------------------------------
Philip A. Taylor
Principal Executive Officer
Date: August 25, 2006
By: /s/ Sidney M. Dilgren
----------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: August 25, 2006
EXHIBIT INDEX
12(a) (1) Not applicable.
12(a) (2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.